Sunday, June 23, 2024

Let’s talk about the energy ‘elephant in the room’ 

Within a matter of weeks the conflict in Ukraine has fuelled global pressure for energy independence. Barely six months on from COP26 where world leaders pledged to reduce reliance on fossil fuels, the world energy picture has shifted dramatically as countries in Europe and further afield look to wean themselves off Russian hydrocarbons and reconsider commitments instigated in November. 

Doubtless the geopolitical landscape will continue to evolve, which could mean that in 12 or even six months’ time the world will look very different from the one discussed in Glasgow. 

Without doubt, even as demand rises, global demand for hydrocarbons will continue to be met. But how do we square this with COP26, and is this not the ‘elephant in the room’? 

Here, David Clark, CEO of international engineering and technical consultancy Vysus Group, examines the dilemma now facing all energy stakeholders, whether it’s increasing capacity from existing resources, opening up new facilities or stepping up the push towards zero carbon technologies. 

Shell-shocked: seismic changes 

Having cited doubts last year about the project’s viability amid a lack of political support in Westminster and Holyrood, Shell is now reconsidering its decision to pull out of the Cambo oil field project in the Shetlands, stating recently how “the economic, political, and regulatory environment has changed enormously”. 

Needless to say, we have all experienced the impact of recent European geopolitics for ourselves in rising costs at the pumps and huge hikes in our domestic energy tariffs. 

Both Ukraine and the controversy around Cambo highlight the interplay and tensions surrounding energy security. With oil and gas remaining for the time being the dominant resource, representing 80% of the world’s energy mix, an entire infrastructure has been constructed around them, from seabed to sub-station; an ecosystem that in theory can be scaled up to respond to new market dynamics and sources of production. Having said that, much of the grid would require significant investment before it was capable of handling multiple inputs from wind, solar, nuclear, and other energy sources.  

The World Energy Council’s definition of energy sustainability hinges around three core components: Energy Security, Affordability, and Environmental Sustainability of Energy Systems. Balancing these opposing forces is the holy grail of the Energy Trilemma – the conflicting interaction between security, affordability, and sustainability – defending against existential threats posed by climate change whilst supporting the livelihoods, prosperity, and competitiveness of individual nation states.  

With the amount of gas imported from Norway now outstripping domestic supplies for the first time, the UK is faced with the exact same challenges. Of the 76 billion cubic metres (bcm) of gas consumed by the UK last year, 32bcm was imported from Norway against the 29bcm produced domestically. Without fresh production facilities being in place, OEUK estimates that by 2030 around 80% of UK gas supplies, and more than 70% of oil, will have to be sourced abroad. 

The trilemma, however, precedes Ukraine and has been building for quite some time, albeit exacerbated by what is going on in Eastern Europe right now. Escalating costs of hydrocarbons due to price increases on the international market, reaching its peak last November, in combination with concerns about lack of progress in other countries, such as coal still being used and imported from China, has fuelled a widespread acceptance of the need to diversify the world’s energy supply.  

Increase pace of transition to net-zero, don’t pause it 

With calls in some quarters to deprioritise net-zero as a result of a changing world order, present geopolitical disorders simply emphasise the precariousness of hydrocarbon energy markets – a situation unlikely to change in the next decade. Shifting the balance away from fossil-fuels enhances security and lowers cost at the same time, in the process uncoupling us from the dynamics of fossil fuel markets as well as from suppliers with whom we’d rather not do business.  

If the world accepts that hydrocarbons must be a part of the mix, what are the options and how do we square the circle? Hydro, solar, and wind power are all recognised as more sustainable as they derive from renewable sources. Meanwhile, albeit a decade away in all likelihood, whilst small modular reactors (SMRs) may one day represent a major share of our energy mix in the future, there are still ongoing debates around its sustainability when it comes to nuclear waste.  

Wind power, after solar, is the cheapest means of generating and supplying renewable energy and has been a real success story, but if we are to step up domestic supply, the facilities and infrastructure to support it simply aren’t there for quantum-level increases in the short to mid-term, and certainly not in 2022. Others, meanwhile, are calling to restart fracking operations in the UK. Yet, these will not help either in the near or the long term.  

These and other factors make it all the more crucial that energy strategy is shaped by longer term planning to make the UK (and many other countries besides) resilient to inevitable disruptions in our transition to net zero. Already, UK renewable energy is helping to mitigate the present crisis by paying into the contract-for-difference system and reducing price pressure on the energy sector overall.    

The UK continental shelf, the source of much of the UK’s oil and gas for the best part of 50 years, has been in rapid decline, with investment in the North Sea falling steeply in recent years. Contrast the £16bn invested in the basin in 2014 with barely a quarter of this being anticipated this year.  

What is clear is that we do need to invest, both in terms of infrastructure and the skills base to go with it. With last year’s decision by Shell to withdraw from Cambo – albeit one it is now reviewing –  many industry figures have voiced concerns that lack of political support was at risk of fostering a hostile environment for investors; a worrying trend if we are to invest in projects that enable the North Sea to play its full part in a fully blended, optimised energy UK sector.  

