Special report

Amid extreme uncertainty and volatility, oil and gas still have a vital role to play in meeting our present energy needs, says Jonathan Dyble

Oiland G tothe as

The debate over oil and gas production has reignited in recent months. Countries around the world are facing a Energy security As a result, gas fl ows from Russia’s three main pipelines were down 26% month-on-month in June 2022, sending European gas prices spiralling further. Indeed, it is no coincidence that the Eurozone’s 19 deepening energy crisis, exacerbated has been countries hit record annual infl ation, by a perfect storm of geopolitical turmoil, supply disruptions, high prices and an as-yet-unrealised overlooked for the last fi ve years, up from 8.1% in May to 8.6% in June. Addressing the energy crisis energy transition. Europe, in particular, is fronting up to extreme uncertainty. The region has typically relied on Russia for 30% maybe even 10 years. But now, with what’s Against this backdrop of uncertainty, energy security has soared to the top of the agenda. “I think energy security has been overlooked for the of its oil and 40% of its natural gas imports – supplies that are looking increasingly insecure as tensions happened with Russia and Ukraine, last fi ve years, maybe even 10 years,” affi rms Mark Lamyman, International Business Development Manager at grow and sanctions bite following the governments have AFGlobal. “But now, with what’s country’s invasion of Ukraine. Russia has gradually been cutting its energy supply to Europe for more had to rethink their model of how they happened with Russia and Ukraine, certainly in Europe, I think it’s highlighted the need for energy than a year. Flows through its three get energy security, and I think a lot of main pipeline routes to the rest of governments have had to rethink the continent were 20% lower in H2 2021 than H2 2020, causing Mark Lamyman, International Business Development Manager, AFGlobal their model of how they get energy.” The EU has committed to ending European gas prices to surge as reliance on Russian fossil fuels by demand spiked due to economies 2027, looking for alternatives such as restarting after pandemic shutdowns. liquefi ed natural gas (LNG), imports of which rose 58%

The situation has only worsened in 2022. Under the in the fi rst fi ve months of 2022 compared with 2021 pressure of European sanctions, Russia cut gas fl ows to levels. However, with a limited number of import energy suppliers in several countries that refused to terminals, Europe has limited capacity to receive LNG. make payments in roubles, including Poland, the Renewable energy has been another option, but is still Netherlands, Bulgaria, Denmark and Shell in Germany. limited in its overall contribution to the energy mix in And while many did adhere, they have since suff ered many markets. In the UK, for example, wind farms were from reduced supply as Russia cut the capacity of the producing just 3.3% of the country’s electricity on 11 Nord Stream 1 pipeline by as much as 60% on 15 June. July, with gas-fi red power plants producing 47.6%.

North Sea energy boost

Cambo

Located 125km northwest of the Shetland Islands off the shore of the UK, the Cambo oilfi eld is one of the deepest fi elds ever discovered in Northern Europe. It is estimated to contain more than 800m barrels of oil equivalent (MMboe).

Jackdaw

Jackdaw is a gas condensate fi eld 100% owned and operated by Shell. Located in the Central North Sea, 250km east of Aberdeen, it is estimated to hold reserves of between 120–250 MMboe.

Following the approval of Shell’s Jackdaw fi eld, fi ve other key North Sea fi elds are expected to be given approval to begin drilling as part of the UK’s drive to boost supply and lower energy costs. Their combined reserves – Rosebank, Marigold, Brodick, Catcher, Tolmount East and Jackdaw – are estimated to be 62m tonnes of oil equivalent.

To boost energy security prospects, several new oil and gas projects are being fast-tracked.

“The oil and gas market is obviously more established,” says Lamyman. “We’ve already got many supply chain players working within oil and gas, so I think it’s more attractive because there are a lot of projects and they’re easier to access. Equally, I am familiar with companies who’ve explained to me that to get into renewables as a supplier is diffi cult and, again, it’s a new technology that carries more risks.”

Plans for 20 new gas import terminals across Europe have been either announced or accelerated since the Ukraine war began, including Germany earmarking US$3bn for four fl oating terminals – the country has no such infrastructure at present.

Examples include multi-million-dollar investments in LNG-receiving terminals at the Brunsbüttel and Lubmin in Germany and Eemshaven in the Netherlands – the latter of which has been revived after more than 10 years of inactivity. In Romania, Black Sea Oil & Gas is pressing ahead to be the fi rst company to tap the country’s off shore gas fi elds.

Pipelines are also an issue that is being looked at. Even with more capacity to receive shipments of LNG, the continent still lacks the infrastructure required to transport it to where it might be needed.

