‘Green Industrial Revolution’? Not with this plan

Boris Johnson’s ten point plan has received largely uncritical responses from the main stream media. We’re pleased to repost here the Campaign Against Climate Change’s ten point response. We welcome other contributions that develop or extend this critique.

We’ve had the big announcement: Boris Johnson’s ten point plan for a ‘Green Industrial Revolution’. But following initial positive headlines, the details start trickling out. £12 billion was announced, but just £3 billion, it emerges, is new money. This is paltry. Other countries have already made much larger commitments, including Germany’s green stimulus of over €40bn and France around €35bn. 

Most importantly, how does it stack up compared to the scale of the task facing us? Two years on from the IPCC’s ground-breaking report calling for an urgent transformation of the global economy to stay within 1.5C above pre-industrial levels, global emissions are still (excluding the limited impact of the pandemic) on an upward trend. As temperatures continue to rise, sea level rise is accelerating as polar ice melts. And in the background a steady stream of records broken for ‘natural’ disasters like hurricanes and wildfires, hitting the poorest hardest. 

The UK’s carbon budgets reflect out of date targets, an 80% cut in emissions by 2050. Previous policy failure means we are nowhere near on track to even stay within these deficient targets. This latest set of announcements is therefore doubly inadequate. It leaves a major hole in meeting even these out of date commitments. However we don’t just need to close that gap. Last year the government set a new climate commitment of ‘net-zero’ carbon by 2050. In relation to this new target, the gap is even greater. But unfortunately even ‘net zero by 2050’ doesn’t cut it. We need to act even faster than 2050 to be compatible with the Paris Climate Agreement.

Meanwhile, we also face a devastating pandemic leaving in its wake widespread unemployment. Now is the time for a real climate jobs programme to tackle the climate and jobs crises.

What would a real 10 point plan to tackle the climate crisis look like?

1. A comprehensive approach

Climate change cannot be tackled as an add-on, or a piecemeal approach that takes us one step forward, two steps back. We need a commitment that every economic policy, every spending commitment, every piece of legislation, will put us on track for a safer future, not jeopardise it by locking us in to business as usual. 

If the government had really taken on board the scale of the crisis, it would be rethinking the policies of unconditional corporate bailouts, planning deregulation, aviation expansion, road building, stifling onshore wind. It would not be giving a £16.5 billion windfall to military spending.

2. Meeting the needs of both people and planet  

Austerity has left us, more than ever, with a grossly unequal society with continued deep inequalities in race, gender and for disabled people. Underfunded public services are struggling. The move towards a zero carbon society must also ensure access to food, healthcare, education, income, job security, good, affordable, housing, clean and affordable energy and heat, public transport, clean air and green spaces for everyone.

There is huge public support to ‘build back better’ as part of recovery from the pandemic, investing in public services and frontline workers. Instead, a public sector pay freeze is being mooted. These are the wrong priorities: we need huge investment and expansion in the public sector and the people who work in it. 

3. ‘New Deal’ levels of spending

Boris Johnson has tried to compare his plans to Franklin Roosevelt’s New Deal. In today’s money, Roosevelt’s spending programme amounted to about £4,300 – for every American living through the turmoil of the Great Depression. In contrast £12 billion is about £180 each.

Our own ‘One Million Climate Jobs’ report or Green New Deal plans give more of a sense of the levels of investment and ambition needed if the government is taking this seriously. Other recent analyses include an IPPR report which estimates that £33 billion a year in additional annual investment is needed to meet the government’s net zero target, creating 1.6 million jobs, including £8 billion on homes and buildings and £10.3 billion on transport.

The pandemic has shown that money can be found. It has been found for other spending, including billions to private companies for medical supply and services in contracts awarded with no oversight, regulation or transparency. These are the sums of money that now need to be directed into tackling the climate crisis, sums that can actually make an impact in reducing emissions and would truly justify the term New Deal.

4. Not relying on techno-fixes that don’t solve the problem

There are valuable technologies that help us cut waste and greenhouse gas emissions. But those we’d call ‘techno-fixes’ are a double-edged sword. Despite serious drawbacks, these pull resources away from proven solutions (for example onshore wind and solar are not even mentioned in Johnson’s plan). They often support the continuation of fossil fuel infrastructure, and give a sense of false security about the need to radically cut energy use. Boris Johnson’s ten point plan overly relies on these techno-fixes which seriously undermine any genuine and far reaching attempt to transition the economy.