Intrinsic to a healthy oil & gas sector is a buoyant skills base and crucial to the UK’s North Sea potential is to reverse the outflow of talent that has moved elsewhere. Over the past five years alone, a staggering 95% of UK talent, not just on rigs and the grid, but across the whole supply chain, has haemorrhaged towards new markets, including USA and Africa. We need urgently to invest in this area as we seek to regenerate North Sea operations, more so if we are to maintain production using the most environmentally sustainable technologies and methodologies.  

Norwegians would 

In an economy in which the energy sector is even more systemic and strategic than the UK, Norway’s model of embedding long-term sustainable methodologies while managing the short-term challenges of energy security is one of inspiration. The country’s Government, aligned with the UN’s 17 Sustainable Development Goals (SDGs), produced its National Action Plan for reducing emissions in January 2021, as a strong commitment to its responsibilities. As Prime Minister Erna Solberg stated at the time; “Climate policy is the sum of all our efforts – how we transform Norway and equip the country for the future. We will cut emissions and enhance removals of CO2 in a way that transforms Norway and promotes green growth.”  

Norway has backed up rhetoric with action, in the form of its second UN SDG Voluntary National Review, submitted in 2021. Within this report, under SDG 13 (Climate Action), “facilitating knowledge for use by municipal authorities and others” is a clear action, as is incorporating environmental education and innovation “at all levels of education” together with a comprehensive list of incremental steps to meet additional challenges, all hold Norway’s policy makers to account.  

The fact Norway has volunteered itself to be scrutinised in this way is highly creditable, along with a wide range of government incentives and fiscal instruments aimed at pioneering leading-edge sustainability initiatives. 

In this together 

In amongst all the changes taking place within the world of energy is the increasing influence of Environmental, Social and Governance (ESG) requirements, particularly with regards to reporting and regulatory compliance. Perhaps one of the most notable examples of this is the UK Government’s North Sea Transition Deal, completed in 2021, which will see between £14bn and £16bn invested in new energy technologies by 2030. A year on and there are encouraging signs of decreasing emissions from oil & gas. But this is only one strand; companies will still need to draw on data captured throughout these operations to bring the necessary skills to the future energy roundtable.  

ScotWind could and should play its part in the renewables revolution. Over the next decade these new offshore wind farm sites could supercharge renewable energy capacity, more than doubling everything currently built, or planned, in Scottish waters. Currently, the capacity of offshore wind in Scotland is about 2GW, a small fraction of overall renewables. ScotWind, still some three to seven years away from bringing energy into the UK grid, will be part of the mix.  

In the interim period, assuming ScotWind begins delivering wattage in the three year timescale, oil & gas is likely to remain the failsafe option. The challenge will be how we as an international community can access the resource in a sustainable manner in order to aid the transition running in parallel. 

As we continue to harness new technologies, like wind, solar, hydrogen and wave, much of the same muscle and experience vital to the oil and gas sector will be required if we are to aid transition, and manage risk, waste, and asset integrity. Meanwhile, the way we all consume and harness energy at home and work needs to work in tandem with its production as we work towards net zero. 

Are we ready? 

Our own sustainability information campaign at Vysus Group, launched at the start of this year, Planit22, seeks to address the elephant in the room, with and without conflict and crisis on the world stage. As part of this, we commissioned a survey of UK energy company owners, with more than half of the respondents believing that their business operations would be negatively impacted by the energy transition. Predictably, perhaps, the younger amongst those polled feature sustainability and environmental factors within their daily planning and decision-making. The bottom line however is that we all need to be pulling the same direction. 

Where we go from here 

With the West seeking to reduce reliance on Russian gas, in the EU’s case gas by two thirds by the end of the year (and fully independent of all Russian fossil fuels by the end of the decade), the world’s energy sector has been turned on its heel.  What is clear is that markets can’t simply be accelerated overnight, it takes three to five years to develop an offshore wind farm for example, but what recent geopolitical events have shown is a genuine impetus to address issues of diversification and with this some of the bureaucratic obstacles that lay in its path.  

With events in Eastern Europe likely to unfold for some time yet, the immediate future remains fraught with uncertainties, and some of the challenges faced by the energy sector are likely to be prolonged, through which the stronger and more agile companies will doubtless fare better. Looking further ahead, however, the drum for the acceleration of energy transition must continue to be sounded as the world wakes up to the need to address climate change 

With the clean energy roadmap taking shape, we shouldn’t detract from the measures introduced and the commendable actions of international stakeholders, and we may all need to be more agile.  Yes, we need to accelerate the use of renewables. Yes, we should place high impetus on energy security. But this cannot happen in isolation.  

Knowing what we have now and being candid about the elephants in the room as Norway and others have, will surely set us on the best possible path.    

To read more on Vysus Group’s Planit22 campaign, and to read David Clark’s blog on this subject, visit Planit22 here.

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