UK Oil Ruling Sets Up Growth Versus Climate Test for Government

(Bloomberg) -- A UK court ruled that two North Sea oil and gas fields must re-apply for environmental permits while allowing the developments to continue, setting up a crucial test of whether the new Labour government will prioritize economic growth or climate action. 

The Court of Session in Edinburgh quashed the approvals for the Rosebank and Jackdaw projects — led by Equinor ASA and Shell Plc, respectively — which were unlawful because they hadn’t considered the climate impact of burning oil and gas pumped from the fields, according to a statement from the court on Thursday. 

The fate of these projects has big implications for the UK North Sea, an aging oil and gas province where major new developments are dwindling. While the ruling was a victory for Greenpeace and Uplift, environmental groups that brought the legal action, it left open the possibility that the two fields could one day still come into production. 

Shell and Equinor can continue working on the projects while the government considers their new environmental applications, although they will not be allowed to pump any oil and gas before a final decision is reached, according to the ruling. 

It was unclear how long this decision could take. The UK government is still discussing how exactly to assess so-called Scope 3 emissions from burning a field’s oil and gas, a process that must be completed before the environmental impact assessments for Rosebank and Jackdaw can be reconsidered, according to the court ruling.

“The government has already consulted on revised environmental guidance to take into account emissions from burning extracted oil and gas,” said a spokesperson for the Department of Energy Security and Net Zero. “We will respond to this consultation as soon as possible and developers will be able to apply for consents under this revised regime.”

In the meantime, both Shell and Equinor said they intend to proceed with the developments.  

“We have spent more than £800 million ($995 million) since the regulator approved Jackdaw in 2022,” Shell said in a statement. “Swift action is needed from the government so that we and other North Sea operators can make decisions about vital UK energy infrastructure.”

Rosebank, located about 130 kilometers (81 miles) northwest of Scotland’s Shetland Islands, has estimated total recoverable resources of about 300 million barrels of oil. Intended daily production of 70,000 barrels of oil and 21 million cubic feet of gas would make it one of the largest fields in the UK — but a minnow in a world where demand exceeds 100 million barrels a day of crude.

Equinor said in a statement that it planned to submit an assessment of the project’s emissions “in full compliance with the government’s new environmental guidance.” The Norwegian energy giant and partner Ithaca Energy Plc have committed to spending over £2.2 billion on Rosebank.

Last month, Shell and Equinor agreed to combine their North Sea operations into a single entity.

Net Zero Pledges

Greenpeace and Uplift have argued that any new fields would be incompatible with the country’s climate commitments. 

“The age of governments approving new drilling sites by ignoring their climate impacts is over,” Philip Evans, senior campaigner at Greenpeace UK, said in a statement. The government “should use this moment to set out a new path for the North Sea, reaffirming their commitment to no new oil and gas, and prioritizing clean energy.”

Permits for the two fields were granted under the previous Conservative government, but came into question after the UK Supreme Court ruled that environmental impact assessments for oil and gas production facilities must consider the climate impact of burning the fuel produced.

When Greenpeace and Uplift challenged the legality of those permits, the UK’s new Labour government, under pressure to reduce carbon emissions and meet net zero targets, did not contest the case. Equinor and Shell also didn’t dispute that the environmental approval was unlawful, but argued in court that they went through the permitting process in good faith and that freezing the developments while they re-applied would threaten the projects’ commercial viability.

If the projects don’t happen, “the UK will lose out on potential jobs and tax revenues, while net emissions for the country will also be higher as we import more hydrocarbons,” said RBC analyst Biraj Borkhataria. 

Whether or not to grant fresh environmental approvals for Rosebank and Jackdaw could be a controversial process. The Labour government has been courting CEOs in its quest to attract new investment and boost economic growth, and blocking two major developments on which hundreds of millions of pounds have already been spent would run counter to that effort.

Yet ministers have also made bold pledges about expanding clean energy and achieving net zero emissions. Splits are already emerging within the cabinet of Prime Minister Keir Starmer and the wider Labour Party over the expansion of Heathrow airport, a long-delayed infrastructure project that also raises concerns around air pollution and greenhouse gases.  

(Updates with comment from UK government in sixth paragraph.)

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