UK draws up North Sea deal, but with future licensing restrictions

March 24, 2021
Britain’s government has agreed on a North Sea Transition Deal with the oil and gas industry.

Offshore staff

LONDON – Britain’s government has agreed on a North Sea Transition Deal with the oil and gas industry.

This is designed to support workers, businesses, and the supply chain through the energy transition.

It involves a combination of the industry’s existing capabilities, infrastructure and private investment to exploit new technologies such as hydrogen production, carbon capture usage and storage, offshore wind, and decommissioning.

The oil and gas market, based mainly in Scotland and northeast England, will work with government and trade unions over the next decade and beyond to deliver the skills, innovation, and new infrastructure needed to de-carbonize North Sea production.

The Deal will support companies decarbonizing to prepare for a net zero future by 2050, and will also aim to foster a business environment that attracts new industrial sectors to set up bases in the UK, developing new export opportunities and jobs for UK businesses.

According to the government, oil and gas extraction on the UK continental shelf accounts for around 3.5% of the UK’s greenhouse gas emissions.

Through the package of measures, the Deal should reduce pollution by up to 60 MM metric tons (66 MM tons) by 2030, including 15 MM metric tons (16.5 MM tons) from UK oil and gas production, while also supporting up to 40,000 jobs across the supply chain.

Key commitments of the North Sea Transition Deal include:

  • The sector will set targets to reduce emissions by 10% by 2025 and 25% by 2027, and will work to cut emissions by 50% by 2030
  • A joint government and oil and gas sector investment of up to £16 billion ($22 billion) by 2030 to reduce carbon emissions. This will include up to £3 billion ($4.11 billion) to replace fossil fuel-based power supplies on oil and gas platforms with renewable energy; up to £3 billion for carbon capture usage and storage; and up to £10 billion ($13.71 billion) for hydrogen production
  • By 2030, the sector will commit to ensure that local businesses will take on 50% of its offshore decommissioning and new energy technology projects
  • The appointment of an Industry Supply Chain Champion to coordinate local growth and job opportunities with other sectors, such as carbon capture usage and storage and offshore wind.

Prior to each future oil and gas licensing round, the government will also introduce a new Climate Compatibility Checkpoint to ensure that newly issued licenses aligned with climate objectives, including net-zero emissions by 2050.

Using this latest evidence, the checkpoint will examine domestic demand for oil and gas, the sector’s projected production levels, the growth of clean technologies such as offshore wind and carbon capture, and the sector’s continued progress in meeting emissions reduction targets.

The government added that it believes future licenses should be granted only on the basis that they are compatible with the UK’s climate change objectives – and if the evidence suggests a future licensing round would undermine the UK’s climate goals or delivery of Net Zero, it will not go ahead.

The checkpoint should be designed and implemented by the end of 2021 via engagement with a wide range of stakeholders.

Dr Andy Samuel, chief executive of the Oil and Gas Authority (OGA), welcomed the announcement, stating that “It puts the onus on industry to go further and faster to support the UK’s net zero target.”

The deal also embodies the three main principles that the OGA believes are needed for successful energy transition, he continued.

“Oil and gas currently provide around three-quarters of the UK’s energy consumption, with government forecasting them to remain important to the energy mix for the foreseeable future. It’s without question however that existing and future production must be cleaner.

“We are holding industry to account on their commitment to halving their production emissions by 2030 and becoming net zero by 2050. We have already seen a 22% reduction in flaring volumes in the last year, but there is a lot more to do.

“We’ve brought together industry and the power sector, strongly advocating for the widespread electrification of offshore platforms in the North Sea which will not only help reduce emissions, but potentially support floating offshore wind capacity at scale.”  

Secondly, Dr Samuel noted, the deal recognizes that oil and gas and the associated UK expertise is critical to alternative energies such as floating offshore wind and hydrogen, as well as carbon capture and storage (CCS).

“We have been working ever closer with fellow regulators to identify and unlock the value of energy integration. We identified the incredible opportunity to contribute up to 60% of the UK’s net zero abatement through a mix of platform electrification, CCS, hydrogen production, and offshore wind.”

The OGA, he added, is currently supporting around 30 energy integration projects at various stages.

Finally, Dr Samuel noted that deal recognizes that for the 270,000 UK jobs currently dependent on oil and gas, an orderly transition is needed.

“It was good to see funding committed to the establishment of the Aberdeen Energy Transition Zone and a Global Underwater Hub. These should safeguard jobs in the sector, anchor our world-class subsea expertise in the region and create new skilled jobs and opportunities.”