Energy Integration: The Energy White Paper and what it means for oil and gas

The first instalment of the Energy Integration series considered the UK Government's 10-point plan and looked forward to the highly anticipated publication of the Energy White Paper. That paper has now been published and, as expected, underlines the commitment to the 'green recovery' and achieving net zero greenhouse gas emissions by 2050.

In this final part of the series, we will highlight the key aspects of the Energy White Paper for oil and gas and the critical role recognised for the sector in the energy transition.

Carbon capture and storage (CCS)

Together with £1billion to be invested into CCS up to 2025, the paper confirms that an Industrial Decarbonisation Strategy will be published in Spring 2021. While this strategy will primarily relate to the manufacturing industry, it will go hand-in-hand with CCS projects in the North Sea; a significant amount of CO2 is expected to be transported to disused oil and gas fields on the UKCS.

Hydrogen

The paper sets out that action is needed now to deploy hydrogen in order to stimulate supply chains and put the UK on the international hydrogen production map. More detail on how this will be done is expected in the dedicated hydrogen strategy to be produced in early 2021.

Commercial frameworks and investment

Critical to energy companies being able to commit to, and/or scale up CCS and hydrogen projects, are detailed commercial frameworks and business models. These are not expected until 2022. The question is: will the commitments laid out in the 10-point plan and expanded on in the white paper provide enough comfort for companies to genuinely commit to new energy projects? Concerns might be allayed with the investment commitments made in the paper, however. Alongside business models, it refers to the need for companies and investors to have revenue visibility and plans to produce a revenue mechanism in 2021, detailing how the necessary private investment conditions will be established.

North Sea transition sector deal

For the oil and gas sector, perhaps the most significant aspect of the white paper is the Government's commitment to agree a transformational North Sea transition deal with the industry during the first half of 2021. This will support the sector’s drive to shrink its carbon footprint, help to diversify the oil and gas supply chain (e.g. supporting new technology companies which will be crucial to the success of the transition) and importantly, supporting up to 220,000 jobs over the next decade.

Regulatory

The revised OGA Strategy will be laid before Parliament before the end of 2020. The main change is that net zero will form part of the 'central obligation', with the OGA having significant powers to implement the strategy. Indeed, the paper underlines the importance of having a regulatory regime which incentivises the switch to clean energy, setting out that the Government will work closely with OPRED and the OGA to ensure roles, powers and priorities are aligned with the net zero policy without additional regulatory burdens being imposed. For more commentary on the need for regulatory co-ordination in the transition, read part three of the series.

Energy security

Significantly, the paper recognises that climate goals, maintaining a sound economy and robust energy security can co-exist, but that this involves a careful balance being struck. The licensing of oil and gas production will be reviewed in light of net zero (this may involve formalising certain aspects of the regime), while also appreciating the importance of maximising economic recovery of hydrocarbons.

Progress planned for 2021 and beyond

The detailed strategies and frameworks expected throughout 2021 and moreover, the business models to be provided in 2022, are what is needed for the industry to fully commit to new energy projects. Nevertheless, the paper is a welcome signal from the UK Government and confirms that in order to achieve an "orderly and successful transition away from traditional fossil fuels " a huge amount of time, work and investment is required. Even with the most aggressive decarbonisation scenarios, oil and gas production is expected to continue for decades to come, with the sector playing a critical role in the energy transition and many new opportunities there for the taking.