At the forefront of the energy transition

Jessica Brewer and Kyrah McKenzie,

Wood Mackenzie, UK, examine how North Sea operators are embracing ambitious projects on the road to net zero.

Meeting ambitious net zero targets requires drastic action. The upstream sector must change – this is nothing new. It will not be easy, but it is doable. The energy transition offers opportunities for the oil and gas industry, and the North Sea Basin is at the forefront of that change: it has been pushing the boundaries since its inception in the 1970s. What challenges will North Sea operators face on the road to net zero? And where are the opportunities for upstream players to take the lead?

Drastic action is required – but the momentum is there to drive change

Hydrocarbons will remain a crucial part of the energy mix for some time to come, given that the oil and gas industry provides substantial value to North Sea economies.

However, drastic action is required to meet net zero targets. North Sea governments have set the course by advancing aggressive decarbonisation agendas; operators must evolve to retain a licence to operate. That must be balanced against the need to deliver a return on investment.

Those dynamics are driving North Sea operators to embrace some of the most ambitious decarbonisation initiatives across the global industry.

North Sea leads the way on the road to net zero

The North Sea’s upstream sector is at the forefront of the energy transition as new technologies are explored. While there is no single solution, time will deal with some issues as mature infrastructure is decommissioned. In the interim, older platforms can be adapted without huge capital investment through digitalisation and flaring reduction, for example.

Carbon capture, use and storage (CCUS) pilot projects are being supported by each of the North Sea governments. The North Sea’s Continental Shelf is a proposed area for carbon storage. Subsurface expertise will help determine the feasible locations. Upstream operators are becoming actively involved in the CCUS value chain.

Similarly, feasibility studies are being conducted into green and blue hydrogen. Hydrogen offers opportunities to reuse or extend the life of existing infrastructure, which has a host of benefits. Offshore installations come with an inherent carbon footprint from the manufacturing process. Maximising asset life is advantageous and reduces the risk of stranded pipeline infrastructure assets.

Electrification of offshore platforms is the frontrunner

Led by Norway, which has the highest share of electricity produced from renewable sources in Europe, platform

Figure 1. Norwegian emissions OPEX.

electrification has taken off. Emissions from power generation currently account for the largest share of offshore upstream emissions. This is therefore a high-value area to target in order to achieve emissions reduction targets.

To date, eight fields in Norway receive power from the Norwegian grid – four of these are platform developments. Further investment is coming; by 2023, 50% of Norway’s liquids and gas production is due to be either fully or partially electrified, with still more to follow.

Norway continues to push the technology forward. Equinor’s Hywind Tampen project is an industry first. Sanctioned in 2019 and scheduled to start up by the end of 2022, the project will use eleven 8 MW floating offshore wind turbines to provide 35% of the annual power for the Snorre and Gullfaks platforms.

Rising carbon costs provide a strong incentive for action

All North Sea countries participate in the EU Emissions Trading Scheme – designed to help member states limit or reduce greenhouse gas emissions – but Norway goes a step further. Its additional CO2 and NOX taxes act as a strong incentive for operators to reduce emissions. Electrification project returns can compete with traditional upstream projects. For example, Equinor, Lundin Energy and Aker BP’s Utsira High project, which will power 10 fields with electricity from shore and save approximately 1.15 million tpy of CO2, can generate a return greater than 10% under Wood Mackenzie’s base assumptions. However, Norway’s unique carbon tax system is critical to achieving this.

In addition, electrification boasts other benefits. Reducing the quantity of gas required to power turbines can allow for higher sales production and/or greater availability of gas for reinjection at oilfields. Increased uptime can be achieved due to the lower risk of equipment breakdown.

There is huge potential, but scale will be key

The energy transition could have created an existential crisis for North Sea stakeholders, yet governments and industry are embracing change. The North Sea is retaining its leadership status through technological innovation. The industry cannot afford to stand still. Trial technologies have a common problem: to become economically viable they need to scale. At the same time, the North Sea is competing with global producers, where the energy transition is not quite as high on the agenda. Continued support for pilot projects, and a willingness to adapt, will be critical if the North Sea is to maintain its flagship status.