There is more detail below about why we are concerned about the emphasis on hydrogen, carbon capture and storage and nuclear energy. The promotion of ‘Jet Zero’ (zero carbon flying) also hides the fact that the scope for genuine decarbonisation of aviation is limited and the pursuit of ‘sustainable aviation growth a mirage. There should be no further airport expansion in a serious plan to tackle the climate crisis. While not mentioned explicitly in this latest plan, biofuels and biomass (burning wood for power) also fall into the same category – unsustainable while subsidised as ‘green’ technology. 

5. Provide decent, well paid, secure jobs

With a wide range of sectors hit by the pandemic, unemployment is expected to rise in 2021 to levels not seen since the 1980s. The transition to a zero carbon economy needs a workforce, but opportunities are being lost even when the investment is made. Manufacturing contracts for offshore wind supply have not been used to provide work for a skilled workforce in Scotland. Instead Scottish workers who could have been making the infrastructure needed for offshore wind have been made redundant. We need a proper climate jobs strategy, not a piecemeal approach rooted in a market based thinking. A strategy which is driven by understanding of the huge transition that is needed across manufacturing, transport, agriculture, construction, insulation, managing our land and biodiversity, in training and education. And one which seeks to create well paid secure jobs across these sectors to meet this challenge.

 The difficulties and delays with the recent Green Homes Grant are a warning example of what happens without this strategic approach including workforce skills. Trade unions have a key role. There are more accidents in non-unionised offshore wind jobs than there are in offshore oil. A worker-led Just Transition is needed. As set out in the One Million Climate Jobs report, a National Climate Service could take on key aspects of the transition to zero carbon, providing well paid, secure, flexible, permanent jobs in the public sector.

6. Keep it in the ground: phase out fossil fuel extraction 

Extraordinarily, the UK’s Infrastructure Act introduced in 2015 a legal obligation to maximise economic recovery of oil and gas. It was clear then, and even clearer now that we can’t continue fossil fuel extraction. Keeping the planet safe means leaving remaining fossil fuels in the ground. 

The oil and gas industry has already been hit hard by the economic impacts of the pandemic. We need instead a just transition for oil and gas workers as part of a strategy to phase out UK fossil fuel extraction. Many of these workers could be and want to be retrained to be part of a new offshore wind industry. 

We also need an immediate end to the anomaly whereby the UK offers billions of pounds of taxpayers’ money in financial support to companies that bid for work on fossil fuel projects overseas 

7. Tackling car dependency and increasing public transport, walking and cycling

The transport sector accounts for around a third of emissions in the UK. Surface transport alone represents around a quarter of our total emissions, while air pollution is a serious health problem. So far, electric vehicles have barely made a dent (less than 2% of new car sales), while SUVs represent over 40% of new cars sold.

But this cannot be solved by a simple like-for-like switch to electric vehicles. We need a property resourced and integrated public transport system under democratic public ownership. Alongside this, we need a reallocation of road space in towns and cities away from cars to walking, cycling and public transport, and a presumption in favour of development that reduces travel.

These changes would not just benefit our climate: the social inclusion and health benefits would be huge. It is shocking that the £27 billion currently intended for road building, which will significantly worsen our climate crisis, is far more than the entire ‘green industrial revolution’ budget touted as tackling the climate crisis. 

8. Decent homes for all

We do need a programme of mass retrofitting our homes and buildings to be warm and energy-efficient, but it must be much more ambitious. We also need to be wary of corner cutting which does little other than inflate the profits of companies.  Poorly fitted cavity wall insulation has been a scandal affecting thousands of homes with damp and mould, while post-Grenfell, there are still tower blocks with unsafe cladding. This is an example of where a National Climate Service could ensure high standards of work by employing a well trained public sector workforce with the goal of delivering warm homes and energy use reduction rather than quick and easy profits at the taxpayers expense. 

It is much easier and cheaper to build homes and public or commercial buildings to near-zero carbon energy standards, than it is to retrofit. The scrapping of the Zero Carbon Homes standard in 2015 was a huge step back, and proposed new energy standards are totally inadequate. One of the major problems facing the UK is a lack of affordable housing, in particular social housing. We need to invest in jobs to ensure decent homes for all – quite literally ‘build back better’.

