The demise of the UK's Cambo oil project could prove a pivotal moment for the country's offshore industry, one that risks the province's future production outlook and the expertise that could contribute to global transition goals.
Shell's backing of Cambo, a project in remote Atlantic waters west of the Shetland Islands targeting hundreds of millions of barrels of heavy crude, looked increasingly untenable against the backdrop of the UK hosting UN climate talks in Glasgow, and a drum-beat of environmental opposition.
With the International Energy Agency questioning the compatibility of big oil projects with climate goals, critics detected ambivalence on the part of UK authorities trying to promote the country as an energy transition leader. Scotland's First Minister, Nicola Sturgeon, voiced outright opposition to the project.
There has also been unease at UK officials appearing to prioritize gas supply, along with blue hydrogen, a transition transport fuel, while playing down traditional oil-prone projects. And the suspension of North Sea licensing rounds in September 2020, with a date still not set for resumption, has sapped confidence.
In announcing it was dropping Cambo, Shell emphasized economic criteria in its decision; output levels at some 50,000 b/d were not necessarily industry-beating, but decades of production would have been expected.
It also noted, however, the risk of delays, apparently referring to environmental opposition. The situation was not helped by the sidelining of Project Acorn, the company's favored carbon capture and storage project, from which the government withheld fast-track financial backing in October.
All of which is darkening the mood in the sector.
"I'm not trying to make an excuse for staying in a business that I'm comfortable with," Shell CEO Ben van Beurden told a conference in Edinburgh in October. "We have basically [bid] that business goodbye in terms of our long-term strategy, but we need it to fund the future of energy."
Not that the UK will stop producing oil and gas. There are still prospects for so-called "near-field" projects that can tie into existing North Sea infrastructure. Interest remains in retrofitting existing platforms with low-carbon electricity supply from wind or other sources. And smaller companies are pursuing several other heavy crude projects; heavy, low-sulfur crudes such as Kraken or indeed Cambo can be a useful blendstock for low-sulfur bunker fuel needed by the shipping industry.
And the West of Shetland area is likely to continue producing, including TotalEnergies' Laggan-Tormore gas complex and presumably BP's Clair and Schiehallion heavy oil fields.
But UK output levels have already taken a knock from the pandemic, with oil production over the first nine months of 2021 down 17% year on year, while exploration drilling has ground almost to a halt.
S&P Global Platts Analytics forecasts a 40% decline in UK oil output between 2030 and 2040.
The West of Shetland area remains an especially hard sell, with higher investment costs due to harsh sea conditions and significant water depths. The region lies far from UK industrial hubs in the north of England and eastern Scotland in need of climate solutions such as carbon capture and storage. Other big projects such as the mooted Rosebank development are now harder to envisage.
Investors with more flexible criteria than Shell may emerge, but "the current climate makes committing to larger, complex projects increasingly challenging," said David Moseley, North Sea research vice president at Houston-based consultancy Welligence.
Geologists, meanwhile, say there is a problem not just ensuring UK energy supply, arguing that showing global leadership on the energy transition will require maintaining and extending the country's geological expertise. Geological knowledge will still be needed for transition projects such as carbon capture and storage, geothermal energy, and potential sub-surface storage of hydrogen, they point out.
While the West of Shetland region is often considered less relevant in this regard, questions remain over proposed UK carbon storage sites. The West of Shetland larva fields, where Cambo is sited, could actually be among the most suitable for CCS, says Nick Schofield, reader in igneous and petroleum geology at Aberdeen University and a specialist on Cambo.
He notes the Cambo project, while mainly targeting oil, entailed building a gas pipeline that could have been a conduit for known gas finds in the area. As for UK expertise, Scottish authorities abolished geology as a school subject at "higher" level, a precursor to university entry, in 2015. And the number of people studying geosciences in the UK dropped by some 45% between 2014 and 2020, according to academics from the group University Geoscience UK.
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"We still need oil and gas in this country for many decades to come," Schofield said. "It feels like we're losing the battle of getting the facts out there," he said, adding negative attitudes were "filtering down" to geoscience students.
Mike Lakin, managing director of M&A deal advisory Envoi, said there remain "tremendous" opportunities around the North Sea, particularly for small companies, but they will require time, price signals that remind the world of its need for oil and gas, and the assurance that projects can be accomplished in a low-carbon manner.
Provided exploration licensing is relaunched and the industry demonstrates an ability to lower its carbon footprint, "the North Sea is going to play an important part over the next 10-15 years of energy in the UK," Lakin said.