Could expanding North Sea gas production cut GB energy bills?

Unhelpful posturing and a toxic debate

The Israeli/US war in Iran creating the second energy crisis within five years reveals once again how vulnerable the UK and Europe are to energy supply shocks. Ultimately, it should provide a stimulus to shift the basis of our energy supply to low-carbon technologies using domestic energy resources – and judging by the surging interest in solar panels, heat pumps and EVs, many consumers are making this decision for themselves.

But the continued war of words and rhetoric between the pro-gas and pro-renewable camps is unhelpful. On the one hand, we have unrealistic claims, absent of any evidence, suggesting that we could expand North Sea production to reduce energy prices. On the other hand, there has been reluctance to acknowledge the value added by North Sea industries and the fact that we will continue using fossil fuels, particularly gas, for many years.

The climate change arguments are nuanced. Yes, we do need to lead by example, and a responsible stance on leaving fossil fuels, especially oil, in the ground is part of that leadership. A free-for-all exploitation of global fossil fuel resources would take us into 4-degree climate chaos territory.

But in the context of the UK’s growing LNG imports and supply shocks, it is also true that North Sea gas from the UK and Norway is lower-carbon and more secure. We could make the case with international partners that domestic gas is part of a short-term transition strategy, if we can also point to the rapid decarbonisation of the economy and leadership in adopting new technology.

We can see the impact of polarised energy politics in the US. Any US investors must now be extremely concerned that their projects will be terminated by an incoming administration with a different viewpoint. Here in the UK politicians should, therefore, think very carefully before making threats to tear up contracts, retrospectively change planning rules or embark on another form of policy vandalism. If the Reform party's threats to CfD contracts had been credible, it would certainly have reduced investment and/or increased capital costs in the recent AR7 auction.

So, from an investment and economic growth perspective, it would help to remove energy from the current culture wars. As one former energy minister said at a Regen conference, if we could move energy from the front page and back into the business, consumer affairs and technology sections, that would be good for everyone.    

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The UK’s reliance on imported gas, and especially LNG, has increased over the past two decades

The UK’s gas position has changed fundamentally over the past decade. We are a long way from the halcyon ‘dash for gas’ days of the 1990s. As a significant gas importer, we are now exposed to global markets and supply conditions.

According to DUKES 2024 supply figures, the UK's net imports accounted for around 50% of its gas consumption, with the remainder from pipeline landings from domestic gas fields on the UK Continental Shelf (UKCS). With 75% of gas imports from Norwegian pipelines, the remaining 25% was mainly in the form of LNG, with 17% of LNG imports originating in the US.

Unlike a decade ago, the UK now imports less LNG from Qatar; Middle East LNG is going mainly to Asia. While our direct supply is not, therefore, significantly affected by the closure of the Strait of Hormuz, LNG imports expose us to international gas prices.

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In 2004, the UK stopped being gas self-sufficient. Since then, UKCS production has continued to fall year on year, reaching only 343 TWh in 2024, around a quarter of its peak of 1,260 TWh in 2020.

Contrary to the impression given in the media, the decline in UK gas production is not a recent trend, but has been ongoing for the past two decades. It predates net-zero policies and instead reflects the cost of UKCS extraction relative to international gas prices.*

The supply/demand balance would be worse; however, GB gas demand has also been falling, and in 2024, this fell again to 688 TWh – the lowest level since 1995.

UK gas storage has also declined, now holding just a couple of days’ supply.** The rationale for allowing market forces to dictate storage levels and for facilities like Rough to close is that it is cheaper to rely on just-in-time landings from pipelines and LNG terminals and to manage day-to-day supply with ‘line-pack’ storage within the gas network. This is akin to applying fast-moving consumer goods logistics principles to an energy commodity: the opposite of an energy security strategy.

Could the UKCS gas production decline be reversed?

Even the most positive analysis points to the continued decline of UKCS production. There is undoubtedly a lot of untapped gas resource in the North Sea, but it is characterised as a mature basin in which easy-to-reach resources have been depleted, with increased decommissioning and rising extraction costs.

Analysis by the official government body, the North Sea Transition Authority, has consistently projected falling North Sea oil and gas production, which tails off to just a few thousand barrels of oil equivalent (BoE) by around 2050. Its February 2026 projection for North Sea Gas production is shown in Figure 1, with gas production falling to less than 20 TWh by 2045.

