Shell said Dec. 2 it was cancelling its plans for the major Cambo oil project in the UK West of Shetland area following a barrage of criticism including from Scottish leaders, saying the economics of the project were insufficiently strong and it was worried about delays.
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Shell reaffirmed its commitment to the North Sea industry, home to the Dated Brent benchmark and a key source of non-OPEC production, but said in a statement the case for the investment was "not strong enough at this time."
Shell holds only a 30% stake in Cambo, alongside independent Siccar Point Energy, but its announcement is likely to be decisive for the future of the project, and be seen as a warning for those considering other major oil developments, particularly in the high-cost West of Shetland area.
The decision comes after Cambo is thought to have been delayed by the UK's hosting of UN Climate Change Conference in November, and after Scottish First Minister Nicola Sturgeon said she did not believe the project should go ahead. Against the background of COP26, Cambo was described by some as having become a "lightning rod" for environmental criticism.
Confidence had already taken a knock when the UK suspended offshore licensing pending a review of the process to ensure its compatibility with net-zero climate goals, with no sign of a resumption yet taking place.
In a speech in November, Tim Eggar, chairman of offshore regulator the Oil & Gas Authority, emphasized the role of gas as a transition fuel that could help create a market for hydrogen fuel production, but was criticized by some in the audience for sidelining oil in his comments.
Shell in recent weeks has seen the Acorn carbon capture and storage project in Scotland allotted "reserve" status, rather than fast-track approval by the government, and suffered a knock-back when its proposal for the Jackdaw gas and condensate project was rejected by an environmental regulator. CEO Ben van Beurden complained in October at being disinvited from the COP26 talks.
Located in more than 1,000 meters of water, Cambo is thought to contain some 800 million barrels of oil equivalent "in place," with the first phase targeting 170 million barrels of oil equivalent. It lies in the same region as the major Rosebank oil project, for which the main licensee is Norway's Equinor.
"Before taking investment decisions on any project, we conduct detailed assessments to ensure the best returns for the business and our shareholders. After comprehensive screening... we have concluded the economic case for investment in this project is not strong enough at this time, as well as having the potential for delays," Shell said Dec. 2.
"Continued investment in oil and gas in the UK remains critical to the country's energy security," the company said. "As Shell works to help accelerate the transition to low-carbon energy, we remain committed to supplying UK customers with the fuels they still rely on, including oil and gas. "We believe the North Sea -- and Shell in it -- have a critical role to play in the UK's energy mix."
Siccar Point Energy, the operator, said it remained "confident about the qualities of a project that will not only create over 1,000 direct jobs as well as thousands more in the supply chain, but also help ease the UK's transition to a low carbon future through responsibly produced domestic oil."
The UK's Department for Business, Energy & Industrial Strategy described the announcement as "a commercial decision that has been taken independently by Shell," adding: "We remain committed to our domestic offshore oil and gas sector, which continues to keep us warm, fuel our cars and strengthen our security of supply."
UK oil production was down 17% over the first nine months of 2021 at less than 900,000 b/d, partly on the back of the pandemic. S&P Global Platts Analytics expects a slight recovery in 2022, before a decline to around 550,000 b/d by 2030.
Shell is one of UK's largest oil and gas producers, with an offshore portfolio weighted toward oil production, which amounted to 72% of upstream output for the company in 2020.