Energy Markets

With permission, I will make a statement about the situation in energy markets in the light of the unfolding conflict in Iran and the middle east. My thoughts are with the British citizens and those across the world affected by the events of recent days, and I thank members of our armed forces serving in the region and elsewhere.

Let me update the House on the situation in global oil and gas markets and the impact on the UK. In the days since the conflict began, we have seen Iran target energy production and export infrastructure across the Gulf. Traffic in the strait of Hormuz, through which around 20% of global oil and liquefied natural gas is shipped, has declined very significantly, and the Iranian regime has issued reckless and unjustified threats to all ships using it. LNG production has also been halted in Qatar, following unjustified and indiscriminate Iranian attacks at the start of the week.

The UK benefits from strong and diverse energy supplies, including our own North sea production, pipelines with Norway, interconnectors with continental Europe and three LNG terminals. While Qatar is a major supplier of LNG globally, last year it provided the UK with 1% of our gas supply. I have been in touch with National Gas and the National Energy System Operator, which are confident about our security of supply. On oil, we hold substantial emergency and commercial stocks and stand ready to work with the International Energy Agency to support the stability of oil markets if needed. As when Russia invaded Ukraine, though, we will be exposed to price competition in international oil and gas markets, which is pushing up wholesale prices as other countries seek to replace lost supplies from the region. That reflects our position, regardless of our domestic production, as a price taker not a price maker in these markets, leaving us exposed to their volatility, no matter where the fossil fuels come from.

The Government continue to monitor the situation closely and work with our international partners. In recent days I have had multiple conversations with the executive director of the IEA, as well as with my counterparts in Qatar, Saudi Arabia, the EU and our major UK oil and gas producers. I will be having further calls with our international allies and partners over the coming days. This is a fast-moving situation, and we continue to work with our allies to seek to minimise the impact of disruption to markets and support the safe passage of oil and gas across the world.

I know that families and businesses across the country will see these global events and be concerned about the impact on their energy bills and the cost of living. It is important to say that the energy price cap will provide protection for households until the start of July, regardless of developments in the middle east. Last week, Ofgem confirmed that as a result of the Chancellor’s decisions in the Budget, the price cap will fall by 7%, or £117 annually, for the period covering April to June. The price cap for that period is fixed and will not change. That is a direct result of decisions in the Budget by my right hon. Friend the Chancellor to raise taxes on the wealthiest, and to cut bills for families across Britain. In addition, around 6 million families are benefiting from our expansion of the £150 warm home discount, and we are delivering the biggest investment in home upgrades in British history through our warm homes plan, to cut bills and shield families from these kinds of fossil fuel shocks.

On business and industry, we are taking action to expand the British industry supercharger from April to reduce costs for the most energy-intensive businesses, and a significant proportion of businesses are on fixed-term contracts that shield them from market volatility for the contract duration. However, we recognise that at the point of contracting, businesses are exposed to international fossil fuel markets, and clearly, for both businesses and consumers, much will depend on the length of this crisis.

On Tuesday in her spring statement, my right hon. Friend the Chancellor reaffirmed her commitment to prioritise families and businesses, whatever turbulence we see around the world. She showed her determination to act on bills in the Budget last year, and as we continue to monitor the effects of these events, the House and country should be in no doubt that the Prime Minister’s No. 1 priority is to tackle the cost of living crisis that affects families across Britain. However long this crisis lasts, we must learn the right long-term lessons. The events of recent days are yet another reminder that the only route to energy security and sovereignty for the UK is to get off our dependence on fossil fuel markets, whose prices we do not control, and on to clean home-grown power that we do control.

