UK energy policy set for further uncertainty following another leader's departure
UK energy policy could see further changes following the departure of prime minister Liz Truss after a mere 45 days in power.
Truss resigned in the wake of a disastrous mini-budget she proposed, which included significant tax cuts, particularly for the more wealthy. It prompted UK markets to slump amid concerns about the increased borrowing that would be required, and the pound fell to a 37-year low against the dollar. She responded with a U-turn in policy, stripping away most of the budget's substance.
In her brief time in office, Truss announced that households would pay no more than an average of £2,500 ($2,800) annually for their power and gas until 2024, versus a raised cap of £3,550 that had been set to be introduced in October. This was despite her rejecting a freeze on the cap during the leadership race following Boris Johnson's resignation in July.
Amid the backlash against her budget, Truss sacked her chancellor Kwasi Kwarteng, who was replaced by Jeremy Hunt, who promptly announced plans to review the energy price cap once more.
Her successor may well adjust or reverse the policy anyway. One of the lead contenders is considered to be former chancellor Rishi Sunak, a runner-up in the leadership race, who likewise ruled out an energy price cap at that time. Others include Conservative members Penny Mordaunt, Ben Wallace and also Johnson.
Upstream policy
After initially ruling out the move, Johnson introduced a windfall tax on the oil and gas industry in late May, imposing a 25% levy on the profits of oil and gas companies. This marked a departure from the North Sea-friendly image that the Conservative government had sought to cultivate. In power, Truss said she was against the move, raising industry hopes that the tax might be lifted. Again, that will be a decision for yet another leader.
In line with a promise made by Johnson's administration, Truss' government did launch a new offshore oil and gas licensing round on October 7 – the first in three years, offering rights to 898 blocks and part-blocks across the North Sea, the East Irish Sea and the West of Shetland. The first awards are expected in the second quarter of 2023.
Given heightened concerns about UK energy security, a focus on expanding domestic oil and gas supply is likely to continue so long as the Conservatives remain in power. What is less clear is whether Truss' replacement will support onshore hydraulic fracturing for shale gas. Truss' government defeated a motion on October 19 by the opposition Labour party to ban fracturing, by a comfortable vote of 326 to 230.
A temporary moratorium on fracturing is already in place, although Truss pledged to remove it in early September, perhaps paving the way for the development of a potential 37.6 trillion m3 of in-place gas in the Bowland Shale stretching across north England. The future UK prime minister may well reverse this step, however, and even if a new administration does support fracking, it may cave to opposition from environmental groups and some local communities. After all, as shown above, the Conservative U-turns are frequent.