The energy trilemma: mentioned in almost every session at last month’s OEUK Industry Conference held in Aberdeen, the balancing act between security & reliability of supply, affordability and sustainability is clearly at the forefront of industry considerations today.
The current geo-political situation has of course placed the emphasis on security of supply for the first time in decades, but the conversations accelerated by COP26 and political activism around sustainability are still very much alive, and perhaps for the first time a more balanced discussion is taking place about the role of oil and gas production as part of the energy transition in the UK.
In support of the “sustainability” element of the trilemma, the NSTA has announced that the UK’s first CCS licensing round will be launched on 14 June. This licensing round follows on from the recent announcement that BP and Equinor have been awarded two carbon storage licences in May, which comprise four separate carbon storage sites in the Southern North Sea, proximate to the existing carbon storage licence held by the Northern Endurance Partnership. Those licences taken together have a CO₂ storage potential of up to 23 million tonnes per annum by 2038. “CO₂Stored” estimates that there is over 70 billion tonnes of storage capacity under the UK seabed. A CCS licensing round will allow for appraisal of this capacity which will help inform policy and investment decisions further.
In the current climate of “super profits” by energy companies and increased energy prices, a long suspected “windfall tax” on oil and gas producers was introduced last month. This will inevitably impact the energy trilemma to some extent – the expectation that entities which produce hydrocarbons will reinvest profits to help deliver CCS and hydrogen projects is a key element of the “just transition” envisaged by the North Sea Transition Deal and such a tax will reduce those profits.
At the moment, however, a key piece of the jigsaw is missing for CCS and hydrogen projects – legislation. Whilst UK and Scottish Government support for these projects is clear, much of the detail required to allow commercial projects to be developed is lagging behind. The inclusion of an Energy Security Bill in the Queen’s speech is of course welcome and the expectation is that this will provide some clarity on “state of the art” business models for CCS (consultations on the Industrial Carbon Capture Business Model and Dispatchable Power Agreement business models are due to close on 10 June) and low carbon hydrogen (in respect of which the Government response to consultation was published in April). Further clarity is also required on the re-purposing of oil and gas infrastructure in the transportation and storage elements of these projects and on change of use relief and the possible decommissioning regime applicable to CCS infrastructure.
Certainty in this area would not only benefit those seeking to deliver CCS and hydrogen projects to market, but also potential customers – or emitters – who come from a wide range of industries. Collaboration between industries to ensure the correct approach is being adopted is key to seeing these CCS and hydrogen projects come to fruition. This is where the third element of the trilemma becomes applicable – understanding the affordability of CCS and hydrogen projects. The timing of obtaining the necessary certainty to make investments is also critical – with increased decommissioning activity in the oil and gas industry, efficiencies may be able to be gained in combining decommissioning activity with capital investment in CCS activities, but only if there is sufficient legislative certainty to enable companies to be confident in their economics.
The pace of change since the NSTD was introduced just over 12 months ago has been welcome, and the enthusiasm and across the whole industry is hugely exciting. That said, it is clear that industry is now ready to go up a gear and the quicker Government policy in this area can be determined and legislation enacted, the greater the opportunity for CCS and hydrogen to support solving the energy trilemma.
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