Rishi Sunak calls on Bank of England to encourage financial sector to back domestic oil and gas production ‘where practical and relevant’

Chancellor Rishi Sunak has stepped up pressure on the Bank of England to encourage the financial sector to back domestic oil and gas production “where practical and relevant” in support of the UK’s net zero ambitions, in a series of letters to financial regulators yesterday.

Sunak has written to the UK’s three leading financial watchdogs – the Financial Conduct Authority (FCA), the Financial Policy Committee (FPC), and the Prudential Regulation Committee (PRC) – urging them to pay heed to the Energy Security Strategy published this week by the government.

That Strategy sets out the government’s plan to reduce Britain’s dependency on the global market for fossil fuels, including oil and gas from Russia in the wake of its invasion of Ukraine. But the plan sparked fierce criticism from business figures and climate campaigners alike, who accused the government of failing to prioritise measures that could curb fossil fuel imports in the near-term.

While the Strategy sets out enhanced long term ambitions for clean energy sources such as offshore wind, solar, hydrogen, and nuclear, the Chancellor himself was accused of significantly watering down earlier versions of the plan which had sought more support for onshore wind and energy efficiency programmes.

The Strategy also controversially confirms plans for a fresh licensing round later this year for new oil and gas drilling projects in the North Sea, in a move aimed at boosting domestic energy security, but which campaigners argued threatens to undermine UK and international climate targets.

However, in his letters to financial regulators yesterday, Sunak said three quarters of UK energy is currently provided by oil and gas, while only around half the country’s demand from gas was being met by domestic suppliers, and as such there was a need to boost domestic production to reduce dependency on imports.

“To reduce our reliance on imported fossil fuels, UK sources of oil and gas have a critical role, both to keep our economy supplied and in supporting the transition to net zero,” Sunak wrote. “The government is taking a balanced approach: committed to accelerated investment in low- and zero carbon technologies, while supporting our strong and evolving UK hydrocarbon industry.”

The Chancellor’s letters also highlight previous correspondence with UK financial regulators from just over a year ago, when he urged them to “have regard” to the UK’s 2050 net zero target in their actions. The introduction this week of climate risk disclosure rules, which are expected to mandate around 1,300 major firms to follow TCFD guidelines, are also welcomed in the letters.

But in the wake of the Energy Security Strategy yesterday, Sunak urges the regulators to “have regard” to the government’s priority of supporting domestic sources of energy, including fossil fuels.

“Where practical and relevant, the FCA should have regard to the government’s energy security strategy and the important role that the financial system will play in supporting the UK’s energy security – including through investment in transitional hydrocarbons like gas – as part of the UK’s pathway to net zero,” one of the three near-identical letters yesterday states.

The prospects for expansion of oil and gas drilling in the North Sea have been buoyed in recent weeks by the energy crisis, which has placed greater pressure on the government to turn to domestic fossil fuel sources in a bid to wean the country off Russian oil and gas. But the government’s support for neew drilling in the North Sea has prompted fierce criticism from green groups, which have warned it will take years for new projects to come online that could then breach the UK’s net zero by 2050 goal.

The latest developments came as news emerged today that the controversial Cambo oil field in the North Sea has been thrown a lifeline, after Ithaca Energy snapped up one of the companies behind the project – Siccar Point Energy – in a $1.5bn deal.

Facing major pressure from climate campaigners, Shell had pulled out of co-developing Cambo late last year citing a weak economic case for the project, leaving Siccar Point Energy without a partner, and casting prospects of future drilling at the oil field into doubt.

However, Israeli-owned firm Ithaca Energy – which is headquartered in Aberdeen – yesterday announced it had acquired Siccar Point Energy in a major deal, and promised to press ahead with developing both the Cambo project and the nearby Rosebank oil and gas field.

Alan Bruce, CEO of Ithaca Energy, described the acquisition as a “transformational deal” for the firm that would double its recoverable oil and gas resources by giving it interests in a significant portion of the larges oil fields on the UK continental shelf, while also boosting UK energy security.

“The development of the Cambo and Rosebank fields is a huge opportunity to not only help secure the UK’s energy future for at least another quarter of a century, but also to create thousands of direct and indirect jobs in the process,” he said.

The Cambo field on its own is anticipated to deliver up to 170 million barrels of oil equivalent during its 25-year operational life, according to Ithaca Energy.

Scotland’s First Minister Nicola Sturgeon had last year said development of the Cambo oil field should not go ahead due to climate change concerns, and a spokesperson for the Scottish Government told the BBC yesterday that its position had not changed.

“We have consistently called on the UK government to urgently re-assess all approved oil licenses where drilling has not yet commenced against our climate commitments,” it said in a statement. “”New oil and gas fields do not present a timely solution to improving our energy security in the coming years. Even once operational, the extracted fossil fuels will still be affected by the same global market forces which have contributed to the current energy price crisis.”

Greenpeace UK oil and gas campaigner Philip Evans also condemned the push to develop Cambo, which he described as a “red herring”.

“Cambo’s oil won’t improve UK energy security since the kind that can be extracted from this field can’t be processed in UK refineries,” he said. “Claims to the contrary are simply lies.”

“Emboldened by the UK government’s reckless decision to green light more oil and gas extraction, fossil fuel companies will continue to profit under this pretense unless the government reverses its plans to maximise extraction,” he added. “The answer to the UK’s energy security does not lie in fossil fuels but in home grown renewables – both offshore and onshore – and stopping the energy waste in our homes. These fast-to-roll-out solutions will also slash emissions and bring down energy bills.”

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