UK oil and gas sector needs regulatory certainty over transition role: OGUK

London — The UK oil and gas industry should be able to maintain production at 2019 levels into next year despite the COVID-19 price crash, but will need greater regulatory certainty to invest both in replenishing production and energy transition, industry group Oil & Gas UK said in a report published Dec. 1.

As the UK government increasingly emphasizes transition to 'net zero' emissions and plans to phase out conventional cars, OGUK said it was seeking regulatory clarity on its future role, including through a long-delayed government "White Paper" on energy.

The UK industry, which produces around 1.1 million b/d of oil and meets half the country's gas needs, has numerous projects awaiting approval, ranging from exploration to development.

However, this year's collapse in prices has "significantly undermined... activity levels, revenue and margins," the group's Economic Report 2020 said, noting just six exploration wells had been initiated in 2020, a record low.

The industry is also being held back by the government's regulatory stance, the report implied, referring to the planned White Paper and OGUK's previous efforts to secure a "transition deal" to provide certainty about the industry's role.

With oil and gas resources estimated at 10 billion-20 billion barrels of oil equivalent remaining to be produced, "An important aspect of this will be the clear recognition of the important role of oil and gas from government in the upcoming Energy White Paper," OGUK said.

OGUK's members "remain committed to reducing emissions associated with the production of oil and gas, and continue to be some of the biggest sectoral investors in offshore wind, hydrogen, carbon capture and storage solutions," it said.

It also noted an estimate by the country's Committee on Climate Change that achieving 'net zero' emissions by 2050 would require spending the equivalent of 2% of GDP and said "the correct commercial and regulatory frameworks must be in place to enable this scale of investment."

"Companies need long-term certainty of the conditions upon which they can make robust investment decisions."

It went on to describe recently announced UK projects in the areas of carbon capture and hydrogen as "early stage" and said, "the frameworks upon which companies will base final investment decisions remain immature."

Insisting on the continued role of oil and gas companies, OGUK said: "Many of the largest investments in the UK renewable power sector are being made by traditional oil and gas producers who are becoming increasingly integrated across the energy sector."

Citing Norway's Equinor and France's Total as examples, it went on to say that with the right support, the oil and gas industry "can continue to earn its place in the UK's energy future."

Hydrogen debate

Oil & Gas UK rebutted suggestions the industry was seeking preferential treatment for so-called 'blue hydrogen,' which would use natural gas as a feedstock rather than renewables, saying gas would be needed in the early stages of hydrogen development and the real focus should be on a government effort to stimulate hydrogen demand.

The report argued oil and gas would continue to contribute to the energy mix alongside technologies such as carbon capture and storage, noting gas had broadly maintained its share of UK energy consumption and electricity generation, even as coal had largely been phased out.

Abandoning the oil and gas sector would mean skills going to waste, without reducing emissions since more oil and gas would be imported, the report argued. "A slowdown in oil and gas investment will not reduce the rate of consumption but will mean that supply will fall at a quicker rate than demand," it said.

Noting the government is due to decide on pricing of carbon in a post-Brexit economy, OGUK warned against the dangers of pricing carbon emissions too highly, which could risk damaging the UK industry, saying there was "a fine balance to be struck."

"In general, this sector, like many others, is looking for a stable long-term trading scheme that is capable of being linked to other global initiatives," it said.