Economic Report 2018

It is not yet clear exactly how the Energy Transition will play out in terms of either the mix of technologies being adopted or the rate of change, particularly in the cases of transport and heat. The outcome is dependent on a range of key technological, regulatory and policy drivers which point in the direction of the low-emission future. Oil & Gas UK sees four key pathways which will be key to understanding the long-term future for oil and gas in the low-carbon economy.

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Figure 9: Key Determining Pathways for Oil and Gas in a Low-Carbon Economy

Technological

Societal/Political

Commercial

Regulation & Policy

Investor appetite for continued investment in fossil fuels

Scope for more local and regional-level solutions to be developed

Realising the opportunities from the development of the North Sea economy Degree to which changing attitudes to the oil and gas sector will engender change Appetite of governments to consistently drive change in the energy sector

Extent to which electric- based technologies can efficiently replace oil and gas in transport and heat Scale and footprint of necessary hydrogen production facilities to de-carbonise gas Challenges for developing CO2 transport and storage in the UK

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Ability of businesses to re-organise their activities and expertise

Business models for CCUS infrastructure to be financed and regulated

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Realising value from a more regulated investment landscape

Coping with the potential loss of tax receipts from the energy sector

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Many oil and gas companies are already adapting their businesses in response to these issues and the variety of challenges posed by the Energy Transition. Progress seen in this area includes:

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• The average emissions per unit production on the UKCS, or ‘carbon intensity’, has fallen year on year since 2013. Total emissions have been in decline from their peak in 2000. • Large international companies are increasingly becoming end-to end energy providers building on their direct relationships with consumers. Several have recast their strategic objectives to accord with the objectives of the Paris agreement in response to the wishes of investors and consumers. Many are important investors in renewable energy projects and have also diversified into areas such as electric vehicle charging technology and the expected developments of the hydrogen economy. • Likewise, infrastructure owners and operators in the oil and gas sector are often already part of a wider portfolio across a range of conventional and renewable energy sources. Specialised infrastructure and sovereign wealth funds are well attuned to the requirements and objectives of governments with respect to the energy transition and have tailored their investment criteria to reflect the different balances of risk and return associated with government driven energy investment. • Contractors and supply chain companies with expertise in offshore operations and maintenance are also providing solutions across a range of energy industries to diversify and replenish their order books.

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