Investors have pulled out of a project to drill the Cambo oil field in the North Sea. Does this mark the end of new oil and gas extraction in the region?
10 December 2021
800 million barrels of oil in the seabed 125 kilometres west of Shetland in the UK now looks likely to stay in the ground after an energy firm put its drilling plans on hold. UK firm Siccar Point Energy said today it couldn’t proceed with the major project after Dutch energy firm Shell pulled out of the Cambo oil field last week. “We are pausing the development while we evaluate next steps,” said Siccar Point Energy CEO Jonathan Roger in a statement.
The shelving of Cambo wasn’t unexpected after Shell’s exit, but raises questions over whether this moment marks the end of significant new oil and gas fields for the UK in the North Sea.
Huge reserves of oil will have to remain untapped if the world is to meet its climate change targets. Globally, 58 per cent of oil will have to stay unused to keep future global warming to 1.5°C. Yet by governments around the world would see 60 per cent more oil extracted by 2030 than needed to meet that temperature goal.
Extracting hydrocarbons in the North Sea is a relatively high-cost operation, and production has been declining since it peaked around the turn of the century. “The UK North Sea is a very marginal field,” says Peter Atherton, an independent energy analyst.
Yet the economics of the Cambo oil field stacked up enough to initially attract Shell and the private equity backers of Siccar Point Energy. That has changed. That is partly down to very strong opposition by environmentalists, who made the development a bellwether case about whether the UK government should be green-lighting any new oil and gas production in a year when it was hosting the COP26 climate summit.
On 2 December, Shell said the economic case was no longer “strong enough at this time” and cited the “potential for delays”. The risk of legal challenges and direct action by campaigners, a slow decision by the UK government’s Oil and Gas Authority to approve the project, lukewarm public support from the UK government and outright opposition from Scottish first minister Nicola Sturgeon all added up. Together they resulted in greater regulatory and political risk.
“It [the greater risk] will push other projects into the red and you won’t want to pursue them. It will reduce future investment in the North Sea, for sure,” says Atherton. Sonya Boodoo at Rystad Energy in Norway says: “Players are likely to be concerned given recent events with Cambo and Jackdaw [a recently rejected UK oil field], with potential for regulatory delays or development plan changes as possible setbacks.”
Doug Parr at Greenpeace UK says that while Cambo’s pause sends a “significant signal” to investors about the future of UK projects in the North Sea, it doesn’t necessarily mean the end of big new projects in the basin. “This was always one of the marginal cases of North Sea development and it’s not as simple and straightforward that ‘Right, Cambo has gone so everything else will follow in its wake’,” he says.
Nonetheless, it is clear that the political and regulatory environment for big new oil and gas projects is shifting in the UK. The Scottish government is in talks with an alliance of countries pledging to phase out new production and can make life hard for new schemes even if it doesn’t have the power to grant oil and gas licences.
Meanwhile, the UK government has been promising since March to publish details of a new “climate compatibility checkpoint”, yet-to-decided criteria that could show a new project is compatible with the UK’s drive to reach net-zero greenhouse gas emissions by 2050. Today’s news doesn’t affect the plans for that.
Cambo’s standstill is a a victory for climate campaigners and will give pause to investors in future oil fields. It will also increase reliance on imports, says Atherton.
But the UK government is leaving the door open to future projects: its industry regulator still has a strategy to maximise extraction, and 62 new wells were drilled last year alone. The change in who wants to drill in the North Sea – from oil and gas majors to private, equity-backed and independent firms with strong focus on the region – means it is likely they will “want to cautiously forge ahead with development plans”, says Boodoo.
Today is unlikely to mark the end of new schemes taking the North Sea’s hydrocarbons out of the ground.
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