Working together, pulling apart: what role does oil and gas have to play in a changing world?
Oil & Gas UK published its annual economic report in September, highlighting the importance of oil and gas amid the clean energy transition. Scarlett Evans asks whether traditional oil and gas companies have a role to play in a rapidly-changing oil and gas ecosystem.
The UK must push for significant investment into the oil and gas industry in the coming years, lest it find itself overly reliant on foreign imports for its energy needs. At least, that’s what the latest report from Oil & Gas UK (OGUK) says. The crux of the argument laid out in the leading trade association’s latest economic report is that the UK is facing something of a crossroads in its energy choice: to invest in offshore, or to phase it out before demand has dropped to eliminate the need for imports.
According to figures from the document, 73% of the UK’s total energy is still derived from oil and gas, with the majority of this coming from imported stocks. Between January and March this year alone, 56% of the nation’s gas was imported. As a result, OGUK is calling for a boost in domestic investment into oil and gas production - a move the body says will improve the nation’s energy security and provide a ‘homegrown’ transition to net zero.
Yet the matter is not, of course, clear cut. Environmental groups are calling for a complete phase out of these energy sources, and a recent paper from University College London researchers says no more extraction can take place if the country is to reach its 1.5 degree Celsius target. Lines have been drawn, and the question has been raised of what role oil and gas could — or should — play in Britain’s future.
Something to invest in?
Speaking at the launch of its annual Economic Report, OGUK chief executive Deirdre Michie OBE has said that the UK oil and gas industry is key to delivering the country’s net zero ambitions, emphasising the need for industry members to work collaboratively to make the transition to a clean economy a smooth one.
“The reality is that demand for oil and gas here in the UK will continue for decades to come, albeit decreasing as society shifts over time to alternatives like hydrogen and renewables,” she said.
The reality is that demand for oil and gas here in the UK will continue for decades to come.
According to the OGUK report, failing to explore new oil and gas fields, to replace those reaching end of life, would prevent the UK from meeting two-thirds of its future energy needs. In a statement on the subject, Michie said curbing domestic production before demand has decreased leaves the nation ‘increasingly dependent on other countries’, and the group has said the industry is ready to channel £21bn in investment over the next five years into exploration and production of potential sites.
In addition to providing energy security to the UK, such investment is also pitched as providing economic and employment opportunities for the country, with a particular focus on offshore workers with specialised knowledge of marine and energy engineering. The group says that these workers will be crucial to helping the industry move towards renewable and low-carbon energy alternatives.
“Cutting back our greenhouse gas emissions will not be easy, but we will do it faster if we support the companies and people who have the skills to get us there,” Michie stated. “From energy workers to energy consumers, we all need a managed and fair transition which benefits everyone.”
Yet while the group — and indeed the UK Government’s Climate Change Committee — calls for an inclusion of oil and gas in the UK’s transition away from carbon-intensive resources, there are some who argue we cannot afford to pursue any more exploration of these materials, and who say to do so jeopardises the global efforts towards net zero.
Are the expansion plans at odds with our global needs?
An analysis published by UCL researchers Steve Pye, Daniel Welsby and James Price termed our current climate ‘absolutely desperate’, saying that 90% of coal and 60% of oil and gas reserves must remain in the ground if there was to be even a 50% chance of keeping global heating below 1.5 degrees Celsius.
As a result, instead of looking for more extraction opportunities, the researchers say that global oil and gas production must instead decline at a rate of 3% per year, deeming investment plans as not ‘climate compatible’ and calling for government action such as entirely banning fossil fuel extraction activities.
Government should avoid the risks of stranded assets arising from investment in fossil fuels.
“Instead of putting money into fossil fuels, an industry that will be in serious decline in coming years, government should avoid the risks of stranded assets arising from investment in fossil fuels, and rather focus on the clean tech industries that we need [such as] electric vehicles in automotive, renewables, building retrofits [and] hydrogen production and for which there will be increasing demand,” says Pye. “The investment opportunity here is huge."
Pye is not alone in his stance. An IEA report published in May this year similarly stated that reaching net zero by 2050 would rely on there being no new oil, gas or coal development. Such industry sentiment begs the question as to whether expansion is the best option, though the problem remains of how to bridge the gap while consumer demand remains higher than clean energy supply.
The power of policy
On enabling a transition away from fossil fuels, Pye notes two sets of policies and drivers.
“On the demand side, it is the policies that are targeting consumption of fossil fuels that are important, and those incentivising development and uptake of clean tech,” he says. “For example, in the UK, the government has proposed a ban on ICE cars, coming into effect in 2030. This sends a strong signal to manufacturers that specific vehicles cannot be sold.”
Smoothing the path to net zero is not a simple task, and given that the UK’s energy demand is not going to decline any time soon, finding an economically and environmentally viable solution is high on the government’s agenda. This is of particular importancegiven that the country will be the host of the COP26 climate summit at the end of October, and the UK is promoting itself as something of an environmental leader. As global economies tread the line between maintaining economic stability and progressing their environmental agendas, decisions such as these will become increasingly common, and the calls of environmentalists will only grow increasingly loud.
Governments also use more direct policies to reduce fuels use, such as taxes on fuels or on vehicles depending on their emissions.
“Government is also supporting R&D on improving battery technology, and supporting uptake of electric vehicles through consumer grants,” suggested Pye, noting what governments can do to accelerate the clean energy transition. “Governments also use more direct policies to reduce fuels use, such as taxes on fuels or on vehicles depending on their emissions.
“Basically, we need all of these different policy levers to hit the kind of decline rates seen in our paper, that both focus on shrinking the market, the demand side, and reducing production [and] extraction, the supply side,” he concludes.