Here to stay or gone in 30 years? Inside the fight over the future of the oil industryOctober 31, 2021
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There’s a growing movement in Aberdeen for the region to lead the transition from Big Oil to Big Energy, using its deep-sea expertise to construct floating wind farms alongside offshore rigs.
“I think 2015 was the wake-up call that Aberdeen actually needed to say, ‘This ain’t going to be around forever,'” said Russell Borthwick, the local chamber of commerce’s chief executive. “When the oil price comes back, you [can] go back to just cigar smoking, wine drinking — ‘life’s great in Aberdeen isn’t it’ — but one day you’re going to wake up and there’s going to be nothing left.”
“[Renewable] investments are going to have to come from companies like ourselves, but we need to be able to have the balance sheet and the cash flow generation [from oil and gas] to be able to do that,” said Wael Sawan, Shell’s head of gas and renewables and a member of the company’s executive committee.
Keeping that option open is the primary goal of COP26, where 197 nations and territories with different economic priorities will try to agree on a plan of action.
“Emissions don’t have a passport, so we need to have a more holistic view here,” said IEA Executive Director Fatih Birol.
The business of oil and gas
The United Kingdom’s North Sea accounts for a sliver of global oil and gas output, but remains an investment hub for both domestic and international oil companies.
While the basin is nearing the end of its lifecycle, it still holds 4.4 billion barrels of oil equivalent, according to the United Kingdom’s oil and gas regulator. OGUK, the industry lobby, estimates that £390 billion ($534 billion) has been invested off the coast of the United Kingdom over the last 50 years, and that in the next five years, companies could commit another £21 billion ($29 billion).
Driving that spending is forecasts for demand through 2050. In a report earlier this month, the IEA said that if countries live up to current climate pledges, limiting warming to 2.1 degrees Celsius, demand for fossil fuels will peak around 2025. But even under that scenario, the world will still be consuming 75 million barrels of oil per day by 2050 — just 25 million barrels per day less than today.
“Right now you can get all the [publicly-listed] companies like ourselves out of the production of oil and gas,” Sawan said. “It will not have a single barrel of impact on the overall demand level, because all of that production will in essence migrate to many other countries — national oil companies — who will satisfy that demand.”
“The climate movement is very, very powerful at the moment,” Philip Lambert, who runs an influential energy advisory firm in London, said at a recent industry conference. “It’s swept through most of the key institutions that underpin our society in the West, and they don’t want people to invest in oil and gas anymore.”
An existential debate
Fossil fuel production remains a lucrative business. The 10 largest publicly-traded producers are expected to bring in almost $466 billion in revenue this year from the business of searching for and extracting oil and gas, more than in 2019, according to an analysis conducted by Rystad Energy for CNN Business.
“More than 80% of the emissions causing climate change come from the energy sector burning oil, gas and coal,” Birol said. “The amount of oil, gas and coal we use, it needs to go down substantially.”
Changes in the North Sea
Companies are still petitioning the government to kick off new fossil fuel projects, stressing the need to maintain UK production as aging ventures are decommissioned.
But efforts to diversify are ramping up.
“It is actually remarkable how fast things have changed in the past two to three years,” said Paul de Leeuw, director of the Energy Transition Institute at Aberdeen’s Robert Gordon University. “We have pressed the accelerator pedal. We’re off.”
Offshore oil and gas jobs in the United Kingdom still haven’t recovered from the pandemic. Companies are trying to stay disciplined on costs and keep shareholders happy even as oil prices climb. But researchers at Robert Gordon University suggest there are reasons for optimism.
Harbour Energy, the second largest oil and gas operator in the North Sea, is betting it can continue to prioritize production while investing in carbon capture. Earlier this month, the company was awarded a carbon storage license from the UK industry regulator.
“For five years, for 10 years, we will be predominantly a hydrocarbon-producing company,” said Phil Kirk, Harbour Energy’s president and CEO for Europe. “Might we [also] have a carbon capture business with transportation and service that adds to revenue? Yes, we might.”
Can Aberdeen succeed?
Not everyone thinks the UK’s transition is happening fast enough, especially given its resources and commitment to staying ahead of the pack on climate issues.
“We should be reducing our dependence on oil and gas, not adding to the supply,” said Charlie Kronick, senior climate adviser at Greenpeace, which thinks the United Kingdom should halt investment in new North Sea oil and gas projects.
Kronick also believes there’s too much emphasis on carbon capture technology, which he says “removes that sense of urgency that we need to reduce emissions.”
“There isn’t any pathway [to net zero] that doesn’t have some carbon removal,” he said. Some heavy industry sectors, like steel and cement, will be hard to decarbonize. “But to suggest that deploying [carbon capture and storage] in the future allows us to use oil and gas now is really seriously misleading,” he continued.
There are concerns among industry members that the UK government could cave to pressure and take a more aggressive approach, limiting oil and gas investment or production more sharply than expected.
Meanwhile, a British regulator recently blocked Shell’s plans to develop the Jackdaw gas field in the North Sea on environmental grounds. Conversations between the company and the regulator are ongoing.
“Recent decisions have made us question if we do indeed have that clarity [from the UK government],” Sawan said.
UK Energy Minister Greg Hands told CNN Business during a visit to Scotland that the government remains “supportive of the sector overall.”
“Some of the things that are talked about for new developments have already actually had their license approved some time ago,” he said. “So they’re already, if you like, sort of baked into our assessments on emissions.”
And for all the talk of big opportunities, local workers remain skeptical that they stand to benefit.
“The transition in terms of moving from oil and gas as an energy resource to renewables is happening — that’s happening all around us — but the workforce, I fear, [is] being left behind,” said Jake Molloy, a regional organizer for the trade union RMT based in Aberdeen.
Tuokpe Brikinns, a 41-year-old safety engineer who was laid off in May, said he’s trying to switch industries due to uncertainty about what lies ahead.
“I’m looking at a different sector, a place where there will be more job security,” Brikinns said at a local job fair earlier this month. “At the moment, oil and gas is not promising at all.”
Those working to build a hybrid basin are confident workers like Brikinns will be able to find employment in wind, solar or hydrogen as local investment increases. Whether they’re right will speak to what’s next for oil towns everywhere — and the oil industry.
“There’s a lot of other countries looking at the North Sea” as a model, said Malcolm Forbes-Cable, vice president of energy consulting at Wood Mackenzie.