Case for investment in Shetland field made by oil prices

JUDGES in Scotland have provided a boost for the North Sea oil and gas industry as the energy crisis underlines the value of UK production. However, the outlook for investment looks set to remain uncertain amid manoeuvring by campaigners and politicians.

As the oil and gas industry reeled from the impact of the downturn caused by the coronavirus a firm backed by US financiers triggered a furore by providing proof that investors still see value in the North Sea.

In June Siccar Point Energy said it had applied to the regulator for permission to develop the massive Cambo find off Shetland with Royal Dutch Shell.

Coming months after the Cambo project had been shelved for economic reasons, Siccar Point’s move hinted that better times might be in prospect for the hard-pressed North Sea oil and gas supply chain.

But the timing of the application appeared unfortunate to some as campaigners seized on the move as an excuse to turn up the volume of their calls for the North Sea oil and gas industry to be shut down.

READ MORE: Plan for Shetland oil field poses questions for regulator

Ahead of the COP26 climate summit in Glasgow next month, Greenpeace has mounted a vocal campaign to get the UK Government to block plans for Cambo which it claims would result in the emissions equivalent of 18 coal plants running for a year.

Emotional appeals have been accompanied by the launch of legal moves that could have huge ramifications for the industry as it grapples with big PR challengea.

Greenpeace launched an action in Scotland’s Court of Session concerning another North Sea field that is already in production, in the hope of making it much more difficult for projects such as Cambo to proceed.

The campaigning group argued that the Westminster Government had been wrong to grant BP and Ithaca Energy permission to develop the 30 million Vorlich find east of Aberdeen without it considering the climate impacts of burning the oil extracted.

Had the action succeeded, BP and Ithaca could have been forced to stop production from Vorlich.

The procedure for vetting North Sea field developments may have had to be redrawn, to include an assessment of the environmental impact of the use of the related reserves. Any firms that were working on potential North Sea developments may well have scrapped them or at best put them on ice.

READ MORE: Cambo oil field plan in focus after setback for Greenpeace

The panel of senior judges that considered the case, headed by Lord Carloway, however, dismissed the claims made by Greenpeace.

In a written judgement issued last week, Lord Carloway was clear on the key point of law involved. He said decision makers were not required to consider the environmental impact of the use of oil and gas when assessing applications for field developments and also made an explicit reference to the challenges posed by the surge in global demand for oil and gas. This has accompanied the easing of lockdown measures.

“It would not be practicable, in an assessment of the environmental effects of a project for the extraction of fossil fuels, for the decision maker to conduct a wide ranging examination into the effects, local or global, of the use of that fuel by the final consumer,” wrote Lord Carloway in the Opinion of the Court.

He added: “It does not appear to be contended that the UK economy is not still reliant in a number of different ways on the consumption of oil and gas.

“At present, a shortage of oil and gas supplies is a matter of public concern.”

Before concluding that politicians rather than judges should decide whether North Sea Developments should proceed, Lord Carloway noted: “It is not maintained that the exploitation of the Vorlich field would increase, or even maintain, the current level of consumption. Unless it did so, it is difficult to argue that it would have any material effect on climate change; even if it is possible to arrive at a figure for its contribution by arithmetical calculation relative to the production of oil and gas overall.”

READ MORE: Clean energy investment must triple if net zero targets are to be met warns regulator

The judgement poses big questions for those who seem to believe that new UK oil developments will necessarily increase global consumption of the black stuff, rather than help to satisfy existing demand. UK production may entail lower emissions than the use of oil and gas from overseas.

The International Energy Agency has said there should be no more oil and gas developments if the world wants to achieve net zero by 2050. However, in the latest edition of its flagship World Energy Outlook report, which was issued yesterday, the watchdog said governments aren’t investing anywhere near enough in clean energy sources to meet the 2050 target.

While BP and Israeli-owned Ithaca welcomed the Court of Session judgement without elaborating, North Sea industry body OGUK was clearly delighted by the outcome.

“If Greenpeace had won, it would have generated uncertainty among the hundreds of companies involved in producing the nation’s oil and gas. They might spend millions of pounds on getting a new oil or gas field licenced only to see it revoked by a court action,” said OGUK’s sustainability director Mike Tholen.

He added: “Such a ruling would make them far less willing to invest in new fields, leading directly to a sharp decline in the UK’s oil and gas production and making the UK more reliant on imports.”

The judgement comes as the energy crisis makes clear that demand for oil and gas remains strong in the UK. The crisis also underlines the risks involved in relying on imports amid developments on international markets that the UK can’t control.

READ MORE: Oil price rise may stoke interest in North Sea

The surge in gas prices which will result in huge increases in the bills of millions of people in the UK who may struggle to afford them has been partly driven by growth in demand in China, amid efforts to reduce reliance on coal.

Market watchers say it also reflects the decision made by Russia to limit supplies to Europe as it awaits approval for a pipeline that will bypass Ukraine.

The pressure on gas supplies has sent crude prices soaring as power firms and the like switch to using oil.

Brent crude hit a three year high of $84.52 per barrel on Monday while West Texas Intermediate traded at levels last seen in 2014.

At the same time a range of firms have made clear that they are ready to invest in North Sea developments if given the right encouragement. These include some relatively small players that have helped to get majors interested in areas of the North Sea they decided had unrealised potential.

READ MORE: North Sea oil and gas minnow wins vote of confidence from Shell 

Deltic Energy is set to drill on a big gas prospect with Shell, while IOG is preparing to bring a group of undeveloped gas finds into production with a company owned by US billionaire Warren Buffett.

While the gas fields concerned are off England, Deltic’s acreage contains an oil prospect off Scotland. Firms such as Orcadian Energy have won backing from investors to work on other oil prospects off Scotland.

However, campaigners could still put a spanner in the works with the help of lawyers. Greenpeace has said it will appeal last week’s Court of Session judgement. Another case in which campaigners argue that the support the UK Government provides for the industry through the tax system is unlawful will be heard by the High Court in December.

Meanwhile experts say First Minister Nicola Sturgeon has created uncertainty about North Sea projects by calling for Boris Johnson to reassess the original Cambo licence as she looks to keep the Scottish Greens onside.

The Herald Scotland

The Herald Scotland

The Herald is a Scottish broadsheet newspaper founded in 1783. The Herald is the longest running national newspaper in the world and is the eighth oldest daily paper in the world. The title was simplified from The Glasgow Herald in 1992