Only several weeks ago, some people were suggesting that we should gamble on low fossil fuel prices and cancel the allocation round 7 renewables auction. When I made my statement on that auction, I warned the House that people can have incredibly short memories, given that we are just four years on from Russia’s invasion of Ukraine. I warned at the time that it was a foolish and dangerous gamble to bet on geopolitical stability during greater geopolitical instability than at any time for generations. I warned that the Opposition had failed to learn lessons from the Ukraine crisis, which caused the worst cost of living crisis in memory, and that a dogma of opposing clean energy would damage this country, and risk families and businesses being left to pick up the bill. The events of recent days have unfortunately shown why that would be such a dangerous and reckless strategy, and we will continue to reject it. Instead, our AR7 renewables auction alone will supply enough home-grown, secure, clean power for the equivalent of 16 million homes. That is power we will not have to source from the international gas market, power that will not be at the mercy of international events, and power over which we, not fossil fuel markets, have control.

Of course, North sea production continues to play an important and valuable role in our energy system, but as we learn the right lessons from this crisis, this Government will not succumb to the false arguments peddled by some. It is a maturing basin and accounts for less than 0.7% of global oil and gas production. New exploration licences are completely marginal to that basin, and would make no difference to prices set by international markets and paid by UK billpayers.

“More UK production wouldn’t reduce the global price of gas”—

those are not my words, but those of the former Energy Minister, Greg Hands in 2022, in midst of the last energy crisis. Indeed, the shadow Energy Secretary said in 2023 that new licences

“wouldn’t necessarily bring energy bills down”.

This Government have taken the decision to keep existing fields open for their lifetime, including through transitional energy certificates in our North sea future plan, as called for and welcomed by industry. They have also decided not to issue new licences to explore new fields, which the science tells us is the right thing to do, because this Government will not ignore the biggest long- term threat multiplier to our security and stability that we face: the climate crisis.

As the Prime Minister said yesterday, for Labour Members the lesson of Russia’s invasion of Ukraine, and the lesson of recent days, is that our mission is the only route to greater energy independence for Britain, and we will double down on it. Every solar panel we install, every wind turbine we put up, and every nuclear power station we build makes us more secure as a country, and protects families and businesses from those kinds of energy shocks.

This Government have learned the lessons of the geopolitical instability we have seen and continue to see. In an unstable world, we will keep driving for energy sovereignty and abundance with clean home-grown power. We will not gamble with the British people’s money at the fossil fuel casino, and ignore the lessons of the past. We have shown a determination to act to help families, and we will continue to do so. We will work with our allies and partners to defend our national interest, and seek to bring this conflict to an end for the benefit of citizens at home and the stability of the world, and I commend this statement to the House.

I call the shadow Minister, Harriet Cross.

I thank the Secretary of State for advanced sight of his statement. Events in the middle east this past week have shown why it is so vital that the Government do all they can to ensure that UK businesses and households have a secure, reliable supply of dispatchable energy—a supply we can rely on. Affordable energy is vital, but just as important is security of supply. There was nothing new in the Secretary of State’s statement—no actions, just notes of some meetings—but there were and are actions that he can take, and he could take them now for both supplies and for bills.

No matter how much the green lobby or the Secretary of State wish that the UK could end its reliance on oil and gas overnight, we cannot. Some 40% of the UK’s energy comes from gas, which is the UK’s single biggest energy source, and 24 million UK homes, and half a million businesses, are connected to the gas grid. Currently, 43% of gas used in the UK is produced in our North sea basin, which is a vital energy source. Every molecule of gas produced by the UK in the North sea is piped on to our shores and into our grid. The oil produced comes onshore either here or in Europe to be refined. It does not, and cannot, get caught in the strait of Hormuz or elsewhere. It is a secure supply of oil for the UK.

Our North sea oil and gas sector has been, is, and should remain vital for our national security and be a national security resource for many years, yet it is a resource that the Government, and this Secretary of State, are actively trying to shut down. The GMB Scotland secretary has called his plans “delusional”, and mean that we are facing

“the most destructive industrial calamity in our nation’s history—a disaster risking untold jobs, communities, even higher bills, and our energy security”.

The North sea oil and gas industry and its workforce must be protected. The Secretary of State knows that that workforce, and those supply chains will, if still here, deliver the roll-out of technologies such as wind and nuclear in the future. The Secretary of State must overturn his ban on new oil and gas licences—will he? He must immediately give confidence to the industry that it has a future in the North sea by finally granting Jackdaw and Rosebank. What is taking so long? To kick-start investment, stem the accelerating fall in production, and secure the skilled workforce and supply chains, he must, with the Treasury, end the energy profits levy now.