9. Land use and agriculture

With the UK’s biodiversity in crisis, and agriculture a significant source of greenhouse gas emissions, it is not simply a matter of ‘plant more trees’. Alongside reforestation and protecting habitats, we need to consider land ownership, the vital role of access to nature for all, even and especially in urban environments and the potential of rewilding. Meanwhile, we are still waiting for the government to take the simple step of banning peat burning, an easy climate win which appears to be being blocked by grouse shooting interests.

There is huge potential for agriculture which is better both for climate and biodiversity. The government has been remarkably reluctant to promote, for both climate and health reasons, a dietary shift to reduce meat and dairy consumption. Without forgetting, when talking about diet, that the obesity crisis still coexists with real food poverty in one of the world’s richest nations.

With food and environmental standards likely to be a casualty of post-Brexit trade deals, it is clear that our unhealthy food system also has implications for workers rights and animal welfare. The prospect of further zoonotic diseases – and future pandemics – cannot now be ignored. Land use, our food system and biodiversity have to be a key part of any climate strategy. 

10. Climate justice beyond our borders

Any real climate policy must be rooted in climate justice. This is a global problem and the UK has a historically disproportionate contribution to the climate crisis. As well as doing our fair share in reducing domestic emissions, the UK’s policies must address this historic responsibility. 

The goods we import, as well as having their own carbon footprint, may also hide ecosystem destruction and exploitation of workers. So do the deals made by UK banks, pension funds and insurance companies. There must be no ‘solutions’ for this part of the world which rest on further damage and explotation of nature and people in other parts of the world, whether that be in mineral extraction or land grabs for carbon ‘offsetting’. Solutions must be rooted in climate justice, collaboration and internationalism. 

We need a real climate jobs plan, a real Just Transition, a real Green New Deal.

Techno-fixes – what’s the problem?

Carbon capture and storage technology (CCS) has promised to make fossil fuel burning environmentally friendly by capturing carbon dioxide from the smokestack emissions of power stations or industrial plants. However, additional fossil fuel burning is needed for energy to capture the carbon. The new funding promises to bring the total government funding back to £1 billion – the same amount promised for a pilot that was suddenly cancelled at the last minute in 2015. But CCS technology still has not been successfully scaled up elsewhere, with problems of finding reliable storage for the captured CO2. Certainly for power plants it seems more an attempt to continue fossil fuel production than a significant climate solution.

Hydrogen sounds like a great idea – a fuel that when burned, produces only water. But so-called ‘blue’ hydrogen is produced from fossil fuels and requires carbon capture and storage. It has been heavily promoted by gas companies. Meanwhile green hydrogen, generated from renewables, also has significant limitations. It is approximately 4-5 times less efficient than using renewable power directly because you have to convert power to a gas and back into power, and will probably take around 10 years to generate at scale. Hydrogen may have a place in the zero carbon economy for some hard-to-decarbonise uses.  But the idea that it is a cost or energy efficient way to heat the nation’s homes – and could be rolled out in the time needed – seems far less plausible. 

Nuclear is a dangerous, unnecessary and expensive diversion which will pull away investment from safe and cheap renewable energy which could come on stream quickly.

BiFab – time for action

On November 16th, 2017, hundreds of workers at the BiFab fabrication yards in Fife marched down Edinburgh’s Royal Mile towards the Scottish Parliament in a magnificent show of determination to save their jobs.  Three years on, and despite nearly £54 million investment from the Scottish Government, the hope raised on that day lies in tatters.  BiFab could have been a milestone on the path to a zero-carbon economy.  Instead, it stands as a warning that should not be ignored. 

REEL News reported on BiFab in November 2017

In this post I tell the story of BiFab and argue for the importance of a radically different approach.

BiFab was founded in Fife in 2001.  Initially based at Burntisland, it expanded to take over the huge construction yard just up the coast at Methil and the Arnish yard on the Isle of Lewis.  The company played a significant part in fabricating platforms for the development of the west of Shetland oil and gas fields.  As demand declined it began manufacturing jackets for offshore wind installations. 

In 2016 the company won a £100 million order to manufacture jackets for the Beatrice windfarm in the Moray Firth.  The November 2017 crisis was sparked by cash flow problems linked to this contract.  At this point the company employed around 1400 workers, although notably 1200 of these were on agency contacts rather than direct employees.  All these jobs were at risk.

