ICYMI
By Irina Slav - Feb 02, 2025
A Scottish court ruled that the UK government’s approval of Equinor’s Rosebank and Shell’s Jackdaw oil and gas projects was unlawful.
The ruling, combined with higher windfall taxes, is accelerating the decline of the UK’s domestic oil and gas industry.
Shell and Equinor plan to challenge the decision.
A Scottish court has ruled the government approval of two new oil and gas projects in the North Sea was unlawful, putting an end to hopes there was still a future for hydrocarbons in the UK. It might be temporary, or it might be permanent—making the UK’s transition experiment purer.
The saga began when the previous Tory government gave the go-ahead to the Rosebank and the Jackdow projects, led by Equinor and Shell, respectively. Climate activists immediately filed a lawsuit against the projects. They won. The court battle moved to a higher instance. That higher instance, the Scottish Court of Session, ruled that the approvals granted to the companies for field development had failed to account for the effect that burning oil and gas extracted from the fields would have on the climate. The judge presiding over the case said the projects had to undergo a more detailed assessment of that effect before production could be allowed.
The ruling comes after the previous UK government admitted last year that it had not included “the effects on climate of the combustion of oil and gas to be extracted from the fields” in its assessment of the Rosebank and Jackdaw projects. These effects are called Scope 3 emissions and are among the most controversial aspects of the energy transition because they refer to emissions generated from the use of a certain product that is quite difficult to track, monitor, and, consequently, reduce. Activists are nevertheless demanding all of the above actions as a necessary part of companies’ transition efforts.
Regarding Scope 3 emissions, last June, the UK’s Supreme Court issued a landmark ruling on another case involving oil and gas, setting the stage for the Scottish court ruling. The so-called Finch ruling concluded a case brought against the Surrey County Council for its approval of production expansion at a local oil field. The activists argued that the council had not considered Scope 3 emissions from the well and the court sided with them, creating a precedent for all other cases on the subject that followed.
“It is an agreed fact that, if the project goes ahead, it is not merely likely but inevitable that the oil produced from the well site will be refined and, as an end product, will eventually undergo combustion, and that that combustion will produce greenhouse gas emissions,” the Supreme Court judges wrote.
This is indeed the fate of most petroleum, both locally produced and imported for lack of enough domestic supply. It appears that despite its still substantial reserves in the North Sea, the UK is choosing imported hydrocarbons, possibly in the belief that the greenhouse gases they would generate are less controversial than domestic greenhouse gases from Rosebank and Jackdaw—or any other field in the North Sea, really. Because this court ruling may well spell the beginning of the end for the UK oil and gas industry.
First, there was the windfall profit tax. Then, that tax got higher when the Starmer government came into power. They need the additional money to finance the energy transition. Now, the court has banned new oil and gas production from two major projects, effectively cutting future supply, although Shell, for one, has vowed it would fight for Jackdaw. The UK is becoming increasingly dependent on imported energy even as its government argues that it is building “homegrown” energy that would boost the country’s independence from imports.
“We are developing a key piece of national infrastructure that could potentially provide heat to 1.6mn British homes rather than importing it. It is a no-brainer. We hope the government is able to urgently support this project, while recognising that it has to go hand in hand with their very bold agenda on renewables. It is not an ‘or’, it has to be an ‘and’,” Shell’s chief executive Wael Sawan told the FT in comments on the court ruling on Jackdaw, which is a gas field.
Equinor’s comment was, “We will continue to work closely with the regulators and Department for Energy Security and Net Zero to progress the Rosebank project.”
Both companies will be allowed to continue work on the fields but without producing any oil and gas until such time as the government finds grounds to grant them a new approval, with Scope3 emissions taken into account. This sounds like a slim prospect, but Shell and Equinor appear to be counting on it—and on a more favorable court ruling from the Supreme Court where Shell threatened to take the case. That would be the same Supreme Court that issued that ruling on the Surrey oil well case, so the prospect of a Shell win there are also quite slim.
While activists celebrate the court’s attitude to climate change and Scope 3 emissions, Britons seem set for further record high energy bills—international oil and gas prices are certainly volatile. If only there was a way to hedge against this volatility with local supply, that would have been wonderful.
By Irina Slav for Oilprice.com
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