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Energy and Climate Change Committee - Investor Confidence in the UK Energy Sector

The Energy and Climate Change Committee have launched an inquiry entitled 'Investor confidence in the UK Energy Sector'. Details of the inquiry can be found on the committee website. The submission, prepared by the Geological Society, can be found below:

Submitted 26 October 2015

1. The Geological Society (GSL) is the UK’s learned and professional body for geoscience, with about 12,000 Fellows (members) worldwide. The Fellowship encompasses those working in industry, academia and government with a broad range of perspectives on policy-relevant science, and the Society is a leading communicator of this science to government bodies, those in education, and other non-technical audiences. We have not attempted to answer all of the questions set out in the Terms of Reference. Our submission principally addresses aspects of investor confidence which relate to geoscience and which have been brought to our attention by the professional geoscience community working in the energy sector.

2. One area of energy policy where there have been long-standing shortcomings in creating the grounds for investor confidence is Carbon Capture and Storage (CCS). There are now also concerns about investor confidence in the North Sea oil and gas industry. This is an important matter in its own right, given the continuing importance of hydrocarbons from the North Sea in the UK’s energy mix and the economic value this generates (and has the potential to generate in the future). It is also an essential part of the context for the successful development of CCS in the UK. Not only are depleted North Sea oil and gas reservoirs prime targets for carbon sequestration, but the well developed infrastructure, expertise and skills associated with this industry will be invaluable in the implementation of CCS. For a more technical overview of the state of CCS development we refer you to our response to the committee’s inquiry on the subject of CCS in the last Parliament.

3. Recent government announcements with regard to the North Sea have been aimed at reinvigorating exploration and production in oil and gas fields through investment, and include the approval of the Culzean gas field for development. Indeed, one of the purposes of setting up the Oil and Gas Authority was to stimulate additional development. However, currently there is very little North Sea exploration planned. The low barrel price makes the economics for exploration unfavourable around the world, but especially in relatively high-cost environments such as the North Sea. A decline in the industry, even if it is relatively short term (a few years), will have a severe impact on jobs for highly skilled trained people (geoscientists, engineers, etc), and hence on the skills and technical base. Any downturn will also impact on the research base – and hence on the basis for our future prosperity – because of the productive links which have been developed between industry and academia. There is significant industry investment into academia and higher education (e.g. through doctoral training centres) and this may be imperilled if companies cannot build a credible business case for continuing such support. Furthermore, decommissioning of existing North Sea infrastructure, which is of huge value both for future exploration and production of hydrocarbon resources and for reuse in CCS, will be hastened by any protracted period of E&P appearing economically unattractive. This nexus of well-developed infrastructure, skills and a complementary industry-academic ecosystem can, without care and investment, be lost very quickly and it will be very slow, expensive and difficult to rebuild once lost.

4. The North Sea oil and gas industry and the associated expertise and infrastructure will also be integral to the development of a UK-based CCS industry. Government policy states that ‘CCS is essential in mitigating global climate change while ensuring a secure energy supply’ and is the ‘only way we can reduce carbon dioxide emissions and keep fossil fuels in the UK’s electricity supply mix’ (, as will be essential for decades to come, however rapidly we deploy low-carbon technologies. It is also essential in the context of the UK’s decarbonisation obligations, which will become more stringent over time, as we seek to avoid dangerous climate change. CCS can make a very significant contribution to meeting the UK’s emissions reduction targets but the contribution will depend on a stable investment environment and sustained progress in implementation. The imperative to implement CCS at scale nationally and globally is reflected in the government’s commitment to the central role it must play in the UK’s energy system in the coming decades, as stated in its CCS Roadmap. We also note the emphasis the EU has placed on the importance of CCS for meeting its low carbon objectives, as highlighted by government in its summary of responses to ‘Next Steps in CCS: Policy Scoping Document’ in March 2015. The EU’s NER400 fund will be an important funding source for future UK CCS projects. CCS and the move towards a decarbonised economy is a global effort and the UK’s continued working with Europe on this issue is an important part of this objective.

5. Commercial scale development and widespread implementation of CCS will depend on the engagement, expertise and experience of the petroleum geoscience community, as well as geoscientists from a range of other disciplines. Initially this will be done by injecting supercritical CO2 into the porous rock of depleted oil and gas fields. The efficacy of this methodology for carbon storage is well-established and there is a high level of knowledge regarding the long term behaviour of CO2 in such environments. There is now sufficient technical understanding to proceed with implementation in such environments. Nonetheless, a key rate-limiting factor in implementing CCS will be the identification, characterisation and development of storage capacity (i.e. specific geological formations whose properties make them suitable for long-term storage of CO2) which will require considerable geological and other work.

6. There are other possible geological settings in which CO2 might be stored in future, dramatically increasing the potential available storage capacity. These include closed saline aquifers, open saline aquifers and mineral trapping in mafic rocks. Developing these more unconventional mechanisms and exploration of the geological settings on which they depend will require sustained investment and research.

7. Early implementation of CCS through full-chain demonstration will lead to learning and reduction of uncertainty as a result of practical experience as well as development of infrastructure, thereby reducing costs and stimulating investment. Such ‘learning by doing’ should in turn inform R&D and improve sector confidence. This approach will also improve understanding of and management of the risks of CO2 leakage which will improve companies’ willingness to invest in CCS. If implementation of CCS is left too long, there may be significant missed opportunities due to the decommissioning of North Sea infrastructure in fields where hydrocarbon production is coming to an end (which as noted above may be accelerated by current market conditions), much of which would also be of use for CO2 storage.

8. Inconsistency and slow delivery of policy on CCS by successive governments have not provided clear positive signals to private sector partners that are key to the progress of CCS development. If progress continues to be slow, then those private sector investors and companies that have expressed interest in CCS will lose confidence. This is particularly critical in light of the news that Drax has decided to withdraw from the White Rose CCS project. Given the government’s stated reliance on CCS to sustainably meet our future energy needs, it is essential that it develops and clearly sets out an economic and political framework to achieve its rapid and widespread implementation of CCS. It is outside our remit to comment on how this would best be done, but geoscientists working in this fledgling industry have highlighted to us the necessity of setting out such a framework. We note that the North Sea oil and gas industry, which has been at the heart of our energy system for decades and has delivered great economic benefits, did not arise spontaneously under prevailing market conditions – rather, considerable design and investment on the part of government, and the development of effective partnerships with industry, were key to its success.

9. In order to progress with implementation, the government needs to work with technical communities to put in place a policy framework that will enable industry to push forward with development. Full chain demonstration at scale and development of storage capacity are urgently required. At present there is no clear pathway for companies. The lead time for CCS implementation is long, so if it is to contribute to meeting our 2030 decarbonisation targets, is it is an urgent requirement now to create the right conditions to stimulate investment, if delivery is to be achieved through partnership with the private sector.