Oil & Gas UK chief: Why North Sea oil will be vital to Scotland for years

Scotland is in the midst of an energy revolution. Our offshore oil and gas industry may be 50 years old, but it builds on a heritage of steam and coal and is now looking to work alongside renewable energy.

Technological change, population growth and changing consumer needs have not only fuelled the emergence of new sources of energy, it has dramatically transformed the way our offshore oil and gas industry operates too.

Far from being a stodgy plate of mince and tatties, those on the periphery of our colossal industry would do well to consider it today as an artisan burger, finessed over time and unrecognisable to our grandparents.

UK Government figures estimate that by 2035, oil and gas will continue to provide two-thirds of the UK’s energy needs. It comes as global hunger for energy is unabated, set to rise by 30 per cent.

Essential for security of supply, supporting hundreds of thousands of jobs and contributing billions to the economy, the offshore oil and gas industry remains an important part of the fabric of Scotland’s economy.

That wider social contribution is also evidenced by cold hard facts. Scotland’s economy has always done better when we do well.

The country needs oil and gas to ensure its energy resilience – diversity is essential even as part of a low-carbon future. We recognise our role to meet that need in an ever more efficient and greener way.

As we continue to diversify into other energy sources, we see our supply chain working right across the energy spectrum. In a cyclical industry like ours, that makes the whole economy more resilient and Scotland a more attractive place to invest in.

READ MORE: North Sea oil tax breaks to be preserved, says Philip Hammond

With a strong offshore oil and gas industry, we can stand proud as an energy nation and the heritage it offers. Emerging from one of the most testing downturns in our history, it is an industry at a crossroads.

Exploration activity in pursuit of untapped resources is expected to be the lowest since 1965. This record low drilling activity, coupled with a squeeze on the supply chain, shows that challenges remain. These challenges are a threat to industry’s ability to effectively service an increase in activity.

Yet, our Economic Report 2018 shows that the years of hard work are beginning to bear fruit and the UK Continental Shelf is now a more attractive investment proposition.

Reduced costs, competitive fiscal terms, improved operational performance and more stable oil and gas prices are laying the ground for an improved landscape. With that, all being well, should come new activity and fresh business for our hard-pressed supply chain.

As a mature basin, companies are having to manage an ever-increasing profile of risks and uncertainties – not least trying to tap into ever trickier waters. Equinor’s (formerly Statoil) recent acquisition of a share in the Rosebank field shows how companies are willing to push the envelope, whilst recognising the attractiveness of the basin.

One of the largest undeveloped fields in the UK Continental Shelf, the Rosebank development lies in more than 1,000 metres of water. It’s estimated it will take £4-5 billion in investment to develop the 300 million barrels in remote waters west of the Shetlands.

At a time when oil prices are beginning to increase, it underlines the case for tax certainty. With so many other risks to manage in a mature basin, tax uncertainty is the extra straw which could break the camel’s back.

READ MORE: North Sea oil and gas to run out in ten years, experts warn

Projects like Rosebank show that we are doing exciting stuff, seeking to develop new fields in some of the most hostile waters in the world.

We’re beginning to see activity step up and this needs to feed through into improving conditions for our supply chain. A recent publication for the Centre for Cities positioned Aberdeen amongst the top 30 cities in the UK for the number of new start-ups.

The stable conditions we are beginning to enjoy are needed if we’re to secure fresh investment in a globally competitive market. It ensures that even as a mature basin, the UK Continental Shelf can punch above its weight.

We’re confident that the industry will contribute more money to the Exchequer in this year than last, based on current oil price and future trends, adding to the £350bn contribution to the UK economy since 1970.

This doesn’t mean the tax regime isn’t working. It means that it is.

History shows that for every one pound invested by the sector itself, industry then returns a pound in production taxes over time.

The industry has truly come of age. Total’s Glendronach discovery, the largest gas find in a decade, was announced in recent weeks. New companies are entering the North Sea with fresh skills and approaches and will be part of the fabric of Scotland’s economy for years to come. All of this, whilst industry pays its share of decommissioning costs and looks to develop new opportunities.

There’s an old joke that, regardless of where you are in the world, where there’s oil you’ll always find a Scot too! As we look to the future, we’re confident that wherever you go globally you’ll find

even more Scots working in the energy industry.

Our skills, infrastructure, engineering capabilities and people ensure we are best placed to drive the energy revolution globally.

The third age of energy is not set in stone. We should be in no doubt of the hard work and foresight required by industry, governments and regulators to steer many moving parts in the right direction.

Deirdre Michie is CEO of Oil & Gas UK

Delight for residents after controversial gas plant plans scrapped

Controversial plans to build a gas processing plant in a Fife town has been scrapped.

RWE Ltd, who already operate one of the UK’s largest biomass plants situated at the former Tiullis Russell papermill site in Glenrothes, has withdrawn a planning application to build a 19.9MW gas peaking plant next door.

The proposal had drawn dozens of objections from local residents and had been recommended for refusal by Fife Council’s Public and Environmental protection Team.

A spokesman for RWE said: “RWE recently submitted a planning application to develop ‘quick to start up’ power units next to Markinch CHP biomass site. The application consists of 10 small 2MW Embedded Containerised Gas Engines with a maximum capacity of 19.9MWe.

