Observing events unfold in the upstream UK sector over the past year has been quite interesting. As the COP26 climate conference in November last year approached, the public call to stop exploration and stop sanctioning field developments grew louder and louder.
Although the decision by OPRED to not approve Shell’s plans for developing Jackdaw in October was justified on technical grounds, the association with COP26 is still tempting to make.
Then, in December, Shell decided to pull the plug on Cambo. Happening after the COP26 Conference, there may not be too much of an association with the event, but it has to be kept in mind that the public and political pressure on sanctioning oil projects was very high still late last year.
Is a scenario possible that Shell simply pulled out because of its disappointment in the government for not getting its way with Jackdaw?
Anyway, who could have thought that only a couple of months into 2022, we read about Sunak’s Six – alluding to the six fields the chancellor is wanting to fast track for development? And this week we heard that Shell is reconsidering its role in Cambo.
For reasons we don’t need to highlight here, the debate around energy security and – not unimportant either – affordability, is back on the agenda in a way it has never been before.
And when the cuts to import from Russia are being adhered to for the long term, it really means that major shifts in global energy flows are required to accommodate the UK’s and Europe’s needs. For that reason, Boris Johnson found himself speaking to Qatar recently, whilst Germany already closed a deal with Qatar this month.
It is a fact is that the UK’s reliance on import will not go away.
But it can be lessened through the development of offshore gas and potentially oil fields. What is needed to accomplish that is not a sudden change in regime. It requires is a long-term vision.
This is because developing a known discovery already takes years, but finding and developing a new field easily takes a decade. In a mature basin such as the UKCS, where the big fields have probably been found, the economics of smaller discoveries are more marginal and therefore rely on a stable government policy to proceed into development.
Watch this video from TROVE to see how many opportunities there still are on the UK Continental Shelf.
So, even though there may now be a more favourable wind blowing for the oil and gas sector, in order for confidence to return more seriously there needs to be a long-term policy towards the production of fossil fuels.
The rebrand this week of the Oil and Gas Authority into the North Sea Transition Authority, which meant the loss of “oil and gas” from its name, came with the message that oil and gas will remain part of the energy mix for years to come and that the intention is to run a new licensing round this year.
Against this backdrop of events unfolding in the UK, the contrast with Norway is stark. Whilst the UK has seemingly swung from one end of the spectrum to the other, the Norwegians have supported their oil and gas sector throughout.
Yes, stability is not the only reason why exploration drilling is much more prevalent in Norway than it is in the UK – the tax incentive plays the most important role – but yet it cannot be denied that Norway displays much more of a long-term policy than its neighbour in the west.
Whilst there seems to be an absence in the desire to change names of institutes and government bodies in Norway, with the NPD at least for now just being called the Norwegian Petroleum Directorate, there is plenty of tangible evidence to show how the Norwegians are acting on reducing emissions.
It is in Norway where CCS is already ongoing – for years – and it is in Norway where flaring is prohibited.
Given that a stable environment is key in making investment decisions that take a decade to be financially recouped, the time is now for the UK to get serious about the energy transition and the continued role fossil fuels play in this.
HENK KOMBRINK