BiFab workers responded by occupying the yards, ensuring that no valuable equipment could be removed, and, on the 16th November, they marched on the Scottish Parliament.  The Scottish Government stepped in, providing a £15 million loan that ensured that the firm avoided going into administration.  The occupations ended and work on the jackets for Beatrice resumed.  But the relief was short lived.  The Beatrice contract was nearly complete, there was nothing else in the order book, and agency contracts were just not renewed.  The workforce was scattered to the winds.

Photo by Pete Cannell CC0

In April 2018 the Scottish Government brokered a take over of the company.  The new owners were DF Barnes, a subsidiary of the Edmonton based Canadian company DV Driver.  The Herald on Sunday has recently revealed that DV Driver obtained ownership for £1.  The Government retained a minority stake.

Since the takeover, opportunities to build jackets for major new North Sea windfarms have been up for grabs.  One of these, ‘Neart na Gaoithe’, is just a few miles off the Fife coast from the BiFab yard at Methil.  Another, Seagreen, which, when complete, will be the biggest in Scottish waters, is just a bit further north, off the coast of Angus.  But contracts have gone to overseas yards in Spain, Indonesia, the UAE and China.

So, despite a Scottish Government investment that may reach £52.4 million, BiFab is close to total collapse.  The Scottish and UK Governments argue that despite, or because, of their stake in the firm, European competition rules made it impossible for them to guarantee the BiFab bids.  

The trade unions representing BiFab workers have contested this view. The Courier newspaper noted on October 29th that 

In a legal opinion for the GMB and Unite trade unions, Lord Davidson has described the Scottish Government’s reasoning as “remarkable”, given the looming end of the Brexit transition period and suggested Scottish ministers could have deferred any decision until after Brexit on December 31.

This legal view is clearly true; however, focusing on interpretations of the law misses much more important issues.  The Scottish Government is firmly wedded to the idea that the transition to a zero-carbon economy can be carried through by private enterprise. BiFab is just one of many examples of how this approach fails.  Bids are allocated primarily on price and when the ‘cheapest’ bidder is located on the other side of the world that’s the one that’s chosen.  The fact that this results in massive carbon emissions as jackets are shipped to the coast of Scotland isn’t factored in.  Equally important the bidding system favours international companies that operate on a world stage and take no responsibility for joined up planning of transition in the local economies from which they profit.  

To achieve zero carbon, we need much shorter supply chains, so that construction, energy generation and consumption are brought much closer together.  Demanding that the manufacture of jackets and wind turbines takes place in Scotland is not about putting Scottish workers first but a necessity for the rational use of resources.  Different locations offer different combinations of renewable energy resources, but sustainable energy production is necessary everywhere.  Tackling the climate crisis requires local and global perspectives.  Climate jobs are needed in every part of the world.  It’s important to stress that while construction and energy production should be as local as possible – international solidarity requires that knowledge should be shared freely and that financial and material support is provided to countries in the global south.  This of course is the opposite of what happens now as new innovations are locked into commercial patents.  

Leaving transition to the market relies on the expectation that multiple independent decisions made by individual companies on the basis of maximising profit will achieve the goal of a zero-carbon economy.  It’s an incredibly inefficient approach.  Consider wind, a resource that’s abundant in Scotland.  There has been a rapid growth in offshore wind powered electricity generation but at the same time the numbers working in renewables in Scotland has fallen, reducing local skills and knowledge and impacting on local economies.  A partial transition but one that has been inherently unjust, and which puts obstacles in the path of the full transition that we need.

For the sake of the climate that our children will inherit and for the lives and livelihoods of the present generation there’s a pressing need for trade unionists and climate activists to campaign together for a new approach that integrates social justice with real, immediate practical actions to tackle the climate crisis.  This means:

  • Systematic planning at local and national levels to plan a rapid transition to zero carbon.
  • Large scale public investment in new democratically controlled public enterprises to implement these plans.

These demands may seem a long way off.  But we’ve seen during the pandemic that, when there’s political will, things that would have been considered impossible become possible.  Old laws are thrown out and new laws are written.  We’ve also seen how in the face of a crisis public systems deliver and private companies rake in profits and fail.  

The first and immediate step should be an emergency action plan that takes the BiFab yards into public ownership, reemploys the workforce and puts the skills and knowledge of the workers at the heart of a sustained commitment to develop the yards as hubs for the engineering initiatives that are essential to a worker led just transition.

Pete Cannell (November 25th, 2020)

Covid, Climate and Transition

Mike Downham and Pete Cannell suggest ideas for campaigning priorities that tackle the pandemic, future pandemics and the climate crisis.

