North Sea Transition Deal and offshore licensing update

North Sea Transition Deal

On the 24^th March 2021, the UK Government published its North Sea Transition Deal (“Deal”). The Deal delivers on one of the key commitments made in the Government’s Energy White Paper (see our previous article on this here).

The Deal sets out an ambitious plan for how the offshore oil and gas sector and the Government will co-operate to deliver the skills, innovation and new infrastructure required to decarbonise North Sea oil and gas production, transforming the sector in preparation for a net zero future.

The Deal is built on five key outcomes:

1. SUPPLY DECARBONISATION: cut UK upstream oil & gas industry emissions through an emissions reduction programme.
   

   Sector Action

   Government Action

   Commit to early targets for reduction of   emissions from oil & gas production – 10% by 2025 and 25% by 2027.   Together with the existing targets of 50% by 2030, 90% by 2040 and net zero   by 2050. Implement and follow OGA’s Net-Zero Asset   Stewardship Expectation. Develop a Methane Action Plan, which will   improve the monitoring and reporting of methane emissions and setting a   methane target. Invest £2-3 billion for electrification of   offshore assets.

   Identify early stage funding opportunities   for offshore electrification by the end of 2021 and will work with sector to   identify potential funding solutions. Work with the oil & gas industry to   develop potential decarbonisation funding solutions for offshore   electrification by late 2022. Commit to working with the oil & gas   industry to explore the economics of electrification and work to identify the   most cost effective options to unlock investment. Create an Offshore Implementation Group to   address the regulatory and legislative barriers to offshore electrification.

2. CARBON CAPTURE, USAGE & STORAGE: a commitment from both sector and Government to develop CCUS infrastructure.
   

   Sector Action

   Government Action

   Invest £2-3 billion to build the CCUS   Transport & Storage infrastructure for at least 10MT/y of carbon capture   by 2030. Develop industry standards for CCUS   deployment in the UK. Transfer learnings from international CCUS   projects and previous basin cost reduction initiatives such as   decommissioning practice into CCUS deployment in the UK.

   Deliver a business model to enable CCUS transportation   and storage at scale providing much needed certainty for investors. Deliver a £1 billion CCUS Infrastructure   Fund to enable the deployment of transportation and storage and carbon   capture projects. Establish an independent economic regulator   to regulate the Transport & Storage sector. Deliver policy and regulation to optimise   the re-use of oil & gas assets and to support the deployment of CCUS   transportation and storage infrastructure.

3. HYDROGEN: developing and scaling up hydrogen production technology.
   

   Sector Action

   Government Action

   Work with Government to deliver the   ambition of 5GW of law carbon hydrogen production capacity by 2030. Invest in RD&D for hydrogen   technologies to support the production, transportation, storage and   consumption of hydrogen at lower cost. Support the development and deployment of   offshore green hydrogen production using offshore wind. Measure and track public opinion on the   use of hydrogen. Deploy funding from the £1bn Net Zero   Innovation Programme for hydrogen technologies supporting the production,   transportation, storage and consumption of hydrogen at lower cost.

   During the course of this year, the   Government will bring forward detail on preferred hydrogen business models. Review the gas market framework in the Gas   Act 1995 with a view to incorporating hydrogen.

4. SUPPLY CHAIN TRANSFORMATION: supporting the transformation of the oil & gas supply chain to service low-carbon energy sectors domestically and internationally.
   

   Sector Action

   Government Action

   Target 50% UK content, including capital   investment, over the lifecycle of all related new energy projects, as well as   oil and gas decommissioning, and 30% for locally provided technology. Appoint an industry supply chain champion   to co-ordinate business opportunities with other energy sectors. Develop market intelligence capability for   global energy transition projects. Develop and fund the Global Underwater   Hub. The Hub will develop and promote opportunities for the UK’s subsea   engineering sector. Identify potential funding opportunities   for supply chain led consortia by end of 2021 supporting low carbon   propositions.

   Collaborate with the supply chain champion. Promote the capabilities of the UK’s   energy supply chain in international markets. Develop policy to enable supply chain   investment in CCUS and hydrogen industrial hubs. Support the Global Underwater Hub with up   to £6.3 million initial investment.

5. PEOPLE AND SKILLS: supporting up to 40,000 high quality direct and indirect supply chain jobs.

Sector Action

Government Action

Support the work of the Energy Skills   Alliance and work programme to meet the future demand for skills in oil &   gas. Create an integrated people and skills   plan to support its transition and diversification. Ensure that the workforce’s skills and   competencies are mutually recognised across energy sectors enabling job   transferability. Support the UK Centre for Doctoral   Training in GeoNetZero and match Government funding.

Support the work of the Energy Skills   Alliance. Explore potential opportunities for UK   Centre for Doctoral Training in GeoNetZero. Champion the role of the sector and its   workforce in the energy transition. Prioritise support for people in high   carbon sectors via the Green Jobs Taskforce.

Offshore Licensing Update

On the same day as the deal was published, the Government confirmed it had finalised its review of its policy on UK offshore licensing (see our previous article on this here).

The Government has announced that future licensing rounds will proceed but these will be subject to a new Climate Compatibility Checkpoint, to ensure that licences awarded align with the UK’s climate change objectives.

The Checkpoint will look at the demand for oil and gas, projected production levels, the prevalence of clean technologies and the sector’ s progress towards its emissions reduction targets.

It is expected that the Checkpoint will be implemented by the end of 2021.