A major North Sea oil project which it was claimed would help secure UK energy supplies has been plunged into crisis after Shell pulled out citing doubts about its viability, amid a lack of political support in Westminster and Holyrood.
The Cambo oil field off the Shetland Islands was set to create an estimated 1,000 jobs and produce more than 170m barrels of oil equivalent in a boost to the UK’s oil and gas industry even as it moves towards greener energy.
But it has come under sustained attack due to the growing urgency over cutting carbon emissions, with campaigners demanding it is blocked by the UK Government. Nicola Sturgeon, Scotland’s first minister, has meanwhile openly opposed the project.
Senior figures at Shell are understood to have become frustrated by the UK Government’s unwillingness to give Cambo public support.
Environmentalists claimed what “should be a deathblow” after the company said it had carried out a “comprehensive screening” and concluded the “economic case for investment in this project is not strong enough at this time, as well as having the potential for delays”.
Shell’s fears of delays are likely to be interpreted as based on the political climate, which risks seeing Cambo bound up in regulatory delays, legal challenges or protests.
The project is awaiting the green light from the government’s Oil and Gas Authority, while anti-fossil fuel campaigners are increasingly turning to the courts, with a group challenging the UK Government’s support for oil and gas in the High Court.
Shell holds 30pc of the licence alongside private company Siccar Point Energy, which said it was “confident about the qualities” of the project and would “continue to engage” with the UK Government and others over its future.
Shell has been in the North Sea for decades and accounts for about 10pc of the UK’s oil and gas production. Its decision marks a significant moment in the increasingly bitter battle over the pace and shape of the shift to greener energy.
Despite efforts to shift to renewable energy, oil and gas still provide more than 75pc of total energy in the UK, fuelling most cars, boilers and 40pc of electricity.
Backers of Cambo argue that the UK will become more reliant on imports from Russia and the Gulf without it, while opponents fear it will only prolong the life of fossil fuels, adding to carbon emissions.
The debate is particularly raw for the UK oil and gas industry which has suffered through the oil price crash and the pandemic and declining interest from majors due to dwindling reserves.
Ministers have pledged to support the industry to develop cleaner hydrogen and carbon capture systems and run platforms on clean energy, helping replace lost oil and gas jobs, but this will also require significant private investment from the likes of Shell.
Liam Kerr, Scottish Conservative shadow cabinet secretary for energy, said Cambo will be “massively beneficial to our economy, securing our domestic supply of oil and gas while demand is still high”.
“It’s obviously disappointing that Shell have pulled out from Cambo but it is a business decision for them to make,” he added.
“Recently, Nicola Sturgeon’s language about oil and gas has been more harmful than helpful. This will no doubt make it harder for energy companies to invest in oil and gas, and the skills and technology needed to reach carbon net zero.”
Steve Baker, Tory MP and chairman of the influential Covid Recovery Group, accused critics of the project of sabotaging jobs and livelihoods.
“I congratulate everyone who has tried to stop hydrocarbon investment and I hope they will take responsibility when we emerge into an energy crisis caused by one of the biggest political failures in history,” he said.
“This is bound to cost jobs and hit ordinary people extraordinarily hard and it is not just the SNP and Labour who are to blame but also members of my own Conservative Party. We need to employ economically and politically viable solutions and unfortunately this path is not it.”
Greenpeace said Shell’s decision should be the deathblow for Cambo: “The Government is cutting an increasingly lonely figure with their continued support for the oil field.”
A UK Government spokesman said: “This is a commercial decision that has been taken independently by Shell.”
A Scottish Government spokesman said: “Unlimited extraction of fossil fuels is not consistent with our climate obligations and we continue to call on the UK Government … to urgently reassess all approved oil licences where drilling has not yet commenced against our climate commitments.”
Shell’s decision comes amid uncertainty in global oil markets over the impact of the Omicron coronavirus variant on demand.
The Opec oil cartel decided to maintain plans to gradually increase output each month, in a surprise win for the United States, which had been concerned about rising prices.
The UK joined the US last month in a release of strategic oil reserves to try to cool prices, which had climbed above $80 a barrel in November before falling below $70 after the new variant emerged.
Brent Crude climbed 1.9pc to $70.20, while US oil rose 2.1pc to almost $67.