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Oil and gas industry supporters have challenged the NSTA projection, claiming it reflects only the current view, based on Labour government policies hostile to the industry and to future investment. In truth, the NSTA isn’t anti-industry in its constitution. In 2023, under the last Conservative government, when the authority was championing the future of the industry with new oil and gas exploration licences, its assessment of the future gas production was very similar, and even lower in the near term.

Although, as an example of misleading media coverage, some lobbyists have seized on the difference between the 2050 projection of 9 TWh in 2026 versus 19 TWh in 2023 to claim that “under Labour, North Sea gas production forecasts have more than halved”.

Organisations that are pro-oil and gas have also forecast a decline in production. The Westwood Global Energy Group UKCS outlook study, commissioned by UK oil and gas trade body Offshore Energies UK, makes a strong case for continued investment in the North Sea and for the alleviation of policies that may be accelerating production decline. But even in a ‘High Case’ scenario with favourable fiscal and regulatory policies, its study projects that UK oil and gas production would decline to just a few thousand BoE by 2050.

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The only debate is on the speed of decline

So, there is no credible projection of UKCS gas production increasing or even stabilising; the only point of debate is the relative speed of ongoing decline.

Oil and gas champions do make a valid point that the North Sea has suffered from a lack of investment and the absence of an overall strategy. This has meant that, unlike Norway, UKCS fields have been exploited purely on market economics and allowed to decline without much consideration of the knock-on impact on neighbouring fields and rates of decommissioning. The NSTA was meant to address some of these issues, but a common industry argument is that there is still no coordinated strategy.

This is especially important for North Sea gas, which is often extracted as an associated product with oil, and from gas fields that are codependent on shared assets including pipelines, ports, landing points and gas processing facilities. The risk, therefore, is that, without a coordinated approach, once projects start to be decommissioned, neighbouring projects, fields and eventually the whole North Sea basin could quickly become unviable.

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Would an increase in UK production help reduce gas (and power) prices for UK consumers?

The argument that, since UK gas is traded in the international gas market and we remain a net importer, any increase in North Sea production would have little price benefit for UK consumers is well worn. The other consideration is that UKCS production is not cheap; in normal times, we rely on competitive imports to keep gas prices down. So rather than UK production reducing gas prices, the opposite is more likely; it requires a rise in global gas prices to increase UK production and extend field life.

Some commentators have said that, because there is a single global gas price, UK gas production has zero price impact. It’s not quite as simple or binary as that. There isn’t a single global gas price; UK gas prices are set at the National Balancing Point hub, a virtual price point within the wider northern European gas market that covers the North Sea area and neighbouring countries. So, in a sense, there is a regional northern European gas price that differs from, but is linked to, US or Asian gas prices.

Logistics is a key price driver and differentiator. The gas market hub prices differ but are linked physically through pipelines and via the globally traded commodity of LNG.

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Understanding LNG is key to understanding the gas market and the real impact of supply shocks

Liquifying and transporting gas is expensive (and it also emits more carbon). LNG can therefore only flow economically from markets where gas is cheap (currently the US and the Middle East) to those where gas is expensive (Europe and Asia). The UK has no LNG liquefaction export capability because our gas is too expensive to convert to LNG, but we do have two import facilities at Milford Haven and the Isle of Grain, through which we receive LNG for domestic use and for transhipment as piped gas to northern Europe.

Over the past 20 years, the UK and Europe have steadily increased their LNG imports. In some ways, having access to LNG markets is good. It provides an alternative source of gas, more competition, and, at times, lower prices stemming from lower-cost production in the US and the Middle East. Especially after Russia’s attack on Ukraine, Europe has also seen LNG as an important source of energy security. The option of rolling back LNG import dependency seems remote.

However, as long as the UK and Europe remain dependent on LNG, gas prices will be heavily influenced by global markets and the global supply/demand balance. In normal times, this means a balance between gas production, the capacity of LNG facilities in the Middle East and the US East Coast, and demand competition coming from Europe and Asia. During an energy crisis, as we have seen, LNG markets are highly volatile and subject to much speculation.  

