Can UK Ease Oil Industry's Transition Pain?

The UK’s national net-zero goal has focused attention on driving the transformation of the North Sea oil and gas industry. Indeed, the recent multibillion-dollar quid pro quo deal struck by government and industry marked an important step in turning decarbonization targets into concrete action. As a mature play in decline, the emergence of a green transition pathway could help build new industries while throwing a potential lifeline to North Sea hydrocarbon producers. Crucially, any large-scale rollout of new technologies and policies will also hinge on societal buy-in and support. Ostensibly, the two sides share some of the same goals -- to create jobs and reposition the sector’s capabilities for a low-carbon economy. But the package of transition-linked initiatives and solutions also puts a gloss on the government’s green ambitions ahead of UN climate talks, or COP26, hosted by the UK in November. As former chairman of industry lobby group Oil & Gas UK (OGUK) and now a board member, Harbour Energy’s head of Europe, Phil Kirk, was heavily involved in the negotiations, launched in 2019 (PIW Mar.19'21). “We’re in the year of COP26. It’s a defining moment for some of the politicians’ careers,” he said. Trade group OGUK and industry trade unions have long had the notion of a jobs transition for the sector in their sights. Way before the pandemic, the UK oil sector was under mounting pressure from financiers and society to decarbonize. Last month’s deal will help lessen exposure to ever-more onerous conditions in the declining offshore province. Key, too, is that the UK government faces the prospect of a looming second Scottish referendum on independence. The deal could go some way to appeasing Scottish voters ahead of local elections in May. The agreement targets up to £16 billion ($22 billion) in joint government-private investment for key low-carbon initiatives by 2030. State funding and regulatory support for new technologies sit alongside an industry pledge to cut emissions and invest in carbon capture, utilization and storage and the nascent hydrogen sector (PIW Apr.2'21). The planned investment could create up to 40,000 new jobs across the UK supply chain. Scotland, which employs around 40% of the industry’s 260,000 workers, stands to benefit the most. “It’s important not to forget the social aspect of ESG [environmental, social and governance],” argues Gavin Watson, a partner in London with law firm Pillsbury Winthrop Shaw Pittman. “Amidst the fear of ‘dust bowl’ cities being left in the wake of the North Sea transition, it’s encouraging to see that green jobs will be ramped up just as oil and gas jobs die out.” Still, efforts to deliver net zero, won’t all be plain sailing. Any large-scale deployment of climate-friendly technologies such as carbon capture and storage (CCS) and hydrogen networks will require phase-in of new government policies and regulation to incentivize, develop and sustain them. And building societal consent for abatement technologies needed to reach net zero could prove challenging (NE Apr.1'21). Firms like private equity-backed independent Harbour, an early investor in two CCS projects in Scotland and northeast England, are still waiting to see which schemes the government may back. “But ... the legislative framework, the whole business model, is changing in front of us and around us. We’re just trying to position ourselves to take advantage of that and deliver on our net-zero commitments as it firms up,” says Kirk. Building a social license “will be crucial as we seek to scale up innovations such as hydrogen networks, geothermal energy and carbon dioxide removal,” according to the UK Energy Research Centre (UKERC). A 2018 study by the independent group found that negative public perceptions about fracking appeared to influence opinions about CO2 removal techniques, despite there being few similarities. In 2019, the UK imposed a moratorium on fracking in England amid fears about earthquakes. Thus, study participants were concerned that scientists would be unable to predict and control risks in relation to new energy technologies. They also felt that scientists, companies and policymakers had pursued fracking regardless of public concern, making them less trusting of vested interests in other new technologies, UKERC said.