As we approach the COP26 Climate Conference which begins in Glasgow on 31st October, it feels as if the oil and gas industry has never been more in the political spotlight.
Environmental activists are demanding an end to new oil and gas developments on the basis that the production of existing reserves is incompatible with the goals of the Paris Agreement to limit climate change to 1.5 degrees over historic averages – their particular focus having landed on field development consent for the Cambo field. Other activists are challenging the OGA Strategy through judicial review proceedings, arguing that the OGA’s assessment of what developments are economic is irrational as it fails to take account of the large amounts of decommissioning tax relief received by licensees.
At the same time, the gas price spike caused by shortage of supply in the UK (a combination of a perfect storm of factors both domestic and global) has pointed out our continued reliance on fossil fuels. These provided 73% of UK primary energy consumption in 2020 with production from the UKCS providing around 70% of this. (Oil & Gas UK’s latest Economic Report points out that this is a slightly higher proportion than in recent years as a result of the impact of the pandemic on travel and aviation).
The easy argument is that renewables can replace oil and gas but the current crisis has demonstrated two things: first, that the intermittent nature of renewables requires either back-up generation capacity or quantities of electricity storage that we do not currently possess, and second that gas is not only used for power generation but is also essential to heat people’s homes and as a feedstock for fertiliser production which in turn generates the CO2 crucial for everything from nuclear power to food production and packaging. Is it too much to hope that these events will help to produce a more nuanced conversation about the complexity of the energy transition?
The OGA’s latest analysis of proven and probable reserves points to a significant reduction in reserves from 5.2 billion barrels of oil equivalent (boe) at the end of 2019 to 4.4 billion boe at the end of 2020. Production during 2020 was around 570 million barrels but the three new field developments and four incremental projects which received consent added less than 100 million barrels to proven and probable reserves. (The remainder of the change was the net effect of upgrades and downgrades to reserve estimates on other producing fields).
On these estimates, our current reserves will only see us through to 2030 although the UK Climate Change Committee – responsible for advising government on how to meet its Net Zero targets – projects that oil and gas will still provide around 50 % of UK energy in the 2030s and around 28 per cent in the 2040s. Even in 2050, we will still need some gas, around 15 to 25% of our current demand, albeit decarbonised through use in hydrogen or with CCUS.
As the OGA Chairman, Tim Eggar, has recently pointed out it is logical that while demand lasts, we should satisfy as much of it as possible with domestic production. The alternative is to increase our reliance on imports which simply result in exporting our carbon emissions to other countries which may have worse production emissions and less ambitious plans to reduce them. It would also reduce our energy security “at a time when Russia has no apparent interest in combatting climate change, but a great deal of interest in using energy supplies as a weapon”. Tens of thousands of oil and gas jobs would be jeopardised, too.
The UK government will be under significant pressure to produce headline worthy policies in the run-up to COP26. Let’s hope it continues to recognise the crucial role the oil and gas industry has to play, and has begun to play, in the energy transition, exemplified by the North Sea Transition Deal. The industry must also measure up to the commitments it has made.