Ian Wood has a recurring nightmare.
The 77-year-old billionaire, who made his fortune off the back of the North Sea oil boom in his native Aberdeen, worries about what will be left for future generations in the north-east of Scotland if the region fails to diversify away from its reliance on hydrocarbons.
“My nightmare has always been that — and I won’t be here — but the generations one or two down the road are going to be saying: ‘That’s great, they had a great deal of prosperity [from oil and gas] but what about us?’” Sir Ian told the Financial Times, reflecting on a career spanning six decades in the industry.
From 1964 until his retirement in 2012, he transformed his family’s Aberdeen-based marine business into Wood Group, the London-listed oil services company.
Ever since production in the UK North Sea peaked at the turn of the millennium at 4.7m barrels of oil equivalent a day, its death has been foretold on many occasions.
Yet the half-a-century-old oil and gas basin continues to defy those predictions, with announcements of new discoveries at the same time as new technologies and methods are allowing previously inaccessible deposits from fields with complex geology such as Mariner — first discovered in 1981 — to be finally brought into production.
But in 2019 the long-running debate over the sustainability of the North Sea’s seemingly dwindling reserves was replaced by questions over how the basin’s hydrocarbon deposits fit with the urgent need to make the UK’s energy mix more environmentally sustainable.
After the British government in June became the first G20 economy to legislate for a 2050 net zero emissions target, environmental activists stepped up calls for North Sea operators to either shut down or diversify into clean technologies, such as offshore wind. The pressure was stepped up further when the Scottish government subsequently imposed an earlier net zero target of 2045.
“They need to face the fact that we simply can’t drain every last drop of oil from the North Sea if we’re to tackle the climate emergency,” said Doug Parr, chief scientist at Greenpeace, whose protesters targeted North Sea oil rigs last year.
Investor opinion has also been turning against fossil fuels. In a survey last year of 39 fund managers with a total of $10.2tn of assets under management, nearly a quarter said oil companies were no longer attractive investments.
The rapid shift in attitudes last year has caught many in the North Sea off guard with Tim Eggar, chairman of the Oil and Gas Authority, the North Sea regulator, warning the industry its “social licence to operate is under threat” unless it does more to address climate change.
Mike Tholen, upstream policy director at trade body Oil & Gas UK, admitted the industry had been caught flat-footed by the change in sentiment. “It wasn’t that long ago we were trying to pat ourselves on the back for getting through a downturn in business,” he said, referring to the 2014 oil price crash.
OGUK responded to the growing pressure in September with a “blueprint for net zero”, arguing the industry could develop solutions such as carbon capture and storage (CCS) — burying carbon dioxide in depleted oil and gasfields offshore — and tapping hydrogen to replace gas heating in buildings. These could create new industries with potential to tap export markets.
“As one of the older basins, anything that we can do here is not only exportable but there’s a huge amount of experience, skills . . . and data from existing fields that allows us to more effectively reimagine the North Sea,” said Colette Cohen, chief executive of the Aberdeen-based Oil & Gas Technology Centre.
A number of oil companies are supporting carbon capture projects in areas such as Peterhead and Teesside. Hydrogen power projects have also been developed in the likes of Orkney.
But both CCS and hydrogen face significant funding challenges. Large-scale projects remain several years off. Meanwhile, UK oil and gas production is once again increasing after a sharp decline in the 2000s and output is now higher than at any time since 2011, leading to accusations that it is simply business as usual for most North Sea operators.
“Talking up unproven carbon-capture technologies as an excuse to carry on as before will only make the transition more painful later on,” said Mr Parr.
In 2018, three-quarters of UK primary energy demand was still met by oil and gas. Supporters of the industry defended efforts to maximise domestic production by citing forecasts from the government’s climate advisers that the UK will still consume approximately 65m tonnes of oil equivalent a year in 2050 — equal to 45 per cent of demand today. They argued the alternative would be a greater reliance on imports, with less control over emission.
Al Cook, executive vice-president for global strategy and business development at Norway’s Equinor, which operates the Mariner field in the UK, said the “economic competitiveness” of “challengers” to fossil fuels, such as wind and solar, would push oil majors to continue to diversify into alternative sources of energy.
But the balance of power in the UK North Sea has in recent years been shifting away from the majors to new, often private equity-backed, companies and smaller operators whose business models are based on maximising how much oil and gas can be recovered from mature fields.
Sir Ian acknowledged these companies were unlikely to shift their focus but said they would likely come under regulatory pressure to reduce emissions from the process of extracting oil and gas, the majority of which come from generating electricity offshore via gas or diesel turbines.
The OGA is looking at how to benchmark emissions across the sector, which would mean companies could be directly compared. Energy companies at present report climate-related disclosures in different ways. The regulator also wants companies to commit to “clear, measurable” emissions reduction targets.
For environmentalists, though, the actual product will always be the greater problem. Groups such as Extinction Rebellion, which last week staged protests outside Royal Dutch Shell’s offices in Aberdeen, will continue to question the existence of the North Sea oil and gas industry in a net zero world.
Sir Ian now chairs Opportunity North East, a venture seeking to ensure the north-east of Scotland becomes a “museum of the oil and gas era” by building up other industries such as life sciences and agriculture.
But he still believes the North Sea will be a central part of the region’s economy. “To those people who say we should stop [oil and gas production] in 2025, my answer to that is: where are we going to get energy from?”
