While the symptoms of the current energy squeeze are a result of current market conditions, the cause can be traced back to a failure over decades of energy policy by successive governments that have resulted in historic under-investment in infrastructure, including in sufficient gas storage facilities .
This is why North Sea energy companies have proposed to Government a 10 Point Plan, which aims to build on the North Sea Transition Deal and provide greater investment clarity for continued development and production as well as for carbon capture and hydrogen project opportunities.
The Plan seeks to achieve three crucial objectives: to maximize the national benefits of the UK’s domestic gas and oil reserves; to reduce emissions from the sector; and to increase the sector’s contribution to achieving net zero.
Supporting secure homegrown energy will require the Government to provide a stable investment regime for the sector that helps deliver new secure domestic energy supplies to reduce emissions and costs associated with more carbon intensive, expensive imports. This includes government commitment to support continued investment in, and access to, capital for the sector both now and in the future.
In the short term, the Government should change gas specification levels that would simply, and at no cost, deliver more gas today. If it were to adjust these levels to those in other European countries, it would enable additional quantities of gas to flow that have already been developed.
By way of example, had this change been introduced last year, it would have enabled an additional 13bn cubic feet of gas to be produced from the Neptune-operated Cygnus field alone – around 17% more than actual produced volumes.
Longer term, investment in infrastructure will also bring forward integration of lower carbon energy systems by developing hubs, enabling faster electrification of as many viable new and existing production assets as possible by 2035.
But investors will only commit capital if Government commits to a stable, predictable, competitive oil and gas tax regime – one that enables companies to plan their long-term approach to the net zero transition confidently across the full field life, including decommissioning.
Energy companies have embraced the challenge of reducing emissions from their operations and made significant progress, with upstream greenhouse gas emissions falling more than 10% in the last two years alone. But the sector must go further and set out credible strategies for getting operations to net zero and supporting the wider decarbonisation of the economy.
For its part, Government must provide clarity on the climate compatibility requirements, which will apply to all new exploration rounds, creating a basis for a transparent and predictable assessment of the impact of new low carbon developments.
It must also establish a transparent decision-making process when granting new oil and gas licenses, ensuring joined-up and swift decision making between the large number of regulatory bodies involved in the licensing and permitting processes.
Excessive regulatory caution or delay carries real costs in terms of missed project timelines and capital flight to other countries with more progressive regulatory environments and shorter timelines.
Preserving the UK’s energy infrastructure and maximizing economic recovery makes sense both in the short and longer term. To reach net zero, the Government has committed to a significant increase in hydrogen production and carbon capture, use and storage.
These low carbon technologies will need to use existing infrastructure – from depleted gas reservoirs to transportation networks and storage facilities. And the North Sea has these in abundance.
To realize the full potential of our energy infrastructure, the Government must commit to establishing rapid and transparent assessment processes to ensure that the infrastructure, regulatory frameworks, licensing and revenue mechanisms required to support the growth of CCUS are in place by the end of this year .
This same approach must also be adopted to underpin a transparent and competitive hydrogen market.
To support this, and in line with the Government’s leveling up agenda, the sector must harness the unique skills of those it employs in the UK to accelerate the development of CCUS and hydrogen technologies, and develop specific local content to ensure that economic benefits accrue across the country.
Underpinning the Plan is a joint commitment to continue developing technology and expertise for the UK supply chain, specifically looking at how technology and products developed for the energy transition in this country can be exported.
There is no doubt that there will be challenges to implementing this plan. Meeting our current and future energy needs, while also driving decarbonisation of the energy system, requires significant private sector investment in large-scale capital projects across all forms of energy supply and distribution. We need them all and we need them urgently if we are to achieve energy security.
To rise to this challenge requires the same response to the type of national-scale, united effort that we have previously seen with the UK’s Covid vaccination drive.
Only by incentivising and delivering rapidly a diverse range of renewables, nuclear, energy efficiency, gas, oil and hydrogen projects will we achieve true energy security, while controlling cost and reducing carbon.
Sam Laidlaw is executive chairman of Neptune Energy