The UK upstream oil and gas regulator, the Oil and Gas Authority (OGA), has signalled that it will be reviewing and amending the MER UK strategy to make it consistent with the UK's new statutory target of net zero carbon by 2050. Signalling a fundamental shift in approach to respond to the global climate change challenge, the OGA's chairman warned that "if the industry wants to survive and contribute to the energy transition it has to adapt". A formal consultation on the changes is to be launched in spring 2020.
The new OGA strategy
The OGA's intention to review the MER UK strategy (for an overview of MER UK, see Figure 1 below) was announced by OGA chairman, Tim Eggar, in a speech at a MER UK Steering Group meeting of 15 January 2020. The chairman noted that "the world of 2020 is not the same as the world of 2015" (2015 being when the OGA was established as a new regulator) and that the oil and gas industry's "social licence to operate is under serious threat". Pointing to the upcoming UN Climate Change Conference (COP26) taking place in Glasgow in November 2020, the OGA chairman stated that the following must be in place by COP26:
- a commitment by the offshore industry to "clear measurable greenhouse gas targets, with real progress on methane";
- "real CCS progress";
- "measurable progress" on energy integration opportunities – for example, getting an electrification project off the ground; and
- an acceleration of the transition to ensure there is "a diverse array of skills and people for the long-term energy offshore and supply industry".
Scope of the MER UK review
The OGA chairman's speech indicates that the review of MER UK will encompass a number of other issues flowing from changes to the UK Continental Shelf (UKCS) operating environment, such as:
- flaring and venting;
- advancing the OGA's digital agenda further with a new digital energy platform which is intended to take the OGA's National Data Repository and other data offerings "to the next level", noting that this will help to identify significant opportunities and unlock new field developments, which the OGA would expect "to be carbon neutral at worst, while being perfectly positioned for other energy transition opportunities";
- energy integration opportunities with renewables, electrification, CCUS and hydrogen. It this context it is relevant to note that the OGA has been undertaking a UKCS energy integration study, with the final report due to be published later in 2020; and
- co-operation and engagement across the operator and supply chain.
Increase in OGA levy
The OGA chairman also stated that the industry levy payable by all licensees to the OGA would need to be increased to cover the additional costs associated with the OGA's energy transition work. The levy was previously significantly increased to fund the cost of the OGA's National Data Repository, but the OGA chairman provided the assurance that the current proposed increases "will be kept to a minimum".
The industry's response so far
Leaving aside the individual actions and policies of oil and gas companies active in the UKCS, industry body Oil and Gas UK (OGUK) has already been leading the UK oil and gas industry's response to the energy transition, culminating with the launch of the "Roadmap to 2035: a blueprint for net zero" initiative in 2019. The initiative is intended to be roadmap for the industry and Government over the coming years, and includes actions such as establishing the UKCS "as a sector leader in underwater technology, low carbon production, CCUS, hydrogen and decommissioning". The OGA chairman expressly referred to the "Roadmap to 2035" in his speech, stating that this "is a start and we [the OGA] look forward to seeing some measurable actions delivered".
The extent to which the energy transition is on the industry's radar is also exemplified by the publication in 2019 of OGUK's second Energy Transition Outlook – an annual report focusing on the energy transition. The 2019 Energy Transition Outlook envisages that the oil and gas industry's response to the need to reduce emissions will comprise of a number of different measures, including investment in renewable energy sources, decarbonising oil and gas production, and deploying carbon mitigation technologies such as carbon capture, usage and storage, and hydrogen production. It is of note that OGUK's vision has not been immune to criticism, given that increasing oil and gas production (albeit at a lower level of carbon intensity) is a key part of its net zero strategy, on the basis that this will help displace international imports.
Looking ahead
It is clear that the upstream oil and gas industry, along with other industry sectors, is being called upon to accelerate the pace of change and augment its role in the energy transition. It is to be hoped that the OGA's review of the MER UK strategy will be accompanied in due course by a much needed policy steer from the Government in relation to a number of key areas, such as the framework for CCS deployment and the role of hydrogen.
Figure 1 - the MER UK strategy
MER – maximising economic recovery of the UK's oil and gas resources – lies at the heart of the UK's current approach to its oil and gas resources, and the MER UK strategy, which sets out the key principles underlying this approach, has been in force since March 2016 and is legally binding under the Petroleum Act 1998 on the Government, the OGA, and various industry players, including oil and gas licensees and owners of offshore installations. Currently the MER UK strategy does not mention the energy transition or the need to reduce carbon emissions, although it does place an obligation on licensees to consider other options for the use of infrastructure, before proceeding with decommissioning, such as using it for carbon capture and storage.
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