Oil and gas industry agrees transition deal with UK Government

THE UK oil and gas industry has come to an agreement with the UK Government over how the industry will manage the green energy transition while still supporting workers.

The North Sea Transition Deal aims to support workers, businesses, and the supply chain through the transition to cleaner energy. The deal will commit joint investment from the sector and Government of £14 – 16bn (US$19 – 22bn) by 2030 in new technologies. It aims to reskill the oil and gas workforce, noting that the industry’s existing capabilities can be used for technologies such as CCUS, hydrogen production, offshore wind, and decommissioning. It aims to reduce emissions by 60m t over the period to 2030 while also supporting and creating 40,000 direct and indirect supply chain jobs.

Business and Energy Secretary Kwasi Kwarteng said: “We will not leave oil and gas workers behind in the UK’s irreversible shift away from fossil fuels. Through this landmark sector deal, we will harness the skills, capabilities and pent-up private investment potential of the oil and gas sector to power the green industrial revolution, turning its focus to the next-generation clean technologies the UK needs to support a green economy.”

Chief Executive of Oil & Gas UK Deirdre Michie said: “The deal will safeguard UK energy security, providing affordable energy to millions of households, secure tens of thousands of jobs in industrial heartlands across the country and support the UK economy. It is the first deal of its kind by any G7 country and a striking example of the UK showing global leadership on climate change ahead of COP26.”

Future oil and gas exploration not ruled out

The deal notes that the pace of the transition needs to balance the need to decarbonise with the need to maintain energy security and affordability. It says that production of oil and gas will still be needed during the transition, but at a lower level. However, it has not ruled out allowing new exploration, saying instead that any future exploration licenses will have to comply with a Climate Compatibility Checkpoint to ensure that the extraction of additional fossil fuels is still compliant with the UK’s net zero target. This will factor in domestic demand, prevalence of clean technologies, and the latest progress against emissions targets. It said that if future licensing rounds indicated that it would undermine the UK’s climate goals, then they would not go ahead. Not setting a target for phasing out oil and gas exploration has been met with criticism from green groups.

Ryan Morrison, Friends of the Earth Scotland’s Just Transition Campaigner said: “The science on this is already crystal clear, burning fossil fuels is the key driver of this crisis so to avoid climate breakdown there can be no new licenses and existing production must be wound down over the next decade – a new ‘climate compatibility checkpoint’ isn’t going to change that reality.

“Instead of continuing to prioritise corporate interests, the Government must set an end date for oil and gas extraction in the UK and focus on engaging with workers and communities to build a plan for a new renewable energy future, backed up by investment from redirecting the vast public subsidies going to fossil fuels, to build a socially just zero-carbon economy.”

Commitments by industry and Government

The deal aims to achieve five key outcomes on supply decarbonisation, CCUS, hydrogen, supply chain transformation, and people and skills.

On supply decarbonisation, the deal notes that oil and gas production accounts for 4% of the UK’s emissions. The deal sets targets to reduce production emissions by 10% by 2025, 25% by 2027, and 50% by 2030 compared to 2018 levels. This will be done through a combination of reducing methane flaring, improving operational efficiency, and electrification of offshore assets. Using grid or renewable electricity will also benefit other emerging offshore sectors such as wind and hydrogen development. The deal notes that electrification is a major undertaking and likely to take a decade to apply at scale.

The deal builds on plans for CCUS and hydrogen already announced as part of the Ten Point Plan, Energy White Paper, and the Industrial Decarbonisation Strategy. The sector will develop industry standards to address barriers to the deployment of CCUS. It will lead the development of CCUS technology by using existing infrastructure for transport and storage of CO₂. Aside from the hubs already in development, there is potential for further expansion to other sites.

The sector will support the development and deployment of offshore wind to produce green hydrogen. It will support measures for a hydrogen safety programme for hydrogen equipment and gas handling safety standards. The Government will explore ways to accelerate the planning process for hydrogen production plants. It aims to finalise a business model for hydrogen by 2022.

The commitment to support the supply chain focusses on transforming the oil and gas supply chain to service low-carbon energy sectors both in the UK and abroad. The deal aims to create supply chain consortia which will bring together skills and technology needed for the transition. It will also provide ways for businesses to work together on emerging opportunities. The sector has agreed that 50% of offshore decommissioning and new energy technology projects will be provided by local businesses by 2030. This will be overseen by a supply chain champion which will be appointed for the sector.

The sector will assess the future needs of the industry in terms of skills and training and determine how the industry can support and enable the workforce transition. Understanding the future skills needed is important for the deployment of CCUS and hydrogen. It will work to ensure that the transferrable skills of the workforce are recognised across other energy sectors.

Nick Molho, Executive Director of the Aldersgate Group, a multi-stakeholder alliance that champions a sustainable economy, said: “This North Sea Deal recognises the importance of helping all key economic sectors and their workforce transition towards net zero emissions and is therefore an important step forward. With the right policy framework and low carbon skills strategy, the move to net zero emissions can create significant employment opportunities for the UK’s oil and gas workforce, whose skills will be much needed in contributing to the huge infrastructure deployment challenge facing the UK in areas such as marine renewable energy, carbon capture and hydrogen. Putting in place a detailed net zero strategy in the near future will be key to ensuring that the transition to net zero emissions can occur in a timely fashion and in a way that delivers economic and social benefits to the UK.”