News that the UK government is pondering a North Sea exploration ban has been met with howls of protest – mostly from those who’ve talked a good energy transition but haven’t done very much about it. But re-focusing the sector via progressive change to the licensing regime isn’t “virtue signaling”, as one industry insider put it. It’s downright essential – and long overdue.
Back in 2017, the UK government banned the sale of new petrol and diesel cars by 2040. Although controversial, it catalyzed change: manufacturers are developing zero-emission vehicles, infrastructure is being rolled out and customers are slowly starting to buy. Is everything going perfectly? No. Is everyone on board yet? No. But the key point is that government has set a clear target and we’re all heading towards it.
Now compare that with oil and gas.
A decade ago, we didn’t need Greta Thunberg to tell us North Sea oil was on its way out. Production was tailing off, industry’s appetite for exploration was waning and decommissioning was kicking off. And never mind those pesky electric cars starting to pop up; with wind farms displacing gas for power generation, new technologies were already eroding demand.
But unlike the petrol car ban, the 2015 Maximising Economic Recovery (MER) strategy, with no vision of a post-oil future, missed a critical opportunity to re-invent the sector. Instead, it fossilized it. (Ironic when we’re talking about hydrocarbons, I guess). Far from protecting jobs or creating new opportunities, it locked companies and workers into chasing dwindling reserves – until they hit the inevitable brick wall, that is.
So, how can licensing changes help?
Announcing changes that take effect some way into the future can send an early message out. As an economist observed on the petrol car ban,
“it’s a bit like saying we’re banning the sale of steam engines”: by 2040, everyone’s going to be driving electric, anyway. But bringing it forward to a more challenging 2030 really focused minds. And that’s what we need here, not unworkable, super-early bans which send current investors bolting for the door before new technologies are ready. Even Friends of the Earth, hardly a noted ally of big oil, recognize the need for a Just Transition, not pulling the plug immediately.
Over a year ago, I proposed on Energy Voice how licensing change might stimulate the energy transition: no future approvals for sub-20 million boe ‘small pools’. My contention was (and still is) that there wasn’t much sense in committing skilled people and valuable resources in to chasing uneconomic ‘small pools’. Especially when they might be better employed in bigger transition opportunities.
But it’s not a proud ‘told you so’ moment for me (OK, maybe it is a bit) when government starts acting along similar lines. Those ideas should have gone much further. If most of us are plugging in our cars in 2040, pretty much no operator, beyond a handful of large, strategic fields, should be extracting North Sea oil by then. The revised licensing regime needs to support existing fields but carry a strong presumption against any new development – unless it meets a very high bar for national interest.
But whilst government needs to set a clear direction, it’s industry that has to do the actual moving. The insider who claimed “The Saudis didn’t get to where they are by closing down domestic industries, yet we’re being expected to do the same with green tech by cutting off investment to the companies that need it most” might be interested in the latest developments. The world’s largest crude exporter is backing green hydrogen on a world-leading scale using super-cheap solar and wind power. The North Sea needs to stop fighting change and accept the new reality.
Sanjoy Sen CEng FIChemE is a chemical engineer with over 20 years’ industry experience. He also holds an MSc in Petroleum Engineering and attained a distinction in his LLM in Oil & Gas Law from the University of Aberdeen where he considered a devolved Scotland’s future. He spent four years in the Oil & Gas Authority as a Senior Development Engineer and was the Conservative general election candidate in Alyn & Deeside in 2019. He writes here in a personal capacity.