A new campaign, ‘Zero Covid’ was launched a week ago.  The Independent SAGE committee of scientists has been arguing for a Zero Covid UK since the summer. This approach is also supported by the Hazards Campaign for workplace safety.  The campaign aims to build a movement that can force UK governments to adopt the Independent Sage proposals as public policy. 

There’s a compelling case that we are living in an age of pandemics.  It’s possible, although by no means certain, that successful vaccination programmes will have had a significant on UK population immunity in 12 – 18 months.  Given the profit motivation of Big Pharma it’s likely to take much longer in the global south. However, the likelihood of a mutation from Covid 19, or one or more completely new viruses over the next 5 years is high.  So, a longer-term strategy for the campaign ought to be to ensure that we live safely in the face of recurrent pandemic.  This is not a new idea – the British government had plans for such contingencies at the start of the millennium, then failed to maintain and update them and trashed the public health infrastructure that was needed for effective pandemic control.

So, one demand that should be campaigned for is that we learn the lessons of Covid and establish a well-funded local based public health service as part of the NHS.  No place for private companies.  It would be a tragedy if we are as ill prepared for the next pandemic as we were for Covid 19.

But we need more, and this is where the link with climate comes in.  To be prepared we need to reimagine and redesign public transport systems so that they are safe to use and carbon free.  We need to build new zero carbon houses and retrofit existing housing stock to high insulation and good ventilation standards.   New public buildings and retrofitted existing public buildings also need to be zero carbon and have good effective ventilation.  All of this is technically possible and is good for health and the environment.

All the key things we need to do to address both virus epidemics and global warming are not only largely the same (it’s very important that we keep stressing this point, though it’s been made before) but also their technical solutions are linked. Pumped air recirculation in buildings reduces virus cross-infection and improves energy efficiency. New bus design, rolled out in quantity production, can incorporate low-carbon motility and virus infection safety in one design, especially if the buses are in the context of no fares (protecting drivers, and passengers too because of reduced queuing and shorter journey times). Workplaces for the construction and maintenance of renewables can be much safer in relation to the spread of virus infection than oil and gas rigs. More people working in non-intensive local food production, whether commercially or in voluntary organisations, will mean more people working outside.

There are some things, like deforestation and food production, with their linked impacts on global warming and the liberation of new viruses, which we have little chance of influencing until we’ve stopped competitive capitalists from exploiting everything and every person for their profit. But these things related to housing, transport, energy production and food production are technically (and politically) achievable now. And if we don’t achieve them now there will be untold additional human suffering.

Image by Artivists at Work

Large scale investment in Carbon Capture is a dangerous diversion

This site has published a number of articles on Carbon Capture and we have also produced a two-page briefing on BECCS (Bioenergy with Carbon Capture and Storage). 

The excellent People and Nature blog has recently published a really useful addition to the debate in the form of a review of a paper on Carbon Capture and Storage by June Sekera, a public policy analyst, and Andreas Lichtenberger, an ecological economist.

Here are some headlines from the report:

Carbon dioxide removal (CDR) systems, touted as techno-fixes for global warming, usually put more greenhouse gases into the air than they take out.

Carbon capture and storage (CCS), which grabs carbon dioxide (CO2) produced by coal- or gas-fired power stations, and then uses it for enhanced oil recovery (EOR), emits between 1.4 and 4.7 tonnes of the gas for each tonne removed.

Direct air capture (DAC), which sucks CO2 from the atmosphere, emits 1.4-3.5 tonnes for each tonne it recovers, mostly from fossil fuels used to power the handful of existing projects.

And if Carbon Capture were to be used at large scale things get much worse.

To capture 1 gigatonne of CO2 (1 GtCO2, just one-fortieth of current global CO2 emissions) would need nearly twice the amount of wind and solar electricity now produced globally. The equipment would need a land area bigger than the island of Sri Lanka and a vast network of pipelines and underground storage facilities.

We strongly recommend reading the full review.

The original paper – “Assessing Carbon Capture: public policy, science and societal need”, by June Sekera, a public policy analyst, and Andreas Lichtenberger, an ecological economics researcher – is free to download on the Biophysical Economics and Sustainability web site.

A metal sign warning of a buried carbon dioxide pipeline, located near the intersection of county roads 520 and 521 in Huerfano County, Colorado. Image by Jeffre Beall CC BY 4.0

Scotland’s North Sea Oil and Gas workers: the fight for a Just Transition: Part 2 – The Final Storm?

