Hostility to upstream oil and gas on the rise in western Europe

• Published date: 01 September 2019
• DOI: http://doi.org/10.1111/oet.12732
• Date: 01 September 2019

LOOKING AHEAD

Hostility to upstream oil and gas on the rise in western Europe

Away from the North Sea, many west European govern-

ments are increasingly hostile to upstream oil and gas devel-

opment. But rather than turn their economies greener, as

intended, the actual result of licensing bans and other

obstructive behavior is likely to be smaller and more import-

dependent economies—at least while demand for hydrocar-

bons remains strong and domestic output keeps falling.

In early 2018, France's center-ground, liberal govern-

ment, led by Emmanuel Macron, was the first worldwide to

pass a law to end all oil and gas production on climate

change grounds—with a target date of 2040.

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And while

France itself produces little, its ban includes the overseas ter-

ritory of French Guiana, which lies just along the South

American coast from ExxonMobil's new upstream hotspot in

Guyana—suggesting the French territory may also be pro-

spective (although offshore exploration there in the past has

been unsuccessful).

In February, Italy moved a step closer to joining

France, by suspending oil and gas exploration activities in

permits that were approved or are in the process of being

approved, for 18 months—although one part of the coali-

tion government is now trying to overturn this.

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The move

involves reviewing all areas to see if they are suitable for

hydrocarbon extraction on environmental and social gro-

unds, and activity is expected to resume (depending on

political developments) in some areas. However, the move

is likely to put off investors, such as Italian-focused inde-

pendents, including Coro Energy and Cabot—which both

say they may seek compensation, although producing wells

are unaffected.

Ireland too, has toyed with the idea of a licensing ban,

but after passing an initial vote, it has now rejected the idea,

with concerns over domestic security of supply winning out.

Denmark has also announced an end to exploration and dril-

ling for oil and gas on land and in inland waters, and The

Netherlands is fast winding down production at its giant

Groningen field—although the earthquakes there provide a

sound basis for wrapping things up. Even where licenses are

still awarded, such as in Germany, red tape can make pro-

gress painfully slow and complex.

The continent does even worse when it comes to

fracking, which is banned completely in several European

countries—including France, where substantial reserves are

thought to exist, as well as Scotland, Wales, and Ireland.

And again, even when it is not banned, regulations and plan-

ning issues can be highly problematic—as UK independent,

Cuadrilla, has found to its cost in northwest England, where

strict earth tremor rules have led to repeated lengthy drilling

suspensions—the last of which came in late August after a

2.9 earthquake.

1|INCREASED IMPORT

DEPENDENCE

Italy's populist government said upstream activities in the oil

and gas sector were “not of strategic importance”for Italy.

But current low production levels are partly down to exten-

sive red tape to date, as well as poor geology. In Italy's case,

only 7.5% of Italy's gas demand and 7.8% of oil demand

(or about 83 000 bpd) is met by domestic production—

despite the country being home to 1.4 bn bbl of proven oil

reserves, the third largest in Europe. French production and

self-sufficiency are even lower.

And, while it is true that in Italy and France oil and gas is

now not a big part of their supply-side economies, it remains

a big area of national expenditure, and even a small level of

production still contributes to tax revenues, growth, jobs,

energy security,and import substitution. Importing oil and gas

has always been a drag on domestic growth and a contributor

to trade deficits, which is why the discovery and production

of oil and gas has often been hugely beneficial for countries—

in the case of the United Kingdom, North Sea oil boosted tax

income and growth, helped end worsening trade deficits and

halted the decline in the pound,at least temporarily.

Most of the recent bans are at least partly aimed at reducing

greenhouse gas emissions. But they will do little to cut emis-

sions unless they are accompanied by oil and gas import restric-

tions; and demand falls in tandem. Otherwise, domestic output

is simply replaced with imports—with payment often funding

autocratic states. The new rules will simply make these coun-

tries more dependent on imports at a time when domestic out-

put is falling, and demand is often continuing to grow—

something that appears to have been recognized in Ireland.

Rather than banning upstream activity, a better approach

would be to use the taxes generated by any new production

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