By Dr Daria Shapovalova (School of Law) and Professor Tavis Potts (School of Geosciences), University of Aberdeen
News that Shell is pulling out of the proposed Cambo oilfield in the North Sea has been met with delight by the climate movement and concern by the oil and gas sector. The oil giant has said its decision is economically-motivated, but in reality it is a symptom of the public’s growing awareness of the urgent emissions cuts needed to meet the Paris Agreement goals.
The final decision on the development is imminent, having prompted accusations of hypocrisy towards the UK government in its role as COP26 hosts, and recently sparked opposition from Scottish First Minister, Nicola Sturgeon.
Discovered in 2002, the field lies 25km north-west of the Shetland Islands. It contains over 800 million barrels of oil and is majority-owned by Siccar Point Energy. When the exploration licence was first awarded, the UK had no climate change legislation and had not yet ratified the Kyoto Protocol. Now, the government’s Oil and Gas Authority (OGA) has to decide whether to award a production licence in the face of fierce resistance from environmental groups like Greenpeace and Friends of the Earth Scotland and ongoing public interest before, during and after COP26.
Is Cambo crucial for “meeting UK demand cleanly and with the best environmental performance”, as the industry argues?
Or is it undermining the UK’s global climate leader image without addressing local pressures in the North East?
‘Hard Shutdown’ or Managed Phase-Out?
Many commentators emphasise the importance of job retention for oil and gas workers, especially amid reports of outsourcing renewable jobs abroad. Having a clear timeline for production phase-out and robust support for training can assist with skills transfer for the existing and future workforce. Both the UK and the Scottish governments set out plans to support oil and gas workers by funding training opportunities, but some still rightly feel “neglected and unheard”.
Expectation management is one of the hardest aspects of this conversation. Some soaring predictions exist for the future UK offshore energy workforce increasing to over 200,000 jobs by 2030 in a diverse sector led by offshore wind and with an (optimistic) assumption that oil and gas workers will all move to renewable and low carbon industries such as hydrogen and carbon capture, utilisation and storage (CCUS).
This projection needs to be balanced by sobering employment statistics in sectors such as offshore wind that have been described as a “failure to capitalise on the potential supply change opportunities of offshore wind” by the Scottish Trades Union Congress. Careful planning, policy support and social protection will be needed to advance a just transition in this context.
There is a need for clear timelines and action plans for the phase-out of the oil and gas industry in the UK. The country’s 2050 net zero target is supported by carbon budgets, reporting, careful planning, and an independent Climate Change Committee. While the Scottish Government has established a Just Transition Commission in 2019, and some work is underway, there are conflicting policy objectives in the OGA strategy. Maximising the economic recovery of North Sea oil and gas while pursuing ambitious climate targets will continue to cause uncertainty in the years to come.
The OGA has promised to establish a “climate compatibility checkpoint” for new licences to ensure compliance with wider climate objectives but has yet to publish details. Climate checkpoints are not a witch-hunt on the oil and gas industry, which has a role to play in a just transition. Existing expertise, human and financial capital and infrastructure are crucial for the development of sectors like hydrogen and CCUS.
However, refusing to set in place concrete timelines and climate assessment criteria – and what this means for future operations – does not provide certainty for industry or investors. Equally, sudden and drastic measures can lead to investor-state disputes, where fossil fuel companies may seek compensation for the disruption in their economic activities.
Arguments around the need to satisfy domestic demand with new oil and gas projects are perhaps easier to make currently, while headlines are filled with warnings of natural gas shortages. The need to avoid imports is often used as a blanket response to any calls for production wind-down.
Even in net zero-compliant scenarios, the UK will still require some oil and gas, but estimates vary. The Climate Change Committee’s Balanced Net Zero Pathway sees demand falling significantly to 2050 for oil (-85%) and natural gas (-70%). More ambitious scenarios, assuming “considerable success on both innovation and societal/behavioural change”, provide for an even more dramatic drop in demand.
What is less clear is how the rates of domestic production will be managed with the falling demand. In 2019, oil and gas produced in the UK met 59 percent of demand, rising to 71 percent last year as Covid-19 reduced our consumption rates. Recent calls from the IEA on limiting ‘no new fossil fuel supply projects’ and scientific studies calling for an annual decline of oil gas production of 3% set the global tone for production and climate commitments.
It is also important to note that UK-produced crude does not often make its way through UK-based refineries to UK customers. In the last 5 years, despite being a net importer of oil, the UK exported 81 percent of crude oil extracted and about 40 percent of refined oil. In 2020, 39 million tonnes of oil were exported mainly to the Netherlands, Korea, Germany, and China, some of which is imported back to the UK as refined petroleum products. In the same year, around the same amount was imported, mostly crude from Norway and the US.
The global nature of the oil market is not a threat to energy security, but the lack of diversity in domestic sources is. Real energy security can only be achieved with a multitude of affordable, sustainable, and reliable energy sources, in which renewables will play the key role to 2030 and beyond. A variety of sources and scenarios for data on demand projections does not help with clarity and allows for agenda-pushing on both sides of the debate.
The argument that “if we don’t develop this oil, someone else will” does not hold water for a country aiming to be a global climate leader. In the words of an Australian judge, Brian Preston: “If a development will cause an environmental impact that is found to be unacceptable, the environmental impact does not become acceptable because a hypothetical and uncertain alternative development might also cause the same unacceptable environmental impact”.
Cutting Both Supply and Demand
Cambo is the first of many oilfields whose fate is to be decided in the coming years, some much larger in size. Agreeing that demand will shrink significantly requires the acknowledgment that so must supply and decisions on which projects are to go ahead must take into account our climate commitments and considerations of social benefits and impact, including employment and public income.
Between hosting COP26 and efforts to pursue a just transition, the time for climate fence-sitting for Scottish and UK politicians is long gone. It is time to start having honest and difficult conversations about when and how the production phase-out will take place and what support measures must be put in place today to protect those most vulnerable to the inevitable shift to a net-zero economy.