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Interview with Will Webster, Oil and Gas UK

Oil and Gas UK (OGUK) is the leading representative body for the UK oil and gas industry. Its aim is to strengthen the long-term health of the industry and speak on behalf of its members, which are all companies active in the UK continental shelf. Will Webster is OGUK’s Energy Policy Manager.

As for so many other industries, 2020-21 has been a very difficult time for the oil and gas industry. Demand for oil and gas has fallen, affecting price levels, as has capex, especially new investment in exploration and production.

“In the UK we are hoping for a bounce-back in exploration and development capex after Covid and into 2022. This is important as oil and gas still supply 70% of the UK’s primary energy. That percentage is going to fall, but over the next 30 years there is still an [approx.] 15 billion barrel energy gap to fill in terms of O&G supply, and it will require some new  exploration to fill it.

“It would be a mistake to think that we won’t continue to need oil and gas, for example for aviation fuel, for years to come. Electricity cannot do everything that oil and gas currently do, and some of the emerging new technologies will not be available at scale in the short term.”

“In this context, the industry was pleased to see a supportive outcome from the recent licensing review, which continues to offer the prospect of new drilling so long as projects meet the requirements of ‘climate compatibility’.”

This principle requires an assessment of whether government and regulatory decisions on future rounds are compatible with the UK’s climate change objectives before a project is allowed to go ahead.

As highlighted in this report, the likely date for global peak oil production is getting closer – some commentators even think that it might have been 2019 – and the consensus view is that peak oil is going to come sooner than previously forecast. However, peak oil is not the same as peak gas.

“We are in the middle of an energy transition and that transition includes decarbonised gas.”

As part of the recent deal with the UK government, the O&G sector has committed to halve emissions from its own exploration and production from 18 million tonnes to 9 million tonnes by 2030.

“Some of this reduction will come from the use of produced gas for power generation offshore. And as the offshore electricity network is extended for the development of offshore wind, O&G assets can also be included and provide important synergies.”

The majors are investing heavily in offshore wind themselves. In the recent Crown Estate auction for offshore windfarm acreages bp, Equinor and Total were all successful bidders.

“That seems to surprise some people, but it really shouldn’t. These are big companies with huge experience of working offshore with complex infrastructure. But if you want to really speed up decarbonisation, you are also going to need carbon capture and hydrogen. And moves to accelerate the timetable for carbon-reduction targets only increase the importance of those two technologies.”

There is potential to re-use existing O&G infrastructure for CCUS projects, and there is scope to re-use some gas infrastructure for hydrogen, for example the UPVC piping that is steadily replacing the old, iron mains. But arguably it is the experience, and more specifically, supply-chain experience, of the UK's O&G sector that will be more valuable to these new technologies than their repurposed infrastructure.

Meanwhile, there continues to be helpful regulatory progress in many relevant areas.

“The CCUS market is moving ahead and we will see government-backed projects on the model of offshore wind. There has also been progress on how to remunerate pipeline infrastructure. We are still waiting for a business model for hydrogen, but that should happen later this year.”

In terms of ESG, the UK government’s reporting requirements continue to grow, as do institutional investors’ expectations of transparency so they can make informed investment decisions.

“The EU has already done a lot of work around the taxonomy of sustainability i.e. how to define a ‘sustainable fund’ and the UK government has now initiated work in this area.”

The COP 26 climate conference to be held in Glasgow during 2021 will see the UK government ask companies about their contribution to achieving increasingly ambitious goals. Looking five years ahead, OGUK’s Webster expects this already fast-moving situation to have evolved even further.

“Companies are looking to develop new technologies at sufficient scale to play a role in the energy transition, just as offshore wind now does. In fact, the development of offshore wind over the past decade provides a good model for CCUS and hydrogen to follow. First, they need the infrastructure and a business model; then they learn through smaller projects; only after that can the technology be rolled out at scale.”

Photo Will Webster OGUK

Will Webster - Energy Policy Manager, Oil and Gas UK