The North Sea is the first basin in Europe to be extracted for oil and gas. But now it is on a permanent decline, producing half of what it did during its peak back in 2000.
There are still 20 to 30 billion barrels of oil equivalent (boe) left to be exploited, which gives the sector at least a few more decades of production ahead of it. The runway for smoothly transitioning from oil and gas into renewables, however, is much shorter.
The North Sea will remain central to supplying the energy needs of not just the UK, but the entirety of Europe. In particular, the area will be key for reaching targets for reducing carbon emissions and increasing wind power capacity by 2030. But in order to hit those goals, countries operating in the North Sea have to address the immediate question at hand: how to sustainably transition from oil and gas into renewables.
A Beleaguered Basin
Since the industry first struck oil in the ‘70s, North Sea Oil and Gas has created hundreds and thousands of jobs, seen multiple generations of crewmen come and go, and contributed more than £300 billion in tax revenue to the UK treasury.
But the once prolific basin is now under attack. While the oil and gas industry is no stranger to crisis, it faces its greatest one yet. Record low demands, the collapse following the Saudi-Russia price war, and increasing pressure for lower carbon sources of energy have created the perfect storm to contend with. Over on the UK’s half of the shelf, the impact of the global crisis is stark. Drilling activity has plummeted, leaving rigs and crews in limbo. Skittish investors have postponed any new developments. Some have pulled entirely out of the basin.
Diverging Priorities
In the medium term, the way forward for the basin looks different, depending on which side you’re looking in from. In the UK, strategy centres on staunching the bleeding. “Focus remains primarily on cost reduction with a view to maximising economic recovery from the basin,” notes a report from PwC.
However, North Sea neighbour Norway is taking a different approach, instead looking at squeezing whatever can be had from the basin to fund the transition into renewables: “The consensus view was that the renewables sector (such as offshore wind, tidal energy) would generate the next wave of investment opportunities in the North Sea. In fact to some extent the sector was already maximising revenues from hydrocarbons in order to fund the future of renewable energy.”
Not Quite Bottom of the Barrel
The decline is permanent. Yet that doesn’t mean that there’s little activity left to be seen from the maturing basin. Decommissioning of assets and rigs is expected to become a £15.3 billion market in the next decade. The pullout of larger entities such as ExxonMobil have triggered a slew of new asset acquisitions by smaller operators.
North Sea Oil and Gas will continue to be important in the energy mix and for the economies of all in the region. Despite ambitious commitments for increasing offshore wind capacity by 2030, the UK government estimates that as much as two thirds of energy requirements will still be supplied by oil by 2035. The newly discovered Johan Sverdrup oil field is expected to generate £80 billion for Norway in the next five years.
In the UK, the North Sea Transition Deal will see £16 billion go into helping oil and gas companies develop low-carbon methods for production, a move that the government and Oil and Gas UK (OGUK) hopes will keep the supply chain afloat in the medium term and create the money needed to support the green industrial revolution.
However, the lack of an outright ban for future explorations has drawn flak from environmentalists. “Refusal to rule out new oil and gas licences when the evidence is already clear that they are incompatible with UK climate commitments is a colossal failure in climate leadership in the year of COP26,” says Mel Evans, head of Greenpeace UK’s oil campaign.
Yet the government assures that the deal still aligns with plans to turn the North Sea green. Under the agreement licences will be harder to secure and will be evaluated against cleaner energy sources and the progress of targets to cut emissions.
The fact of the matter is that the green energy revolution cannot happen without a strategic transition from oil and gas. The sector employs a quarter of a million people in the UK, all of whom will need to be assisted through the basin’s next big phase. “We will not leave oil and gas workers behind in the UK’s irreversible shift away from fossil fuels,” says business minister Kwasi Kwarteng.
Job Insecurity and Shortages
However, a different story is unfolding on the ground. A survey from activist group Platform has found that nearly half of its respondents have been furloughed since March 2020. And while we continue to hear about the hundreds of thousands of jobs that renewable energy will create, exciting developments in green hydrogen, and opportunities in decommissioning, workers report a lack of support for actually moving into these new fields. “I believe a transition will happen whether we are prepared or not. It is inevitable. But will the industry see me out?,” questions one of the respondents from the survey, who has worked thirteen years in oil and gas.
Finding a way to reskill the current workforce is imperative. There will be no green revolution without a crew to man it. As part of the Build Back Greener initiative, commitments have been made to double the UK’s current offshore wind capacity in the next seven years. However, it doesn’t quite have the workforce to get it there yet. “The appetite for offshore wind is strong with investors and policymakers alike as more and more ambitious targets are put in place, but we need a trained workforce ready to realise these goals,” says Ben Backwell, CEO at GWEC.
A Fragmented Landscape
Keeping the North Sea economically viable and transitioning the oil and gas sector fairly will take a multipronged effort of everyone in the chain, from policy makers to individual service providers.
However, the sector has always been adversarial in nature. “There is a dearth of good leadership in the North Sea. Good leadership is not just about being technical it is also about being entrepreneurial to turn something into a money making business. We have become very bureaucratic and process driven,” says Francis Gugen, Chairman of oil and gas group Chrysaor.
This tendency has only been exacerbated by COVID. Companies are racing to recoup costs and stem losses, which are stymying efforts at a unified response. A report by Deloitte on industry collaboration has noted that priorities have shifted “towards protectionism for some and survival for others.”
Stimulating Investment in Green Energy
The UK has the opportunity to retain its position as a leader in offshore renewable energy in the North Sea. To do that, however, it will need to attract the capital for investing in clean technologies like floating wind farms and carbon capture. According to a report by research centre Catapult, there needs to be over £450 billion pouring into the sector over the next thirty years to maximise the potential of renewables and keep promises made under the Paris Agreement.
The amount is monumental–but so are the benefits that the UK stands to reap. Timely investments can help create up to 66 percent more jobs in the North Sea. Offshore wind can deliver up to “£1 trillion in economic impact” over the next thirty years. The sector’s ability to deliver between 60GW to 150GW by 2050 will also be crucial for securing a net zero North Sea.
The North Sea energy sector is no stranger to weathering tough market conditions. Yet the challenges it faces today are unlike any it has from the past. The twin pressures of dwindling resources and net-zero targets are bearing down on decades-old ways of operating.
Yet the narrative doesn’t have to be one of a desperate, sinking ship. The oil and gas sector has the ability to build the bridge to a prosperous, greener future for the North Sea. But only if all the players can mount a coordinated effort and if the government acts now to accelerate the development of networks for renewable and low-carbon energy.