Oil Rig at sea during a storm (iStock).

Climate crises, Covid-19 and a looming global recession: how many more storms can the N Sea oil and gas industry take? In part one of this report, published in April 2020, Brian Parkin looked at the combined impacts of the Covid-19 pandemic and a world economic downturn on the UK offshore oil and gas industry. In this brief second paper, he looks at the emerging trends from the second half of 2020 onwards and how the global hydrocarbons sector will face up to a post-Covid-19 world in which renewables may well begin to dictate the shape of energy things to come.

50… and nearly out

The North Sea oil and gas industry, in defiance of many forecasts and expectations, is now 50 years old. At the time of its baptism, governments were obsessed with balance of payments columns as well as the commitment to the post-war social compact of an economy run at levels of full employment. It was also a shared view that with an unshakeable belief in government intervention and technological innovation, things could be done.

Initial interest in UK offshore (North Sea and UK Irish Sea sectors) lay in the deposits of natural gas and the potential for a reliable and long-term resource of energy for, initially, domestic (household) consumers. The growing estimates from c.1970 onwards also promised a resource that could be extended to industrial space heating and manufacturing processes. Regarding oil, it was clear from early chemical analysis that UKCS crude oil was unsuitable for refining into the Heavy Fuel Oil required for power generation, and so the North Sea offered nothing in the way of breaking energy dependency on indigenous coal- and the National Union of Mineworkers.

However, oil from the Forties- and a little later- the Brent fields provided an ideal crude grade suitable for refining into the required range of transport fuels. The value of this asset though, was not appreciated until the global oil shock of 1972, when a largely Arab dominated OPEC punished the Western economies for their alignment with Israel in the Yom Kippur war. 

In terms of petroleum supply security, the North sea has paid off. For the better part of half a century the UK has enjoyed near total security of indigenous supply. Apart from the 1984-85 miners’ strike when the UK government had to fuel the coal- fired power stations with Heavy Fuel Oil- which cannot be refined from North Sea crudes- almost all oil crudes (and distillates for aviation fuel)- have come from the North Sea. And even now, with North Sea oil capacity falling, the UK remains 95% petroleum self-sufficient.

Global oil … passing its prime?

As we have previously noted, all fossil fuels have been under the pressure of a climate consensus to conform to COlimits by reducing production as well as emissions from production operations. The response of the oil and gas companies as well as the OPEC cartel has been- with some success- to lobby governments as well as attempting to massage public opinion away from climate concerns. To these ends they have now failed. But as ever resourceful, the oil – and also gas – interests have been redeploying their considerable financial interest elsewhere – albeit grudgingly. After years of ‘scientific’ misinformation and fake data, the oil and gas industry faces an irreversible shift in both public opinion and scientific consensus.

At 2015 the view of the oil and gas lobby was that demand for petroleum would begin to peak in the early 2030’s – albeit tapering off slowly into the future. But by 2019 the industry had significantly changed its forecasts. Even before the combined whammy of the onset of a world economic turndown and the Covid-19 pandemic, BP, Shell, TotalDNV-GL, the IEA[1] and OPEC[2] had come to the uncomfortable conclusion that oil peak demand had already been reached. Big oil exceptions to this forecast have remained as the US giants, Exxon/Mobil and Chevron, who have both continued to set aside some $30 billion investment capital in further oil exploration and developments[3].

As early as 2016, Shell had established its New Energy Divisiona new venture into renewables generation, high capacity batteries, grid management and hydrogen. This has come at the expense of tar sands investment and shale oil extraction and refining. The company has also undertaken a major restructuring in order to free up capital investment for diversification into non-petroleum activities.

Also in October 2019, BP declared its intention to be a zero-carbon operation by 2030. And, in that year, BP entered into a $1.1 billion joint venture with Equinor Energy for the purpose of becoming a major player in offshore wind power[4]. This was with the expectation of offshore wind appreciating six-fold to 190 Gwe installed by 2030[5]. (But just to get things in proportion, the OECD now estimates that globally there will have to be a $6.3 trillion per annum investment to convert energy systems into renewables in order to meet the 1.5oC climate mitigation target for 2030[6].

