Oil and gas will be with us for a long time – North Sea production is equivalent to 80% of our annual oil use and just over half of the gas we need. In the King’s Speech last week, the government indicated that licensing rounds would now take place annually, rather than the old pattern of approximately every two years.
Using North Sea energy means the UK gets jobs and tax revenues, while enhancing energy security. It is also environmentally beneficial, given the huge carbon intensity of importing LNG from Qatar or the United States.
So, while investment could be curtailed by the government’s 75% “windfall tax” on North Sea profits, a more predictable licensing regime is certainly a sensible move.
When it comes to generating growth, reliable supplies of semiconductors are these days as important as energy – given their widespread use in automobiles, consumer electronics, and, increasingly, artificial intelligence. But the geopolitics of chip supply chains has become as complex as that of hydrocarbons.
Taiwan boasts half of the world’s production, followed by South Korea and Japan. The United States ranks fourth – representing 12% of global output, followed by China. But China, of course, has its eyes on Taiwan. The global semiconductor shortage caused by the global shutdown in early 2020 has by no means abated.
Semiconductors are difficult to manufacture, the necessary skills are scarce, and it takes years to get factories up and running. Supplies of vital inputs – such as neon gas and high-purity hydrogen fluoride – are closely guarded by countries such as Russia and Japan. Any medium-term growth plan for the UK will have to take into account, as geopolitical tensions rise, where our semiconductors will come from.
The same is true for rare earth elements – the 17 elements used in electric car batteries, wind turbines, lasers and, again, consumer electronics. China has 44 million tons of rare earth oxide equivalent – 34% of known global reserves. Other large deposits – more than 20 million tons each – are located in Vietnam, Brazil and Russia. Australia has 4.2 million tons and the United States 2.3 million tons, so countries friendly to the West are relatively small countries.