UK oil and gas industry eyes growing hydrogen, CCS role

London — The UK oil and gas industry can play a key role in the hydrogen and Carbon Capture, Usage and Storage sectors given its expertise in producing and transporting hydrocarbons, an official from industry association Oil & Gas UK said Wednesday.

OGUK energy policy manager Will Webster told a London event the industry could help manage the energy transition in the UK as it looks to meet a legally binding target of net-zero carbon emissions in 2050.

"There are some synergies for our members in CCUS and hydrogen," Webster said at the launch of a report by law firm CMS on oil and gas and the energy transition.

OGUK has reshaped its vision for tackling carbon emissions since the government made the net zero target legally binding last May, with a focus on gas and decarbonization, Webster said.

"We will produce increasingly more gas than oil, and increasingly more decarbonized gas," he said.

The development of hydrogen through carbon capture would ensure a continued role for the industry, he said.

Current UK gas production is some 900 TWh, Webster said, and the UK Committee on Climate Change recommends reaching hydrogen output of 270 TWh by 2050, which would mean almost a third of current UK gas production going to hydrogen.

Webster was cautious, however, about the pace at which change could be achieved, saying "It's basically building an entirely new industry from scratch."

"CCUS and hydrogen will require a long-term commitment and policy support," he said, referring to "chicken and egg" problems associated with infrastructure development and consumption.

Once up and running, however, the speed of progress could accelerate. "Hopefully it will take on a life of its own," he said.

"Key to unlocking the big numbers is knowing that the sector will grow, and it becomes self-reinforcing."

CMS' global head of energy and climate change, Munir Hassan, said numerous pilot projects were underway for CCUS, and a tipping point could be reached where the technology becomes commercially viable.

"Once we have a proof of concept, we could see the rapid commercialization of CCS globally," Hassan said.

Pressure on the industry is growing, with Tim Eggar, chairman of the UK industry regulator, warning this month the UK oil and gas industry's "social license to operate" was under serious threat.

Independent consultant Beth Mitchell told the event the integration of climate change issues was now "at the heart of the investment process."

"Climate change is now a mainstream concern," Mitchell said, with investors concerned about all implications of the issue.

Private equity firms are already implementing policies to take climate change into account, with capital likely to leave the oil and gas sector, she said.

Sustainability link

Industry players are acting too. Trader Gunvor on Tuesday said it had successfully met targets for a $725 million sustainability-linked borrowing facility.

It said it was the "first energy commodities trading company to close a financing in which the interest rate is dependent on the company's year-on-year improvements in 15 different sustainability criteria."

Mitchell said the oil and gas sector needed to understand there was no one-size-fits-all strategy for contributing to the energy transition and "it's going to be a bumpy ride."

She said investors could choose to prioritize renewable projects by specialist companies rather than those by oil and gas majors.

Jonathan Woolf, partner at CMS, said the global oil and gas industry was in "more flux" than since the oil crises of the 1970s. He said that the industry was waking up to the need to act, with European majors such as Shell, Total, Equinor and Repsol spending more on renewables than US or Asian counterparts.

In 2018, European majors spent an average of 6.2% of their capex on renewables compared with just 0.8% in the rest of the world, including the US, the CMS report found.

"Everyone's doing something; it is just a question of what and how much," he said.

Woolf said there was also a "strong correlation" between the spending of the majors on renewables and the size of their oil and gas reserves. The shift to renewables is "far less pronounced" for companies facing less pressure from investors, or with particularly large oil and gas reserves, the CMS report said.