The repo-man cometh

With financial data changing almost frantically day by day, it is not easy to reach a reliable estimate of the overall health of the global oil industry. Nevertheless, recent figures show the overall scene against which the North Sea industry fares. But first some raw data:

RankCountryMbpd
1USA15,043
2Saudi Arabia11,800
3Russia10,800
15Norway1,649
21UK940
Oil production million barrels per day (Mbpd) by country 2019[7] (96 producers)

The global daily production for 2019-20 was 80,622,000 bpd of which 68% was produced by the top 10 producers with an overlapping 44% produced by OPEC member states. The average output for the top 3 producers was 11 mbpd. By the beginning of 2020 the same producers had an average output of 12.3 mbpd – a significant overproduction given the emerging market conditions for the year.

With signs of a global economic recession as early as September 2019, it was clear that at 15.043 mbpd, the US was entering 2020 at a significant rate of over-production. The sustained production rate of the previous year began to depress the world traded price of oil to an unsustainably low level for many OPEC+Russia producers – hence the output war of OPEC to depress output in order to increase prices. But within weeks it was clear that such a strategy was failing – hence the output switch to increase production in order to break the back of the relatively high cost US shale oil sector.

But within weeks of this price/output war, the already global markets were hit by the Covid-19 pandemic – with the second week in April seeing the price of West Texas Intermediate (WTI) fall to minus $40 dollars per barrel. After several weeks of price bounces, the world traded price of the Brent and WTI grades settled at just below $35 per barrel. Since then a fitful recovery has seen North Sea Brent begin to trade at around $40 per barrel- a price that barely covers the combined production and development costs of c.$38 pb[8].

Much regarding the likely fortunes of the North Sea oil and gas industry was covered in the first paper[9] but if we want to examine the drive behind the global plight of the hydrocarbon industries, it would be better to look at the biggest producer and consumer of oil and gas- the USA. 

When the bottom of the oil market fell through the floor in 2014 it was the US with some 25% of its oil and gas production from shale ‘plays’ that took the greatest hit. Since then, and not without considerable help from the US Treasury, the US has bounced back to be the biggest hydrocarbon player in the world – and with a Congressional act in 2016, a net exporter of oil and gas into the world market. And prior to the combined recession/Covid crisis, even the shale extraction sector was doing well at an oil price of c.£65 pb.


http://www.sjvgeology.org/history/gushers_world.html

Immediately prior to March 2020 most US producers could break even at a $46> pb price. But in order to kick-start the many needed DUC’s (Developed but Uncompleted wells) required to maintain medium-term production, an additional $6.00 pb was required. Also, at that time it was reckoned that the bullish confidence of the industry was waning with an estimated 66% of oil company CEO’s of the view that 2020 had seen the peak in oil demand coming and going[10]. Consequently, by April the fall in demand in the US had resulted in a 20% excess in capacity with a subsequent registration in Chapter 11 bankruptcy protection orders. If we want to measure the historical scale of this default, then the post-2014 crash of 2016 would be a good comparison:

2016 oil bankruptcy debt                   $56.8 bn 

2020 oil bankruptcy to date              $89 bn

Expected 2020 debt                           $134 bn

Furthermore, on the current market estimates it is expected that a further roll-over debt of at least £100 bn can be expected to the end of the 2020-21 financial year. Also, although the number of individual bankruptcies are so far lower, the capital size per company failure is much higher. In 2016 the failures amounted to $56.8 billion. But in 2020 to date the total is $89 billion and is expected to reach $134 billion by the end of the year. And as each company has been debt financed with no failure insurance, it is reckoned that the banks would be lucky to recover 35 cents in the $US in the event of a winding-up order[11].

In conclusion, with no foreseeable growth in oil and gas demand and a totally unstable market deterring future field developments, a ‘self-levelling’ market price of <$40 pb- probably struck by the bigger OPEC members and the dominant oil companies, much of the worlds marginal reserve/high cost capacity will be squeezed out. Certainly, the crash to $35 pb is a price that even the bigger and lower cost producers would find it hard to live with. This much was revealed by the leaked news that OPEC’s leading member Saudi Arabia reckoned that a sustained price of $50 pb would be the most favourable price to 2030 in order to allow margins to cover the cost of future field developments[12].

But whatever, the enduring relationship between US big oil and the military-imperialist project is likely to see the hydrocarbon industry not go out quietly- particularly as the states of the Gulf Cooperation Council – and Exxon/Mobil insist on peak oil as far ahead as 2030. But those the Gods wish to destroy, they first make mad.

