Introduction: Britain gives go-ahead for Equinor to develop Rosebank oil field
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Rosebank, the largest untapped oilfield in UK waters, has been approved by the UK government, sparking outrage from environmental campaigners.
Britain has given the go-ahead for Oslo-listed energy company Equinor to develop the oil and gas field in the North Sea, northwest of the Shetland islands.
Equinor, which holds a majority stake in Rosebank, will develop it with its British partner Ithaca Energy and invest $3.8bn. The field is expected to produce at least 300m, possibly up to 500m barrels of oil and is three times bigger than the controversial Cambo field that was put on hold more than a year ago.
A spokesman for the North Sea Transition Authoritysaid:
We have today approved the Rosebank Field Development Plan (FDP) which allows the owners to proceed with their project.
The FDP is awarded in accordance with our published guidance and taking net zero considerations into account throughout the project’s lifecycle.
Rosebank is one of the most controversial energy projects, with hundreds of climate scientists and academics and more than 200 organisations from the Women’s Institute to Oxfam joining tens of thousands of people across the UK in opposition. Environmentalists argue that it contravenes Britain’s plan for a net zero economy.
Philip Evans, Greenpeace UK’s climate campaigner, said:
Rishi Sunak has proven once and for all that he puts the profits of oil companies above everyday people. We know that relying on fossil fuels is terrible for our energy security, the cost of living, and the climate. Our sky-high bills and recent extreme weather have shown us that.
The ugly truth is that Sunak is pandering to vested interests, demonstrating the stranglehold the fossil fuel lobby has on government decision making. And it’s bill payers and the climate that will suffer because of it. Why else would he make such a reckless decision?
This decision is nothing but carte blanche to fossil fuel companies to ruin the climate, punish bill payers, and siphon off obscene profits. We already have the solutions to cut bills, increase energy security and cut emissions, but the government ignores them in favour of handouts to corporations at the expense of the rest of us.
The news came as oil prices climbed by $1 a barrel, as markets worry about tight supplies heading into the winter and higher interest rates.
The oil producers’ cartel Opec, led by Saudi Arabia, and allies such as Russia have cut production and forecast supply shortfalls.
Brent crude rose more than 1% to $94.98 a barrel while US light crude is up 1.1% at $91.4 a barrel.
There are also concerns that higher interest rates could slow economic growth and reduce demand for oil. The US Federal Reserve has signalled that borrowing costs may need to be stay higher for longer than expected.
Separately, Hui Ka Yan, the billionaire chairman of the stricken property developer Evergrande, has been placed under police control, Bloomberg reported.
Hui was taken away by Chinese police earlier this month and is being monitored at a designated location.
It’s not clear why Hui is under so-called residential surveillance, a type of police action that falls short of formal detention or arrest and doesn’t mean Hui will be charged with a crime, Bloomberg said. This means he is unable to leave the location, meet or communicate with others without approval. Passports and identification cards must be handed to police but no longer than six months, according to the law.
Evergrande, the world’s most indebted property developer, is at the centre of a crisis in China’s property sector. A wave of defaults in the property sector has dragged down growth in China’s economy.
Mace CEO: ‘very rare’ for big projects like HS2 to be scrapped, would damage investment
Mark Reynolds, the chief executive of the construction company Mace that’s involved in the HS2 rail project, has been talking about it on BBC radio 4 today.
It’s to benefit the whole country. It’s not just Euston. It’s the whole country will benefit from a significant rail network.
He warned that scrapping HS2 would make international businesses more reluctant to invest in the UK, and that the uncertainty has already had an impact.
It’s very rare that you work on a major scheme and it gets stopped. It happens but it doesn’t normally happen in the UK, quite frankly at this scale. Certain projects around schools, hospitals get cut detailed or delayed, which is a frustration and it means that it’s more challenging for the industry to plan its workforce and invest.
But I must say over the last three or four years it’s certainly been more challenging in the UK, which actually is also damaging investment into the UK we know that international finance business leaders are reluctant to invest in the UK.
Asked whether Mace would consider working on a big UK government infrastructure project in the future, he replied:
Well, we’re certainly cautious.
