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New UK agreement could be a model for others

In the United Kingdom, the role of oil and gas companies in a net zero future will be influenced by a unique agreement between the government and the oil and gas sector that is set to spur investment in decarbonization and lower carbon technologies, and ensure that the sector is well prepared for the wider effects of the energy transition.

The highly anticipated agreement, the North Sea Transition Deal (the “NSTD”), was published on 24 March 2021 and sets out a plan for the government and UK offshore oil and gas sector to work together to accelerate the energy transition whilst protecting jobs and the economy.

The NSTD contains proposed industry and corresponding government actions, along with a joint commitment to invest up to £14-16 billion by 2030 to reduce carbon emissions. The UK is the first G7 country to agree to form a unique partnership of this kind, offering an opportunity to lead the way in the energy transition.

The key actions and outcomes of the NSTD relate to five areas of development:

  • Supply decarbonisation: the NSTD focuses on cutting industry emissions with an ambitious sector target to reduce emissions 10% by 2025, 25% by 2027, and 50% by 2030 on 2018 levels;
  • Carbon Capture Utilisation and Storage (“CCUS”): in order to develop CCUS technology, industry has committed to leveraging existing infrastructure to provide transport and storage facilities;
  • Hydrogen: the government will create a Net Zero Hydrogen Fund to boost production capacity and encourage private investment;
  • Supply Chain transformation: to support the diversification of the UK supply chain, industry has committed to ensure that, by 2030, 50% of decommissioning and new energy technology projects being developed are provided by local companies. Underpinning this is the appointment of an Industry Supply Chain Champion to coordinate growth and job opportunities with other sectors; and
  • People and Skills: a key aim of the NSTD is to decarbonise the economy whilst utilising existing skills to protect jobs and offer opportunities for job creation. This includes a commitment to support up to 40,000 new jobs and retaining the transferable skills of industry workers allowing them to work across the energy sector.

The key challenge to the success of the NSTD will be turning sector-wide intentions into actions taken by individual companies to deliver on those intentions. Whilst the NSTD has been broadly supported by the sector and whilst, as this report demonstrates, the major oil and gas companies in our survey have made and intend to continue with significant investment in lower carbon projects, there remains a risk of an inertia effect resulting in the sector as a whole not delivering as the NSTD projects. The governance structure of the NSTD should help in this respect, with implementation led by a delivery group that includes an industry representative. We expect that other states with similar regulatory structures to the UK will consider similar approaches to the NSTD and will closely review the early stages implementation of the NSTD as an indicator of its potential long term success.