UK plan to close higher emitting oil and gas assets prompts 'siege' warning from sector

UK oil and gas regulator the North Sea Transition Authority has sparked warnings of an industry under "siege" after it published a plan envisaging the shutdown of offshore facilities with overly high emissions, adding to a row over taxation.

The March 27 plan to reduce emissions created by upstream production processes fleshes out earlier warnings that facilities could start to be earmarked for shutdown based on emissions rather than their utility in oil and gas production.

Emissions from power generation -- needed for drilling rigs, turbines, pumps and process heating -- account for 79% of all emissions produced directly by the offshore oil and gas sector, according to the regulator; traditional oil and gas platforms were often designed to generate power from gas production streams or diesel. But the industry is under an obligation to reduce its direct emissions by 50% by 2030, en route to national net-zero goals.

However, amid declining production and rising UK dependence on imported oil and gas, some in the sector argue it is under undue pressure, particularly given an unstable upstream tax regime and opposition party threats to further ratchet up tax measures.

UK oil production decline accelerated to 12% in 2023, with average output of 716,000 b/d, according to official statistics.

The NSTA document proposes closing some facilities to secure emissions goals, and a requirement that any new facility coming on stream from 2030 utilize low-carbon power sources, such as a link to a wind farm or a cable from the national grid -- plans that are themselves still at a nascent stage in the UK, though implemented at newer facilities in nearby Norway.

"To secure production while reducing emissions overall it is crucial to look at trade-offs between installations," the NSTA plan said. "Analysis suggests that closing some low-producing installations could allow more and cleaner new production to come online while still reducing overall UK [upstream] emissions."

"Investing in electrification and low-carbon power in existing infrastructure is required," it said, emphasizing assets would be considered on a case-by-case basis, with an element of flexibility.

"The Plan strikes the right balance in supporting industry in its work producing the oil and gas which we need and will continue to need in the coming decades, while at the same time playing its role in reducing... emissions," NSTA CEO Stuart Payne said.

'Siege mentality'

But the document risked inflaming tensions between government and industry.

Speaking at an event organized by Offshore Energies UK, Mitch Flegg, CEO of independent producer Serica Energy, warned the sector faced a "third world" tax regime, after a series of recent tweaks by the authorities and a threat by the Labour Party to slash investment allowances that mitigate the current "windfall" tax on the sector, which has put the headline rate at 75%.

The Labour Party threat, part of its campaigning to overturn some 14 years of Conservative, or Conservative-led government, directly prompted one investor, Hartshead Resources, to say it was reconsidering a North Sea gas project, Anning and Somerville, and delaying some contract awards.

"As an industry we are not whining about the tax itself ... what we are whining about are the continual changes in the fiscal regime, it is the instability rather than the [tax] rate," Flegg told the event. "We have kind of got a kind of third world fiscal policy at the moment, and that is what is killing us."

Flegg went on to warn the NSTA plan on emissions risked going too far and obstructing new developments that might be tied in to existing infrastructure and reduce overall emissions intensity.

Flegg said a "siege mentality" was sometimes helpful in forcing the industry to change and curb emissions, but "there is a danger that as an industry we are going to lose some of our really, really important infrastructure if we start shutting things down because of a lack of electrification."

"This is a fragile industry -- we all depend upon each other. We have got a first-class supply chain, we have got first-class infrastructure, we need to keep the whole thing going. The NSTA plan potentially has the ability to shut down parts of infrastructure that we will all rely upon. If the infrastructure goes then that is irreversible."

The criticism was echoed by Hartshead Energy CEO Chris Lewis. He told the event there were multiple ways of reducing emissions from upstream production, other than the prevailing view that power should be sourced from low-carbon sources such as wind farms and described the regulatory thinking as "quite limited."

"The way we have approached development of our two platforms that will be installed in the Southern Gas basin is not through direct electrification from wind farms, but on-platform wind, on-platform solar and biodiesel-compatible backup power generation," Lewis said.

"There are a plethora of solutions that you can look at outside of just straight-forward electrification straight into the facilities."

The Platts Dated Brent North Sea benchmark averaged $82.64/b in 2023, down from $101.32/b in 2022. Industry group Offshore Energies UK on March 26 called for the government to ease tax conditions, arguing "windfall" profits were a thing of the past.