Staying relevant: A worker works at one of the Blast Furnaces at British Steel’s site in Scunthorpe, northern England. Britain’s government is racing to secure raw materials to keep the country’s last steelmaking blast furnaces running. — AFP
THE UK government’s seizure of British Steel from Chinese company Jingye on national security grounds suggests extending North Sea oil and gas production is now a no-brainer.
The deteriorating global economic outlook resulting from US President Donald Trump’s tariff war has led many European governments to reconsider their industrial policies and energy transition ambitions, amplifying a debate that started with the 2022 energy price shock.
Central to this new thinking is the need to secure supply chains by supporting strategic domestic industries. The likely nationalisation of British Steel following an emergency vote by the UK Parliament this Saturday is a case in point.
And the episode might make the government rethink plans to reduce domestic production in an even more strategically important sector: oil and gas.
The government’s radical action following months of failed negotiations with British Steel owner Jingye prevents the company from shutting down the country’s two last blast furnaces.
The rationale for wanting to keep them open is simple.
British Steel supplies vital materials used for the railway and construction sector, and the government considers the steel industry central to its economic and energy transition strategies. National pride also doubtless played a role, given that Britain is the birthplace of the Industrial Revolution.
But hard nosed economic realities suggest that the country’s steel industry may already be a lost cause.
The struggling steel sector is minuscule, contributing only £1.7bil to the economy in 2024, or 0.1% of the country’s total economic activity, according to government data.
Its annual production represented a mere 0.3% of the worldwide total. Additionally, the sector faces stiff competition not only from China but also from Europe, where production power costs are significantly cheaper.
So nationalisation now appears to be too little, too late.
If the UK government is worried about over-reliance on foreign steel, then it should certainly be concerned about reliance on foreign oil and gas.
These fossil fuels meet around 74% of Britain’s energy demand and are likely to continue fuelling the economy for decades, even under the most aggressive renewables growth projections.
And unlike steel, Britain’s domestic energy sector is not a lost cause. It produced half of the country’s gas demand of 687,120 gigawatt hours in 2024, according to government data, and indirectly met around 60% of total daily oil consumption. Britain also exports much of its crude overseas and then imports refined products because of its limited refining capacity.
Almost all UK volume comes from the North Sea oil and gas basin. Production here reached 1.09 million barrels per day (bpd) last year, but is forecast to drop sharply by the end of the decade to 620,000 bpd, according to the North Sea Transition Authority.
That’s a fraction of the basin’s peak output of around four million bpd in 1999.
The sizeable decline is a result of the natural depletion of existing reserves and the reduction in investments in the basin in recent years.
The latter trend accelerated after the government imposed a windfall tax on producers in the wake of the 2022 energy crisis that brought total tax on the sector to 78%, among the highest in the world.
The United Kingdom’s Labour government is now in the midst of a consultation process over its commitments to halt new oil and gas licences in the North Sea as part of its climate strategy.
Limiting domestic production would seemingly be counterproductive. It would make Britain more reliant on imports of oil and liquefied natural gas, potentially leading to higher energy bills, something politicians do not want.
This process would release significantly more carbon than domestic production, given transport-related emissions.
Moreover, forgoing energy security would make all other efforts to protect critical supply chains – including the potential British Steel nationalisation – largely moot.
Extending North Sea production, therefore, makes sense, as tapping the area’s existing resources and supporting future discoveries could slow down the basin’s decline and reduce the country’s need for imports.
Britain is on track to consume 13 to 15 billion barrels of oil and gas equivalent (boe) over the next 25 years, according to industry body Offshore Energy UK (OUEK), and the country is currently set to produce four billion boe domestically.
The North Sea contains an additional two to three billion boe from new and existing fields that could prop up production, according to OEUK.
Of course, discovering new resources is not the same as developing them, which will depend on the price outlook and potential returns on investment.
The government would be wise to develop long-term plans for maintaining energy security after the basin runs dry.
But squeezing the last remaining barrels from the North Sea appears necessary in a new era where national security is increasingly contingent on energy and industrial independence.
And if the government wants to draw one lesson from the British Steel drama, it should be that it’s better to support critical domestic industries before they become largely irrelevant. — Reuters
Ron Bousso is a columnist for Reuters. The views expressed here are the writer’s own.
