That’s what we are all asking as we approach the New Year. We are all hoping that the advent of vaccines will mean 2021 is more “normal” than 2020. However, the pandemic has also coincided with, and possibly accelerated, a more fundamental change in our society – our response to the climate crisis, so the new “normal” will be different to the old “normal”.
Three documents published in December will dictate the Government’s direction in decarbonising our economy in the UK – the sixth Carbon Budget from the Climate Change Committee (CCC), the long-awaited Energy White Paper and the Oil and Gas Authority’s amended strategy, which was laid before Parliament for approval. These are substantial documents so all I can do here is summarise some clear themes.
The white paper acknowledges the important contribution the oil and gas sector has made and continues to make to the UK’s energy needs, the Exchequer, employment and exports. However, it also acknowledges that domestic production has halved since 2000 and will continue to fall. The industry is under significant pressure from investors and the public to respond to the challenge of net zero and this is reflected in the addition of support for net zero to the central obligation under the OGA Strategy. Many oil and gas companies are already responding to this challenge and their investment decisions are beginning to anticipate a world without fossil fuels beyond 2050. There is, according the white paper, great potential for the sector to play an important part in the energy transition and retain vital skills in key regional hubs supporting growth in CCUS and hydrogen production.
By 2038, if the government meets the CCC’s recommendations, UK greenhouse gas emissions are set to fall to 78% of 1990 levels, 37% lower than 2019. By 2050, oil demand will have fallen by 85%, with the remaining oil used largely in aviation, and gas demand by 70% to 80%, with gas used for blue hydrogen, electricity generation with CCS and industrial processes. This will require us all to alter our behaviour significantly over the next 15 years – to eat less meat, drive less, fly less and change our domestic heating away from gas to heat pumps and hydrogen.
It will also mean changes for the oil and gas industry. The cumulative demand forecast in the CCC’s report – 17.4 billion barrels of oil equivalent in most scenarios – is within the upper limits of reserves estimated to remain in the UKCS. The UK could chose to meet that demand largely from domestic production on the basis that this has lower levels of emissions than imports.
However, production will be different – the UKCS will need to be a net zero basin by 2050. In practical terms this means:
• New offshore installations will need to be powered by low-carbon energy rather than gas or diesel and existing platforms will need to consider electrification.
• Routine flaring and venting will be prohibited by 2030 and the government will work with regulators to eliminate it earlier – the CCC would like to see this by 2025.
• Some gas production will be converted to blue hydrogen, with the carbon dioxide being sequestrated, and the CCC recommends unabated gas power stations to be phased out by 2035. This will require development of a number of CCUS clusters – at least two by the middle of this decade and four by the late 2020s, with further clusters around 2030.
• Capital expenditure amounting hundreds of billions per decade will be needed to transform the UK’s energy mix.
• This will offer enormous opportunities to the supply chain to service the offshore wind, hydrogen and CCUS sectors and then to export that expertise. The North Sea Transition Deal , due to be agreed in the first half of 2021, will have a vital role to play in supporting the supply chain to adapt its proven skills into these new areas.
The UK Government is also undertaking a review of policy on the future licensing of domestic offshore oil and gas exploration and production, to ensure the continued compatibility of the UK’s licensing regime with its net zero target.
There is no suggestion that the UK is moving in the direction of Denmark – the white paper states: “this review is an opportunity for the UK to demonstrate that effective climate leadership can be compatible with maintaining a strong economy and robust energy security”.
However, the government is considering developing the existing checkpoints in its processes before proceeding with future licensing rounds. This could involve regularly seeking independent advice on how proceeding with future licensing would impact the government’s climate and energy goals. Conclusions are expected in early 2021.