OGA Chairman challenges the sector to respond to the energy transition challenge
The Chairman of the Oil and Gas Authority (OGA) said that the oil and gas industry's ‘social licence to operate’ is under serious threat and there is no scope of a second chance, adding that it must do more to help solve the challenges of climate change and the drive to net zero.
Tim Eggar addressed a group of senior industry leaders at a meeting of the MER UK Steering Group in Aberdeen on 15 January. He called on industry to act much faster and go farther in reducing its carbon footprint. Ahead of the COP26 climate conference later this year, he suggested industry would need to develop a package of measures, including:
- The offshore industry to commit to clear measurable greenhouse gas targets, with real progress on methane.
- To show progress on carbon capture and storage, including work having started on major projects.
- Measurable progress on energy integration opportunities – for example, an electrification project.
- An acceleration of the move to ensure there is a diverse array of skills and people for the long-term energy offshore and supply industry.
He also outlined the OGA’s priority areas going forward and how the OGA will integrate the UK’s net zero ambitions across its core business.
A transcript of the speech can be found below.
Thank you all for coming. I want to share with you personal thoughts and reflections on some of the urgent, pressing challenges I think this industry is facing in 2020.
I have been Chairman here now for 10 months. Returning to the UKCS after some 25 years as an interested observer, much has changed for the better.
Tax stability, technological innovation, operational streamlining, new industry players and the advent of the OGA to name some. All these and others have added real value for the country and the industry. Other issues have not moved on as I had hoped. I would highlight supply chain approaches and relationships, and cultural inertia.
The biggest challenge though has been the speed of the shift in public and industry opinion on climate change. I have been involved one way or another in this industry for over 40 years. I have been through a number of oil price cycles but I cannot remember anything like the industry rethink of the last few months.
Clearly, climate change is happening right now.
That debate is over.
The framework, the licence to operate for the industry, has changed fundamentally and -unlike the oil price - forever.
For quite some time, the OGA, under Andy’s leadership, has been proactively taking a growing role in the energy transition.
If the industry wants to survive and contribute to the energy transition it has to adapt.
So today, in that context, I’d like to share with you some personal observations on the issues facing the OGA and the industry and what you can expect from us going forward, with particular regard to energy transition and net zero.
Back in January 2015, Andy joined and started to get the OGA up and running, building a team and setting out our priorities, while successfully navigating through the oil price crash and the associated crisis.
Since 2015, the “tripartite” partnership between government, industry and the OGA has firmly focused on our prime objective - maximising economic recovery.
Out of the oil price crisis, that partnership has helped add nearly 4 billion barrels to forecasts and achieve year-on-year production efficiency increases. We’ve seen operating costs stabilise and hugely encouraging decommissioning cost efficiency. Congratulations. You have made this basin competitive again. A huge achievement.
But the world of 2020 is not the same as the world of 2015.
Public opinion on climate change, and the Government’s legally-binding commitment to net zero emissions by 2050 (2045 in Scotland), means that we have to do everything we can to contribute to achieving this.
That applies to the OGA, and to every oil and gas operating and service company.
The most well regarded and objective analysis of the path to 2050 - the Committee on Climate Change’s ‘Net Zero’ report - points to oil and gas remaining an important and critical part of our energy mix for the foreseeable future, as we transition to net zero. Indeed, without gas we cannot transition to net zero.
There are already some good examples of companies taking the initiative. Some of you have been setting carbon reduction targets from operations and putting in place programmes to reduce flaring and venting and increase efficiency. There has also been good early work on carbon capture –Teeside, Acorn and Liverpool Bay are just three examples.
Yet listen or read much of the social media and popular press and our industry is part of the problem not part of the solution. Industry’s licence to operate is under serious threat.
Industry is not even really in the argument never mind winning it.
It is, in my opinion, collectively not doing enough and its social licence to operate is under serious threat.
There has been too much navel gazing. We have to act much, much faster and go farther in reducing the carbon footprint. Our energy systems must keep improving at pace, to become cleaner and more efficient and this requires ambitious thinking, capital investment and bold leadership. Action not just talk or more analysis.
The oil and gas industry should be the leader in developing some of the solutions to tackling climate change, rather than continuously being seen as the problem or the blocker.
It is quite feasible for the UKCS to be carbon negative by 2050.
In November this year COP26 will be in Glasgow.
Well in advance of COP26 the industry needs to have developed and gone public on a compelling package of measures which demonstrates real, genuine leadership and commitment to net zero. Now is not the time for anyone to be waiting on anyone else.
It goes without saying that industry has to reduce its own production emissions further – driving to net zero carbon from operations.
