UK North Sea Transition Deal - a closer look

As we reported last week on this blog, the UK Government published its landmark North Sea Transition Deal with the UK oil and gas sector. We look at these developments in more detail in this post.

Introduction                                                                                                  

In the Energy White Paper (published last year) the Government made clear it views that the UK domestic oil and gas sector (the Sector) is essential to the UK's medium-term energy security and economic growth and made a commitment to integrate the Sector into its decarbonisation strategy. The Government recognised that the Sector has played a critical role in maintaining the country’s energy security for over five decades, and remains a major contributor to the economy. The Government believes that excluding oil and gas from the UK's 'green' future would therefore risk economic de-stabilisation, significant job loss, reduced investment in the UK energy sector as a whole, carbon leakage (as oil and gas companies remove operations to other jurisdictions) and demand further outstripping supply (thereby forcing greater reliance on oil and gas imports).

In a significant step forward in delivering on its Energy White Paper commitment, last week the Government announced its commitment to the North Sea Transition Deal (the Deal) with the Sector. By integrating the Sector into its decarbonisation programme, the Government aims to reposition the UKCS as an asset to maintain energy security and drive investment in the technology required for decarbonisation. The Government has been engaging with Sector participants (through the Sector body OGUK) over the past year, and the deal represents a blueprint for Government and Sector cooperation to achieve net-zero by 2050. The Deal is the first announced by a G7 country and demonstrates the Government’s commitment to work in partnership with the Sector.

The Deal is built around five outcomes:

1. Decarbonisation of supply (electrification of platforms through offshore renewables, methane capture technology and an end to flaring);
2. Developing carbon capture usage and storage (CCUS) infrastructure;
3. Developing and scaling-up hydrogen production technology;
4. Transforming the oil and gas supply chain to 1) support the above-mentioned decarbonisation initiatives; and 2) develop technology and expertise which can be exported internationally; and
5. Supporting up-to 40,000 direct and indirect supply chain jobs.

Headline commitments

The Government and Sector have each agreed to deliver on key commitments in respect to each outcome. Broadly speaking, the Government is agreeing to provide funding, develop business models for new technologies and adapt the current regulatory framework, in exchange for hard commitments from the Sector to cut emissions, invest in CCUS and hydrogen and deploy Government proposals. The headline commitments are as follows:

• Sector emissions reduction targets of 10% by 2025, 25% by 2027 and 50% by 2030;
• Joint Government and Sector 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;
• Joint Government and Sector commitment to achieve a 60Mt reduction in greenhouse gas emissions, including 45Mt through CCUS and hydrogen technology and 15Mt through the progressive decarbonisation of UKCS production over the period to 2030;
• 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;
• Joint Government and Sector commitment to support up to 40,000 direct and indirect supply chain jobs in decarbonising UKCS production and the CCUS and hydrogen sectors;
• Government investment of £6.3 million in the Global Underwater Hub, and a further £2 million to develop the Deal, helping to support the Sector to play a leading role in meeting the UK’s net zero ambitions;
• Sector support for the Government’s prompt payment initiative by championing the Prompt Payment Code (ie the Government-mandated code (which can be accessed here) which sets out good practice for the payment of and communication with suppliers; and
• The Sector's appointment of a supply chain champion who will support the coordination of local growth and job opportunities with other sectors, such as CCUS and offshore wind.

The commitments in detail 

The table below sets out in detail the commitments that have been made by Government and the Sector in respect of each of the outcomes.

The Sector has broadly welcomed the Deal and OGUK's statement on the announcement can be accessed here.

Next steps 

As part of the Deal implementation plan, the Government has announced proposals to establish a Deal Delivery Group, which will be chaired by BEIS and a Sector representative (which is likely to be the OGUK). The Deal Delivery Group will meet on a quarterly basis and oversee the implementation of the Deal, which will include reviewing progress of the commitments against the stated objectives.

The Government will also establish (by April 2021) a senior offshore implementation group to co-ordinate strategic development of integrated energy projects, such has CCUS, hydrogen, wind and electrification of oil and gas hubs. We understand that this implementation group will be led by BEIS and include senior representation from Ofgem, the Crown Estate, OGA, OPRED, HSE, Marine Scotland and the Crown Estate Scotland.

The supply chain champion will then be appointed in summer 2021, with the integrated people and skills plan delivered in March 2022.

The Government has also promised to deliver a progress report on implementation of the Deal in March 2022.

We will be following these developments closely, and will continue to engage with OGUK to bring you further detail on the meaning of the commitments for the Sector. You can also follow the HSF Energy Notes blog for further articles on the Government's decarbonisation strategy.