I recently presented at a UK Oil and Gas Law Seminar where the keynote speaker was Mike Tholen (Upstream Policy Director Oil & Gas UK).
The keynote address was an engaging, upbeat presentation covering Vision 2035 and the industry’s role in the Energy Transition.
The content of the talk prompted me to ask – can we square the energy transition and net zero with maximising economic recovery of UK petroleum (MER)?
What was the background to MER? The Wood Review (2014) had identified failures in the then E&P practices and from that an MER strategy was developed to ensure that private exploration and development maximised the economic recovery of oil and gas from beneath the UK territorial sea and continental shelf.
The strategy is now binding upon the OGA and petroleum licence holders. It is a strategy that takes little notice of the energy transition.
The OGA, though, has embraced the energy transition and states that it will:
- approve and issue carbon dioxide storage permits and maintain the carbon storage public register
- where appropriate, identify opportunities for the development of carbon dioxide storage, including the use of carbon dioxide enhanced oil recovery
- support infrastructure re-use and recycling opportunities, including having regard to the development and use of facilities for the storage of carbon dioxide and work with government on its commitments
- ensure consistency of the OGA’s offshore flaring and venting regime with MER UK and wider government policy, including emissions targets, by eliminating any unnecessary or wasteful flaring and venting of gas
- enhance understanding of offshore energy integration, including electrification, hydrogen and regulatory opportunities
- support a diverse range of supply chain options building on existing skills and activities
- work collaboratively with government and industry to support its wider objectives, including carbon emission reduction commitments, and continue to contribute skills and expertise.
All laudable objectives, however, the OGA also says – “the OGA will not conduct activities in relation to the energy transition that run counter to its statutory duties in respect of MER UK”.
That last statement troubles me – how does it sit with the aims of net zero?
Most oil and gas majors are also active in the energy transition. Shell for example makes this statement in its Energy Transition Report –
“Changing our portfolio in the long term, beyond 2030” describes Shell’s intent to move in step with society towards a lower-carbon future. It describes our ambition to halve the Net Carbon Footprint of the energy products we sell by 2050. This will mean reducing emissions from our operations, but most of the reductions will come from changing the portfolio of products we sell.
We outline the ways we could achieve this ambition. These include selling more natural gas compared to oil, selling more biofuels, selling more electricity, developing more carbon capture and storage (CCS) capacity and employing nature-based solutions, such as planting forests or restoring wetlands to act as carbon sinks.’
Let’s imagine there is an oil and gas company with a similar ethos to Shell, and with a UK portfolio that contains a commercially viable heavy oil field. The nature of the heavy oil means that a significant amount of energy and associated greenhouse gas emissions will be required to produce the oil.
The oil and gas company decides that the development of this field, albeit a commercially attractive opportunity, does not fit with their energy transition strategy and elect not to develop it.
What does the OGA do? They are legally bound to MER and as such they must insist that the field is developed. Do they move the licence to another operator with a different energy transition strategy?
I can think of many other instances where the energy transition will be in conflict with MER. To my mind there is a pressing need for the OGA to revisit MER in light of net zero and the energy transition.
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