It is significant that US gas producers, along with Russia, are the main beneficiaries of rising gas prices. Yet natural gas prices in the US have not yet risen sufficiently to affect consumer and power prices. The key difference is that the US is still export-constrained; producers would like to export more LNG to take advantage of high market prices, but export capacity has not reached the point where the export price sets the marginal price in the domestic gas market. If it did, the Trump administration would be even more concerned about shocks in the supply chain.

So the short answer is that a marginal increase in UK production will not meaningfully change gas prices or insulate the UK from global market shocks. As an importer, our prices are set by the marginal cost of supply, and often that is set by the price of LNG.

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Does it make sense to try to nurture North Sea gas production?

Notwithstanding the impossibility of reversing the decline, it still does make sense to try to nurture North Sea gas production for as long as possible, and to have the flexibility to ramp up production in response to supply and price shocks.

North Sea gas is still an important industry, and we will still need gas over the coming decades. It maintains thousands of regional jobs and skills in the supply chain, many of which will be needed in the future. It generates significant economic value and state tax revenue. North Sea pipeline volumes limit our import supply exposure, if not price exposure.***

Importantly, UKCS production is significantly lower carbon than LNG imports, although not as low as it should be, nor as low as Norwegian gas.

‘Nurture’ in this context could be taken to mean:

• Extending the life of existing fields where this is economic
• Developing new production in ‘tieback’ fields (proximate to existing fields so that they can be integrated into existing pipelines and infrastructure)
• Maintaining shared infrastructure, especially those such as port facilities, which can also be used for new industries
• Supporting jobs and skills within the supply chain while encouraging the transition to low-carbon sectors
• Investing in measures, as Norway has, to reduce flaring, carbon emissions and improve energy efficiency
• Coordinating the decommissioning of projects and fields to maintain production
• Leaving assessed gas reserves in the ground to provide optionality in the future.

Nurturing North Sea production also requires better planning, greater government intervention/regulation, targeted fiscal support and regional investment.

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Would issuing a significant number of new exploration licences make much difference?

It’s debatable. Analysis of licences issued by the last Conservative government suggests that few have come to fruition and that the impact on gas supply has been minimal. New exploration is needed, but any new gas fields must be economically viable, and the general agreement is that ‘tie-back’ fields are the most likely to be successfully developed. So a targeted approach, with associated investment incentives, is needed rather than a machine gun approach.

In summer 2023, the Conservative government issued more than a hundred new licences to, as Prime Minister Rishi Sunak claimed, “boost energy independence and grow the economy”. Of course, it was known that from exploration licence to production can take five years, and often a decade or more, so this was never a quick fix. Even so, the progress on those licences is highly uncertain. Many were, in fact, relinquishments – licences for blocks previously held by another developer, often for many years. It would be helpful if NSTA could provide an update on that batch of licences.

We do know, however, that in 2025, no new exploration drilling occurred in UK waters, with drilling activity mainly confined to decommissioning projects. The industry has pointed to the Energy Profits Levy, and its effective tax rate of 78%, as a key disincentive, but with the EPL due to end in 2030 and significant investment tax allowances and offsets available, the lack of exploration activity is also a sign of a poor long-term outlook for the UK sector. Ironically, the best-case scenario for UK exploration and production is to see a sustained global increase in gas prices.

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Gas demand reduction is the way forward

Asking whether increasing production will decrease bills or improve energy security is the wrong question. Or it is only a small part of a bigger question about our future energy. Using home-produced gas makes sense, but getting off the fossil fuel dependency is not about finding more fossil fuels – it’s about finding alternative energy sources.

If the UK and our neighbouring countries could reduce gas demand, perhaps also increasing gas storage, we might reduce, or even eliminate, LNG imports. If we did that, it would be meaningful to talk about a European gas market, and North Sea production could then have a positive impact on prices. We would also reduce the political and military threat from export regimes, and yes, it seems strange to say, that includes our friends in the US.

We are a long way from that state at present, but a concerted reduction in gas demand in the UK and Europe, driven by decarbonisation and electrification, is the most achievable route to avoid fossil fuel price and supply volatility.

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Notes

* For more on gas markets, geopolitics and energy policy, see Energy Flux podcasts and market analysis.
** The Rough storage field closed in 2017. It has partially reopened, but UK gas storage still only holds 1-3 days of supply.
*** For further discussion on North Sea role in energy security see Melissa Stark The Cost of Gas Security, RUSI (2026).

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