Major oil firms are turning their backs on North Sea oil for various reasons. Environmental organizations have been putting increasing pressure on the U.K. government to curb oil activities in the North Sea, particularly following the COP26 climate summit last year. And now the U.K.’s Windfall tax is discouraging oil companies from investing in operations in the region. Meanwhile, there is still plenty of optimism around oil and gas discoveries, demonstrating the potential for the continuation of lucrative oil activities in the North Sea. So, will the potential for more oil finds outweigh the challenges being faced in these waters? Last month when U.K. business secretary Kwasi Kwarteng tweeted that a new oil project would be going forward in the North Sea, it was met with staunch opposition. He said, “Jackdaw gasfield – originally licensed in 1970 – has today received final regulatory approval. We’re turbocharging renewables and nuclear but we are also realistic about our energy needs now. Let’s source more of the gas we need from British waters to protect energy security.”
The blasé nature of the tweet shocked environmentalists, hundreds of whom took to the streets in protest of the development within 24 hours of the announcement. Activists blocked government offices in Glasgow and threw red paint to represent blood. The rapid organization of the response to the tweet demonstrated the vast opposition to the expansion of oil and gas activities in the North Sea. And the demonstrations are no longer made up of just climate warriors but also of senior religious figures, business representatives, activists, community groups, and major NGOs.
The most prominent of the anti-oil campaigns in the region was last year’s Stop Cambo movement, aimed at deterring oil giant Shell and Siccar Point Energy from developing their Cambo oilfield. If developed, Cambo is expected to produce 170 million barrels of oil in its first phase, operating until around 2050. Climate activists pointed out that the development of a new oilfield was contradictory to the U.K.’s aim to achieve net-zero carbon emissions by the mid-century.
And it’s not just in the U.K., as German and Dutch environmental groups ask a Dutch court to halt the development of a gas field in the North Sea. Dutch firm ONE-Dyas has been granted approval by Dutch authorities to develop its N05-A gas field in the waters, which straddles Germany and the Netherlands. While the platform is expected to run off of wind energy, NGOs worry that it will increase future dependence on fossil fuels across the two countries. The project is expected to start providing gas to Dutch and German towns by 2024, with the potential to produce 13 billion cubic meters of gas.
Meanwhile, in the U.K. it’s not only environmentalists opposing operations. Oil companies themselves are unsure about production opportunities following the introduction of a windfall tax in the face of rising consumer bills. U.K. Chancellor Rishi Sunak announced the new tax in June as a means of raising nearly $6 million from oil and gas firms that have been making huge profits during the energy crises. Funds will go towards cutting household bills.
But several oil and gas firms see the scheme as “seriously flawed”. The CEO of Harbour Energy, Linda Cook, addressed Sunak in a letter in which she asked him to revise the energy profits levy (EPL) proposal. Cook wrote, “While I appreciate the scale of the cost of living crisis in the UK, the EPL as currently proposed is, in effect, retrospective and disproportionately impacts the independent oil and gas companies which have recently invested the most to help ensure UK domestic energy supply.” Shell, BP, and Equinor have all also warned of a slowing of investments should the tax go ahead.
And a professor from Aberdeen University, Alex Kemp, believes that several oil and gas firms in the region will choose to put off removing and breaking up North Sea oil and gas assets until the windfall tax has run its course. He explained, “Decommissioning costs incurred in the period 2022-2025 will not be relieved against EPL although it is a profit tax. This may well mean that decommissioning activity in the UKCS is at least to some extent postponed until after 2025.” Although the government recently said rebates for retiring assets would not be taxed.
But some are still optimistic as new discoveries offer hope. Just this month, UK-headquartered oil and gas firm United Oil & Gas (UOG) announced its recent discovery was valued at $40 million on a risked basis, or $130 million on an unrisked basis. The Maria discovery is located in License P2519 in the Central North Sea, a license which is believed to hold 6 million barrels of oil equivalent. This shows the potential for future oil and gas developments in the region, even though there are several challenges facing operations.
As growing climate concerns from environmentalists put pressure on the U.K. government to restrict new oil and gas activity in the North Sea, energy firms are also critiquing the new Windfall tax for discouraging investment in the area. However, recent discoveries show that there is still oil and gas potential in the North Sea, the question is whether companies are willing to invest in the face of so many challenges.
Source: https://oilprice.com/Energy/Energy-General/The-Uncertaint-Future-Of-Oil-And-Gas-Firms-In-The-North-Sea.html