Driving towards a sustainable energy mix
We're living in a rapidly evolving global environment. Out of nowhere, the North Sea oil and gas industry is facing yet another major challenge in the form of the Covid-19 pandemic. It's under immense pressure operationally and economically, just at a time when some really radical ideas to accelerate the energy transition, to meet national and international Net Zero goals, were gaining traction. In fact, a remarkable amount of work has been done in this space in a very short period of time and it's essential that it continues; we have much to gain and a lot to lose.
The pressure has been ramping up to decarbonise our energy system, 63% of the attendees at our recent Driving Towards a Sustainable Energy Mix leaders' panel in Aberdeen, felt that the social agenda, rather than commercial needs was a key force in driving the decarbonisation targets and that it presents significant opportunities. The UK government has a binding agreement to be Net Zero by 2050; from 2035, petrol and diesel cars are to be banned in the UK; BP, Eni, Repsol Sinopec, and more, are targeting Net Zero by 2050, if not sooner; Ørsted wants to have carbon neutral energy generation by 2025 and for its supply chain to also decarbonise by 2040. These are just some examples.
Reaching Net Zero in the North Sea is feasible. It means increasing the electrification of our energy system. But even with a rapid increase in investment in renewable energy generation there will still be a shortfall in supply, so oil and gas need to be part of the solution.
Operators have already made a start on decarbonising their production, but there are a lot more ideas in the pipeline. Our research, for the Oil & Gas Authority's (OGA) ambitious Energy Integration project, shows that platform electrification, via offshore wind farms, as well as from shore, and gas-to-wire, to send electricity from gas platforms to shore, instead of natural gas, offer the best opportunities in the near-term. We know many operators here in the UK have already done a lot of work to assess power from shore - it's in their plans.
Next is blue hydrogen - hydrogen from natural gas feedstock - with the CO2 produced, captured and stored (CCS), followed by green hydrogen - made from water using renewable energy. Carbon capture and storage was ranked as the number one technical solution that our attendees felt would make the biggest contribution to reducing carbon emission, closely followed by hydrogen 36% and offshore wind 27%. At LR we're supporting in these areas too, where pilot projects are also planned. The bigger vision and potential is for a mix of all of these at scale, creating truly integrated hubs providing continuous energy across borders.
Carlo Procaccini, Head of Technology at the OGA, and others agree we're in a great place, with the ability to create green hydrogen using existing oil and gas infrastructure - platforms and pipelines, offshore wind capacity will need to expand and could produce hydrogen during low demand periods. Blue hydrogen is cheaper to produce - and currently accounts for 90% of today's hydrogen production - but needs carbon capture and storage (CCS) to make it clean - and to store CO2 from other industrial processes.
What was clear from our panellists, which included leaders from Repsol Sinopec Resources UK, EY, EDP Renewables and Lloyd's Register - representing oil and gas, renewables and the supply chain - is that the industry has the expertise and people to do this here in Scotland, especially in the northeast; a hub for hydrogen energy and subsurface knowledge. Unsurprisingly the attendees agreed overwhelmingly that the oil and gas industry had the transferable skills needed for a diversification into clean energy.
However, for pilots and the large-scale investment needed to make this happen and changes in the grid to deliver hydrogen to consumers, brave policy decisions need to be made at a governmental level, including carbon pricing. Ambitious projects will also fail without substantive collaboration between the oil and gas and renewables industries and the grid. It is clear that for many of the attendees 36% didn’t know if their organisation was committing enough capital spend towards clean energy and other low-carbon technologies further demonstrating the need for greater collaboration and promotion of these activities.
Policy has an impact. Repsol Sinopec Resources UK is part of the consortium behind the project hydrogen offshore production (HOP), which hopes to get hydrogen production technology ready for offshore use. Steve Gardyne, the company's VP Energy Transition and one of our leaders' panel speakers, is among many who believe in the need for hydrogen in our energy system but says it will need a support mechanism in the early days. In terms of CCS, we're 10-15 years behind where we should be due to previous policy decisions. It's telling - over in Norway, the Sleipner project has been running for decades and was commercial due to CO2 emission taxation.
Clear policy will also aid collaboration. The quickest decarbonisation win identified in our Integrated Energy report was platform electrification using nearby offshore wind farms. But, as our panellists pointed out, a "dearth of policy" makes collaboration between oil and gas and renewables companies, which traditionally have different drivers, challenging. These are companies that are already in the same room, talking together and with us, but they have significant questions: "What's marketable, what's the price?"
Jamie Dempster, Moray West Engineering & Operations, a 50-50 JV development owned by Engie & EDP Renewables, also points to a chicken and egg situation around offshore wind licensing, which takes so long it makes making the case for electrification of brownfield assets with just 10-20 years life left difficult. For those who want to go further, and pivot their entire business, policy and carbon pricing is just as critical according to Derek Leith, Global Oil & Gas Tax Leader, at EY. The European Emissions Trading Scheme helped the UK move away from coal, he pointed out. Carbon pricing and emissions trading schemes are levers needed now to enable oil and gas companies to change their businesses and to support new approaches until costs fall and they become disruptive. We need clear, brave policy, he says, that don't also hammer economies; yet, it's hard to keep track of who is energy minister.
The pressure is on and the targets are clear. The climate and society's attitude to energy is changing. This is the defining moment of our time. The OGA is showing leadership and sees the long-term strategic and economic value of the North Sea beyond oil and gas as an integrated hub.
There's no silver bullet. We need to focus on technology, people and collaboration. As an industry, we have all three and, as we saw during our leaders' panel event, there're many across industry that are fully engaged and what to tackle this challenge head on. Our respondents also strongly agreed that commitment from some of the world’s largest emitters such as the United States and China was essential
Continued pressure is needed. To repeat a call this week by Fatih Birol, executive director of the International Energy Agency, could international governments use the stimulus packages they're proposing in the face of Covid-19 to focus on clean energy technologies, including wind, hydrogen and CCS. The door is open.
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