A landmark government deal will protect jobs but what will the future hold for the North Sea?
The deal is aims to protect some 40,000 jobs and, in exchange, lock-in commitments to cut emissions by 50%.
It can be framed as a step to subsidise what is an increasingly marginal sector in the context of the wider hydrocarbons industry which itself faces substantial structural changes.
Hydrocarbons, particularly gas, are very much vital and irreplaceable in the UK energy mix for the foreseeable future.
Electric and hydrogen powered vehicles may make today’s headlines but for most consumers remain tomorrow’s world. And, even if every road-user had a Tesla that would only further exacerbate Britain’s under resourced power generation sector.
Gas will very much remain in-demand for power generation in the UK.
Britain is a gas importer in a mid-pandemic, post-Brexit world in which barriers to international trade seem increasingly common.
The remaining domestic resources in the North Sea are strategically important to the country. But, the North Sea has probably never been less important to the upper echelons of the industry.
The majors have for several years exited and/or divested projects, and, more recently even the private equity groups that had bought up assets are also seeking exits and consolidations.
Substantial projects are now being taken up by smaller and more independent companies – which is positive for them – meanwhile new partnerships and consortiums have been formed to share access to mature infrastructure.
The government, via tax breaks, has effectively subsiding the North Sea operators for some time to stretch out the life of fields and manage them towards decommissioning (which is itself tipped to be a growth business area in the coming years).
Westminster’s latest deal to support the North Sea is worth some US$16bn to protect some 40,000 at-risk jobs. As quid pro quo, the government will mandate “climate compatibility” checks aimed at reducing emissions by 50% by the end of this decade.
The government described it as a landmark deal.
On one hand, the UK’s energy transition leans on natural gas and the North Sea.
At the level of the international operators in the industry, however, their ‘transition’ will skew towards higher quality, low-cost, low footprint projects that, largely, are not found in maturing basins like the North Sea.
The question will be whether there’s sufficient corporate demand for North Sea operations.
Is there, for example, sufficient appetite for opportunities with a 10-year investment horizon?
Or as energy companies look to limit the overall footprint of their operations, is there simply better terms to be had elsewhere?
Where would that leave Britain?
If the free market continues to trend away from the North Sea, what happens then to the nation’s strategic resources.
Does the country just import ever higher volumes of foreign gas to meet consumption?
In transportation alone that only increases the carbon footprint of the gas consumed in the UK, let alone the likelihood that it will come from territories with less environmental scrutiny.
Perhaps, alternatively, to retain domestic supply and ‘protect jobs’ the UK might eventually seek to establish a national oil and gas company.
A glance over at Britain’s rail transport and telecoms sectors, suggests a possible third option – nationalisation by-proxy – with companies executing government contracts whilst the state unpin the costs of infrastructure.
Whatever the scenario, the takeaway for now it is that future of the North Sea will likely need to be coaxed and managed.
Offshore lobby group Oil & Gas UK, on behalf of its 400+ members, said the latest government deal sets a course for the UK to meet the government’s target of net zero carbon emissions by 2050, whilst still generating the energy it needs to power homes, hospitals and the economy.
“Through government and industry working together we can make the UK a world centre of cleaner energy innovation that attracts investment, creates a new generation of jobs in areas that need them most and, importantly, hits these tough emissions targets that industry and government have signed up to,” said Deirdre Michie, OGUK chief executive.
Greenpeace, meanwhile, called the development a “colossal failure in climate leadership”. Instead, the environmental group wants the government to support a reskilling, retooling and investment into renewables energy and green infrastructure.
Read More: North Sea future will be coaxed and managed, does nationalisation eventually loom?