6 August 2019

Energy regulation must keep up with a changing industry

By Andrew Bowie MP

Coming from the North East of Scotland, ‘energy’ – specifically oil and gas – has been a constant presence. Growing up, most of my friend’s dads (and back then it was just dads) worked in ‘the industry’, as it is known in and around Aberdeen.

On leaving school, I reckon slightly more than half of my year ended up either offshore or in some downstream role for BP, Shell, Total, or A.N. Other Oil and Gas company.

Energy production and the success of the industry in the UK is so important economically to the North East of Scotland that, since my election, I have made it a priority of mine to engage with all aspects of the industry – upstream, downstream and sub-sea exploration companies and support companies that rely on the success of the majors.

Of course, this involved getting to know the Oil and Gas Authority (OGA). Little known outside the industry  the OGA, an arms length executive agency of the Department for Business, Energy and Industrial Strategy (BEIS), was founded at the height of the oil price downturn and as a result of the Wood Review of early 2014.

Its role is primarily to maximise the economic recovery of the UK’s oil and gas resources by regulating, influencing and promoting the UK oil and gas industry. However, a wide range of powers have also been given to the OGA. Namely the granting and regulating of licences for Oil and Gas exploration and extraction; applying levies, issuing sanctions and accessing production and performance data.

It does a great job, is well run and has, in the four brief years it has been in operation, become an indispensable part of the energy landscape in the UK.

But there’s a problem. In the two years I’ve been an MP, the narrative within the industry has shifted. In June 2017, it was all about recovery from the downturn and maximisation of recovery from the north sea. Now, you hear very little about oil or gas – even in Aberdeenshire. Chastened by (in many instances unfair) criticism of its environmental record, and in an attempt to be in step with the fast-changing attitude towards fossil fuels and the very real fear that it was becoming the new ‘big tobacco’, the industry began to rebrand itself as the ‘energy industry’.

In actual fact, the big majors had been moving down this path for quite a while- making decarbonisation and their commitment to the environment a central part of their operation. And, outside the North East of Scotland, watching adverts for companies engaged in North Sea operations, you would be forgiven for not even knowing they were involved in fossil fuel exploration or exploitation.

Which makes the fact that the regulator for the industry is still named the Oil and Gas Authority slightly awkward because the companies it regulates are now involved in so much more. It is anticipated that by 2030, renewable energy production (wind and solar) will make up over 50% of the UK energy mix with demand for natural gas rising to meet peak demand.

Given that the majority of companies investing in and driving the change are the same ones overseen by the OGA, it prompted me to ask why its name had not been changed to the Energy Authority. Answer came their none. And so I looked into it – and found a remarkably complex situation. For the fact is, in the UK in 2019, there is no single energy regulator.

The OGA can’t fully regulate the oil and gas Industry as certain aspects fall under Ofgem and the Competition and Markets Authority (CMA), whilst regulations on production safety are enforced by HSEs Energy Division.

Outside that, all other aspects of the energy production industry are without dedicated regulators, with the singular exception of the Office for Nuclear Regulation (the ONR). Wind and solar farms of course have to require local council permits and, of course, standards have to meet legislation.

Compare that to the financial industries where there are essentially two regulatory bodies, the FCA and the PRA.

I think it is time to simplify and modernise the way the energy industry is regulated – building on the fantastic work of the OGA. Given that new regulatory objectives specified in legislation are likely given the drive towards Net Zero emissions by 2050, this Energy Authority would ensure the implementation of government policy and have the authority to regulate the industry, ensuring best practice is met.

Issuing licenses, reporting sector decisions to Government and coordinating decisions with other government agencies (and indeed, between central government and the devolved authorities where there was overlap) as well as setting performance standards, monitoring the performance of producers, issuing sanctions and determining the level and structure of tariffs, establishing uniform systems of data and arbitrating disputes – all would come under the purview of the new authority.

Thus the new Energy Authority would be in a prime position to affect outcomes associated with the industry and give advice to the Government regarding the full implication of policies to the energy industry. I envisage also that many of the powers that the FCA and PRA have could also be replicated for this new entity ensuring that the energy producing industry is prepared for future downturns.

This is very much an embryonic idea at this stay- I am the first to admit I am not an expert. But the energy industry is changing, and fast. The OGA does amazing work, but only looks after one of the multiple and growing sectors. As we decarbonise, it is essential that our energy producing sectors work and are regulated together.

I hope this piece is a first step along that road.

Andrew Bowie is MP for West Aberdeenshire and Kincardine