Would more North Sea drilling lower UK energy bills? Our analysis says no

As the Middle East conflict intensifies and oil and gas prices swing wildly, the UK has seen renewed calls to drill more in the North Sea. The argument is straightforward: if Britain produces more of its own oil and gas, household energy bills should fall.

But our analysis suggests the effect would be minimal. Even if the UK maximised North Sea extraction and returned revenues directly to households, the reduction in energy bills would be at most a modest £82 per year – far smaller than the savings expected from accelerating the shift to renewable energy.

In fact, a faster transition away from gas-powered electricity could cut household energy bills by three times as much as maximising North Sea oil and gas.

Why UK energy bills are so high

A typical UK household has a single “dual fuel” bill covering both electricity and gas. This can be divided into several different components.

The largest share is the wholesale cost – the price suppliers (the company named on your bill) pay for electricity and gas – which accounts for about 41% of the bill. The rest covers the costs of running and maintaining energy networks (23%), operating costs and debts (15%), policy costs such as environmental and social levies (12%) and VAT.

At the wholesale level, the UK does not consistently pay more than other European countries. At various points since 2022, countries such as Italy and Germany have faced similar or higher wholesale costs.

Yet UK households still pay some of the highest retail electricity prices in Europe. That’s because of how the electricity market works.

In Britain, the wholesale electricity price is usually set by the most expensive generator needed to meet demand. That generator is often a gas-fired power station. As a result, electricity prices tend to rise and fall with gas prices – even when much of the electricity is produced by cheaper sources such as wind or solar.

Gas also dominates home heating – 85% of UK households still rely on gas boilers, far more than in most comparable countries

This makes UK households highly exposed to swings in global fossil fuel prices. Gas prices are set on international markets, which are heavily exposed to geopolitical shocks, as seen both in 2022 after Russia’s invasion of Ukraine and again today.

Britain’s poorly insulated homes – among the least energy efficient in northern Europe – compounds the problem. This means households consume more gas to achieve the same level of warmth.

Why more North Sea drilling wouldn’t cut bills

Producing more oil and gas in the North Sea would not create the UK’s “own special supply”, nor could its price be set specifically for UK citizens.

That’s because any new production would be sold on international markets at international prices. The UK simply doesn’t have the ability to extract, refine and use oil all by itself even if it wanted to – some international trading will always be necessary.

The only way North Sea extraction could reduce household bills is through government revenues. Taxes and levies on oil and gas profits – the so-called fiscal “take” – could in principle be redistributed to households.

To explore this possibility, we modelled a scenario in which the UK maximised North Sea oil and gas and used all revenues collected to subsidise lower energy bills.

Even under those assumptions, the effect would be limited. Household bills would fall by between £16 and £82 per year. That’s roughly 1% to 4.6% of the current average household energy bill of £1,776, according to UK regulator Ofgem.

Bigger savings from renewables

A different policy direction – one that reduces the role of gas in electricity production – produces much larger savings.

If the price of electricity was set by cheaper renewable energy rather than by gas, our analysis suggests households could save £105 to £331 per year through lower wholesale energy costs.

That is roughly three times more than the “maximise oil and gas” scenario.

Importantly, these savings would also be recurring. Once electricity prices are less tied to volatile gas markets, and instead are set by cheaper and infinitely available resources – wind and sun – households benefit every year.

Savings could be still higher if the structure of electricity bills were rebalanced. At present, many policy costs – including support for renewables – are added to electricity bills rather than funded through general taxation.

If those policy costs were moved into general taxation, as announced in the government’s autumn 2025 spending review, the average household could save up another £110 or so annually. In our renewables scenario, that would bring the total savings to about £441 per year.

Moving policy and system costs from bills onto general taxation is one way to make energy costs fairer and more egalitarian. That’s because energy bills take a larger share of income from lower income households while taxes better reflect ability to pay.

Our analysis used oil and gas prices in January 2026, prior to the breakout of the US-Israel war on Iran. In other words, ours is a conservative scenario that assumes relatively favourable conditions for fossil fuels. If global prices rise further, the advantages of renewable energy would become even greater.

Reducing exposure to fossil fuel shocks

Recent history illustrates how costly dependence on fossil fuels can be.

Research by our colleagues at Oxford Smith School found that if the UK had moved away from importing Russian oil and gas after its 2014 invasion of Crimea, it would have saved about £22 billion in energy costs during the price spike after the invasion of Ukraine in 2022.

Similarly, had the UK adopted the “balanced net zero” pathway proposed by its official advisory Climate Change Committee, it could avoid spending around £70 billion on crude oil and natural gas between 2022 and 2030.

Today’s energy crisis simply reiterates this argument: if the UK was less reliant on oil and gas today, it would be in a much better economic position.

The best way to keep energy bills low in the long run is to reduce dependence on gas altogether. That means expanding renewable generation, investing in energy storage and grid infrastructure, improving home insulation and electrifying heating through technologies such as heat pumps. Support for vulnerable households will also be crucial during the transition to a lower-carbon energy system.

Our findings refute speculation that draining the North Sea of all oil and gas would significantly lower bills and make the UK energy secure. Even if further fossil fuel extraction went ahead and all tax revenues were returned directly to consumers, the savings for consumers would be modest. Meanwhile the UK would remain exposed to geopolitical shocks and be economically worse off.

Staying the course on clean energy would not only save households three times as much money but render the UK truly energy secure for generations to come.