There is a “clear pathway” for the UK oil and gas sector to help push forward a green recovery, according to an industry report.

The analysis by industry body Oil and Gas UK (OGUK) shows that the wider economic uncertainty caused by the coronavirus pandemic has led to a sharp fall in global GDP, which links closely to the drop in global energy demand.

Its Economic Report 2020 said the impact on demand has contributed to the triple whammy cited by OGUK earlier this year as companies dealt with the operational impact of COVID-19 alongside volatile and low oil and gas prices.

OGUK CEO Deirdre Michie said: “2020 has been a hugely challenging year and while the timeframe for the recovery of the UK’s changing offshore oil and gas industry remains uncertain, it is clear that with the right support, it can continue to earn its place in the UK’s energy future.

“As our Economic Reportshows, there is now a clear pathway for our sector to help push forward a green recovery, create new jobs and support those in energy communities across the country, providing secure, affordable and lower-carbon energy and products.”


UK Continental Shelf’s production this year is expected to remain around 2019 levels

The report notes that the large reductions in global energy demand resulting from measures to restrict the spread of the virus “depressed commodity prices severely, threatening the viability of some operations”.

During April 2020, Brent crude spot prices fell to their lowest level, in real terms, for more than two decades, and other global benchmarks were affected even more severely, including a period of negative West Texas Intermediate prices in the US market.

Gas prices have also been similarly depressed throughout 2020, continuing the trends seen in recent years. As a result, activity levels in terms of exploration, well appraisal and developments have been “significantly undermined”, according to OGUK.

Michie said: “Businesses have had to make significant adjustments to the way they work, rescheduling their plans with respect to both new investment and asset maintenance, while continuing to safely provide the UK with secure and affordable energy.

“By and large the sector has been able to make these day-to-day adjustments successfully. However, the economic impact of the pandemic on companies, particularly in the extensive supply chain, has been severe.

“Activity levels, revenue and margins continue to be undermined at a time of additional uncertainty as the post-Brexit transition period ends.”

North Sea clean energy
The UK oil and gas industry already set targets earlier this year to halve its greenhouse gas emissions from its operations by 2030 (Credit: Johnston)

Despite the many challenges brought by the pandemic, the report highlights that the UK Continental Shelf’s (UKCS) production is expected to remain around 2019 levels of almost 1.7 million barrels of per day.

It added that the avoidance of large disruptions to output is a “testament to the professionalism” of its members and to the “embedded health and safety culture that prevails throughout the industry”.

OGUK, on behalf of industry, responded to these unique challenges by setting out a three-phase framework plan that seeks to protect jobs and businesses, recover activity and investment, while accelerating the opportunities that the energy transition can bring, both at home and abroad.


North Sea Transition Deal would “help stimulate jobs and provide energy security”

While the UK economy is expected to see a 11.3% decline in GDP this year, domestic CO2 emissions have only fallen by an estimated 10.2% so far this year, while global emissions have reduced by around 5.5%, according to the analysis.

It said these relatively small emission reductions, which resulted from “significant economic and personal hardship”, underline the challenge and opportunities faced by governments in delivering a sustainable recovery through lower carbon energy and industrial processes.

During the pandemic, the industry body noted that Britain’s oil and gas sector has continued to drive forward with Roadmap 2035 and its focus on ensuring that “maximising economic recovery is inextricably linked with delivering net zero”.

Michie said companies remain committed to reducing emissions associated with the production of oil and gas, and continue to be some of the “biggest sectoral investors in offshore wind, hydrogen, carbon capture and storage solutions”.

“In addition, industry is currently engaged in discussions with the UK government about a North Sea Transition Deal,” she added.

“If successful, this would act as a catalyst to help stimulate jobs and provide energy security while transitioning to a net-zero future, in alignment with the Prime Minister’s recently published 10-point plan.”

The UK oil and gas industry already set targets earlier this year to halve its greenhouse gas emissions from its operations by 2030, as it aims to transition to a net-zero emissions basin by 2050.

The report notes that at the same time, carbon capture, usage and storage (CCUS) and the hydrogen economy represent “important opportunities” for the sector to help other industries decarbonise – and also play to the domestic supply chain’s “strengths to deliver CCUS at scale”.

As new regulatory and business models develop, it highlights that the sector can provide solutions and expertise by leveraging its “existing skills base and supply chain capabilities”.