UK Offshore Re-Engineers for Net Zero

Upstream lobby group Oil & Gas UK says its members are pinning their hopes on a green economic recovery, with carbon capture and storage and hydrogen production absorbing some of the jobs lost as oil and gas production wanes, according to its latest economic report. 

Published December 1, it says 85% of its members surveyed throughout the supply chain expect to increase their diversification into non-oil and gas activities during the next 12-24 months owing to the current market conditions. 

This was the direst year for the offshore, as oil and gas demand fell and strict working conditions in response to the pandemic caused a number of operations to be postponed. About 8,000 jobs have been lost just this year, according to OGUK, and just six exploration wells were spudded.

The average day-ahead National Balancing Point price has been less than 23 pence per therm (p/th) ($3.1/mn Btu) – one-third lower than the 2019 average (34.70p/th) and almost two-thirds lower than the 2018 average (60.32p/th). At one point in the year, the UK was exporting both gas and oil as its own needs were so low.

And it will be two or three years before drilling returns to pre-Covid-19 levels. Market intelligence manager Ross Dornan told press November 30 that activity postponed from this year will not simply reappear next year. But there are over 135 exploration and appraisal projects identified in company plans at the start of 2020 at varying stages of maturity and more than £35 ($47)bn of capital investment opportunities over the next decade, with varying  probabilities of progression.

"The economic impact of the pandemic on companies, particularly in the extensive supply chain, has been severe. Activity levels, revenue and margins continue to be undermined at a time of additional uncertainty as the post-Brexit transition period ends," says the report. However, production this year is expected to remain around 2019 levels of almost 1.7mn barrels of oil equivalent/day. 

But as long as oil and gas production becomes cleaner, the upstream has a long future ahead of it owing to the benefits of security of supply and competitive pricing, Dornan said. And despite the conditions, companies are still committed to reducing emissions associated with the production of oil and gas, and continue to be some of the biggest sectoral investors in offshore wind, hydrogen,  and carbon capture utilisation and storage (CCUS). 

"Achieving our CCUS goals could require around £2-2.5bn by 2030 to develop transport and storage infrastructure and hydrogen will become increasingly integrated, replacing around 50 TWh of UK gas consumption by 2030," says the report.

The Oil and Gas Authority (OGA) estimates that the North Sea has the potential to contribute as much as 60% of the UK’s emission abatement by 2050 – with half of this being through integration across the energy landscape, including hydrocarbon production, hydrogen production, CCUS and wind power. 

The OGTC (formerly the Oil & Gas Technology Centre, before rebranding) estimates that around £430bn of investment in offshore energy integration could unlock a cumulative £2.5 trillion of value and support around 200,000 jobs in the future. This emergent technology relies on the proven track record of energy supply chain companies to bring new concepts to the market. 

Consultancy Deloitte said the report was "evidence of the strength and expertise embedded in the UK oil and gas industry and the unique opportunity the sector has to lead the global drive towards a lower-carbon future. 

"Achieving the UK's climate change ambitions won't be easy, however there is a clear pathway forward. While the scope for job creation is huge, it is crucial companies are supported to utilise the skills and expertise already present within the sector. Doing so is fundamental to ensuring the UK's smooth transition to a lower-carbon future," it said.