Ross Gardiner: Carbon capture and storage – the new normal on the UK Continental Shelf?



Ross Gardiner

In this protracted period of societal and economic uncertainty, one thing seems certain – change is coming for the North Sea, writes Ross Gardiner.

Over the last few years, carbon capture and storage (CCS) has been mentioned increasingly at industry events and workshops as being an important player in the energy transition. While the oil price has somewhat recovered from the record lows earlier this year caused by the combination of the Saudi-Russian price war and the impact of COVID-19, there is no doubt that in order to be sustainable, the UK energy industry needs to realistically look to the future and adapt operations where possible.

There are a number of signs that CCS is becoming a reality. Last month, the Oil and Gas Authority (OGA) received an application for a CCS licence in the Liverpool Bay area of the UKCS. If approved, this will join the three other CCS licences on the public register. The UK government also recently announced funding to help cut emissions and drive the green economic recovery by way of the Industrial Decarbonisation Challenge Fund (IDCF). Indeed, the Acorn CCS project at the St Fergus Terminal is likely to benefit from phase two of this funding. In addition, the proposed new OGA strategy contains various provisions which will result in operators actively considering CCS projects as part of their operations. But CCS is only one of a wealth of options open to the sector in its energy transition / future planning.

CCS regulation

The OGA is the regulator for offshore carbon dioxide storage. It approves and issues permits and maintains the carbon storage public register.

Chapter 3 of the Energy Act 2008 forms the legislative basis for the licensing regime governing offshore carbon dioxide storage. Information required in a licence application includes a map of the proposed site (with defining coordinates), a summary of the work programme, exploration operator competence and the duration of the licence term (whether it be appraisal or initial). Furthermore, there is a section on the status of discussions with the Crown Estate (TCE) as an agreement for lease will require to be reached with TCE (in England).

The carbon storage register is publicly available online along with the recent notification of application for the Liverpool Bay area. The OGA has also produced a guidance document for completing CCS licence applications. Applicants should consider reviewing these resources and engaging with both the OGA and TCE ahead of the submission of any formal application.

In addition to the regulatory requirements, there are a variety of factors potential applicants will need to consider. Some offshore fields will be more suited to CCS projects than others – depending on the nature of the field and its surrounding infrastructure. Operators and their coventurers are encouraged to open the conversation on the suitability of CCS and consider setting up discussions and potential contractual arrangements with owners of neighbouring infrastructure on CCS projects as well as engaging the supply chain. This will, however, need to be aligned with the “principal objective” of MER UK. While the proposed new OGA strategy retains the principal objective, it re-frames it against the backdrop of Net Zero.

Updated OGA strategy

The OGA recently proposed to amend its strategy. The main change is the addition of a new “limb” to the central obligation which explicitly gives CCS as an example of assisting the Secretary of State in meeting the Net Zero target. Other references to CCS appear in the decommissioning and technology supporting obligations. Furthermore, a specific CCS section obliges licence holders and operators to collaborate with those proposing CCS projects and allowing access to infrastructure for such purposes on “fair and reasonable” terms.

Investment and the rise of “clean tech”

It is clear that industry recognises the energy transition is happening now and wants to embrace “new” energy. CCS is but one aspect of a very complex picture. It seems that one of the main hurdles to pursuing CCS (and indeed other new energy projects) is funding - particularly for smaller players and start-ups. As well as the Government funding mentioned above, energy projects across the UK will have the chance to bid for a share of a £139 million fund to drive clean growth, including through the deployment of CCS. It is important to note however, that this is UK-wide and not just for operators in the North Sea.

The Oil & Gas Technology Centre (OGTC) is working with industry on technology which will support the transition. It acts as an ambassador for “clean tech” companies and facilitates sessions with operators about working together on alternative energy projects - in fact, all the participants in the third intake for OGTC’s TechX programme are companies focussed on clean tech. Clean technology is the future of the energy industry and needs to be embraced and allowed to flourish. As the focal point of the UK’s oil industry, the north east of Scotland has a huge skills base ready for adapting. If this shift is not embraced, the next generation may seek out clean tech opportunities elsewhere, potentially leaving the north east energy landscape at risk.

A changing landscape

A number of significant collaborations have emerged in recent weeks, bolstering the drive towards change. Trade body Oil & Gas UK (OGUK) and the Aberdeen Renewable Energy Group (AREG) have entered into a reciprocal membership agreement with the aim of sharing market intelligence, insights and promoting the work of members within their organisations. This is a significant step towards an alignment of the two sectors. The supply chain will play a vital role in the energy transition. It is hoped that this collaboration will mean small innovative companies will be recognised and better placed to secure new work.

In addition, the OGTC has teamed up with Offshore Renewable Energy (ORE) to form the Energy Transition Alliance (ETA). This aims to obtain and distribute investment in new technology in order to move towards Net Zero. These partnerships reflect a symbolic shift in the industry and have the potential to unlock funding streams and pioneering projects (including CCS). But they can only go so far – they need the backing and input from the key players in the industry in order to flourish.

Conclusion

The energy transition is happening now. Undoubtedly, the oil and gas industry has a critical role to play in achieving Net Zero and providing the infrastructure needed to allow “greener” energy to become an increased part of the energy mix. CCS regulation follows a similar format to hydrocarbons and furthermore, the proposed updates to the OGA strategy promote CCS and encourage operators and licence holders to collaborate with the supply chain on potential CCS projects. A variety of “clean tech” start-ups are emerging and their role in CCS projects, as well as the energy transition more widely, cannot be overstated. Industry partnerships will provide the forum for collaboration but need sector-wide support. The key players are encouraged to listen, learn, innovate and adapt to ensure the UK energy industry is here for years to come.

Ross Gardiner is a solicitor at Brodies LLP



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