North Sea oil and gas vital to UK energy security: industry chief

The UK's North Sea oil and gas industry remains vital to national energy security and the sector is committed to the emissions curbs needed to meet net-zero goals, industry group Oil & Gas UK's CEO Deirdre Michie said in an interview Jan. 31.

Speaking as OGUK, the country's main upstream lobby group, announced a change of name to Offshore Energies UK, Michie said the move reflected the broadening of the sector to include steps such as tying offshore platforms to low-carbon energy such as wind farms, and "absolutely not" an intention to ditch oil and gas.

Michie, who previously spent several decades at Shell, told S&P Global Platts that the sector was badly in need of investment following Shell's decision in 2021 to drop the Cambo oil project, which had been promoted as a potential supply boost.

Describing the decision, following an environmental backlash, as "disturbing," she said oil and gas would still be needed all the way through the UK's path to net-zero emissions, with the London government targeting net-zero by 2050 and Scotland's devolved leadership by 2045.

Rather than relying on Norway or other exporters, "we should be supporting our own jobs, we should be supporting our own economy and we should be investing in our industry, because we know that it's this industry that will continue to underpin the energy transition with the skills and expertise that we have," Michie said.

"Oil and gas will continue to be at the heart of everything we do, but we are changing, recognizing the changing demand from our members... as they move into these other technologies," she said, noting the industry's own commitment to net-zero under a 2021 "transition deal" with the authorities.

The UK production decline has been accelerated by the pandemic, with oil output over the first 11 months of 2021 down 16% year on year. The sector produces the Brent and Forties crude grades used in Platts Dated Brent price assessments, and heavier crudes such as Kraken and Schiehallion.

Michie alluded to spiraling domestic gas prices and worries over energy supply sparked by tensions between the West and Russia over Ukraine, and acknowledged that the UK exports a large part of its crude, using imports to cover a sizeable chunk of domestic needs.

"When push comes to shove, if we needed to retain that oil because of security of energy supply, we could," she said. "It's there for us to use if we have to."

"There were only one or two investment decisions made last year... It is very important that we continue to attract investment and that projects like Cambo do go ahead."

Transition cost

Michie acknowledged the high cost of schemes to connect UK oil and gas platforms to sub-sea power cables, potentially connected to renewables, as part of efforts to reduce emissions from processes such as drilling, or injecting water or gas to support field pressure levels.

Power generation at UK offshore platforms, using gas or diesel, is said to account for 10% of the country's power generation emissions. However, the costs involved in "electrification" were described as "eye-watering" by one senior executive recently.

Curbing emissions is "complicated territory," Michie said, adding that electrification would not be possible at all platforms. There have also been claims that a rapid wind farm build-out could impede other transition projects such as carbon capture and storage.

However, Michie said electrification of platforms could enable the UK to rival nearby Norway's low emissions, adding that regulatory help was needed from the authorities on connecting installations to the national grid.

"Electrifying our production... will support our security of energy supply and it will support our jobs and our industry and ensure that we've got the companies and the supply chains" needed, she said.

Asked about differences between the UK government and Scottish authorities, for example on their net-zero timelines, she said: "We work with both governments, with all parties."

"Joining up and making sure that we do this, the UK government working with the Scottish government and doing it collaboratively, is absolutely what we all need to do," she said. "Everybody is very focused on the end point, which is getting to net zero by 2050 -- the UK -- and 2045 in Scotland."

She also underscored the importance of a resumption of UK licensing after a pause announced in 2020 to align the process with climate goals. Consultations are underway on a "climate compatibility checkpoint" to be built into the process, while exploration drilling activity has recently hit rock-bottom levels.

"We do think it's very important that licensing does continue, we've been very clear about that, but recognize it needs to continue in a way that supports the net-zero aspiration," she said. "Exploration will continue to be key."