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INTERVIEW: Low-carbon electrification key to North Sea revival: OGUK

Highlights

Major West of Shetland projects hinge on electrification

No shirking issues ahead of UK's COP26 climate talks

Regulatory system not designed for sending power offshore

London — The UK's North Sea oil and gas industry, facing a long road to recovery, must also address a fundamental challenge providing low-carbon electricity to offshore facilities, with the issue likely to determine the fate of future investments, Oil & Gas UK sustainability director Mike Tholen told S&P Global Platts.

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In an interview, the top OGUK official said the industry's immediate task was restoring offshore workforce numbers; the UK's North Sea and West of Shetland regions produce around a million barrels a day of oil, including grades such as Brent and Forties, and meet half the country's gas needs.

With preliminary figures suggesting oil output fell 8% last year, Tholen said workforce numbers were currently down about 20%, and drilling had been "severely impacted" by pandemic restrictions and spending cuts. Technology can help with maintenance, "but you need people on the work-front," he said.

S&P Global Platts Analytics expects UK oil output to drop 24% to some 830,000 b/d by 2025.

Adding to the pressure on the industry is the UK's hosting of UN climate talks in Glasgow in November, with the government currently reviewing the licensing system to ensure it aligns with "net zero" climate goals.

Tholen said investors remained committed, provided fiscal stability is maintained, and there was no question of shirking the environmental issues.

One issue, "electrification" of offshore facilities, is likely to prove critical, and will have to be resolved, at least at a planning level, if progress is to be made on big-ticket oil projects in the West of Shetland area, such as Cambo and Rosebank, or an extension of BP's Clair development, as well as projects in the conventional North Sea.

The UK has been shown up by Norway's progress connecting its oil and gas platforms to the national electricity grid, itself largely based on hydropower. By contrast, power generation at UK offshore facilities, using diesel or gas, accounts for 10% of UK power generation emissions and 70% of upstream operational emissions, according to regulator the Oil & Gas Authority.

Tholen said around six schemes were being studied for bringing electricity to offshore platforms, and solutions would be found, but there were also serious obstacles.

"I'm pretty convinced all the operators looking at new field developments West of Shetlands recognize they're going to have to be — if not immediately already ready — then designed to flip over to electricity import to the platforms," he said. "The issue is how you actually get it to happen."

Regulatory hurdle

Tholen highlighted regulation as the main obstacle to connecting oil and gas facilities to UK power supplies, saying the codes underpinning the distribution system would need to be adapted, along with the system of tariffs and the emissions trading system. The cost of retrofitting older platforms is also a "major issue," he added.

"The big challenge is that our electricity code... in the first place was simply not designed around substantial movements of electricity offshore into offshore grids," he said.

Another issue is current wind farm projects not being in the right places to meet the industry's needs at the right time. This means progress is likely to be fastest on schemes that include a link to shore-based power supplies, either in the UK or Norway, Tholen said.

"There's a number of detailed engineering feasibility studies going on. I would genuinely expect that any solution will involve a connection to mainland UK or mainland Norway, and it might involve a wind farm, but it doesn't necessarily at the early stages involve a wind farm," he said.

"There are various levers that need looking at, but at the same time there is a massive focus within the industry."

Climate challenge

On the overall outlook and the challenges coming from the environmental movement and beyond, Tholen noted the industry had pledged to halve its operational emissions by 2030, and said it was "up for the honest discussion," one that recognizes UK energy needs and the value and employment derived from the North Sea and broader offshore supply chain, which exports around the world.

"The issue is how the production arm... and how the supply chain arm of our sector also adapts and transforms, and the question is how do we do that in a way that's least damaging to the environment and most beneficial to the economy. There's no simple answer," he said.

Overall, however, he sounded cautiously optimistic the industry would recover from what he called the "scars" of COVID-19.

"I'm confident investment will pick up. How quickly we'll get to where it was before is a massive debate," he said. "Things will get better, but it will take time. We're in the middle of that queue — alas we're not at the front of that queue as an industry."