Energy Transition Report 2018

TR & NSITION ENERGY

Foreword This document is Oil & Gas UK’s 2018 Energy Transition Outlook . This is our first document on the subject of energy transition and it is focused on the implications and opportunities for our members, both operators and contractors. The Energy Transition has been gathering pace and is sometimes described as the approach of a new 'third age of energy'. Such transitions have occurred before. For example, in the period from World War II to the 1960s oil and gas supplanted coal as the largest primary energy source and, by 2017, provided 54% of global energy needs. Energy systems do not change overnight, but as we move into the next decade, the need for sustainable, reliable and affordable energy sources are ever more apparent. Increasingly businesses need to demonstrate they are contributing to all these goals. In our recent Economic Report 2018, we highlighted some the key drivers for the Energy Transition to which our members are responding. At a political level, the Paris agreement made the imperative of moving to a low-carbon economy more pressing. Likewise, rapid technological and economic changes are taking place both in the way energy is used in society and how we buy goods and services. Finally, societal demands on the energy sector are evolving rapidly as new cohorts of consumers, investors and employees bring additional expectations. This outlook draws on research and projections carried out by our members and many other organisations. It shows that the Energy Transition is already having an impact, particularly in the UK which has been at the forefront of emissions reduction. Most of the 40% reduction since 1990 has been in the electricity sector from renewables growth and the switch from coal to gas. But it is not yet clear how the next phase of the transition will play out in terms of either the mix of technologies being adopted or the rate of change, particularly in the case of transport and heat where oil and gas continue to be central to the needs of consumers. Although the global context is important, this document focuses particularly on the features of the UK energy sector, including how the transition process relates to Vision 2035. Our conclusion is that the shared concept of Vision 2035, namely to extend the life of the North Sea for an additional generation and to double the share of UK supply chain goods and services worldwide, is wholly consistent with Energy Transition pathways. The report also examines the response of oil and gas companies to this fast-changing environment. Many are already taking steps to diversify into alternative energy, reducing their carbon footprint or investing in research and development. For these reasons, as well as the ongoing need for oil and gas production in the medium-term, sustained investment in our sector is crucial, both for the wellbeing of the UK economy and a successful transition to a lower carbon future. We conclude by putting forward a wider energy policy roadmap aimed at further intensifying the UK's comparative advantage inoffshore technology todeliver thenext phaseof theEnergy Transition, focusingon theheat and transport sectors. In particular, we recommend a more strategic focus highlighting the development of Carbon Capture Usage and Storage (CCUS) and the hydrogen economy as essential elements of any long-term energy strategy.

Deirdre Michie Chief Executive, Oil & Gas UK

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