Forget bumper BP results: another North Sea storm is brewing

In Edinburgh’s southside, an area popular with students and families, it is difficult to walk far without seeing the hashtag: #StopRosebank.

It’s not a mean-spirited protest against new flowerbeds or the city’s Rosebank cemetery. Instead, stickers slapped on street furniture refer to the planned development by Norwegian oil major Equinor of a large new oilfield 80 miles west of the Shetland Islands.

The sticker protest in the Scottish capital may appear feeble especially as oil and gas policy is largely reserved to Westminster.

But the Rosebank project will soon overtake strong financial results from the likes of BP and Shell to become the new national lightning rod for criticism of the UK’s fossil fuel policies. It will also bring attention to inconsistencies in efforts to build cleaner energy infrastructure which need urgent attention.

Regulators are shortly expected to decide whether Equinor can proceed with the 300mn barrel oilfield.

Approval will be controversial with climate groups but symbolic for an oil and gas sector that as recently as two years ago found itself out of favour with politicians and investors alike. Equinor is hoping to start awarding contracts to suppliers before the spring is out.

Much larger protests will follow. Rosebank is roughly double the size of Cambo, another UK North Sea oilfield that was at the centre of a fierce campaign by climate activists in 2021 until one of its backers, UK oil major Shell, hit pause on the contentious scheme.

For environment groups, new fossil fuel projects which will produce oil or gas in decades to come are inconsistent with the UK’s 2050 net zero emissions target. Activists won’t be assuaged no matter how many arguments are put forward about how some oil and gas will still be needed in 27 years and domestic production provides more security than relying on dirtier, imported barrels.

The government will no doubt try to deflect attention away from Rosebank by highlighting how it is simultaneously pursuing ambitious targets to increase clean energy production.

Here ministers have another problem though. Many energy executives, investors and parliamentarians are growing sceptical about how those targets can be achieved. They also lament how oil and gas projects can receive more generous tax treatment than clean energy schemes.

Ministers won’t be able to head off fresh oil and gas protests without stopping new drilling — something they are unwilling to do given security of supply concerns following Russia’s invasion of Ukraine. But they can still win back renewables companies and investors who are starting to have doubts over the government’s commitments.

The strength of those doubts were highlighted by a recent report by the House of Commons’ business, energy and industrial strategy committee.

MPs on the committee pointed out that exemptions built into the UK’s two separate windfall taxes on energy companies were “less generous” for renewable electricity generators “than those given to the oil and gas sector”. Those inequalities were among several factors that were “putting the viability of many renewable projects in danger”, the report warned.

The UK introduced a windfall tax on oil and gas producers last year, which raised their combined headline tax rate from 40 per cent to 75 per cent. But the tax was also accompanied by a generous investment allowance that offers companies around 91 pence of relief for every pound they invest in new extraction projects.

The same does not apply to an equivalent windfall tax on clean energy companies, although Treasury officials argue the 45 per cent electricity generator levy only applies to revenues above a threshold of £75 per megawatt hour. That means the higher rate does not capture all profits. Price thresholds aren’t built into the oil and gas windfall tax.

Companies including the UK’s SSE have also complained that price support in an important UK government contract auction for new renewable energy projects has been set too low. They fear projects will be put on hold unless the government takes greater account of factors such as rising wind turbine costs, which have increased by more than 33 per cent since the end of 2021.

Energy companies are rarely 100 per cent satisfied with government policy. But clean energy investors now have attractive offers elsewhere as the US and EU aggressively court them. UK ministers should urgently reassess areas of concern before patience runs out.