Fuelling the energy transition: North Sea Oil & Gas, and Alternative Fuels

The blog below is an extract from Slaughter and May’s UK Energy and Infrastructure: What’s to come in 2025 publication. For information regarding other sector developments, please click here.

North Sea Transition: Balancing energy jobs and Net Zero objectives

The new Labour government has committed to ensuring a “phased and responsible transition” in the North Sea, the stated aim of which is to balance job protection while recognising oil and gas’s ongoing role in the UK’s energy mix. However, it has yet to conclude the consultation on its manifesto pledge to halt the issuance of new oil and gas licences for exploring new fields. Meanwhile, the North Sea Transition Authority (NSTA) has paused issuing invitations to apply for new licences, pending this consultation process, which we expect by spring 2025. In addition, the government initiated a review of Scope 3 emissions from offshore oil and gas projects following the Supreme Court's landmark Finch ruling in June 2024. This ruling confirmed that developers of fossil fuel projects must disclose potential Scope 3 emissions as part of a complete environmental impact assessment.

With the Energy Profits Levy (EPL) scheduled to conclude on 31 March 2030, we expect the government will launch a consultation early this year to explore how oil and gas taxation should respond to future price volatility. Acknowledging the industry’s need for long-term fiscal certainty, the government has signalled its intention to provide a stable framework. Offshore Energies UK (OEUK), which has previously criticised the EPL for undermining the sector’s ability to support economic growth, has welcomed the upcoming consultation.

In 2025, the North Sea sector is likely to advance its adoption of technological innovations to meet ambitious emissions reductions targets in line with the UK’s net zero commitment by 2050. Solutions enhancing energy efficiency, reducing flaring and venting, and optimising fuel usage are expected to remain at the forefront of industry efforts.

Finally, we highlight the significant opportunities for the integrated energy sector in the North Sea, particularly in offshore wind, carbon capture, and hydrogen. The government endorsed the Energy Skills Passport in October 2024, a joint initiative by OEUK and Renewables UK. This tool aims to facilitate workforce mobility between oil and gas and renewables, fostering cross-sector recognition of skills and training.

Alternative Fuels: Measures seek to grow the domestic market

As the UK seeks to reduce its dependence on fossil fuels, the market for alternative fuels is growing and maturing. For example, with low carbon fuels set to play an increasingly important role in decarbonising UK transport, 2025 has already seen a milestone achieved as the Sustainable Aviation Fuel (SAF) Mandate officially came into force on 1 January. Operating as a tradeable certificate scheme, the SAF Mandate is designed to secure demand for SAFs by compelling eligible aviation fuel suppliers to ensure that SAFs make up an increasing proportion of overall aviation fuel supply: the target is set at 2% for 2025 but is due to increase to 10% in 2030 and 22% in 2040.

Eligible fuels include waste-derived biofuels and recycled carbon fuels, all of which must meet strict sustainability criteria (including achieving at least 50% greenhouse gas reductions relative to fossil jet fuel). The SAF Mandate will also incentivise the development of “power-to-liquid" aviation fuel (created using green hydrogen and captured carbon dioxide) by introducing a dedicated requirement that 0.2% of aviation fuel supplied must be power-to-liquid from 2028, rising to 3.5% in 2040. Please see above for further information on low carbon hydrogen. Together, these measures could deliver up to 6.3 Mt of carbon savings per year by 2040. To support the mandate and attract investment in new SAF plants in the UK, the government intends to introduce a Sustainable Aviation Fuel (Revenue Support Mechanism) Bill. SAF producers, consumers and potential investors will be expecting further details of how this measure could work in a consultation to be launched by the government in early 2025. The government is aware of the interaction between a potential revenue support mechanism for SAFs and other forms of support (including for low carbon hydrogen and CCUS) and its emerging policy aims to align such support to avoid providing double subsidies.

Across low carbon fuels more broadly, the government is consulting on how to improve the Renewable Transport Fuel Obligation (RTFO) which requires suppliers of liquid fossil fuels to supply a certain percentage of renewable fuel to the market. In particular, the consultation seeks views on the level at which RTFO targets are set, how low carbon fuels are rewarded under the obligation, and the treatment of fuels derived from wastes and crops. The consultation closes on 27 January 2025 and a summary of responses will be published alongside a statutory review of the RTFO later in 2025.

For information regarding other sector developments, please click here.