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Publications / Blogs

Achieving Net Zero and the Role of the North Sea Transition Deal

What does Net Zero look like?

The UK’s Net Zero ambitions are clear, as world leaders in the development of renewable energy and sustained carbon reduction in the North Sea, it is our responsibility to be flag bearers of the transition. Three years ago, the Climate Change Committee (CCC) outlined five key net zero scenarios underpinning the progress necessary to achieve Net Zero by 2050. In each of these scenarios, drastic demand and supply-side policies were implemented, predicting a smaller and more efficient energy system. An uptick in power generation from renewable means is pivotal to each of these scenarios. Over the past 10 years, we have taken significant strides in the right direction, phasing out coal power generation, upscaling our offshore wind capacity and granting over £1bn in funding for the development of 4 CCUS clusters across the UK’s coastlines. The next 5 years will be just as important as the last and it is our role at OEUK to support our members in the transition as best we can.

Where are we now?

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In 2022, the UK’s energy consumption totalled 168 million tonnes of oil equivalent (mtoe) of which three-quarters came from oil and gas sources. Over the winter months, this rose to nearly 80%, with peaks in seasonal demand for household heating and electricity A milder-than-expected winter prevented further damage, however, the past 12 months have exposed the UK to the importance of a strong domestic supply of energy. With no new investment or demand-side policies, we could find ourselves in a situation in which we rely on imports for over 85% of our total oil and gas demand by 2030. In this scenario, the UK would be at the whim of external socio-economic disturbances, resulting in greater energy price volatility.

A recent review led by Chris Skidmore assessed our progress as an industry and the effectiveness of current policy in getting us to Net Zero, offering suggestions to further accelerate that progress. The “Review of Net Zero” report outlined that the UK’s ambitions and targets were rightly ambitious but stressed that progress needed to be made across the board, particularly in encouraging private-sector investment. Skidmore noted a need for a “step change in the government’s approach to delivering net zero”.

Key to the report was the underlying statement that the UK is set to miss its next Carbon Budget for the first time (2023-2027). This trend is being driven by the emissions associated with fuel consumption, rather than production in the UK. The scale-up of electrification across the economy and decarbonising power generation will help to reduce overall emissions. UK policy development needs to move faster to bring about real, sustainable change in the energy system. Policies in the past have been used to great effect, within 10 years coal has gone from contributing to 20% of total UK energy, and 38% of total electricity, to less than 1%. In similar fashion incentives for renewable power generation have resulted in a more than tripling of annual offshore wind power generation over the past 8 years.

How do we get there?

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The Offshore energy industry together with Government released the North Sea Transition Deal (NSTD) in March 2021 as a blueprint to get us to achieve our net-zero targets. This document was the first of its kind, and for the first time provided a framework to industry and government, allocating responsibility to deliver. The NSTD is actively delivering against its five commitments to help the sector achieve its ambitions.

In April 2022, the British Energy Security Strategy (BESS) was released, a statement of intent by the government outlining new targets to ensure we achieve Net Zero, to build on the NSTD. We saw an acceleration in the targets for renewable power generation and emissions reductions. The target for offshore wind increased by 10GW to 50GW, including 5GW of floating offshore wind capacity, cementing the UK as a world leader in offshore wind development for the next 10 years. This announcement was followed by INTOG’s offshore floating wind licensing round and the ScotWind licencing round, adding over 30GW to the UK’s pipeline of offshore wind.

A CCUS target of 20-30MT of CO2 stored annually was set for 2030, referencing the ambitions for a net zero economy. This was followed up by the delivery of a £1 billion commitment to four CCUS clusters in the UK by 2030. These four clusters have the potential to more than meet the target outlaid by the government, with the first injection of CO2 in stores in the UKCS expected to begin in 2027. As part of these CCUS clusters, one can expect to see progress made in the development of low-carbon hydrogen production. Whilst the target of 10GW of low-carbon hydrogen production capacity by 2030 may seem ambitious given today’s standards, as the capacity of renewable power generation increases the opportunity to produce low-carbon hydrogen in periods of surplus will only increase. By 2025 the BESS targets 1GW of green hydrogen and up to 1GW of CCUS-enabled blue hydrogen in operation or under construction.

