A recent court decision has annulled approvals for two major North Sea oil and gas projects, leading to concerns regarding the future of the industry. The judge’s ruling has drawn attention from environmental advocates who view it as an essential step towards addressing climate issues.

Both Shell’s Jackdaw gas project and Equinor’s Rosebank oil project are now required to reapply for government authorization, as the initial approvals did not take into account the emissions produced when the hydrocarbons are combusted.

While production for both projects cannot commence until new consents are granted, the companies are permitted to continue their development activities for the time being.

Wael Sawan, the CEO of Shell, has urged the government to expedite the re-approval process for Jackdaw, which received its initial consent in 2022 and is currently halfway completed, with an investment of around £800 million.

Situated approximately 155 miles from Aberdeen, the gas field is scheduled to begin operations in 2026, with the potential to supply gas to 1.4 million households. Sawan emphasized that this project is a “critical piece of national infrastructure,” crucial for the UK’s energy independence.

Rosebank, owned by Equinor and Ithaca Energy, is located 80 miles northwest of Shetland and is known as the largest untouched oil reserve in UK territorial waters, having been granted initial approval in September 2023.

The legal challenge was initiated by environmental organizations, including Greenpeace and Uplift, contesting the government’s decision to approve both the Rosebank and Jackdaw projects.

A Supreme Court ruling last summer stated that new projects must include assessments of the impact of burning extracted oil and gas.

The recent ruling by Lord Ericht at the Court of Session in Edinburgh confirmed that the prior approvals for both projects were invalid due to the failure to consider emissions from the combustion of the resources.

Shell and Equinor contended that their approvals should remain intact; however, Lord Ericht ruled that “the public interest in ensuring lawful actions by authorities, alongside the community’s concerns regarding climate change, outweigh the interests of the developers.”

Regulators will have to reevaluate these projects based on updated guidelines from the government, which are expected to be released in the upcoming spring.

The outcome for both oil fields could be indicative of the government’s strategy concerning North Sea energy production. Energy Secretary Ed Miliband has previously communicated intentions to cease the issuance of new North Sea oil and gas licenses, labeling the Rosebank project as a “colossal waste of taxpayer money.”

It is important to note that both the Rosebank and Jackdaw projects received their licenses in previous years; the current case pertains only to development permissions for projects within the already licensed zones.

A representative from the Department for Energy Security and Net Zero stated: “The government is already revising environmental guidance to account for emissions from the combustion of extracted oil and gas, aiming to stabilize the industry, support investment, safeguard jobs, and foster economic growth.”

Analysts at Stifel, an investment firm, predicted that the new emissions assessments would not lead to retraction of the prior approvals, and expressed the belief that the ruling would have “no significant impact.”

Conversely, Gail Anderson, a research director at Wood Mackenzie energy consultancy, warned that the ruling may prolong the approval times for new projects, “which ultimately does not aid UK supply and energy security.”

Sawan described the judgment as a “mixed outcome,” noting that Shell was pleased not to have been ordered to halt its work. He urged the government to provide signals that would inspire confidence in investments.

Sawan further remarked, “It is critical that the government supports initiatives that could heat 1.4 million homes using domestic North Sea gas, reducing reliance on imports, which is essential at a time when gas storage is at five-year lows.”

In June of last year, the UK Supreme Court ruled against Surrey County Council, determining that the approval for the Horse Hill onshore drilling project was unlawful for not considering consumer-driven emissions as part of its environmental evaluation.

The judicial review for Jackdaw and Rosebank took place in Edinburgh in November, following the legal actions initiated by Greenpeace and Uplift.

Philip Evans, a senior campaigner with Greenpeace UK, hailed the decision as a “historic victory” for environmental advocates.

He stated: “The era of governments approving drilling operations while disregarding their environmental ramifications is over. The courts have validated our long-held assertion that Rosebank and Jackdaw are unlawful without comprehensive climate impact assessments.”

Tessa Khan, executive director of Uplift, was critical of the Rosebank project, labeling it a poor investment for the UK, noting that the majority of its oil would be marketed internationally, offering no direct benefit to domestic energy prices or security.

Khan added: “If Equinor and Ithaca Energy press ahead with Rosebank despite this verdict, the government must reject it to maintain its commitment to clean energy and avoid sending investors the wrong message about transitioning away from costly oil and gas.”

Scottish Conservative energy spokesperson Douglas Lumsden called the decision detrimental to the North Sea oil and gas sector, emphasizing its significance for the region’s economy and energy stability.

Russell Borthwick, CEO of Aberdeen & Grampian Chamber of Commerce, described the decision to allow ongoing work on Jackdaw and Rosebank as a “victory for common sense,” averting potential embarrassment for the UK concerning energy security.

A representative from Shell remarked on the ruling’s allowance for work to proceed on this vital energy initiative, urging timely government action to facilitate critical decisions regarding UK energy infrastructure.

According to Shell, upon becoming operational, Jackdaw will supply enough energy to heat 1.4 million homes in the UK, which is particularly significant as older gas fields are nearing the end of their operational life and as the UK becomes increasingly reliant on gas imports.

Equinor expressed satisfaction with the ruling, allowing Rosebank to advance while awaiting new approvals, highlighting a £2.2 billion commitment towards the project’s development, expected to generate up to 2,000 jobs in the UK during its construction phase.