Can we Just Stop Oil?

The economic and environmental consequences of ending domestic oil and gas production

A new IEA Discussion Paper by Kathryn Porter

• No credible forecast shows UK oil and gas demand falling to zero by 2050, even under net zero scenarios – oil and gas are essential ingredients in plastics, fertilisers, medicines and modern technology

• The 78% headline tax rate is forcing a decline in North Sea production and driving investment overseas, with the workforce forecast to halve to as low as 57,000 by the early 2030s – losing up to 1,000 jobs a month

• Replacing domestic production with imports increases overall emissions by around 50% and risks gas shortages on cold winter days as early as 2026/27

Protest groups such as Just Stop Oil have agitated for an end to oil and gas production in the UK, arguing that the ‘climate emergency’ makes this a necessity. Even those not clamouring for an end to domestic hydrocarbon production have supported windfall taxes, which may ultimately have the same effect.

But how realistic is it to ‘just stop oil’? Oil and gas are essential, not just as fuels but for everyday life. Most of the things that make modern life (and, in particular, modern medicine, agriculture and technology) possible rely on oil and gas. Oil is particularly useful since it is the raw ingredient for plastics and a whole range of chemicals, from paint to chemotherapy drugs. Oil and gas are also extensively used in agriculture, in everything from fertilisers and pesticides to polytunnels.

Although campaigners argue that a transition to renewable energy will mean oil and gas are no longer needed as a fuel, there are no credible forecasts that do not show some demand for oil and gas in the UK in 2050, even under net zero-compliant scenarios. It is far from straightforward to replace oil and gas in the energy sector, primarily because the main alternative – renewable generation – is for the most part reliant on weather, and this creates a range of challenges that are difficult and expensive to solve. It is deeply misleading to suggest that renewables are cheap. It is necessary to build and maintain equivalent amounts of backup generation or storage to be available when wind and sun are not.

Even in sunny countries it is very difficult to build a viable energy system based on renewables, as the Bihar experiment (described later in this report) demonstrated. More recently, Spain has experienced grid stability problems associated with too much solar generation and not enough conventional synchronous generation to provide voltage control. Replacing oil and gas in the rest of the economy will be even harder since they are integral to modern life. Again, this has been tried, and shown to be easier said than done, as evidenced by Sri Lanka’s disastrous attempt to move away from the use of methane in fertilisers. The Sri Lankan economy contracted sharply when synthetic fertilisers were briefly banned.

But the UK does not only still need oil and gas, it needs to recover as much as possible from domestic resources. Forcing a premature decline in North Sea production means we must increase imports, which have higher emissions than domestic production. It means the associated tax revenues are lost. It means that supply chain companies close or relocate faster than would otherwise be the case, costing jobs and further tax revenues. And it puts security of supply at risk because the integrated nature of the offshore pipeline infrastructure, which requires certain levels of throughput to be maintained, may be pushed into early closure, stranding viable producing fields, and creating peaks of decommissioning which may be beyond the ability of supply chains to cope with, as well as threatening gas shortages on cold winter days unless new import infrastructure is built.

This report will explore the uses of oil and gas, where they come from, and how much we are likely to need in the future. It will also look at the impact of the new annual North Sea licensing rounds, political pledges to stop issuing new drilling licences, and the impact of the windfall tax.

Meeting our oil and gas needs through imports will almost certainly be more environmentally harmful than domestic production, but the prospects for that production are limited by adverse political rhetoric and the highly damaging impact of the windfall tax. Unless we change course rapidly by repealing the windfall tax and committing to continue developing domestic oil and gas resources, we will be increasingly reliant on potentially dirty imports in the decades to come.