A flight of capital for the oil and gas supply chain “will jeopardise” the UK energy transition, a major lender has warned.
The Scottish National Investment Bank, a public institution owned by the Scottish Government, said private debt and equity have been pulling out of the sector, likely to harm the net zero shift as oilfield services firms of today will support the future energy system.
Chief investment officer Mark Munro made the comments at Energy Voice’s ETIDEX event in Aberdeen last week.
“I hope your takeaway from today is that SNIB recognises access to capital for those companies and people in the supply chain for the energy system of today is challenging and that it’s those people and companies that will support the energy supply chain of tomorrow, and thereby that lack of capital will jeopardise that transition.”
The SNIB, a development bank launched in 2020, has invested around £460m, helping unlock a further £760m.
Those investments have included Aberdeen-based renewable energy storage firm Verlume, shipping firm North Star and EV charging company Trojan Energy, all of which have roots in oil and gas to varying extents.
SNIB’s “just transition principles” mean it can be a provider of “patient capital” and is “comfortable” with fossil fuel exposure as firms transition into renewables.
“There’s not a trip wire of saying, ‘Okay, today you are 100% fossil fuel revenue, by 1st of January 2025, it must be 50%’. We know that that’s a journey over four, five, six, seven years,” Mr Munro told Energy Voice on the conference sidelines.
He added: “These principles said that we will work with businesses that are today the oil and gas revenue dependent and over the coming years will move into a sort of renewable phase.
“That means we are taking fossil fuel revenue exposure today, but we’re comfortable with that and we know that we can work with these businesses.”
Mr Munro said he’d like to see terminology changed around “oilfield services” to “offshore energy supply chain” to better reflect the reality of firms making a switch.
That was reflected in comments from UK energy minister Graham Stuart at the conference, who highlighted “truly integrated” firms, such as those at the Port of Nigg where he found work on oil and gas, offshore wind and even fabrication of the Hinkley Point C nuclear development.
“Companies, everybody I met seemed to be involved in the supply chain across the energy mix. And if you pulled out oil and gas licences you’re effectively – it’s like saying to Sainsbury’s ‘oh you can carry on trading, but by the way you can’t re-stock’.
“Everyone’s going to leave, there’s going to be no innovation, no new investment, and it’s precisely investment and innovation we need in order to green our production.
“So if we’re going to need oil and gas, we should produce our own because that’s always the right thing to do, we should do it to ever higher standards, which is why INTOG (Innovation and Targeted Oil and Gas offshore wind leasing round) is so important, and we should be prepared to tell our story.
“And by the way, while we do what is right by the environment we will expect £50bn of tax over the next five years, 200,000 jobs, which if we pull the rug now there’s no new investment we’ll either leave the industry altogether, go abroad, and we won’t have the skills we need to do the foundations of floating offshore foundations.”
He said the UK can be “confident” it will reach net zero, and noted oil and gas and the energy transition are “not opposed”.
“Somehow we need to tell that story because the Scottish Government, His Majesty’s opposition, and a lot of other people haven’t understood the basic realities of the transition. And by failing to do that they actually weaken our likelihood of reaching net zero, they don’t strengthen it, no matter how much virtue they wish to display.”