Drilling for Votes: ‘Zero Chance’ Truss’ Plan to Develop North Sea Gas Will Help Ordinary Brits
17:28 GMT 30.08.2022 (Updated: 14:20 GMT 15.11.2022)
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UK media have reported that Tory leadership favorite Liz Truss could dole out new oil and gas drilling licenses in the North Sea to try to put a dent in sky-high energy prices. According to the Daily Express, Truss allies Kwasi Kwarteng and Jacob Rees-Mogg have already met with energy industry leaders to discuss the matter.
Liz Truss’ reported consideration of new drilling permits in the British sector of the North Sea will have virtually no impact on energy prices for ordinary Brits, and only a reversal of the government’s schizophrenic energy policy and the restoration of energy links with Russia can improve the situation, energy experts and economists have told Sputnik.
“Exploration and drilling take a long time to complete. It also requires significant investment in laying down the proper pipeline infrastructure. None of this can bring relief in the foreseeable future,” Dr. Gal Luft, co-director of the Institute for the Analysis of Global Security and senior advisor to the US Energy Security Council, said.
“It all sounds great and easy when it comes from politicians, but in the real world it’s a complex and expensive process,” Luft added, emphasizing there is “zero chance” that the maximization of domestic energy production would help bring prices down in time for the coming winter.
Suggesting Truss “has no solutions” to tackle the UK’s cost of living crisis, Dr. Luft expressed the view that Europe’s elites in general have driven their countries into a “deep and dark hole” of a crisis amid the standoff with Russia.
“The only solution is to recognize the reality on the ground in Ukraine and enter a political process that can lead to the removal of the sanctions. Anything other than that is empty talk,” he stressed. For now, he said, Britain’s voters “are getting what they voted for – a war hungry government that is only making the problem worse.”
“Only this week Truss announced [her] intention to designate China as a threat. How does this help voters? Europeans are poorly led by a group of charlatans who lead them toward suicide. It’s time for Europe to wake up. It’s one minute to midnight,” the observer warned.
Marc Ostwald, chief economist at ADM Investor Services International, a UK-based capital market company, echoed Luft’s sentiments, saying that although Mrs. Truss’ reported plans to encourage oil and gas companies to maximize output may “sound good” on paper, it would have no impact on the energy crunch.
“Would it provide some relief this winter? Very simple answer is: absolutely not. Whatever there is now available. If the prices are attractive in terms of increasing production, production will be increased. If they’re not attractive, then it won’t be increased. It’s really a very simple thing. There is nothing that governments can really do other than offering a tax break,” Ostwald explained.
Ostwald noted that while Truss’ plans aren’t clear as of yet, the problem for UK governments generally has been their propensity to call on energy companies to invest more in production capacity while simultaneously seeking to apply a windfall tax on profits. “It’s one or the other,” the economist stressed.
Ostwald suggested that Britain’s authorities go the way of post-WWII West Germany’s Economy Minister Ludwig Erhard, who put tax incentives in place which forced companies to reinvest profits rather than paying them out to shareholders by taxing dividends and bonuses at a rate of 110 percent, but just five percent if earnings were reinvested.
“But what you can’t do is on the one hand say ‘we want you to invest more’, and on the other say ‘well you’re making obscene profits’, and the UK government’s no more guilty than the US government, which is doing exactly the same thing,” the economist stressed.
29 August 2022, 13:14 GMT
‘Pouring Water on a Hot Stone’
There are other measures Mrs. Truss could take, according to Ostwald, such as cutting the VAT on electricity bills. “But given the scale of the increase that’s just been announced, from £1,971 to £3,500 of the energy price cap from October - even if you cut the VAT on it down to zero, you are still basically pouring water on a hot stone. Rather more needs to be done on that front,” he said.
Dr. Mamdouh G. Salameh, a veteran oil markets expect and visiting professor of energy economics at the ESCP Europe Business School in London, told Sputnik that even if the UK ramped up its search for hydrocarbons in the North Sea, it would do little good, since the resources in the British sector of the body of water are already depleted.
“Even if the UK manages to raise its oil and gas [output], it could hardly impact domestic prices in the short term. The ultimate benefit will eventually go to the British Treasury with a minute share reaching the British people, Dr. Salameh suggested.
Hydrocarbons vs Green Energy:
All three of the experts queried by Sputnik agreed that both in the UK and across Europe, the overzealous manner in which "green energy" has been pushed onto the region has threatened to undermine its energy security, with the pushback observed amid the current crisis only natural.
“The question,” Dr. Luft said, “is whether or not the British utilities will agree to sign 20 year [natural gas] contracts at a time environmental activists are pushing for decarbonization, carbon tax and other anti-fossil fuel laws.”
Ostwald assured that any push by London to develop hydrocarbons would spark “outrage” and lead to demands that Britain do more to transition to green energy, notwithstanding the country’s already substantial efforts to create green alternatives like wind energy.
26 August 2022, 15:32 GMT
“The only problem with wind alternatives, as we all know, particularly from 2021, but on certain days this year as well, is that it’s an unreliable source of energy because sometimes the wind doesn’t blow and is not enough and then you have to resort to some form of other energy or rather electricity generation methodologies. So you're always subject then to having to apply spot prices, which can be extraordinarily volatile, and you don't have a steady estimate for energy suppliers, i.e. the domestic energy suppliers on which they can calculate their costs,” the economist explained.
“In terms of the green issue, I think really what it boils down to at the moment is [that] everyone, of course, wants to go to a much more green energy transition, but there are practicalities which need to be addressed rather than taking an idealist, linear perspective of ‘all hydrocarbons are evil.’ The fact of the matter is, if we look at it worldwide, 82-84 percent of all electricity production relies on hydrocarbons. Transitioning to alternatives requires a huge amount of investment, which takes many, many years,” Ostwald added.
For his part, Dr. Salameh emphasized that the current crisis has demonstrated European countries’ willingness to allow energy security and economics to trump the dictates of the green transition, and has revealed that Britain and the EU’s discussions about “accelerating” the green transition are “no more than hot air.”
30 August 2022, 05:55 GMT
