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UK North Sea Oil & Gas Review - December 2020

UK North Sea Oil & Gas Review - December 2020

 

The coronavirus pandemic and the net-zero emissions pledges have turned the spotlight on the short- and long-term future of the UK North Sea oil and gas industry this year. 

The second downturn in the oil and gas sector in just four years came just as the UK supply chain had largely recovered from the 2015-2016 crisis and was looking with more optimism to 2020.

The COVID-19 pandemic, however, upended all previous forecasts for global and regional oil supply and investments in exploration as companies moved quickly to cut costs, including by reducing staffing numbers.

The UK offshore industry started to count the jobs lost and the major industry associations began laying out pathways out of the crisis aligned with the energy transition and net-zero emissions goals.

Net Zero Pledges from bp and Shell

The top operators on the UK Continental Shelf (UKCS), bp and Shell, announced thousands of job cuts globally, reduced capital expenditures (capex), and slashed dividend pay-outs in the wake of the steepest oil price decline in recent memory, due to the pandemic.

They also pledged this year to become net-zero energy businesses by 2050 or sooner as Big Oil in Europe embarked on a race to prove to environment-conscious investors and shareholders that they can remain relevant in the energy transition by allocating more financing to renewable energy and by streamlining their upstream oil and gas portfolios. Both bp and Shell continue to be committed to the UK offshore oil and gas production while reassessing upstream operations in other areas they consider non-core to their future business.

BP said in its new strategy in August that it would reduce its oil and gas production by 40% by 2030 through active portfolio management and would not enter exploration in new countries. Two months earlier, bp had said it would cut close to 10,000 jobs, most of which by the end of this year. The majority of people affected will be in office-based jobs, bp’s chief executive officer Bernard Looney said.

In August, Looney commented on bp’s new strategy to reinvent itself into an integrated energy company from an international oil company:

“We believe our new strategy provides a comprehensive and coherent approach to turn our net zero ambition into action. This coming decade is critical for the world in the fight against climate change, and to drive the necessary change in global energy systems will require action from everyone.” 

Shell did not take too long to follow bp in the pledge to become a net-zero business by 2050 or sooner. The transformation at Shell and the review of its portfolio will mean that the supermajor will cut between 7,000 and 9,000 jobs by the end of 2022, chief executive Ben van Beurden said in September.

“We have to have a role in helping our customers decarbonise: a mission of working with society to help it get to net zero. Because it is not good enough to just wait and see what society does,” van Beurden said.
“That mission does mean dramatic change for Shell – and that includes changes to our business plans over time,” the firm’s top executive noted.

“If we want to get there, if we want to succeed as an integral part of a society heading towards net-zero emissions, now is the time to accelerate. That is what we are doing,” van Beurden noted.  

UK Offshore Industry in Net Zero World 

The UK pledge to become a net-zero economy by 2050, the commitment to ‘build back greener’ from the COVID-19 crisis, and job losses at bp prompted the leading representative body for the UK offshore oil and gas industry, OGUK, to call for a fair transition to net zero, in which a low-carbon future and offshore jobs and skills are not in discrepancy. 

Commenting on bp’s plan to cut 10,000 jobs, OGUK Chief Executive Deirdre Michie said in June that there was a “need to continue working with governments to deliver an inclusive, fair, and sustainable transition to a lower carbon future. This is the best way to protect jobs, create new business opportunities and ensure energy regions from the north east of Scotland to the east of England are not left in the dark.”

A North Sea transition deal for the offshore sector is essential in meeting the need for secure, affordable energy to be produced with fewer emissions and to position the UK as a leader in developing low-carbon solutions, OGUK said in November, presenting its Autumn Snapshot of the Business Outlook 2020.

“It could take two to three years to restart much of the capital investments that have been lost. This is reflected in the low business sentiment expressed by OGUK members as companies look to 2021,” Ross Dornan,

Market Intelligence Manager, OGUK, said in the snapshot.

“It is important that activity levels on the UKCS keep pace with those in other basins to ensure that it remains a competitive place for supply chain companies to anchor and invest in resources. These capabilities are crucial to maximise the UK’s resource potential, but also will have a vital role in providing the solutions required to achieve a net zero outcome by 2050,” OGUK said.

According to the Just Transition Commission Advice for a Green Recovery in Scotland, a large-scale decommissioning programme could drive critical activity in the North Sea, maintain essential skills, and position the North Sea infrastructure for a new integrated future.

“There is a need to create jobs in the short-term that will allow us to retain this workforce and the associated supply chains, so that they can be redirected towards our net-zero transition,” the commission said.

Commenting on the report, OGUK Chief Executive Deirdre Michie said:

“We have a once in a lifetime opportunity to show how we as an oil and gas producing country can successfully build a more diverse and lower carbon energy mix in a way that embraces the skills and talents of our people and our indigenous industries.”

Offshore jobs were impacted by the pandemic earlier this year. Worrying signs for employment in the sector emerged, with the uptake of furlough and continued suppression of global energy demand impacting the industry like many others in the wider economy, OGUK said in its first insight into the impact of the pandemic on offshore jobs. Official figures about employment in the sector and the supply chain will not be available until 2021, but those worrying signs highlight the need for governments, industry, and regulators to work together to protect the jobs and skills that will be needed to meet UK energy needs now and as the country moves to a lower carbon future, the industry body said at the end of October.

“As our report shows, the recruitment and retention of diverse and talented people will be essential as we work to support UK energy needs both now, and in a lower carbon context,” report author OGUK workforce engagement and skills manager Dr Alix Thom said.

“A North Sea Transition Deal, supported by the UK and Scottish governments, can act as a catalyst for this future, and in so doing will provide certainty on the sustainability for the sector in difficult times,” Thom said.  

Read the latest issue of the OGV Energy magazine HERE.

Published: 08-12-2020

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