Pulling plug on HS2 ‘would be final nail in coffin for levelling up’
Abandoning high-speed rail in the north of England would be an “appalling dereliction of responsibility” risking tens of thousands of jobs and “the final nail in the coffin” for levelling up, political and business leaders have warned, my colleagues Josh Halliday and Jessica Murray report.
Rishi Sunak is considering scrapping the Birmingham to Manchester leg of HS2 despite a furious response from senior Conservatives and business chiefs.
The move, expected to be announced in the autumn statement in November, would scupper plans for a Northern Powerhouse Rail (NPR), connecting the north of England from Liverpool to Hull, which relies on part of HS2’s network.
Ithaca Energy, the British oil and gas firm, confirmed this morning that together with Equinor it will invest $3.8bn in the Rosebank oil field. Ithaca owns a 20% stake in Rosebank while Equinor, the operator of the field, owns the rest.
Gilad Myerson, executive chairman at Ithaca Energy, said:
Rosebank stands as the largest undeveloped field in the UK, and with the receipt of development consent from the North Sea Transition Authority, we are now poised to embark on a journey that will not only provide critically important domestic energy but also ignite substantial economic impact. The Rosebank project will create thousands of jobs and contribute significantly to securing the UK’s energy needs for many years to come.
Rosebank, which is 130km north-west of Shetland, is estimated to produce around 300m barrels of oil from the first two phases of the project (245m during phase 1). It is expected to lead to £8.1bn of total direct investment and support 1,600 jobs during the height of the construction phase, and support 450 UK-based jobs during the lifetime of the field, Ithaca said.
Project management and engineering activities will be performed mainly from Aberdeen and tree systems will be manufactured in Dunfermline. Umbilicals will be produced in Newcastle, pipelines will be fabricated in Evanton and the main vessel mobilisation site will also be in the UK. In addition, several other fabrication sites in the UK will contribute to the project.
Alan Bruce, the Ithaca chief executive, said:
We look forward to expanding our working partnership with Equinor to deliver one of the lowest emission intensity assets in the UK. The Rosebank development represents a significant investment in the UK and Scotland, and we are delighted to be supporting our local supply chain.
Swedish clothing giant H&M has blamed unusually hot weather across Europe for poor sales in September, saying this disrupted the start of the autumn shopping season.
H&M, the world’s second-biggest fashion retailer, said September sales will be down 10% year on year, measured in local currencies. By contrast, its biggest rival, Spain’s Inditex which owns the Zara chain and other brands, reported a 14% rise in sales between 1 August and 11 September.
Vera Diehl, portfolio manager at Union Investment, which holds shares in both H&M and Inditex, told Reuters:
If the sales at your competitor basically go up by 14% with the same weather, that tells you something, to my mind.
However, H&M’s profits in the June to August quarter jumped to 4.74bn kronor from 902m a year earlier. The retailer stuck to its goal of increasing its operating margin to 10% next year (from 8% in the quarter and 3% last year) and said its cost-cutting programme was continuing “at full speed”.
H&M shares rose nearly 4% in early trading.
RBC analyst Richard Chamberlain said:
We believe H&M is very much in ‘trading sales for profits’ mode which is leading to margin improvement but some pressure on volumes. It appears to be losing some like-for-like share in major markets.
Back to the Rosebank oil field approval. Jess Ralston, energy analyst at the Energy and Climate Intelligence Unit, a non-profit group, said:
A week after a swathe of net zero U-turns and a few days after abandoning the expert Energy Efficiency Taskforce, the prime minister has shown that he’d rather give tax breaks to oil companies than lower energy bills. Taxpayers will fork out around £4bn to the developers of the oil field, money that could have insulated millions of homes with many set to be colder and poorer this winter.
To make matters worse, Rosebank oil will mostly be exported and then sold back to us at whatever price the oil companies can get. So it won’t help one bit with energy independence or gas bills, despite the government’s rhetoric. New renewables could help, but Treasury rules meant that no new wind power was secured at the latest renewable auction.
What does this mean for today’s young and future generations? Inheriting the huge costs of decommissioning oil and gas fields and ever more emissions that are driving climate change.