Supply-side policies are only one half of the puzzle, with wholesale changes on the demand side yet to occur. The past 3 years have reduced end-user consumption, thanks to Covid and the following energy crisis, however, we need to see longer-term solutions. One way progress could be made is by blending hydrogen into our natural gas grid. Trials in “hydrogen villages” and blending hydrogen are already happening, with a decision on blending up to 20% hydrogen to be made at the end of this year.

Our reliance on fossil fuels for domestic heating is deep-rooted, over 85% of UK households are currently heated by gas, a proportion that has been rising year-on-year. Approximately one million more households are heated in the UK by gas today than last year. A key player in the government’s plans to decarbonise UK households is the widespread installation of heat pumps. The target outlined in the BESS is 600,000 installations per year by 2028. However, as few as 40,000 heat pumps were installed nationwide in 2021. This places the UK significantly below the European average for installations per capita. To achieve our targets, we will need to see an annual YoY increase in installations of roughly 50% out to 2028.

What is the role of the NSTD?

At roughly 4% of total UK emissions, our offshore energy sector plays a sizeable role in the environmental impact of the economy. The North Sea Transition Deal (NSTD) published in March 2021 outlines the actions our industry is taking to ensure the industry and wider economy meets its Net Zero ambitions. The deal sets an example of how oil and gas-producing countries can move fairly towards a lower carbon future in a way that supports the economy, jobs, and energy communities. Developed in partnership with the government, industry and OEUK, the NSTD outlines over 50 government and industry actions, spread across five key commitments, to accelerate moves towards the government’s net zero emissions target by 2050.

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The deal will continue to deliver substantial investment opportunities in new technologies and infrastructure over the course of the decade. Through the NSTD we are unlocking the full potential of the North Sea. Achieving this will require a combination of innovation, collaboration and a continued drive to maintain the UK’s position as a world leader in offshore energy generation.

What impact has the NSTD had on decarbonising our energy system?

Over the last two years, the NSTD has made significant progress against its five key commitments. We have already seen greenhouse gas (GHG) emissions from production fall by 20%; and we are now seeing industry focus shift towards the electrification of offshore assets, which will be a real game-changer for the sector, creating energy hubs linking oil and gas production with wind. This will negate the overall need for onboard diesel and gas generators and dramatically reduce the carbon intensity of offshore infrastructure.

We have leapt forward with Carbon, Capture and Storage (CCS) following licensing round announcements. With over 75Gt storage capabilities in the UKCS, the basin has the potential to provide a carbon solution for hundreds of years. Hynet and the East Coast Clusters have been approved, and with Acorn and Viking currently finalising their offering, we are well on our way to achieving the targets set out in the BESS. Overall, it’s an exciting time for progressing the transport and storage of carbon in the UK.

Hydrogen is one of the ‘new kids on the block’, and together with Government, we will be focusing on getting the infrastructure in place for this to succeed. There is a real opportunity to develop different ways to conduct contracts within this new market, so we are listening to our members’ feedback regarding what they need to maximise hydrogen production for the UK.

Overall, the NSTD is an exemplar of how a mature economy can positively deliver an energy transition whilst making the most of its existing skills, resources and capabilities. As we celebrate its second anniversary, we can look back with pride on what has been achieved and look to the future with confidence and optimism. To ensure that we can maintain momentum and achieve Net Zero in an efficient manner we will need the continued support of the government through subsidies and demand/supply-side policies.

Ben Ward
Business Advisor, Offshore Energies UK
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About the Author

Ben graduated from the University of Surrey, with a BSc Hons in Economics and Finance, with an industrial placement year in the UK energy sector. Ben has been in his current position as Business Advisor at Offshore Energies UK (OEUK) for the past two years. Focussing on developments in analytics of the UK’s North Sea energy sector. He currently runs OEUK’s Subsurface forum and is a chair for OEUK’s young professional’s forum, most recently in April where the session looked into the OEUK Business Outlook 2023 and the role that young energy professionals can play in the energy transition.

Ben is also a YEP Forum Ambassador.