Oil and gas vote is a political boost for PM – but won’t help our energy needs
The passing of the Offshore Petroleum Licensing Bill to its next stage is good news for Rishi Sunak.
MPs gave the bill a second reading by 293 votes to 211 on Monday evening, with the government securing a majority of 82.
The prime minister is a man, remember, who said he wants to “max out” drilling for North Sea oil and gas.
There’s been outcry, of course, from environmentalists, the clean energy industry, his political rivals and even some within his party.
But anger at the bill plays into the hands of Mr Sunak. Because it’s not really about energy security at all, but politics.
Number 10 is banking on using strong rhetoric around the continued need for oil and gas as part of its strategy of being “honest” with the public about the reality of ambitious net zero targets.
A strategy it hopes will win votes among those who’ve read headlines about the costs of a net zero transition and angry about protests by people like Just Stop Oil.
Others, including some Conservatives, argue it’s more cynical than that – an attempt to foment a “culture war” around net zero and the economic and social upheaval it will bring, to win a few much-needed votes in the next election.
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Trivial gains
Now the government does have a point on the need for locally sourced natural gas.
Not a lot of campaigners like to admit this, but about 80% of the UK’s energy still comes from fossil fuels – most of it now gas. Even today, half the gas we use domestically is produced in the North Sea.
But does that mean the Offshore Petroleum Licensing Bill is going to help with that?
In short, no. The additional gas a new licensing regime might yield is trivial.
Yet there’s plenty of anti-net zero sounding rhetoric coming from the government.
Energy Secretary Claire Coutinho told the Commons on Monday evening that those opposing the bill are “putting the interests of extreme climate ideologues over the interests of ordinary workers”.
Yet despite talk of “maxing out” the North Sea, the government says it remains committed to an economy-wide transition to low carbon energy that climate science says is necessary and also inevitable.
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All the more reason, argues the government, that it supports the oil and gas industry. The bill, it claims, will protect 200,000 jobs directly and indirectly connected to the offshore fossil fuel industry.
And it is true, many of these jobs are the highly skilled ones that will be needed in the transition to low-carbon energy. Building a floating offshore wind turbine is very similar to building a floating oil platform.
Only oil industry experts – including Lord Browne, the former CEO of BP – have pointed out tweaks to oil licensing won’t help secure those jobs.
The industry is in decline anyway. The only way to protect jobs is with a meaningful shift in support for the low-carbon economy.
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Loud shouting
The government is funding a switch to renewables – including offshore in the North Sea. But, in the absence of a coherent energy strategy, the fossil fuel rhetoric really doesn’t help accelerate the clean transition it says it wants.
Companies wanting to invest in in low-carbon alternatives in the UK hardly see themselves as “extreme climate ideologues”.
By shouting louder about the need for locally produced fossil fuels, than the need to support low carbon energy it makes the UK look like a less reliable place to invest.
What of the Opposition? Despite having more of the facts laid out above on its side, Labour is also making political capital by opposing the bill – arguing it’s the only party that can deliver a transition that’s fair for workers.
But it’s going to have problems of its own delivering that if it finds itself in government later this year.
Hundreds of thousands of jobs in the fossil fuel economy from offshore workers to gas and heating engineers will need to “transition”.
But unions, many representing those too close to retirement to retrain to install wind farms or heat pumps, won’t support that enthusiastically.
Either way, playing politics with net zero isn’t going to help. The energy transition in the North Sea is happening anyway – the one all parties want to see is one that preserves as many jobs as will be inevitably lost as the oil and gas reservoirs decline.
That requires a coherent, costed and bold plan to manage what some see as the biggest economic and societal upheaval since the industrial revolution.
Most energy experts agree no political party is presenting us with one of those at the moment.
Is there method to the madness? Donald Trump and his acolytes would have you believe so.
The US president is standing firm among all the market chaos.
Just this weekend, after US stock markets suffered their sharpest falls since the onset of the pandemic, Trump reposted a video on his social media platform Truth Social. This was its title: “Trump is purposefully CRASHING the market.”
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The video claimed the president was engineering a flight to US government bonds, also known as treasuries – a safe haven in turbulent times. The video suggested Trump was deliberately throwing the stock market into chaos so investors would take their money out and buy bonds instead.
Why? Because demand for treasuries pushes up the price of the bonds, and that, in turn, lowers the yield on those bonds.
The yield is the interest rate on the debt, so a lower yield pushes down government borrowing costs. That would provide some relief for a government that has $9.2trn of government debt to refinance this year. Consumers also stand to benefit as the US Federal Reserve, the US central bank, would likely follow suit, feeling the pressure to cut interest rates.
A trader works on the floor at the New York Stock Exchange. Pic: Reuters
Trump and his treasury secretary, Scott Bessent, have made it a key policy priority to lower yields. For a while, it looked like the plan was working. As stock markets tumbled in response to Trump’s tariffs agenda, investors ploughed their money into bonds instead.
However, Trump may have spoken too soon. On Monday, the markets had a change of heart and rapidly started selling government bonds. Thirty-year treasury yields hit 4.92% on Wednesday, their biggest three-day jump since 1982. That means government borrowing costs are rising – and not just in the US. The sell-off has spiralled to government bonds worldwide.
Rachel Reeves will be watching anxiously. Yields on Britain’s 30-year government bonds, also known as gilts, hit their highest level since May 1998. They registered a 27 basis point jump to 5.642% today – that’s on track to be the largest one-day move since the aftermath of former prime minister Liz Truss’ “mini-budget” in October 2022.
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This is a big deal. It is the sharpest sell-off in the US bond market since the pandemic. Back then, investors also rushed into bonds before dumping them and the motivations, on one level, are similar.
In 2020, investors sold bonds because they had to cover losses elsewhere in their portfolios. When markets fall, as they have done over the past few days, lenders can demand that an investor who has borrowed money stump up more cash against the value of their loan because the collateral against those loans has fallen in value. This is known as a “margin call”. Government bonds are easy to sell as investors “dash for cash”.
There are signs that this may be happening again and central banks, which had to step in last time, are alert.
The Bank of England warned today of the growing risks to financial stability. “A sharp increase in government bond yields could crystallise relatively quickly,” it said.
There are other forces weighing on government bonds. With policy uncertainty unfolding in the US, investors could also be signalling that US debt isn’t the safe haven it once was. That loss of confidence also seems to have hurt the dollar, one of the world’s safest places to park your money. It’s had a turbulent journey but is down 1.15% against a basket of safe haven currencies since Trump announced widespread tariffs on 2 April.
Some are even wondering if China could be behind some of this, dumping US government debt as a revenge tactic to hurt a president who has explicitly said he wants bond yields to come down. The country holds $761bn of US government bonds, second only to Japan. If this is the case, then the US-China trade war could rapidly be evolving into a financial war.
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