As 2020 cranked into gear, there was broadly an air of modest optimism across the UK Continental Shelf (UKCS).
In the southern North Sea (SNS) this embraced both natural gas extraction and offshore renewables, with the conversation increasingly shifting towards the energy transition.
However, two huge spanners have been thrown in the North Sea’s works since 2020 began, bearing in mind that gas prices were already relatively weak, though not so low that the SNS didn’t have a positive future.
The spanners are of course the Covid-19 pandemic together with the collapse in the oil price triggered by the battle between Russia and Saudi Arabia for market share.
Investment by the petroleum industry has imploded, potentially threatening the shift to mainstream low-carbon energy.
And yet, while the portents for the UKCS are bleak, the outlook for the SNS as a major offshore energy transition hub could prove well founded.
It is very well placed to serve major population centres on both sides of the North Sea and not merely domestic markets in London and the south-east and the midlands.
It is home to the largest concentration of offshore wind generation capacity in the world.
It still has reasonable natural gas reserves that are considered worth pursuing as a bridging fuel in the energy transition. Moreover, it is linked into the Dutch sector where the commodity still has an economic prominence.
It almost certainly has a significant role to play in carbon storage and as a proving ground for hydrogen production.
Unfortunately, the East of England Energy Group (EEEGR) trade association has been forced to postpone its SNS2020 conference, where the transition was to be core to the agenda.
Whether EEEGR’s CEO Simon Gray and his team even get to run the conference at all this year is in the lap of the gods. Nevertheless, he is optimistic about the future.
“I think one is talking about late this year/early next before we start seeing signs of recovery and therefore growth,” Gray said.
“Meanwhile, everyone has battened down the hatches in the SNS, both gas and wind.
“While the energy industry is trying to remain positive, everyone needs to have a Plan B in the event of the crisis.”
But what does Gray mean by everyone having a Plan B?
Basically, it’s about ensuring properly resourced, long-term maintenance and security of existing gas production, power generation and onshore distribution. That boils down to ensuring adequate manpower plus spares and other equipment.
Companies should be ensuring that projects – whether gas or wind – are “grid ready”.
A living example of this is Swedish utility Vattenfall with its Norfolk Boreas and Vanguard projects. The company is currently looking at doing the planning phase in terms of sub-stations, grid connections and cable runs.
“The government needs to ensure that offshore wind and gas-fired power generation are accorded priority,” Gray warned.
“This is going to be essential to the recovery of UK PLC from the Covid-19 crisis.”
An encouraging plus on the wind side is the dramatic fall in generating prices. For the first time, subsidy may no longer be needed to stimulate investment in North Sea farms.
The cost of offshore wind power has dropped 30% in two years. There is a portfolio of 12 new energy projects currently listed as coming in at a record low price of between £39.65 and £41.61 per megawatt hour.
That’s less than half of the £92.50 per MWh the government is committed to paying for power from the Hinkley Point C nuclear plant.
Gray still sees value in producing SNS gas, in part because the decline in prices makes it highly competitive and legitimate too given its transition bridging potential.
Notwithstanding Covid-19 and the oil price crash, has the SNS energy industry managed to get its head around the challenge of adjusting to Brexit?
Gray said: “One thing that was being discussed was free ports/free airports and the opportunity to use them to enable foreign workers to work offshore on gas platforms and wind farms without technically crossing the border into the UK.”
In this regard, EEEGR’s role has been to approach places like Great Yarmouth, Lowestoft, Humberside and Harwich to discover what their plans are and disseminate to key MPs.
BIG WIND’S BIG ISSUE – THE WIRES
Discussions about how Big Wind can improve its tarnished environmental footprint continue. Arguably the thorniest topic is grid connections.
Like oil and gas, with its free-for-all approach to pipeline infrastructure, the UK offshore wind brigade has enjoyed much the same freedoms with farm-to-beach cabling.
This is in sharp contrast to much of the EU, where state control is prevalent and regulation tight.
However, the winds of change are starting to blow and UK offshore wind developers may soon be forced to take a co-ordinated approach to the wires.
In any case, there is growing opposition to Big Wind riding roughshod over coastal communities, notably within EEEGR territory.
Comedian and actor Griff Rhys Jones recently joined a campaign to stop more than 100 coastal villages being blighted by pylons, substations and cables connected to offshore wind farms.