Policy on CCUS is for government. We need policy clarity as soon as possible. In partnership with government there needs to be a firm and verifiable plan for industry to develop CCUS. Success could help make the basin carbon negative.
The OGA has been working with government on the CCS deployment pathway and we very much look forward to them setting out their approach. CCUS has to be made “investible” at utility rates of return. If the necessary rapid progress is to be made, industry needs to be open and transparent with government.
For COP26, we need:
- First, the offshore industry to commit to clear measurable greenhouse gas targets, with real progress on methane.
- Second, to show real CCS progress. How about serious work having started on at least two – and ideally more - major projects for starters?
- Third, measurable progress on energy integration opportunities – for example, we need an electrification project off the ground.
- Fourth, an acceleration of the move to ensure there is a diverse array of skills and people for the long-term energy offshore and supply industry.
These four objectives require the OGA and the Government to continue to work closely with you.
Maximising economic recovery of oil and gas does not need to be in conflict with the transition to net zero. They can and should be fully integrated.
That’s why this year the OGA intends to fully integrate net zero into our requirements.
As part of this new approach, we will review and update the MER UK Strategy. This review will not only ensure the UK’s net zero ambitions are fully embedded, but will also reflect stewardship and other changes in the basin’s operating environment over the last four years.
We will initiate early engagement on the updated strategy and expect to launch a consultation in spring.
This will enable the OGA to take a much greater role in supporting industry to drive the necessary changes. So, what can you expect all this to look like? In particular what will be new or addressed with more emphasis?
We will be looking much more closely at flaring and venting, where we are responsible for issuing consents – using performance benchmarking which we know has helped drive positive changes in aspects of stewardship.
We will increase our work with key stakeholders on energy integration opportunities with renewables, electrification, CCUS and hydrogen.
We will take an ‘Area Plan’ approach to this where relevant – a model which has proved successful in helping unlock field developments and huge value across the basin.
We will advance our digital agenda further with a new digital energy platform which will take our world-leading National Data Repository and other data offerings to the next level.
This should help identify significant opportunities and unlock new field developments, which we would expect to be carbon neutral at worst, while being perfectly positioned for other energy transition opportunities.
Value can only be maximised if there is full workforce engagement and involvement right across the operator and supply chain. Co-operation is vital.
We'll be asking for information on inclusion and diversity to help shine a light on areas for improvement, as well as allow those who are doing good things to share success stories with others.
Industry’s ‘Roadmap 2035’ is a start and we look forward to seeing some measurable actions delivered.
All this comes at a cost! You can expect some impact on the levy to reflect the additional net zero integration work. Increases will be kept to a minimum and any unspent levy will of course be returned.
Industry will be given the opportunity to help shape this new future with us. In particular I hope we will see more participation on our joint journey from the smaller innovative service companies.
Let me reassure you that even with all this substantial and important new work starting, we will not neglect our core work and business as usual.
For example, despite year on year progress, we have some way still to go on decom costs. I think there are some game-changing efficiencies which are not yet commonplace: better cross company co-ordination and line of sight of planned activity can help the supply chain deliver cost saving solutions across whole regions or hubs.
Likewise, drilling isn’t where it needs to be – in terms of both efficiency and success rates. Again, there’s more that can be done, for example in rig sharing and I challenge industry to provide the supply chain with better visibility of the opportunities. Help them to help you.
This is a step change in our activities and we want to make this as easy as possible and will work with our colleagues in HSE and OPRED.
Quite rightly safety is HSEs responsibility not OGAs. But I hope I can be allowed one personal plea in this area. Anybody like me who was involved in the UKCS soon after Piper Alpha cares passionately about safety. I am distressed that we still do not have agreed safety operating procedures across all the UKCS infrastructure. Surely it is in everybody’s interests for all operators and contractors to agree common standards.
Industry’s social licence to operate is under threat and there is no scope for a second chance.
Real leadership right now is vital if industry is to convince the public and politicians of our relevance; if we do not do so we cannot hope to thrive, compete for talent or continue to access capital.
This is a very exciting industry. I’ve been around long enough to have seen the oil and gas industry prove itself time and time again, over many decades, to be adaptable and highly resilient. You have ridden out the cycles; surmounted huge geopolitical and technology challenges. You have contributed massively to economic growth and people’s well being.
You are now facing a more fundamental challenge; a challenge outside your comfort zone. If together, we do not surmount it we will all be doing the world’s environment a major disservice.
Notes to editors:
- Tim Eggar was appointed as Chairman in March 2019. He is a highly experienced non-executive Chair and Board Director, including in the oil and gas sector and the wider energy sector. He was a government minister for 11 years, and Energy Minister between 1992 and 1996. A high res image of Tim Eggar can be found at https://www.ogauthority.co.uk/news-publications/image-library/leadership/
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