Labour mayors urge Sunak not to scrap, delay or scale back HS2
Five Labour mayors have urged Rishi Sunak not to scrap, delay or scale back HS2 as it would “leave swathes of the north with Victorian transport infrastructure that is unfit for purpose”.
Sadiq Khan, Andy Burnham, Tracy Brabin, Oliver Coppard and Steve Rotheram say they have been “inundated” with concerns from constituents about the potential “economic damage that will result from any decision not to proceed with HS2 and Northern Powerhouse Rail (NPR) in full”.
The regional mayors issued a shared statement to express dismay at the prospect of the UK government scrapping the rail project’s northern leg, ahead of a collective meeting on Wednesday.
The cabinet minister Lucy Frazer, when asked if they would listen to the mayors’ plea not to cut the rail project further, said the prime minister and chancellor “listen to a wide variety of voices”.
The ethical fashion brand People Tree is putting its UK business into liquidation with debts of more than £8.5m including money owed to suppliers, customers and most of its British workforce.
Founded by the former wife and husband team Safia and James Minney, People Tree’s celebrity following included the film star Emma Watson and the model Jo Wood. It became an influential voice in UK fashion, using organic materials and campaigning for better treatment of garment workers around the world.
In other news…
Scrapping inheritance tax would cost the government almost £15bn a year in lost revenue by 2032, according to analysis by the Institute for Fiscal Studies that follows calls from Tory MPs for the main tax on inherited wealth to be abolished.
The thinktank said the latest figures from HMRC showed fewer than 4% of estates paid inheritance tax (IHT) in 2020–21, but the rapid growth in wealth among older individuals meant this number was set to rise to more than 7% over the next decade.
While London has the most estates liable to pay the tax, hotspots across Sussex, the Cotswolds and around Birmingham will have the greatest number per 100,000 residences.
Dr Paul Balcombe, senior lecturer in chemical engineering and renewable energy at Queen Mary University of London, said:
Signalling the expansion of North Sea oil and gas won’t make energy cheaper for us and will make it more difficult to transition to net zero. Together with the announcements of the rollback of marquee policies relating to petrol/diesel cars, energy efficiency improvements in homes, and phasing out boilers for home heating, this is a rather comprehensive dismantling of the policy measures in place to get to the next deeper phase of decarbonisation.
On the prime minister’s net zero policy changes last week, he said:
The UK Committee on Climate Change has previously warned that we are not on track for our interim decarbonisation targets, and delaying further will inevitably remove Britain from the forefront of the global decarbonisation drive. The rollback on policy implementation will inevitably make deep decarbonisation in 2030/2040 much more expensive to the government and to the public.
Ithaca Energy shares jump 8%
Shares in Ithaca Energy, which will partner with Norway’s Equinor to develop the huge Rosebank oil field, 80 miles west of the Shetland islands, have jumped more than 8% on news of the approval of the controversial project.
The shares are the top riser on the FTSE 250 in London.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said:
The waiting game is over and with approval now granted by the UK government for the exploitation of Rosebank, Ithaca Energy investors have cheered at the news, with shares rising by more than 8% in early trade. The company and its giant Norwegian partner Equinor have announced they have taken the final investment decision to progress phase 1 of the development on the UK continental shelf, 80 miles west of Shetland.
Ithaca Energy has been on a rollercoaster ride since its launch onto the London market, weighed down partly by the windfall tax. It said the energy profits levy forced it to write down its assets by £58m. So, the approval marks a ray of light for the company, and it is ploughing on with its plans.
The decision will undoubtably allay some energy security concerns, given that the partnership estimates that 245m barrels of oil could be produced in phase 1 on the project, but it pushes the UK down a notch in terms of its net zero leadership. Even though the regulator has said that these considerations have been taken into account, and the companies have stressed that electrification of operations will reduce emissions, it muddies the playing field again when it comes to government support for the green transition. The decision, coming so swiftly after the Sunak administration pushed back the ban on sales of new petrol and diesel cars to 2035, leads to more uncertainty for companies and investors focused on cleaner energy solutions.