These trade networks are vital, but the continent must also ramp up its domestic production capacity to become more selfsuffi cient. Indeed, with the worrying possibility of blackouts in Europe growing ever stronger, projects such as Jackdaw and Cambo are being implemented.

Varied goals can be achieved with a diverse energy mix

The licence extension of Cambo on 30 March 2022 and approval of Jackdaw on 1 June 2022 have been met with controversy and debate.

On one side of the fence, such projects are deemed vital to improving energy security in the near-to-medium term, providing an improved social licence to run them. On the other, climate scepticism has been prevalent, demonstrated by the impassioned ‘Stop Cambo’ and ‘Stop Jackdaw’ campaigns from opponents both prior to and after approvals.

The question therefore lies in whether such projects can be rolled out to meet energy security needs in the immediate future without adversely impacting climate goals.

For James Phipps, Managing Director at Cokebusters, it is almost unavoidable for governments to pursue these projects in beating the energy crisis. With potential winter rationing plans being considered and consumers potentially set to be paid for not using energy at peak times, the need is clear.

“All governments have a number of primary national responsibilities including such things as health, physical security, employment, economic prosperity and, of course, energy security,” Phipps affi rms. “The UK has a continental shelf which contains sources of proven hydrocarbons. The safe and appropriate extraction of such will serve to satisfy many parts of this agenda and others. To ignore is arguably a dereliction of duty.”

Phipps also argues that while oil and gas has a reputation for being ‘dirty’, many industry technologies have advanced to the point that such fuels can be stored and used in a much cleaner manner.

Looking at Jackdaw, such improvements are evident. Shell explains that, at its peak, the project is anticipated to deliver 6.5% of UKCS gas production for less than 1% of UKCS emissions, while producing enough energy to heat more than 1.4m UK homes. Further, looking at the UK’s climate targets, Jackdaw’s emissions are expected to account for just 0.013% of the UK’s Fifth Carbon Budget between 2028 and 2032. This is an interesting point, given the debate

We currently don’t have the capacity and technology to meet the energy needs in a fully sustainable way. Therefore, it is important that we speed up the investment levels and raise the awareness of this important paradox

Torben Harring, CEO, RelyOn Nutec

Europe’s race for LNG

Since the beginning of the war in Ukraine, EICDataStream lists 17 projects that have been announced, or were relaunched or accelerated, adding a total of 104.1bn cubic metres (Bcm) of LNG per year.

Country Project Project type Annual capacity (Bcm)

Albania

England

Estonia Port of Vlorë FSRU

Isle of Grain LNG Plant Expansion

Paldiski LNG Terminal

France Le Havre LNG Terminal

Germany Wilhelmshaven LNG Import Terminal

Germany Hamburg LNG Terminal

Germany Lubmin LNG Terminal

Germany Stade LNG Terminal

Germany Burghaun BioLNG Plant

Greece

Greece

Italy

Italy

Latvia Argo FSRU

Dioriga Gas FSRU Project

Tyrrhenian/Adriatic Sea FSRU

Porto Empedocle (Sicily) LNG Terminal

Skulte LNG Terminal

Netherlands Eemshaven LNG Terminal

Spain El Musel LNG Terminal

4.8

2.2

2.5

5

10

8

4.5

12

0.9

4.6

2.6

10

18

4

8

7

Key

FSRU

LNG Terminal

Bio LNG Terminal

Source: EICDataStream

surrounding the true cleanliness of renewables technologies.

Phipps continues: “The impact of the production of EV batteries, wind turbines and solar panels, as well as the means to transport and construct them, is not insignifi cant. The production of modern EV batteries, for example, requires signifi cant amounts of precious metals.

“The more complex the ore, the more energy will be needed to extract, and many of these processes can be toxic and polluting. We should therefore accept that there are pros, cons and unwanted by-products associated with all forms of energy.”

Both Lamyman and Phipps agree that a sustainable and just energy transition which works towards achieving both climate protection and energy security

We should accept that there are pros, cons and unwanted by-products associated with all forms of energy

James Phipps, Managing Director, Cokebusters

must comprise a diverse energy mix – a view that Torben Harring, CEO at RelyOn Nutec agrees with. Asked what a sustainable energy transition should look like, he makes it clear that energy security and climate protection must be achieved in harmony.

“It must be the ambition to have a world where secure energy sources and climate protection are not opposites of each other,” he says. “We currently don’t have the capacity and technology to meet the energy needs in a fully sustainable way. Therefore, it is important that we speed up the investment levels and raise the awareness of this important paradox.

“While we hope for a fast, sustainable energy transition, we can’t allow that speed will compromise energy security or safety of the people working in the energy industries for that matter.”