Beyond the North Sea

The economic viability of oil and gas have always been predicated on the myth that all other sources of energy are uncompetitive and/or only so in the distant future. Petroleum, of course is mainly used as a feed-stock for mainly transport fuels – crude oil for refining into petrol (gasoline) and condensates into diesel and aviation fuels.

And by far the largest contributor today of global COemissions derives from petroleum extracted transport fuels. But sticking with North Sea Brent as refined at Grangemouth (Petrochina) or Total’s Humber refineries we see the following product percentages:

Product% of crude refined[13]
Asphalt       0.7
Residues0.7>
Refinery Fuel1.85>
Liquid Natural Gas4.0
Aviation Fuel9.0
Diesel/Light Oil25.0
Petrochemicals13.0
Petrol45.0
Total Transport Fuels79.0
(It should also be noted that the Ineos plant in the Grangemouth complex processes methane for conversion into a feedstock for plastics manufacture)

Of course the fate of some 4,000 workers and their families at Grangemouth now hang in the balance with the likely demise of hydrocarbons- both as transport fuels and plastic materials.

In April 2020 the OECD anticipated a year in which at least 1 million oil and gas industry workers would lose their jobs – a calculation which must include many thousands of North Sea workers. But there does seem to be a levelling off – possibly due to a convergence of strategic thinking on the part of OPEC and the oil ‘majors’ that a sustainable price of $45 pd could be struck over the next period – a price that would strike out both the higher cost OPEC members as well as other high cost sectors such as US shale[13] and most deep water operations[14].

On the other hand, the anticipated rise in demand for more and more offshore wind capacity – ideal for Scottish waters – along with an expected Compound Annual Growth Rate of matching large scale lithium/ion battery capacity to match incoming wind/wave/tidal and solar units[15].

The future is full of dangers and hope- and if the rage generated by the threatened loss of 20,000 miners jobs in 1984 could the reproduced many times over again in order to demand a Just Transition for the threatened tens of thousands of oil and gas sector workers, then the future is full of hope.

Dr Brian Parkin, Edinburgh, November 2020.




[1] IEA- International Energy Agency

[2] Organisation of Petroleum Exporting Countries

[3] Oilprice News 10th Sept 2020

[4] Above company information Oilprice News 10th Sept 2020

[5] Bloomberg NFF Oct 2019

[6] OECD annual report 2018

[7] US Energy Information Administration (EIA) 31st March 2019

[8] UK Oil and Gas Sept 2019

[9] Brian Parkin Scot.E3 April 2020

[10] Oilprice News/Bloomberg Feb 12th 2020

[11] All figures Rystad Energy consultants October 20th 2020

[12] Irina Slav Oilprice News 5th October 2020

13] David Messeder, Bloomberg as reported in Oilprice 22nd October 2020

[14] Oilprice/Bloomberg/Wood McKenzie, May 20th as reported in Oilprice 20th May 2020

[15] Wood McKenzie 30th September 2020

The Urgency of Now – Climate Jobs and Just Transition

The Cop26 Coalition is holding a global gathering from the 12th – 16th November.  Register here.

Scot.E3’s contribution to the gathering is ‘The Urgency of Now – Climate Jobs and Just Transition’ which takes place at 6pm on the 15th November.

The Covid-19 pandemic has intensified calls for a global Green New Deal – an urgent transformation of the global economy with massive investment to tackle climate change and address inequality. But what does a just transition look like for oil workers facing immediate redundancies because of low oil prices and privatisation? And with much wider unemployment expected, how do we take the initiative to create momentum for climate jobs on a local level, creating solutions rooted in communities and a real alternative?

This workshop draws on recent research with offshore oil and gas workers in Scotland. While many are looking for better job security, they are not being given a clear path to transfer their skills to renewable energy. The oil industry in Brazil also faces insecurity due to privatisation. Meanwhile, campaigns for free public transport in Glasgow and for a mass home retrofitting programme in Leeds are challenging the piecemeal approach taken by national government and calling for investment that meets the needs of local communities and creates climate jobs ‘from the ground up’. Workshop participants are invited to bring their experiences of mobilising for a just transition and climate jobs in their own sector / community.

All events will take place on Zoom and we will email through the relevant links beforehand when you register. You can get help installing zoom here. 

Contributors
Antony Devalle (Sindipetro-RJ, Brazil), Gabi Jeliazkov (Platform), Stuart Graham (FreeOurCity), Ellen Robottom (Leeds Trade Union Council)