Sam Laidlaw, executive chairman of Neptune Energy
(Picture: Neptune Energy)The Prime Minster has today sent a clear message to the public and to energy investors – the UK North Sea is once again at the heart of its energy strategy.
It is an important message at an important time. The conflict in Ukraine has highlighted the crucial role of domestic production in ensuring energy security.
Just last week, Germany and Austria activated emergency plans and urged businesses and consumers to reduce consumption. Gas rationing in those countries remains a possibility – unthinkable just a few months ago.
Here in the UK, the Government’s Energy Security Strategy will help ensure resilience of our energy supply, so long as the momentum established is maintained, concrete actions are implemented and strategy becomes reality. There is no time to waste if we are to attract investors back to UK energy projects.
Investment in the UK North Sea has fallen dramatically in recent years. In part due to Covid-19 and the collapse in oil price, only £3.7 billion was invested in 2020 – the lowest level in real terms since 1973.
More tellingly, the contraction in investment has been larger than that seen across the sector globally. It is also far greater than any other sector of the UK economy.
The UK and Norwegian sectors of the North Sea share many characteristics, including their age, location and maturity. Yet, while investment in the UK sector is nearing an all-time low, investment in the Norwegian North Sea is booming, with $18 billion expected to be spent this year alone. More worryingly for the UK in the longer term, just three exploration wells were drilled here in 2021 compared with 40 in Norway.
So why have energy investors favoured Norway over the UK? One of the main reasons is the relative stability of Norway’s fiscal, policy and regulatory regime. While the UK government has spent many years tinkering with the system, picking winners and deprioritising economic resource recovery, the story in Norway is very different.
Headline tax rates have not changed materially in Norway for more than 30 years. Crucially, neither has energy policy or regulation. That stability and predictability has enabled investors to make long-term investment decisions in what is a very capital intensive industry. Even during the pandemic, Norway encouraged investment, understanding the vital role that gas will play in the energy transition.
That is why today’s announcement from the Prime Minister matters so much. At last, investors can be optimistic that we are on the right path. By putting in place the right regime, we should see investment return to UK energy projects.
That is not just good news for domestic oil and gas production. Those investors who will fund new UK North Sea production will be the same investors who recycle returns and repurpose existing infrastructure into the new energy projects we need to achieve our net zero ambitions in the future.
Investors can always choose where to invest and will always favour those regulatory environments that offer stability. New energy investment will be no different.
The UK North Sea has the infrastructure, such as transportation networks and depleted gas reservoirs, to enable a successful energy transition. The industry has the skills to make it happen. Added production from new projects will ensure energy security and fund the future investment we will need to meet net zero ambitions.
At Neptune, we will play our part. In the short term, we are looking to increase production from our Duva field in Norway, which would supply enough gas to heat an additional 350,000 UK homes. We can supply even more if the Government simply and quickly alters gas entry specifications to allow more gas to flow from our Cygnus field in the UK.
Early next year, we will bring online new energy supply from our Seagull field in the UK. And, together with our partners, we will invest £100 million in an appraisal well at the Isabella discovery in the UK’s Central North Sea.
In line with our aim to store more carbon than is emitted by our operations and from the gas and oil we sell by 2030, we will also accelerate the development of carbon capture storage and hydrogen production. Returns from existing and new North Sea production will be recycled into those projects, demonstrating the benefit of a diverse energy mix.
After years of decline, the North Sea once more provides the UK with a domestic answer to a global issue.
Thankfully, the Government has sent a clear and positive message to investors. This is essential so investors view the UK as a country where they can have the confidence to allocate capital. We now have momentum. We cannot let it slip.
Of course, there will be challenges along the way. It will not be straightforward to match the dual objectives of securing new production from the North Sea and accelerating the development of new energy. Over time, carbon capture and storage and hydrogen will play an increasingly important role.
This will demand an integrated approach from Government that not only considers the energy system as a whole, but also requires close collaboration between Government, investors and consumers. In different ways, all must rise to the challenge.
As of today, the UK has a plan. Now is the time to get on with delivering that plan. It is a national priority. Energy security, the energy transition and investor confidence are too important for the UK to wait.
