OGUK’s appeal for more O&G sector support to enable the energy transition

Yoana Cholteeva 17 March 2021 (Last Updated March 17th, 2021 15:40)

The UK may stray further from the energy transition unless the government provides vital support for the sector to promote recovery, according to the trade association for the UK offshore oil and gas industry, OGUK.

OGUK’s appeal for more O&G sector support to enable the energy transition
“We need the recognition that our industry is a key player in a successful energy transition – one which won’t be possible without the inclusion of our sector,” Deirdre Michie said. Source: Andrey Sharpilo on Unsplash

As part of OGUK’s 2021 Business Outlook, the association has emphasised that securing and sustaining investment in the sector would be crucial in the short to medium term to help the country timely reach its net-zero goal.

The report has also shown that the industry is encountering extreme uncertainties as it battles the consequences of the pandemic, which has added to the triple whammy of challenges for the sector: Brexit-induced uncertainty, volatile oil and gas prices, and operational disruption due to the multiple Covid-19 lockdowns.

OGUK chief executive Deirdre Michie said: “£3bn worth of investment has been deferred from company plans in 2020 and 2021, and the effects of Covid-19 have really undermined energy communities, causing a rise in unemployment and a slump in activity.

“A climate-friendly future needs significant investment in indigenous opportunities so companies right across the sector can continue to develop low-carbon solutions. That is why we are working with the government to deliver a transformational North Sea Transition deal, which will drive forward carbon capture and storage, hydrogen, and low-carbon projects across the UK.

“But we cannot continue on this trajectory without vital support. Companies are in a fragile state. We need the recognition that our industry is a key player in a successful energy transition – one which won’t be possible without the inclusion of our sector.”

While the pandemic contributed to a severe economic downturn, production from UK oil and gas managed to safely reach about 70% of the country’s oil and gas needs over 2020, showing the need for a local supply.

“We will still not be in a position where domestic production is greater than the levels of domestic demand”

During the OGUK Business Outlook 2021 webinar, which took place on Tuesday, the industry participants shared some more insights based on the oil and gas activities over the past year and the conclusive data obtained.

Michie said that some of the key frameworks and levers that will be needed to deliver a successful energy transition include the Prime Minister’s 10-Point Plan, the Energy White Paper, the Sixth Carbon Budget, the OGA strategy refresh, the consultations on export finance, and the licencing review, with certainly more to come.

She accentuated the key need to “ensure that all of the recommendations coming out of these announcements and consultations are actioned rapidly, but appropriately. And we should all feel the pressure to play our part together and to make them successful, dealing with all this change along with the difficult business environment”.

She also warned that the decisions made today by the sector and policymakers will impact the industry’s future and its ability to sustain and transition for decades to come.

“Our ask of both governments is to be mindful of the unintended consequences of the decisions that they are about to take, particularly in relation to their respective export consultations and the conclusion of the UK licencing review.

“Now, the way the licencing regime works is that investors have confidence in its stable approach. And given that all the old scenarios put forward by the Committee on Climate Change show a continued need for oil and gas for decades to come, it’s important that we retain that confidence,” Michie added.

In turn, OGUK market intelligence manager Ross Dornan pointed out that as the UK population has increased over the past two decades, the nation’s gross domestic product has grown by over thirtyfold. Along with these changes, the country is more efficient in its energy use now than ever before.

He explained: “You can see that the energy demand continues to decline over time and that’s going to continue because we are more energy efficient. And what you see is that a lot of gas demand also declines, but it does show a steeper rate and energy [moves] towards net-zero.

“The UK will still consume more than 17 billion barrels of oil and gas altogether. That’s more than half of all the energy that will be consumed in the next two years in the UK. Within this scenario, oil and gas will still meet something in the region of 20% to 25% of the UK total energy needs

“So oil and gas will be an important part of an increasingly diverse and low carbon energy mix. And that means that there’s a need for a strong domestic industry to provide secure and affordable supply. If demand in the UK continues to outstrip supply, even with a more ambitious roadmap 2035 production scenario, we will still not be in a position where domestic production is greater than the levels of domestic demand.”

He also emphasised the need to transform gas production into low carbon and hydrogen to support the development of renewable energy, as well as helping to expand offshore wind capacity with increasing integration across the social and energy landscape.

“All of this comes together to help reduce the UK emissions with the aim of doing this by 60% by 2030, compared to the 1990 levels.”