Future of North Sea oil drilling in doubt after Supreme Court ruling

The future of the oil and gas industry in the UK has been dealt another blow, following an historic ruling by the Supreme Court, which ruled that when assessing and approving new drilling sites, emissions from burning fossil fuels must be taken into account. 

It is the latest development in a case brought by Sarah Finch who challenged a local council’s decision to allow the expansion of a site at Horse Hill in Surrey in 2019.

Ms Finch was acting on behalf of the Weald Action Group, an environmental group in south east England campaigning against onshore oil and gas. The group mostly targets companies operating on the Isle of Wight and the Weald. 

It successfully argued that the environmental impact assessment had only considered extraction of oil and not emissions produced when the oil is later used.

Previously, only emissions from the actual oil extraction had been considered during assessments. Essentially this ruling takes into account the future environmental effects of these fossil fuels being used as well, usually known as ‘scope 3’ or downstream emissions. 

Three of the five UK Supreme Court judges said, as reported by The Guardian, “The whole purpose of extracting fossil fuels is to make hydrocarbons available for combustion. It can therefore be said with virtual certainty that, once oil has been extracted from the ground, the carbon contained within will sooner or later be released into the atmosphere as carbon dioxide and so will contribute to global warming.” 

The ruling also highlights that the wider geographical effects of the new fossil fuel extracted should also be taken into account, instead of limiting assessments to in and around the drilling sites. 

Following the Supreme Court’s decision, Finch said, as reported by The Telegraph, “I am absolutely over the moon to have won this important case. The Weald Action Group has always believed it was wrong to allow oil production without assessing its full climate impacts, and the Supreme Court has shown we were right. 

“This is a welcome step towards a safer, fairer future. The oil and gas companies may act like ‘business as usual’ is still an option, but it will be very hard for planning authorities to permit new fossil fuel developments- in the Weald, the North Sea or anywhere else- when their true climate impact is clear for all to see.” 

What could this ruling mean for UK oil and gas producers?

The Supreme Court ruling could potentially have far-reaching consequences for a number of oil and gas companies in the UK. The country has already imposed a windfall tax on profits for these companies, which saw taxes surge to 75% recently, with companies such as EnQuest being taxed in excess of 100%. 

This is mainly due to these taxes being ring-fenced, and thus, only taking oil and gas extraction profits into account, instead of other costs and losses in other departments as well. 

Oil and gas companies have called for more support from the UK government including measures such as a pause in the windfall tax, but to no avail as of yet. In fact, the windfall tax has been extended to 2029. 

With the new Supreme Court ruling, oil and gas companies will now have to spend much more time, money and expertise in assessing the full impact of the new fossil fuels they drill, which could potentially result in quite a few projects going over budget. This could in turn, lead to more cancellations and postponements. 

Companies such as Shell, BP and Chevron have already pulled out of North Sea oil operations, potentially leaving the UK energy market in the lurch, as sufficient investments and provisions for green energy resources have not yet been made. As such, the UK is still heavily reliant on fossil fuels. 

Shell has also revealed that it may pull out of the UK stock market and list in the US instead, due to the investment and regulatory environment being much more positive there.