James Leeson: The decimation of the UK oil and gas industry

James Leeson is a Conservative Party activist with an MSc in petroleum engineering and extensive oil and gas experience spanning more than a decade in the UK and overseas.

At the start of the century, unknown to most people not living in the north east of Scotland, the UK was effectively a petro state. Our production peaked at over four million barrels of oil equivalent per day (boe/d), which made us the sixth largest producer of oil and gas in the world for a time. This was more, on a per capita basis, than the largest producer in the world today, the USA (>4 million boe/d with a population of

This quirk of geological good fortune, combined with our pioneering and ruthless capitalist exploitation of the resources (even despite punitive tax rates at times), meant that we had some of the cheapest energy prices in Europe. It also provided tens of thousands of good jobs and substantial tax revenues, which over the years had been used to cushion the blow somewhat of our wider deindustrialisation. And, not insignificantly, the resources made our petrochemical industries internationally competitive.

Being largely self-sufficient in two of the most important commodities in the world greatly benefitted our trade balance, undoubtedly contributing to the strength of the pound from the mid-1970s onwards. There is some debate about whether a strong pound was beneficial, making – as it did – our exports less competitive than they otherwise would have been, but there is no doubt overall that the success of the oil and gas industry was a huge net positive for the country.

Oil and gas fields naturally deplete over time. Typically, when they start production they are brought up to an optimal plateau rate, at which they will produce for a number of years (determined by the specifics of the field), then they gradually taper off until it is no longer economic to produce the remaining resources.

The North Sea is a mature region so by the time of the 2008 financial crisis, production from the UK continental shelf (UKCS) was declining and stood at approximately three million boe/d. This was still a significant amount but it meant the UK had become a net importer of oil and gas.

It was at approximately this time that new reserves were being proven in the US through the hydraulic fracturing of shale formations; a process known colloquially as ‘fracking’, or sometimes as ‘unconventional fracking’.

Hydraulically fracturing formations is an entirely standard operation when drilling wells. Most exploration and appraisal wells will be fractured during the drilling process, often several times per well. This is done simply to determine the strength of the rock in that area: one pressures up the well at specific times until the formation fractures. Once a fracture has been initiated successfully, the pressure is bled off and the fracture allowed to close up again. Drilling then continues.

Needless to say, this has been done for decades in the UK and around the world without any issues.

For production, a slightly different hydraulic fracturing process is followed. The well is pressured up until fracture occurs, but in this instance proppant is pumped into the fractures to hold them open and allow the hydrocarbons to flow into the well.

Just like the fracturing process during drilling, ‘fracking’ for production is a tried and tested method that has been used for decades on ‘conventional’ reservoir formations, such as sandstones and carbonates, to improve their productivity (the fractures help connect naturally occurring pores in the rock and increase the rock’s permeability by creating flow paths for fluids).

What changed in the 2000s was that this well-established technique was applied to shale formations. Shale had previously been thought to be an impermeable cap rock, containing no economically recoverable amounts of hydrocarbons. However, in the mid 2000s some shales were shown, in fact, to contain substantial quantities of recoverable oil and gas if the formation was hydraulically fractured.

The only thing that was ‘unconventional’ about this process was the choice of rock formation to be fracked. No additional hazards were introduced into the process compared to decades of previous practice fracking wells worldwide, including in the North Sea.

Despite promising geology, the UK failed to capitalise on the unconventional revolution. While the US experienced a dramatic resurgence in oil and gas production, transforming itself from a major importer to the world’s largest producer, we became increasingly reliant on imports to meet our needs.

The country’s political, regulatory, and social climate proved inhospitable to onshore shale development. Public opposition fed on misinformation, political ambivalence, and unscientific moratoriums meant that not a single shale development has materialised. The net result is that a potentially transformative domestic resource remains untapped.

To be sure, the UK is not the USA. Our country is smaller and our population density higher, so it is certainly true that fracking would have been more difficult in the UK, but the challenges are not insuperable and onshore developments have gone ahead successfully in Britain before.

One of the largest fields in the UKCS is an onshore development called Wytch Farm, which sits in the middle of a nature reserve in Dorset. Originally drilled in the 1970s, with additional drilling taking place later, the field has continued producing for decades without any significant problems; a similar outcome would certainly be achievable with fracked fields elsewhere around the country.

