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    UK Upstream Prepares to Take on Carbon


The industry is enjoying a minor resurgence now but life will become tougher again when new policy objectives hit it.

by: William Powell

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UK Upstream Prepares to Take on Carbon

Upstream industry group Oil & Gas UK (OGUK) will do what it can to help the UK achieve its legal obligations on climate change, it said September 4 as it released its Economic Report 2019To the policy objective of maximising the economic recovery of the UK continental shelf's oil and gas resources, which was set earlier this decade, has been added the government's nationally binding goal of net zero carbon emissions by 2050. The two are not incompatible, it says, with at least half of the UK's oil and gas demand potentially being produced at home by that date – and with the blessing of the Committee on Climate Change, too.

OGUK's Roadmap to 2035: a Blueprint for Net Zero addresses the new goal in some detail. It is a central part of its Economic Report 2019, which painted a patchily encouraging picture of oil and gas output.

OGUK CEO Deirdre Michie said: “Our Economic Report 2019 shows a greater proportion of UK demand being met from domestic production, exploration and drilling activity on the increase and a continued pipeline of new projects emerging. We need to build on this investment to encourage new fields to be developed to replace those coming to the end of their life. This will ensure as much as possible of UK demand is met from our own resources.”

Oil and gas from all sources met 75% of the UK energy needs last year, and of that, the continental shelf met 51% of UK gas needs and 67% of UK oil needs. 

Of the gas imports, 72% were directly from Norway and 15% from global LNG suppliers. The other 13% was pipeline gas from Belgium and Netherlands, which would be a mix of all sources including regasified LNG.

Oil production fared better than gas last year, as the oil price has been higher on an equivalent basis, and the returns better. This year output will rise again, by 2% or 3%; but that is mostly owing to the Clair Ridge oilfield.  Gas prices at the trading hub (NBP) have plunged this year, with day-ahead prices hitting 23 pence/therm, a 15-year low, in June; and the average month-ahead price is down 50% since January. But there have been some major gas finds too and more project sanctions are expected this year.

UK oil and gas production has risen by a fifth since 2014, owing to new fields coming on stream and better operating efficiency; and this has been achieved with fewer workers. Following the belt-tightening after the oil price fall, operating expenditure has halved since 2014 to $15-$16/barrel of oil equivalent and the total expenditure has come down from £10bn in 2014 to £7.1bn last year. But there have been cases of industrial action offshore, and OGUK, which includes contractors in its membership, stressed the need in its report for sharing of risk and reward.

Blueprint for 2035

Oil and gas production only accounts for 3% of UK total greenhouse gas emissions, but the industry says it has a big part to play in cutting UK emissions nationally over the coming decades as its assets and expertise will be important for carbon capture and storage and hydrogen production, for example.

Michie said the industry “now needs a comprehensive UK energy strategy which recognises the continued role of oil and gas in a diverse energy mix and positions us to support net zero.”

Roadmap to 2035: A Blueprint for net-zero "evolves from" the earlier document, Vision 2035, and sets out what is needed from government, regulators and industry to meet net zero while keeping the lights on affordably. That means importing as little oil and gas as possible. 

Michie said: “Roadmap 2035 shows an industry in action with a credible plan for the future. While we don’t have all the answers to the big challenges we face, we have started work on what we know can be done…. The facts outlined in our report evidence that our industry remains a vital economic asset and is uniquely positioned to help the UK meet its net-zero ambitions and energy needs in the years to come.

Roadmap 2035 offers a blueprint for how we can continue to meet much of the UK’s oil and gas needs from domestic resources, progressively reduce associated production emissions and develop economy-wide decarbonisation technologies."

A senior partner for Deloitte in Aberdeen Graham Hollis said that the roadmap was a welcome framework outlining how the sector will face some of the big challenges to meet the UK’s carbon reduction targets.

“While the report highlights that the transition to a more diverse energy mix is successfully underway, there is still work to do. Increased renewables investment and innovation in new technologies have been instrumental in improving sustainability, but more cross sector collaboration is required not only to meet growing UK demand but to ensure that this need is met by domestic production,” he said.