Declining Oil and Rise in Renewables Opens Up Possibility for North Sea Transition

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Record-breaking offshore developments and decommissioning infrastructure have sent strong signals that the North Sea is getting ready for a genuine transition away from fossil fuels.

This week saw Shetland port Dales Voe named as the best ultra deep-water port for decommissioning oil rigs and other large infrastructure projects by accountants Ernst and Young. Operated by Lerwick Port Authority, Dales Voe was previously extended to allow defunct oil rigs to be moved for dismantling.

Scottish Government Energy Minister Paul Wheelhouse said the news could “unlock the potential” for companies in Scotland to “secure the largest decommissioning contracts that require the largest heavy lift vessels currently in operation in the North Sea”.

He said: “A deep water port in Scotland will bring significant benefits not only for a single location, but as a key part of an integrated and networked Scotland wide decommissioning offering, with wider opportunities realised through the supply chain.”

The case comes in the same week as Bloomberg reported a four decade low in oil drilling in the North Sea, and Nicola Sturgeon launched a major renewable energy project boasting the world’s most powerful wind turbines, the European Offshore Wind Deployment Centre (EOWDC) off Aberdeen.

The 11 metre-high turbines in the waters of Aberdeen Bay  —notoriously challenged by Donald Trump — will eventually produce 312 GWh of power a year, enough to power 80,000 households and help reduce Scotland’s reliance on its oil industry.

The Trump Organisation, which owns Trump’s Aberdeen golf resort, previously objected to the offshore wind centre  through a series of appeals which went all the way up to the UK Supreme Court. The company argued: “The EOWDC (European Offshore Wind Deployment Centre) will completely destroy the bucolic Aberdeen Bay and cast a terrible shadow upon the future of tourism for the area.”

“History will judge those involved unfavourably and the outcome demonstrates the foolish, small-minded and parochial mentality which dominates the current Scottish government's dangerous experiment with wind energy,” the Trump group declared in court papers.

A Turning Point for North Sea Oil

The combination of these three factors: the extraction low-point; massive new renewable developments; and the opening potential of Dales Voe and other ports, suggests a shift in the North Sea where the scope for a genuine transition away from fossil fuels is now underway.  

The picture of oil development is complex. Efficiency is up, as is the oil price but the overall picture is of a sector in decline.

The North Sea is on track this year to have the fewest exploration, appraisal and development wells since 1973, according to a report from the trade group Oil & Gas UK.

Earlier this year, Bloomberg reported that North Sea drilling dropped to a 40-years low in 2017 and 2016 as companies were forced to cut spending to cope with falling oil prices.

Although the North Sea benefited from “a new lease of life in the last few years” thanks to more efficient wells and new projects, Bloomberg warned that the slowdown in new wells is a “serious concern”.

The news agency said this “could end up putting the region in danger of missing its ‘Vision 2035’ goals, which include extending the productive life of the ageing basin for another generation.”


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The Politics of Oil

However, this may not be the blow to either Scotland’s economy, or to claims for financial security under independence that you might think. Far from oil being the main source of revenue for a putative independent Scotland, its highly volatile price has made it a political weakness in the case being built for independence.

As journalist Elizabeth O’Leary reported for Reuters: “The (SNP) party’s emphasis on optimistic-looking future oil revenues was seen by many as a key weakness in the failed campaign to win an independence referendum in 2014.”

The SNP’s Growth Commission report published earlier this year removed oil from the party’s baseline plans for the economy, describing it instead as a “bonus”, while renewables were seen as one of Scotland’s economic motors, along with tourism, food and drink and finance.

Other factors are at play:

  • Scotland has the majority of the UK’s onshore wind energy resources and the seas around Scotland have up to 25 percent of Europe’s tidal power, 10 percent of its wave power and around 25 percent of European offshore wind resource potential, according to trade group Scottish Renewables.

  • The Scottish Government has pledged to make 50 percent of all of its energy come from renewables by 2030 — a more ambitious target than the EU’s of at least 27 percent by 2030.

  • Scotland’s Energy Minister, Paul Wheelhouse, said  that the renewable power and low-carbon sector provided 49,000 jobs in Scotland, compared with 115,000 in oil and gas, and that the difference was narrowing.
     

Brexit Uncertainties

However, Brexit uncertainty puts at risk the potential for a ‘just transition’ away from fossil fuels and re-employment and investment in renewables and decommissioning.

The prospects vary wildly depending on the shape of the Brexit outcome.

A report published this week by trade association Oil and Gas UK argued that if Brexit opens up the UK to negotiate new deals, the oil and gas industry “trading costs” could fall by 100 million pounds a year. Others have speculated that, in a “hard Brexit” scenario, costs could rise by 500 million pounds annually.  

Delays on the delivery of crucial equipment, as well as shortages of key expert staff could also undermine the functioning of the oil sector, according to the report.

It warned that plans to leave the EU could cause a “skills shortage” for vital North Sea services such as Emergency Response and Rescue Vehicles (ERRVs). Without standby ERRVs the report says that  “platforms would have to shut down operations and production”, because the emergency vessels may not be able to operate if there are issues with recruiting engineers from in or outside the UK.

Risks and opportunities in the North Sea are fast emerging with huge political, economic and ecological consequences. With so many factors at play it remains to be seen which direction the sector will take and what this will mean for jobs and the environment.

Image credit: Vattenfall 

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