They support attempts to force developers to agree that any new offshore wind farms should be linked to the grid at sea to spare their villages.
Before the general election, a review was in prospect regarding the onshore impact of offshore wind farms in the east of England, after MPs backed the idea of an “offshore ring main” as an alternative to multiple landfalls and grid connections.
North Norfolk and East Suffolk councils have written to government to express concerns about the impact of proposed onshore National Grid cable connections.
The problem has also been discussed in Westminster.
Renewable UK has claimed that the ring main approach won’t work for legal and technical reasons.
Developer Iberdrola acknowledges that a more joined-up approach does make sense as it would lead to the creation of a more efficient farm-into-grid network.
That was the basic strategy behind the UK’s huge, national hydropower construction programme that began before the Second World War and ran into the 1960s.
Today’s UK repowering programme – designed to virtually eliminate the use of fossil fuels in electricity generation – is on a far grander scale and Gray agrees that a different approach is needed to the current market-led approach.
“The sheer scale of what’s now happening means that we have got to have a more holistic approach,” he says.
“We will see much more robust and resilient connectivity between the UK and the continent to enable the transportation of larger quantities of energy.”
Fifty years on from the earliest exploration for oil and gas in UK waters, the issue of fragmented pipeline infrastructure has never been fully addressed.
Gray doesn’t want that to be a legacy of Big Wind in the North Sea.
“We need to be looking towards encouraging a greater level of co-ordination,” he said.
“This is where the Offshore Wind Energy Council comes in. They’re doing quite a lot in terms of looking at legislation to be able to allow a more joined-up approach.
“We need to look around and identify what is best practice in other countries around the North Sea, what business models seem to achieve the best outcomes and from there work to try to reflect those here.”
HIGH CARBON ENERGY TRANSITION IN THE SNS
The oil and gas industry appears to be moving towards the great energy transition, though conviction appears patchy.
“We’ve been working closely on the SNS rejuvenation programme with the Oil and Gas Authority for several years,” said Gray.
“All SNS operators have become very engaged and some real progress has been made.”
This includes critical aspects like salt precipitation in gas production wells, which is a characteristic of mature, depleted reservoirs.
Catalyst to this was the fact that a stewardship survey conducted in 2016 indicated that SNS production efficiency was just 64%, the lowest across the UKCS.
The OGA then estimated a daily production loss of 130 million cubic feet per day, or 20% of the total, attributable to salting.
A 2017 study by the regulator identified little evidence of consistency and best practice
among the operators, with a number calling for the establishment of a forum for sharing lessons learned.
According to Gray, a recent “learning paper” has proved popular.
In 2017, the OGA estimated there was about 3.8 trillion cu.ft of remaining gas accessible in the SNS.
Two years earlier, the OGA identified that 60% of undeveloped SNS discoveries and 50% of known prospects were tight gas accumulations.
An eight-step programme was drawn up and the SNS Rejuvenation Special Interest Group, commissioned through EEEGR, working with the OGA, was chosen as the vehicle for delivery.
Unfortunately, this work, largely conducted during the 2015-17 downturn and boosted by a modest recovery in activity as commodity prices began to recover has now been hit by Covid-19 and the Russian-Saudi oil war.
“There was the beginning of renewed interest in tight gas in the SNS,” said Gray.
“Until there is an improvement in gas prices, let alone the other issues, I cannot see that progressing.”
He considers further encouragement of SNS gas to be still important, particularly for the south-east, even though we are supposed to be weaning ourselves off burning gas, encouraged by the ban on new gas-fired central heating installations from 2025.
“We’re in the interesting situation where we have the government regulator Ofgem telling the companies that distribute gas not to invest, while, at the same time, another government regulator, the OGA, is telling gas producers to maximise economic recovery of the resource,” Gray said.
“Maybe the key to breaking this one will be hydrogen. Domestic appliances and industrial applications can run on a blend of gas with 20% hydrogen.
“Therefore, I see a massive opportunity here to look at hydrogen production and inject that into the National Grid network through Bacton.
“Of course, there will still be offshore wind developments but, at least as an interim measure, why not prolong the life of the SNS and diversify output by producing hydrogen for blending into the gas grid?
“I think there are a lot of opportunities for us to pursue, once we all get past the current crisis.”