I will answer the hon. Lady’s questions in a moment, but first I say to her that the biggest question for this House and for the country is: do we learn the lessons of these crises? Half the recessions that have happened since the 1970s have been caused by fossil-fuel price spikes. We all face a choice: we can either learn the lessons of those crises and drive towards clean, home-grown power—to be fair, at some points, that used to be the policy of the last Conservative Government—or we can pretend that those lessons do not exist, and we can keep repeating the same mistake. I fear that since the general election, the Conservatives, having already moved halfway from learning that important lesson, have moved away from it fully.

That takes me to the answers to the hon. Lady’s questions. On nuclear, we are undertaking the biggest nuclear building programme for half a century. We are doing all the things the last Government promised and never delivered. Where were the Conservatives on Sizewell C? They said that they would have agreement on it in the last Parliament, but they did not; we are doing it. Where were they with small modular reactors? We are actually putting them in place. Yes, we will publish the details of the Fingleton review shortly, and it will be an important step forward in the regulation of our industry that the Conservatives never took.

The hon. Lady said that the North sea is an incredibly “important” resource, which is exactly what I said in my statement. We listened to the industry and took a pragmatic approach on tie-back to existing fields, which was welcomed by the industry, to keep our manifesto commitment of keeping existing oil and gas fields open for their lifetime. I want to pause on the point that she raised about new exploration licences. The truth is, as everybody knows, new exploration licences, particularly in the light of tie-backs, will make no difference to production. It is important to remember that on average it is 10 years from exploration to production.

What about China?

Last week, I said that what the Conservatives were saying about the memo was a whacky internet conspiracy theory, and they said, “No, it isn’t, so why don’t you publish it?”, so I did, and now they have nothing say. Not only did we publish our memo, but I am glad to say that we published the Conservative memo from 2015. What did that show? That we were going to get the Chinese to build nuclear power stations for us, for goodness’ sake. I urge all Members to look at the facts and the evidence, and to learn the right lessons.

I call the Chair of the Energy Security and Net Zero Committee.

Yesterday, the Energy Security and Net Zero Committee looked at the facts and the evidence: Ofgem and NESO told us that the price cap will be in place until June as a short-term protection; that clean power 2030 is indeed the best way to avoid future exposure to the sorts of risks that we are now experiencing; that energy costs as a share of GDP will fall from their current 10% to between 5% and 6% by 2050, according to Government plans; and that there is no prospect of bringing down prices by undertaking activity in the North sea. What plans does the Secretary of State have for short-term support for bill payers? We heard evidence about the reformed national pricing consultation that is under way. May I encourage him to bring that forward, so that bill payers can benefit from the availability of low-demand cheap electricity as soon as possible, as an immediate response to this crisis?

My hon. Friend speaks wisely on these issues. I agree with what he said about how we get energy security and the right thing to do. On the question of bill payers, across Government and across the House, we are incredibly alive to and vigilant about the potential impact of the crisis. I believe there is cross-party support for the price cap, which I think is very important. In a world without the price cap, we would see much more immediate effects. That does not mean that everyone is protected, but the vast majority of domestic consumers are protected by the price cap.

My hon. Friend asked about short-term action, including through RNP. As he would imagine, across my Department, there is intensive work under way, looking at all the options that we have. As the regulator said to the Committee yesterday, much of this will depend on how long the crisis lasts, but the Chancellor and the Prime Minister have both shown their willingness and determination to act on bills, and I am sure that will remain.

I call the Liberal Democrat spokesperson.

The conflict in the middle east reminds us again how dangerously exposed the UK is to volatile global fossil fuel markets. Forecasts by the Joseph Rowntree Foundation have shown that, just as happened after Putin’s illegal invasion of Ukraine, energy bills could go up dramatically, placing further pressure on families and businesses that are struggling, while energy companies make profits. The leader of the Liberal Democrats, my right hon. Friend the Member for Kingston and Surbiton (Ed Davey), asked the Prime Minister yesterday to give a cast-iron guarantee that he would not let energy bills rise by £500 this year, but he did not. Will the Secretary of State give that guarantee?

