UK and oil producers jointly target net zero in North Sea Transition

The UK government plans to invest heavily in emerging carbon capture, utilization, and storage (CCUS) and hydrogen technology as it tasks the country's oil and natural gas sector with building infrastructure it needs to reach net zero nationwide by 2050.

Under its 24 March North Sea Transition Deal, the UK will invest £14 to £16 billion (US$19 billion to $22 billion) by 2030 in the pair of technologies, jointly with the private sector, to save jobs amid a decline in fossil fuel reserves. These private backers were not named. The government said it planned to continue working with the oil and gas sector, largely in Scotland and northeast England.

Government efforts to move the transition along include its past pledge for four net-zero or near-net-zero industrial clusters and awarding £171 million ($236 million) for CCUS design studies, which will "unlock" about £2 to £3 billion ($3 billion to $4 billion) in private sector spending for CCUS and related transportation, it said.

The government also hinted at "billions" in private sector funding available for hydrogen. It reiterated that it has pinned its net-zero hopes on growing non-renewable hydrogen output, as well as renewable hydrogen using the UK's world-leading offshore wind sector.

The government might also pay £5 million ($7 million), on top of £1.3 million ($2 million) committed last year, for the Global Underwater Hub in Scotland, pending business case studies. The hub was initially announced in 2019 as a private-sector and academic venture to research underwater robotics for use with offshore renewables, oil and gas, marine science, and defense.

All this funding should spur the sector's progress on homegrown CCUS technology, which would pair low-carbon energy sources and hydrogen fuel for a decarbonized future. The private sector is expected to repurpose existing gas and oil infrastructure like offshore platforms, pipelines, and ships for moving captured carbon dioxide (CO2) to underground caverns.

Beyond targets for local sourcing and training of workers, the deal did not get into the specifics of how the industry would tackle these infrastructure projects, all of which are necessary as hydrogen and CCUS shift out of controlled testing and into widespread use.

Production not banned

The UK government mulled a ban on new oil and gas production in a review of the future of the licensing regime in September. While it has promised to stop financing overseas production, the transition deal document reveals Westminster will not stop national fossil fuel exploration or production. The lack of any promise came despite even oil major BP setting targets for reducing production.

Instead, the deal praised the energy security and affordability merits of continued oil and gas production. It expected production to reach an undefined "lower level," but it did not specify whether this would be because of the policies or natural decline of reserves. Both oil and gas production are forecast to decline through 2029, IHS Markit E&P data shows.

Any future exploration licenses will have to comply with a Climate Compatibility Checkpoint to ensure that the extraction of additional fossil fuels is still compliant with the UK's net-zero target.

The government plans to carry on awarding production licenses while achieving a 60 million mt reduction in GHG emissions, of which 15 million mt is from decarbonizing oil and gas production, and additional savings are from CCUS and hydrogen targets set out in Prime Minister Boris Johnson's 10 Point Plan, published in November.

Green groups like Friends of the Earth Scotland and the non-profit Energy and Climate Intelligence Unit (ECIU) criticized the UK's decision to continue to award North Sea production licenses. "For a government usually so keen to set targets, the absence of an end date for extracting fossil fuels from the North Sea is a glaring omission," said Jonathan Marshall, head of analysis at the ECIU.

Production emissions

The government said upstream oil and gas production accounted for 4% of the UK's emissions in 2018, including fuel consumption and flaring. The deal sets targets to reduce production emissions by 10% by 2025, 25% by 2027, and 50% by 2030 compared with 2018 levels. It also expects the sector will phase out routine flaring and venting to 30% as part of natural decline, while adding gas recovery and new flare management plans.

Gas flaring volumes increased from 2014 to 2018, until 2019 when the volume flared decreased. Gas flaring made up about 25% of the UK's offshore oil and gas CO2 emissions from production, according to IHS Markit data.

Recently, oil and gas sector associations have encouraged oil producers to reduce their emissions. Last year, an industry body, the Oil and Gas Industry Association also set a target of halving all emissions by 2030, including from flaring and venting.

In March, the UK's exploration licensing body, the Oil and Gas Authority (OGA), introduced emissions reduction in stewardship expectations for producers operating on the continental shelf, which reinforces the OGA Strategy in force from February 2021. The strategy outlines how the oil and gas industry should target net zero by 2050 and repurpose infrastructure for CCUS, according to an IHS Markit report on the OGA's strategy and net-zero stewardship expectations.

The OGA is also working with the government on its role on CCUS licensing. In the meantime, the government will legislate for a separate CCUS Transport & Storage regulator and a formal policy on re-use of fossil fuel infrastructure, according to the deal. Likewise, the government will review the Gas Act, monitor gas grid upgrades, and work with the Health and Safety Executive to enable up to 20% hydrogen to be blended with natural gas on the grid by 2023.

Offshore wind ambition

The transition deal fills in more detail behind the UK's broad strategy documents promising to grow CCUS and hydrogen, such as its Industrial Decarbonization Strategy published in March, the Energy White Paper published in December, and the 10 Point Plan.

The UK appears to be following the path laid by politicians and companies in Norway. Norwegian state-backed oil and gas company Equinor is part of a public-private partnership to install a major CCUS project, the Northern Lights facility, with the plan to build the market for CCUS and hydrogen. Norway is also continuing oil and gas production, despite raising taxation for oil and gas companies.

The OGA issued an August report suggesting platform electrification was necessary for cutting production emissions "near-term" as well as preserving the industry's social license to operate. Likewise, the Norwegian government and oil and gas producers have been electrifying platforms, including with floating wind power, since 1996. About half of its platforms are electrified.

Offshore platform electrification can add to the transmission network needed to increase offshore wind capacity, which the UK is also encouraging. The oil and gas sector is investing heavily in offshore wind. The deal may also improve access to finance for oil companies making renewable investments. The government's other plans include growing the UK's offshore wind capacity to 40 GW under a separate Offshore Wind Sector Deal.

Posted 02 April 2021 by Cristina Brooks, Senior Journalist, Climate & Sustainability, IHS Markit