Home Technology Funding for the North Sea can be a win for investors and our energy security
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Funding for the North Sea can be a win for investors and our energy security

by uma

 

 

By Steve Brown, the CEO of Orcadian Energy

Debate is raging in the United Kingdom over the future of oil and gas development in the North Sea. But this debate tends to be played out in the extremes, with vocal minorities on both sides stifling rather than encouraging measured and effective policy. 

There are those who believe we should extract every last drop of oil from the North Sea, with no regard to our environmental commitments. This is not the prevailing view of the vast majority of us working the North Sea. We all recognise the need to reach net zero and ensure that we transition away from oil and gas. 

But this transition needs to be secure. There are some who believe that oil and gas should play no part in the UK’s energy mix going forward. This is wrong. We have already seen from Putin’s aggressive war in Ukraine that cutting off a fraction of our supply can have major implications for our energy security. And although many will say that a small proportion of our energy comes from Russia, the knock on effect of rising prices from other sources has wreaked havoc on the British economy and our domestic energy security. Should we immediately halt domestic production, the problems would be far worse than the ones we are experiencing now. 

We need to be moderate in our approach to new oil and gas developments. In doing so, we need to bring those with the capital and resources into the mix, and encourage their investment in British energy security. To do this we need fundamental change – not through warm words and positive rhetoric, but through real action. 

Over the past two decades the discussion has focussed almost exclusively on renewable electricity generation. It is right that the focus has been on ‘greening’ the energy we all rely on, but this has come at the unacceptable cost of increased reliance on foreign actors to light and heat our homes. It also has negative implications for global emissions reductions, as many countries from which we source our energy have much lower environmental standards than we do.  

This action needs to originate from the Government. And whilst it is encouraging that over 1,000 new blocks have recently been offered, this does not get to the root of the problem. 

The most pressing issue facing companies operating in the North Sea is the lack of investment. And that is not to say there are not viable projects that will provide suitable returns for investors – quite the opposite. There are plenty of investable projects that will provide long-term and sustainable profits for a range of different financial bodies. 

The City has not stepped up to the plate and supported the UK’s transition. What many do not realise is that investment in the North Sea can be a win for all. Investment in the right project will bring greater energy security, reduce the need for future Government bailouts and return sizable profits to investors. 

But perhaps most importantly, it will accelerate the transition to net zero in as secure a way as possible. New fields have modern technology that dramatically reduce the rate of emissions generated from extraction. We do not need to choose between net zero and the North Sea. 

But the rules that surround financial institutions prevent many from even attempting to invest in new oil and gas developments. Banks have announced they will not help fund new oil and gas projects, whilst pension funds in Britain find it virtually impossible to invest in new projects. The UK’s pensions regulator requires pension funds to eliminate investments that cause emissions from their portfolios. 

Within these rules, the regulator measures the level of emissions from three mechanisms, known officially as Scopes. The most contentious of these is Scope 3, which measures the carbon footprint from the use of the product, which effectively double counts these emissions. And whilst with new technologies pollutant levels from Scopes 1 and 2 can be significantly reduced, investment is deterred due to the need to count the Scope 3 emissions.

We need a system that is more nuanced, and places more emphasis on Scopes 1 and 2 which are directly within the companies’ control.

Without fundamental change, old fields which use more traditional methods of extraction remain in operation. These fields are often far more damaging to the environment, and Equinor’s Al Cook put it neatly when he said that some of the current fields are like old bangors, emitting harmful pollution at massive rates. Newer fields, he argued, are like more modern cars that have newer technology or are part electric.    

There needs to be a serious rethink in policy. In particular, there needs to be a focus on encouraging new investment into the North Sea. Not only will this help to increase our domestic energy security, but will help us reach our net zero goals more quickly and more securely.

Any secure transition must balance our need for energy security with our environmental commitments. Fresh investment in new oil fields can do just that.

 

 

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