Why are we so exposed? Because of our heavy reliance on gas, limited storage capacity, dependence on imports, and falling domestic liquefied natural gas inventories. As recently as January, the Conservatives were arguing in favour of continued reliance on gas, due to the price falling at that time, but it has taken less than two months for them to be proven wrong. Meanwhile, given the instability in European energy markets caused by the ongoing conflicts, I am glad to hear that the Secretary of State has engaged with energy counterparts in the EU. I would like to hear more details of their analysis of the potential impact on supply, prices and regional energy security.

I agree with the hon. Lady on her fundamental point about why we are exposed. Cost of living support is obviously a matter for the Prime Minister and the Chancellor, but I reiterate to her that the Chancellor showed a willingness to act on these issues in the Budget because she recognised the pressures that families are facing, and that the cost of living crisis is by far the biggest issue facing our country. At Prime Minister’s questions, the Prime Minister again reiterated that we are carefully monitoring the situation. The Government have shown their willingness to intervene, and if necessary, we will intervene again.

On the wider points that the hon. Lady makes, the most important thing to emphasise is that we have to go back to the fundamentals. That means driving forward with clean power and the insulation of homes. Our European counterparts, whom she asked about, face similar challenges. Through the International Energy Agency, we are all engaged on some of the issues around oil stocks that I raised in my statement. She is absolutely right that co-operation with our European colleagues is particularly vital at this time.

I thank the Secretary of State for his very clear and measured statement. May I ask him about two points? First, if we see rises in bills in forthcoming months, can we ensure that the blame is placed firmly where it should be—on the actions of the Iranian Government in attacking and threatening the strait of Hormuz?

Secondly, in the Energy Security and Net Zero Committee meeting yesterday, we heard from the chief executive of Ofgem that a prolonged period of closure of the strait of Hormuz would create an upward pressure on prices. He indicated during that evidence session that the market anticipated that it could manage a period of roughly two weeks. As the conflict continues to develop, does the Secretary of State have any sense of what might be meant by a “prolonged period of time” that would create upward pressure? Will he ensure that the Committee and the House are kept informed?

I thank my hon. Friend for his excellent questions. On the first point, he is absolutely right. I spoke to my counterpart, the Qatari Energy Minister, and it was the attacks on Qatar’s LNG terminals, and understandable fears for their workforce as a result of indiscriminate Iranian attacks, that led him to make his decisions. Iranian threats to the strait of Hormuz are preventing the passage of shipping, and my hon. Friend is absolutely right to emphasise that point.

I will not speculate on my hon. Friend’s point about how long the conflict will last, but he is right to say that the longer the conflict goes on, the more impact there will be on bill payers and our economy. That is why it is in all our interests for this conflict to come to an end as soon as possible. On his other point, I undertake to keep the House and the Energy Security and Net Zero Committee informed.

Representing the constituency of Brigg and Immingham as I do, I recognise that the renewable energy sector is attracting investment and jobs into the area. However, I have thousands of people who work in energy-intensive industries, and their jobs are increasingly at risk. As with everything, compromise and balance are important. May I urge the Secretary of State to recognise that the energy costs for industry are crippling many businesses? We must do something to address that.

I absolutely recognise the challenges that many businesses faced even before the crisis. It is important to say that even before the crisis began, fossil fuel prices were still 40% higher than before Russia invaded Ukraine, and businesses were facing the impacts of that.

We are taking action this April on the supercharger, but that is for only 500 or so of the most energy-intensive businesses. We are also taking action next April on the British industrial competitiveness scheme, which is for 7,000 businesses, but I recognise the point that the hon. Gentleman makes. Just as we are looking across Government at the situation that households face, and working on that, we are looking at the impact on businesses; indeed, I was talking to my colleague the Secretary of State for Business and Trade yesterday.