At the same time as the fracking opportunity has been missed, the UK’s offshore industry has suffered from chronic underinvestment caused by political instability. The industry operates on long investment cycles, often measured in decades, and therefore requires a stable fiscal and regulatory environment in order to plan and commit capital with confidence. Unfortunately, UK energy policy over the past two decades has been marked by inconsistency, particularly in relation to taxation.

Successive governments repeatedly altered the fiscal regime, often in response to short-term political or economic pressures rather than the long-term needs of the sector. Tax hikes during periods of high oil prices were politically popular but economically damaging, as they have deterred investment in marginal and late-life assets. The cumulative effect has been to undermine confidence and push capital elsewhere, especially as opportunities in lower-cost, lower-risk jurisdictions became more attractive globally.

This was particularly damaging given the underdeveloped yet promising prospects in the West of Shetland region. This area, geologically distinct from the central North Sea, holds the best opportunities for major new discoveries in UK waters. Unlocking these resources would require a strategic commitment from government: a clear, long-term tax framework; support for enabling infrastructure such as pipelines and terminals; and a recognition that the economic recovery of these assets could play a critical role in maintaining UK energy security and tax revenues. Instead, a combination of punitive taxes, regulatory uncertainty and policy drift has meant these opportunities have not been fully realised.

The consequences of these twin failures – to provide a stable and supportive environment for the offshore industry and to take advantage of the fracking opportunity onshore – have been profound. From a peak of over 4 million boe/d, UK output has fallen to less than 1.2 million boe/d; a staggering reduction of over 70 per cent.

As a result, the UK has become heavily dependent on imported oil and gas, particularly pipeline gas from Norway and liquefied natural gas (LNG) from Qatar and the USA. We have been reduced to importing gas sourced from fracked wells that has been liquefied and then shipped across the Atlantic from America, rather than develop our own resources – a process hugely more damaging to the environment than using our own and much more costly too.

People who evidently don’t understand the fracking process, or the international markets, often claim that developing our own gas resources would have no effect on the gas price here in the UK because, they assert, the price is set internationally. This is not true.

The gas price is not international in the way that the oil price is. It is instead a series of local markets based on gas production in the area, the pipelines to/from it and the ability to export/import LNG. That’s why at the peak of the gas price crisis in the immediate aftermath of Russia’s invasion of Ukraine in 2022, the natural gas price in the USA was only 10 per cent of the price in the UK, and why American prices continue to be significantly cheaper to this day.

In economic terms, the loss of domestic production has deprived the UK of billions of pounds in tax revenues, export earnings, and high-skilled employment. The North Sea once contributed over £10 billion a year in direct taxes at its peak; today, it contributes a fraction of that. Entire supply chains, from drilling contractors to engineering consultancies, have been hollowed out, with jobs lost not only in Aberdeen but across the UK. Moreover, the trade deficit has widened as imported energy fills the gap once met by domestic production, exerting pressure on the pound and on inflation.

Perhaps most importantly, the decline has eroded the UK’s energy sovereignty. While much political attention has been paid to the transition to renewable energy, the scales finally appear to be falling from most people’s eyes in regard to the true costs of intermittent renewables, and the truth is that oil and gas still account for the vast majority of the UK’s total energy consumption. To abandon domestic production while demand remains high is to outsource not only emissions but also economic value, jobs, and strategic control to other countries.

We have turned our back on cheap and abundant energy due to a misunderstanding of how the gas market works and an unscientific, almost Luddite, attitude to the proven technology of fracking. Our energy prices have gone from some of the cheapest in Europe to the most expensive, and the oil and gas industry has been decimated by the failure to make use of our own resources. Not only that, our actions have increased the CO₂ emissions directly caused by our consumption; the exact opposite of our intention to reduce emissions.

The widespread impact of this calamity (on jobs; on tax revenues; on energy prices; on our trade balance; on manufacturing and heavy industry; on refinery capacity and the wider petrochemicals industry; on emissions caused by our consumption) has not been taken into account properly by politicians, civil servants or more widely by the whole policy development infrastructure of the UK.

As we (the Conservative Party) look to inject some common sense into the net zero debate, one area that needs particular attention is our attitude to the oil and gas industry, both offshore and onshore, and the part it could play, not only in driving down energy costs, but also in benefitting the economy more widely across a huge variety of areas.

As we (the Conservative Party) look to inject some common sense into the net zero debate, it is encouraging to see that we have committed to maximising recovery from the North Sea. But we need to go further. We should properly examine and commit to fracking onshore, which could drive down energy costs and benefit the economy more widely in a huge variety of areas.