The U.K. North Sea oil operations are in decline and even the recent natural gas boom is unlikely to return the region to its former glory. With oil demand expected to begin falling in 2030, as the U.K.'s green energy capacity grows, several oil majors are withdrawing from North Sea operations. In 2023, U.K. North Sea oil output fell to its lowest level since the 1970s, when production first began. The quantity of accessible reserves is rapidly depleting following decades of intensive drilling, Meanwhile, several oil majors are looking to new oil regions to tap "low-carbon" crude over the coming decades. Further, the International Energy Agency (IEA) is pushing countries to curb their oil production in favor of greener alternatives in support of the decarbonization goals outlined in the Paris Agreement.
In the far north-east of Scotland, around 60,000 workers continue to be supported by the oil and gas industry, demonstrating the continued reliance on crude revenues and the need for greater diversification in the region. Unions are concerned that if the government doesn't do more to provide alternative job opportunities in the region, it could end up in the same position as the coal towns of the 1980s and 1990s, facing widespread unemployment and economic hardship. Mika Minio-Paluello, a policy officer at the Trades Union Congress, stated, "It is a test case in some ways, for the whole idea of a just transition, of what happens when we decarbonise… we simply can't have a repeat of what happened to coal workers in the 80s."
To avoid the same catastrophe that followed coal mine closures, the U.K. government must now plan for the impending decline of the North Sea oil industry. This could have the added bonus of supporting the rapid development of the green energy industry, as renewable energy companies across the U.K. look for skilled workers to support capacity building in the coming decades. Renewable energy companies worldwide have complained of the dearth of skilled workers needed to support a green transition. However, many oil and gas workers are equipped with the skills and knowledge to transition into a career in renewables, given the right training.
Environmentalists and labor organizations are calling on the U.K. government to finance a just transition, helping oil and gas workers to find job opportunities in clean energy. This year, over 60 climate organizations signed an open letter to all party leaders calling for a U.K.-wide industrial strategy, investment into domestic manufacturing and skills, expansion of publicly owned energy, and reorganizing the tax system for the public good. It also calls for a jobs guarantee to ensure all oil and gas workers can find equivalent, alternative employment or funded retraining.
North Sea oil production has been in a steady state of decline for several years, but it is now happening at an increased pace. In May, the oil major Chevron announced it was selling its 19.4 percent stake in the Clair field, one of the U.K.'s largest oilfields, along with all associated assets in the region. Chevron has been operating in the North Sea for over 55 years, but the oil major is looking to future-proof operations and it does not view the region as a strategic choice going forward. This is the latest of several oil majors, including BP, ConocoPhillips, ExxonMobil, and Shell, to cut operations in the region.
Despite the obvious trend, the Conservative Party continues to back oil and gas, with plans to max out North Sea reserves. The British Prime Minister Rishi Sunak has bucked the global trend by hindering the development of wind farms and other renewable energy projects while introducing several new oil and gas licenses. The government has issued around 400 new licenses in six licensing rounds over the last decade, yet the number of jobs supported directly and indirectly by oil and gas has fallen from 441,000 to just 214,000 in that time.
Crude production in the region fell from a peak of 3 million bpd in 1999 to just 800,000 bpd in 2022, with proven oil reserves decreasing from 8.4 billion barrels in 1980 to 2.5 billion barrels in 2020. New projects, such as Rosebank - which has faced major opposition on environmental grounds - are expected to produce far less oil than previous operations in the region. Rosebank is expected to produce just 69,000 bpd of crude once operational. Lisa Fischer, an energy systems expert at the think tank E3G, explained, "The U.K.'s basin is fundamentally in decline… Propping it up is like pouring money down the sink."
Rather than drawing out the North Sea decline, investment could be better used to develop the U.K.'s renewable energy capacity and support a just transition for oil and gas workers. This would help the U.K. achieve its climate pledges as well as boost energy security while ensuring that towns and cities in Scotland do not fall into a depression similar to that faced by many coal mining towns in previous decades.
By Felicity Bradstock for Oilprice.com
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Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK. More
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Comments
By Felicity Bradstock - Jul 04, 2024, 10:00 AM CDT
I read this article an was disappointed in its bias and failure to comment on some of the other factors facing the North Sea which are in fact accelerating its decline. As an example, the imposition of EPL (35% additional tax) and prospect of further taxation etc which has made the North Sea uninvestable and the fact that EPL principally hits the small independents who did not necessarily benefit from a "windfall" as their production was hedged to enable financing major investments. The fact that EPL resulted in independents overnight breaking their finance covenants and having to pay back millions early or even go into administration (Waldorf). The fact that EPL is taken before offsetting some other costs, which has resulted in profitable companies pre EPL making losses and in some cases effectively taxed as over 100%. There is no mention of EPL resulting in a massive reduction of independents MCap, loss of jobs etc. The writer should have acknowledged that whilst the majors depart, it is the independents that use new technologies, in fill wells to extend production longer and eventually cap wells etc. I suggest that the author does a little more research and study some of the other articles that appear to understand the issues facing the North Sea, impact of current and future government policies and not pander to the eco zealots that seem to want the destruction of a viable industry that is part of transition, apparently happy to export increased carbon emissions for the sake of looking good on paper and damaging the UK economy in the process. The article perhaps should have concluded that government policies are directly responsible for accelerating the demise of the North Sea Oil industry. In addition, perhaps the author should have considered the fact that if most of the infrastructure for wind and solar production is designed and fabricated overseas by foreign companies, who enjoy massive subsidies and bail outs; exactly how many jobs and what quality does she expect might replace the O&G jobs. Sorry but I felt this was a filler piece with little thought or appreciation of the real situation.
The EPL tax hits the independent NS O&G companies disproportionally hard compared to the Majors. It also does not take into account that prices are near normal and due to financial hedging requirements to obtain loans, the independents largely missed out on the "windfall".
Does it make sense that EPL should put most NS O&G companies into a loss making position last year whilst other industries have enjoyed windfall profits thanks to the pandemic and Ukraine/Israeli wars.
It is not just a transition from O&G to renewables for the country, but these individual NS O&G companies also need to invest and transition to survive, most are now looking overseas and those looking to invest in renewables, Green Hydrogen and carbon sequestration using NS O&G infrastructure are not withholding investment, how does that help net zero transition.
The government has unfairly privatised NS O&G profit without considering all the unintended consequences, but that deserves another article or comment.
I am afraid the journalist has published a lazy piece of journalism.