North Sea Oil and Gas and Clean Energy Transition

Kwasi Kwarteng Excerpts

Wednesday 24th March 2021 Written Statements

[The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)]

Today I am delighted to announce a landmark agreement between the Government and the oil and gas industry—the North sea transition deal—to support the industry’s transition to clean, green energy and secure future of high-skilled oil and gas workers and the supply chain. This follows our commitment to securing a deal in the 2019 Conservative party manifesto and is the first of its kind to be agreed by a G7 nation.

The offshore oil and gas industry has been a major British industrial success story. For decades, the sector has strengthened our energy security, generated significant tax revenue to fund our public services, and currently supports around 260,000 jobs across the UK. From the Shetland Islands and Aberdeen to Teesside and the Humber, the industry is critical to the health of local economies across the country.

In the energy White Paper, we have committed to work with industry to make the UK continental shelf a net zero basin by 2050. The oil and gas industry will have a critical role in maintaining our energy security through this transition. Domestically produced gas still met approximately 46% of the country’s supply of gas in 2019 and the Climate Change Committee forecasts our continued need for fossil fuels for years to come.

The North sea transition deal between the UK Government and the oil and gas industry will support workers, businesses, and the supply chain as it transitions to a net zero future by harnessing the industry’s existing capabilities, infrastructure, and private investment potential to exploit new and emerging technologies such as hydrogen production, carbon capture, usage and storage and offshore wind—as well as offshore decommissioning.

Through the deal, the oil and gas sector and the Government will work together over the long term to deliver the skills, innovation and new infrastructure required to decarbonise North sea production, as well as other carbon-intensive industries. Not only will the deal support existing companies to decarbonise in preparation for a net zero future, but it will also attract new industrial sectors to base themselves in the UK, develop new export opportunities for British businesses, and secure new high-value jobs.

Through the package of measures, the deal is expected to support up to 40,000 jobs across the supply chain and is expected to cut pollution by up to 60 million tonnes by 2030 including 15 million tonnes from oil and gas production on the UK continental shelf—the equivalent of annual emissions from 90% of the UK’s homes.

The North Sea Transition Deal

Delivery of the new green industrial revolution will require a strong partnership between the Government, regulators and industry. This deal sets out a template for that partnership and includes an ambitious plan to meet stretching greenhouse gas emissions reduction targets. The deal aims to support and anchor the expert supply chain that has built up around oil and gas in the UK, to both safeguard and create new high-quality jobs.

The deal includes:

The sector setting early targets to reduce emissions by 10% by 2025 and 25% by 2027, and it has committed to cut emissions by 50% by 2030. This will be supported by joint work to address the commercial and regulatory barriers to electrification of offshore platforms to realise these targets.

Joint Government and industry investment of up to £16 billion by 2030 to reduce carbon emissions. This includes up to £3 billion to replace fossil fuel-based power supplies on oil and gas platforms with renewable energy, up to £3 billion on carbon capture usage and storage, and up to £10 billion for hydrogen production.

By 2030, the sector will voluntarily commit to ensuring that 50% of its offshore decommissioning and new energy technology projects will be provided by local businesses, helping to anchor jobs to the UK. This will be supported by the appointment of an industry supply chain champion who will support the coordination of local growth and job opportunities with other sectors, such as carbon capture, usage and storage and offshore wind.

A 60Mt reduction in greenhouse gas emissions, including 15Mt through the progressive decarbonisation of UKCS production over the period to 2030¹.

Support for up to 40,000 direct and indirect supply chain jobs in decarbonising UKCS production and the CCUS and hydrogen sectors.

Today’s announcement delivers on the Prime Minister’s 10-point plan and builds on our ambitious energy White Paper, which set out how the Government would support the decarbonisation of offshore oil and gas production while promoting opportunities for the sector to transition to clean energy.

To aid the transition to a green economy, today’s package follows the recent Budget in which the Chancellor committed to funding that targets the oil and gas sector and supports businesses to develop green energy. This includes up to £27 million for the Aberdeen energy transition zone to transform the area into a green energy hub and up to £5 million additional funding for the global underwater hub based in Aberdeen to open up opportunities for the city to become a global hub for underwater engineering, including in offshore wind and hydrogen—further supporting the creation of green jobs and helping the transition to net zero.

I will place a copy of the North sea transition deal in the Libraries of both Houses.

The Review of Future Licensing of Offshore Oil and Gas

We committed in September 2020 to reviewing policy on licensing for North sea oil and gas to ensure it was compatible with our climate change objectives. This included assessing whether licensing for new oil and gas exploration and production should continue in its current form, as well as the scope for formalising any aspects of our existing processes to provide additional assurances.

Noting the ongoing role of oil and gas on our path to net zero, the Government will introduce a new climate compatibility checkpoint on future oil and gas licensing rounds to ensure they are compatible with wider climate objectives, including net zero emissions by 2050. This checkpoint will use the latest evidence of the time, looking at the UK’s demand for oil and gas, the sector’s projected production levels, the increasing prevalence of clean technologies such as offshore wind and carbon capture, and the sector’s continued progress against its ambitious emissions reduction targets.

Design of this checkpoint will be completed by the end of 2021, before the next oil and gas licensing round. The Oil and Gas Authority has already indicated that that it will not be running a new licensing round this year. In parallel, the Offshore Petroleum Regulator for Environment and Decommissioning is commencing work on a new offshore energy strategic environmental assessment which will underpin future licensing rounds.

Government response to the public consultation “Aligning UK international support for the clean energy transition”

At the Climate Ambition summit on 12 December 2020, the Prime Minister announced that the UK will end new direct financial or promotional support for the fossil fuel energy sector overseas, other than in limited circumstances, as soon as possible. A consultation on this and how to accelerate growth in UK clean energy exports was subsequently held until 8 February 2021.

Following the consultation, the Government will no longer provide support for the fossil fuel energy sector overseas from 31 March 2021. This will include UK Export Finance support, international aid funding, and trade promotion for new crude oil, natural gas and thermal coal projects.

To support the UK’s energy sector in making this transition, we will provide a one-year exemption for small and medium-sized enterprises, to ensure the most vulnerable firms are given time to adjust; provide a new “transition export development guarantee”, so that oil and gas focused companies with credible transition plans can benefit from UK Export Finance’s working capital support to achieve these plans; and publish a comprehensive and transparent description of the exemptions underpinning the policy shift, to provide clarity and certainty for business and civil society.

This balanced approach will make the UK an even stronger and more credible international partner to the growing number of countries who are seeking to make the transition to a cleaner future. The UK will build on the implementation of the policy shift by working with likeminded partners to make similar commitments, including through our G7 and COP26 presidencies.

¹The 60Mt also includes emissions savings from CCUS and hydrogen already set out in the PM’s 10-point plan.

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