“This planning application closed for comments and we have been awaiting the final planning decision.

“We have been continuing the planning and scoping for this project and after a thorough evaluation have taken the decision to withdraw the planning application. It has come to light that we are unable to make the electrical connection of the proposed units viable at this point in time.”

The company added that it would now be evaluating and considering its options.

Residents in had voiced concerns regarding noise and operating times at the proposed plant at two public meeting to discuss the application. Around 100 letters of objection to the proposal had also been submitted.

Commenting on the decision to withdraw the application, Angela High, chairman of Markinch Community Council said: “News that RWE have withdrawn their application will be welcomed by many residents.

“However I think we can assume that RWE will re-examine their energy generation abilities and the viability of a peaker plant and therefore we should expect another application at a future date.

“Work will continue with SEPA regarding noise issues affecting residents from different sources, ensuring enforcement, when required, is undertaken and campaigning to increase the neighbour notification distance from the current 20m when dealing with developments of this kind.

“Many members of the community invested their time into this issue and I would like to thank them for their efforts.”

Coal reaching $100 a ton in Europe boosts greener alternatives

(Bloomberg) — Coal’s push to $100 a ton in Europe may benefit the greenest energy providers more than it does for miners.

Companies that provide alternatives ranging from renewable power plants to natural gas turbines are expecting a lift after the commodity reached a five-year high.

Far from spurring a revival of the dirtiest fossil fuel, executives of energy companies that provide an alternative expect the move to accelerate a shift toward cleaner power sources.

Higher energy costs also put efficiency on the agenda of industry and policy makers, breathing life into technologies designed to squeeze more out of raw materials of all kinds.

“It’s an opportunity,’’ Paolo Bertuzzi, chief executive officer of Turboden SpA, a unit of Mitsubishi Heavy Industries Ltd., said at the Bloomberg NEF summit in London. “What’s important is not just the price but also the trend. If prices are rising, people start to think more about what to do about energy costs.’’

The surge in coal stems from record demand for energy in China, which has driven up the cost of power generation fuels of all kinds. That’s drawn cargoes away from Europe and boosted electricity prices from Britain to Italy.

Those governments already were working to limit fossil fuel emissions to rein in climate change. As a result, many utilities have spent years re-positioning to draw supplies from wind and solar farms instead of coal plants.

Higher coal and power prices make renewables look like a better economic bet against fossil fuels, according to Ignacio Galan, CEO of Iberdrola SA, which was the first big promoters of wind power in Europe.

“Fossil fuel costs are increasing, and that’s helping renewable energy,’’ Galan said in an interview at the BNEF conference in London this week. “It signals that if you invest in fossil fuel sources, you will be penalized.”

Clean vs Coal

Energias de Portugal SA made similar moves and largely draws its electricity from renewables. It expects to benefit from higher power prices and demand — and it has fewer coal plants to feed than competitors such as Uniper SE and RWE AG.

The coal price increase has an impact and it is very good news for renewables, and very good news also for gas, and also very good news for CO2 emissions

“The fundamentals on the power sector are going in the right direction,” said EDP’s CEO Antonio Mexia. “Demand is growing, so frankly for us, especially for our portfolio, this is good news. It makes me more optimistic about the future.”

Policy makers are taking note of the higher prices too. In Ukraine, which gets a third of its electricity from coal, the government is seeking alternatives such as nuclear and natural gas as a fuel for industry. Much of its coal is imported, since Ukraine’s mines were largely destroyed in its conflict with Russia.

“Making coal great again is actually being paid for by the Ukraine,” said Dan Bilak, chief investment adviser to the nation’s prime minister. “The price of coal is going to compel us to invest in other sectors.”

By contrast, higher coal prices will discourage companies from building more plants that use the fuel, said Gonzalo Garcia, co-head of the global natural resources group in the investment banking division at Goldman Sachs Group Inc. “There’s no new coal being built in western Europe, and probably not in the U.S. Renewables are clearly going to be the largest share of the electricity market.’’

For now, higher coal prices don’t mean a boom in mining for the biggest producers. Anglo American Plc and BHP Billiton Ltd. have said they won’t spend money on new coal mines, Rio Tinto Plc has sold out of coal while Glencore Plc is philosophically opposed to building any new mines at all.

Oil companies also expect to benefit from rising coal costs, since natural gas they supply is used as a competing power generation fuel.

If coal is expensive, less coal will be dispatched, there will be more room for gas and the CO2 emissions will decrease,” said Philippe Sauquet, president of gas, renewables and power at the French oil major Total SA.

Turboden, which makes turbines that recycle waste heat into electricity, also expects to benefit. It built a 2-megawatt unit for a Heidelberg Cement AG factory in Morocco that since 2010 has been drawing energy from the exhaust gasses at the plant to spin a power turbine. Four years ago, the project started producing additional electricity from a concentrated solar-thermal plant near the site.

“If conventional fuel costs increase and you’re offering energy efficiency, then the payback time for those projects is shorter and they become more attractive,” Bertuzzi said, anticipating sales across the Middle East, Africa and Russia.

(By Reed Landberg and Anna Hirtenstein)