Article   |   David Clark   |   07.06.2022

Let’s talk about the energy ‘elephant in the room’

With the Ukraine conflict fuelling the desire for energy independence, global demand for hydrocarbons still exists, so how do we square this with COP26 commitments? Is this not the ‘elephant in the room’? Our CEO, David Clark, examines the dilemma facing all energy stakeholders, from increasing capacity of existing resources, to developing new facilities and pushing harder towards zero carbon technologies.

Shell-shocked: seismic changes

Following Shell’s doubts about viability and waning political support, the owner of the Cambo oil field in the Shetlands - Ithaca Energy - has pledged to develop both it and Rosebank, described by CEO Alan Bruce as "two of the largest undeveloped and most strategically important discoveries" in UK waters. Last year such statements would have faced more backlash, but times have changed.

Both Ukraine and Cambo highlight the fragility of energy security. With oil & gas still representing 80% of world energy supply, an entire infrastructure exists around them which can theoretically (with further investment needed to handle multiple new inputs) be upscaled for new market dynamics and sources of production.

Energy sustainability hinges around three core components: Energy Security, Affordability, and Environmental Sustainability; balancing these opposing forces being the holy grail of the Energy Trilemma.

Escalating costs of hydrocarbons, combined with limited progress in other countries, (coal exports from China), adds urgency to the need for energy diversification globally.

In the UK, imported gas now outstrips domestic supply. Of the 76 billion cubic metres (bcm) consumed last year, 32bcm was imported from Norway against 29bcm produced domestically; a trend set to continue.

Increase pace of transition to net-zero, don’t pause it

With hydrocarbons remaining part of the mix, how then can we square the circle? XLinks, a British company, argues that within five years, the world’s longest undersea cable will link Devon to a vast territory of solar panels in the Sahara Desert, supplying electricity directly into Britain’s grid at a fraction of today’s prices. Meanwhile, despite debate around sustainability of nuclear waste, small modular reactors could also represent a major share of our energy mix this decade.

After solar, wind is the cheapest renewable energy and has been a real success story, but if we are to step up domestic supply, the facilities and infrastructure to support it simply aren’t there at present.

Whilst somewhere between three to seven years away from supplying the UK grid, new offshore wind projects like ScotWind could supercharge renewable energy capacity, more than doubling everything currently built, or planned, in Scottish waters. Presently, offshore wind in Scotland generates about 2GW, a small fraction of overall renewables.

Meanwhile, oil & gas is likely to remain a failsafe. The challenge will be how the international community can access the resource sustainably in order to aid the transition running in parallel.

Clearly, we need to invest, both in infrastructure and the skills base to go with it. Over the past five years, a staggering 95% of UK talent across the whole supply chain has haemorrhaged towards new markets, including USA and Africa. This reinforces the need regenerate North Sea operations if we are to maintain production using environmentally sustainable technologies and methodologies, and attract new talent.

In this together

Environmental, Social and Governance (ESG) requirements are having increasingly powerful influence, particularly with reporting and regulatory compliance. Perhaps one of the most notable examples is the 2021 UK Government’s North Sea Transition Deal, which will see between £14bn and £16bn invested in new energy technologies by 2030. A year on, there are encouraging signs of decreasing oil & gas emissions. But this is only one strand; companies will still need to draw on operational data to bring the necessary skills to the future energy roundtable.

Are we ready?

Planit22, our own sustainability information campaign launched at the start of this year, seeks to address the elephant in the room. Our commissioned survey of UK energy company owners revealed more than half of respondents believe the energy transition will negatively impact business operations. Predictably, perhaps, younger respondents feature sustainability and environmental factors explicitly within daily planning and decision-making. The bottom line is that we all need to be pulling the same direction.

Where we go from here

With the West seeking to reduce reliance on Russian gas, by two thirds by the end of the year in the EU’s case (and fully independent of all Russian fossil fuels by the end of the decade), the world’s energy sector is transforming. Markets can’t simply be accelerated overnight, but recent events have revealed a genuine impetus to diversify and some of the consequential bureaucratic obstacles ahead.

The immediate future remains fraught with uncertainties, prolonging the challenges faced by the energy sector. Looking further ahead, however, the drum for the acceleration of energy transition must still sound as the world wakes up to the need to address climate change.

As the clean energy roadmap takes shape, we shouldn’t detract from the measures introduced and the commendable actions of international stakeholders, but we all need to be more agile. Yes, we need to accelerate the use of renewables. Yes, we should place high impetus on energy security. But this cannot happen in isolation.

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