Cambo- Aye or No? – Stuart Paton
I started writing this piece quite a few weeks ago when the horrendous situation in Afghanistan was top of the news coverage, the UK Prime Minister was about to visit New York and Washington and there was a minor issue about an oil field off the West of Shetland. Energy is now front and centre of the coverage- huge increase in gas prices to the highest price on record, the collapse of a large number of energy providers, petrol shortages (possibly) and COP26 imminent. And of course these topics are all linked to a great degree.
We live in a very different world from a few years ago. The US shale boom provided essentially limitless volumes of oil and gas. The opening up of vast quantities of Russian gas to Western Europe and China. Increased volumes of gas being transported round the globe. Although there is not yet a shortage of energy, the demands of decarbonising the economy are creating a very different energy mix, driving huge changes in investments in projects throughout the world and having a direct impact on consumers through increased prices.
However, amongst all these really big issues, I did want to consider the parochial issue around the approval of new fields in the UK and how this is linked to the macro issues.
In recent months, we have seen strident attempts to persuade the Scottish government to intervene to stop the development of the Cambo oil field West of Shetland. (It is worth noting that it is not the Scottish government who make the final decision: presumably the hope of the campaigners is to persuade the Scottish government to influence the Oil and Gas Authority decision). There is also a less publicised ongoing legal challenge by Greenpeace regarding a North Sea field development by BP and Ithaca on the Vorlich field. The grounds in this case are that proper process has not been followed but is clearly another attempt to stop a development: the challenge was rejected by the Court of Session on 7th October. Interestingly, the Offshore Petroleum Regulator for Environment and Decommissioning (one of the UK offshore regulators) declined to approve the Shell operated Jackdaw development this month. The reasons have not been announced publicly (and OPRED’s original objections were detailed and specific) but perhaps this reflects a tougher stance from Government on environmental issues without taking imposing a blanket ban on new field developments.
On the other side, bodies such as Oil and Gas UK and industry stalwarts such as Sir Ian Wood have condemned these efforts to stop developments. Most oil companies publicly recognise the climate emergency and support moves to Net Zero by 2045 or 2050. The Energy Transition Deal signed between industry and the Scottish Government in March endorsed this approach- supporting the energy transition, recognising the short to medium value and necessity of the oil and gas sector and supporting a Just Transition.
In amongst these considerations, we also need to consider the ramifications of the recent partnership deal between the SNP and Green party. Although the oil and gas industry is apparently outside the scope of this deal, it presumably will play into thinking between the two parties. Politically, the SNP are in a very different place from where they were during the 2014 Referendum Campaign. The claims about the future economic value of the Scottish oil and gas reserves at that time now look implausible. This could give the SNP some cover to change its position on oil and gas. However you look at it, hydrocarbon revenue is not going to be the economic saviour of an independent Scottish economy. However, as recognised by the Energy Transition Deal, the sector still provides three quarters of the UK’s energy, supports many well paid jobs throughout the country, and has huge potential value in the green energy transition- be that in offshore engineering capability, carbon capture and storage and capital. It would appear disingenuous of the Scottish Government given the New Deal was only signed in the Spring to suddenly change its position.
As is often the case, there is a lack of reality from many environmentalists about our future sources of energy and more broadly on economic growth. Electrification of as much of our energy supply as possible is the big theme of decarbonisation. We have successfully done this over the last few decades with Scotland leading these efforts in the UK. Offshore wind is becoming increasingly important and cost competitive in Scotland, while globally solar is cost competitive or cheaper than gas (particularly at current prices). However, we are going to require vast amounts more electricity as we electrify our cars, use heat pumps for our houses and electrify industry (for example to produce low carbon steel). And for the hard to electrify sectors, such as HGVs, trains, ferries, older housing, hydrogen looks like the preferred solution. And of course, hydrogen either needs to be formed from electrolysis of water using electricity or SMR from methane gas which requires carbon storage to be net zero (an approach opposed by the environmental lobbies). This transition will cost a lot of money, which will need to be paid for by consumers and taxpayers.
One could of course take the moral high ground (which interestingly I have seen some oil industry stalwarts take)- we are in the midst of a climate emergency and we cannot support any further developments in the UK. However, given the recent gas price hikes which may be repeated this winter, are we seriously proposing on relying on imported gas from Russia, the USA or Middle East during the period of energy transition? This approach does not seem tenable.
And as we move to this low carbon future, it is difficult to see how we can do transition without continued use of oil and gas for at least another couple of decades. Even with the huge growth in renewable electricity, oil and gas currently provides three quarters of the UKs energy requirements plus the invaluable role in the petrochemical and feedstock industries. We could increase our imports but the experience of the last few weeks, with soaring gas prices, shows the importance of domestic supply. Further, new fields are likely to have much lower direct carbon emissions, the potential of electrification and avoids the additional costs and carbon emissions due to transportation from afar.
So, what would be an appropriate, balanced response to the current situation?
First, we have a very robust regulatory regime in the UK. So, we should ensure all new oil and gas fields meet the strict criteria we set, which should include minimising carbon emissions during development and production with a particular focus on methane leaks. The recent decision on the Jackdaw development seems to demonstrate a tighter regulatory regime. However, within that framework the UK should approve new fields. Does this mean we will still be approving new fields in 20 years time? I think that is unlikely but it is essential now.
Secondly, we should continue to encourage the diverse range of energy transition initiatives- the hydrogen strategy, carbon capture and storage, ammonia production. And as much as possible reinvigorate the Scottish industrial sector which has been very poor in benefiting from the renewable sector in the last ten years.
Thirdly, drive the electrification push as much as possible. Increased low carbon electricity generation is vital to deliver on so much of the energy transition. Offshore wind, tidal and wave, solar (even in Scotland) and nuclear all have a part to play.
And finally, develop a strategy and plan for energy storage in all its forms- from gas storage in decommissioned fields, hydrogen storage in salt caverns, batteries, demand management and the rest. The last few weeks have shown how fragile our energy system is. Huge improvements in storage are required to mitigate future problems.
Stuart Paton is the former CEO of Dana Petroleum plc