The main trade body representing the North Sea oil and gas industry has called for swift government action to secure a green recovery and to prevent carbon emissions rebounding after a big fall in 2020.

The economic disruption and drop in energy demand caused by the Covid-19 pandemic have contributed to the UK's CO2 emissions falling by 10.2% so far this year, Oil & Gas UK (OGUK) said in its latest annual economic report, published on Tuesday.

“That's an annual decline rate that we haven't seen before,” report author Ross Dornan, OGUK’s market intelligence manager, told journalists.

By comparison, UK CO2 emissions fell by 3.6% in 2019 compared with 2018.

Globally, annual emissions are down 5.5% year on year, OGUK said, citing figures from the Carbon Monitor initiative.

'Swift policy changes'

Dornan said continuing to achieve the scale of the latest annual reductions will only be sustainable with swift policy changes by the UK government and devolved administrations, including in Scotland.

“Consumption patterns and emissions will bounce back to pre-pandemic levels unless they're backed up by significant policy levers, significant policy change, and new frameworks are put in place,” Dornan said.

OGUK said the reductions also served to underline the scale of the challenge in delivering a sustainable green recovery through lower carbon energy and industrial processes.

The trade group urged governments to “act now” to ensure the UK builds a “home-grown transition towards a clean energy future”.

Global energy demand is expected to drop by 5% in 2020, and the UK reported a 12% reduction in total energy demand in the first three quarters of the year.

Working closely

OGUK said it is continuing to work closely with the UK government on proposals for what it claims could be a “transformational” package of support measures, or North Sea Transition Deal.

Dornan said OGUK was now moving towards the “next step” of the negotiation phase after submitting its formal proposals for the Westminster government to consider.

“We will be moving forward with discussions in the coming weeks. Good progress is being made. There's good alignment so far between industry and government, but it is complex,” Dornan said.

He added that securing the right frameworks and business models will be crucial in attracting future investment into the North Sea.

Dornan said the deal proposals are centred on “providing clean energy, supporting the development of carbon capture, usage and storage and hydrogen, ensuring the expansion of supply chain opportunities in the UK and abroad, developing people and skills to help secure and stimulate new employment opportunities".

“To achieve all of this, there are significant challenges to overcome, but overcoming challenges is what this industry has always done the best," Dornan said.

The UK’s long-awaited energy white paper setting out in detail how the nation plans to become a carbon-neutral economy by the middle of the century is also due imminently.

Publication of the legislative plans that will underpin the UK's legally binding goal of achieving net zero carbon emissions by 2050 has been delayed on several occasions.

Diversification

Meanwhile, OGUK said more than three quarters of UK oil and gas service companies expect to diversify away from the hydrocarbon sector as a result of the downturn brought about by the pandemic.

A total of 83 OGUK member companies were surveyed, with 85% saying they expect to expect to increase the amount of non-oil-and-gas work they do during the next 12 to 24 months due to current market conditions.

“The economic impact of the pandemic on companies, particularly in the extensive supply chain, has been severe,” said Deirdre Michie, OGUK chief executive. “Activity levels, revenue and margins continue to be undermined at a time of additional uncertainty as the post-Brexit transition period ends."

“Utilising the expert technical knowledge that exists within the substantial UK oil and gas supply chain is fundamental if we are to evolve toward a lower-carbon future,” Michie added.

Michie said the report also showed that oil and gas produced in the UK will continue to support energy security in the decades to come, but as part of a changing and cleaner energy mix.

“With the right support, this industry can truly come of age and continue to make a positive contribution in this new energy landscape. However, our report makes clear that reaching this positive future will require working in the here and now to protect the jobs and companies needed to bring our climate ambitions to life,” she said.

At the start of 2020, oil and gas companies had more than £35 billion ($47 billion) of capital investment in their UK spending plans over the next 10 years.

OGUK said that progressing these opportunities will be important if the UK is to meet its oil and gas demand in the future as well as its obligations to become a net zero carbon economy by 2050.

Dornan said: “The challenge now is working out how to unlock them.”

Commenting on the report, Graham Hollis, senior partner for Deloitte in Aberdeen, said it is “evidence of the strength and expertise embedded in the UK oil and gas industry and the unique opportunity the sector has to lead the global drive towards a lower-carbon future.

“Combatting demand and price shocks and navigating the impact of the pandemic has shown the resilience of the sector, led by forward-thinking companies who are quick to explore innovative technologies so that they can survive the crisis and thrive in the future."