Hydrogen: the technofix that undermines climate action

On 10th December 2022 we held an online public meeting taking a critical look at the way in which the oil and gas industry and governments are using hydrogen as part of a greenwashing strategy that undermines serious progress on cutting carbon emissions.

We’re talking about Hydrogen today because of the current focus on Hydrogen in both the Westminster and Holyrood Governments’ climate policies, and because it’s also the focus of the big energy companies. 

We were pleased to welcome the author and activist Simon Pirani as the main speaker. Simon is the author of Burning Up – A Global History of Fossil Fuel Consumption and has written extensively about the future for Hydrogen in a sustainable economy. He’s also the author of the highly recommended people nature blog  

Here’s the video of Simon’s introduction:

If you’d like to look at Simon’s slides without the video you can view or download them here.

After Simon had spoken we welcomed Ishbel Shand who spoke briefly on behalf of the campaign to save St Fittick’s Park in Torry, Aberdeen from the threat of industrial development, which is said to be necessary for Hydrogen production and storage.  Here’s the video of Ishbel’s introduction:

To find out more about the St Fitticks Campaign and the issues surrounding it do check out the report of the public meeting we held in October.

You may also like to read, download or utilise the ScotE3 briefing on the use and abuse of hydrogen.

The introductions were followed by a wide-ranging discussion. Several participants spoke about the importance of linking the cost of living crisis, action against austerity and climate.

One of the questions in the discussion was concerned with hydrogen and transport.

Do you rule out H for ALL transport uses? What about shipping, and heavy road transport – what alternatives are there for these?

In response Simon noted that:

The first options should be reducing the amount of travel: that’s a decision for society to make collectively. It can’t be left to companies who it suits to move stuff around the world cheaply. There are no simple answers to this. A good survey of the options by the Tyndall centre is here.

Another question addressed hydrogen as a means of storing energy. There were a number of responses from participants, including:

My understanding of what engineering researchers write is that batteries, hydro storage (pumping water up a hill and then down again) and other techniques are in most circumstances preferable to hydrogen. There’s also a need for all these technologies to be integrated, with an emphasis on reducing throughput. Neither the oil and gas companies or the government want to talk about this

Pumped storage hydro is the most widely used energy storage technology – in excess of 90%. It requires particular topography – there needs to be an upper and a lower reservoir with a significant distance between them. Scotland has many good sites, but the last plant was built in 1965 (Cruachan).

Another option for storage is to use large scale heat pump technology that could also underpin district heating schemes. The technology is fairly straightforward. It would be flexible and local.

There’s a Finnish company, polar night, that have developed a thermal storage system using sand. An Italian company is using a carbon dioxide “battery” – there are lots of alternatives.

There are also domestic thermal stores using phase change materials, which enables load spreading on a short term basis.

Another question referred to so-called turquoise hydrogen. Simon’s response was:

Turqoise hydrogen, i.e. producing hydrogen from methane pyrolysis. It’s at a very early stage, i.e. in the lab. It might work, might not. The Russian company Gazprom was investing in it 2-3 years back, as they have huge amounts of cheap gas. But obviously this year their business has been sacrificed to the government’s aim of bullying Ukraine, and even if they have made any progress I doubt that we would hear about it.

There was a question about whether steel could be recycled and it was confirmed that it can be, and is, although not on as big. a scale as would be desirable.

Transition for North Sea Oil and Gas workers

Scot.E3 participated in the conference that the Campaign Against Climate Change Trade Union group held a conference on the 8th October 2022. This is an edited version of the contribution that Pete Cannell (from Scot.E3) made to the discussion at a session on transition for workers in carbon intensive industries.

Oil industry infrastructure at Montrose Harbour – image by Pete Cannell CC0 Public Domain

On Saturday 8th October, in response to questions about the Truss government’s plans to expedite the development of new oil and gas fields in the British sector of the North Sea, the UK’s new climate minister announced that increasing local production of oil and gas would be good for the environment.  The crudest kind of greenwashing, but nothing new.  Since the publication of the North Sea Transition deal in 2021 the aim has been to make the North Sea a net zero oil and gas basin.  An aim that depends on effective and total implementation of carbon capture and assumes, what even its advocates don’t believe, that carbon capture and storage can be 100% effective.

In response to a survey conducted by Platform in 2020 workers on the North Sea had a much more realistic view of the industry.  Very few were aware of the debates around Just Transition, but a big majority would like to move into new employment.  However, they identified serious barriers to moving into areas where their skills could be used and a lack of confidence that there are, or will be, jobs in renewables that they could move to.  

North Sea Oil and Gas has long been a trailblazer for many of the employment practices that characterise modern neoliberal economies.  In doing so the oil and gas companies have single-mindedly aimed at atomising the offshore workforce by forcing many workers to operate as contractors rather than employees, offering short-term contracts, blacklisting and driving down wages and conditions.  At the same time the companies have been happy to ride the waves of a highly volatile and highly profitable ‘market’, proclaimed the market price as sacrosanct and resisted regulation.  In the UK they’ve cashed in on a regime of relatively low taxation and high levels of state subsidy.  In an important report on the North Sea that was published on this website, tax expert Jean Carlos Boue shows that subsidies to oil and gas companies have exceeded what they paid in tax by £250 billion.  This bonanza will be hugely enhanced by the current government’s decision to allow them to continue to rake in megaprofits from the high market price of gas – a price that bears no relationship to the costs of production.

So Truss’s response to the cost of living crisis has been to double down on the so called energy security plan that the Tories published on the 6th April.  A plan that is shaped by, and completely aligned to the North Sea Transition deal.  More oil and gas, nuclear and hydrogen for heating.  This emphasis – particularly in terms of investment – in nuclear, hydrogen, oil, and gas – is a disaster for the climate.   It implies very high costs for energy – much higher than would be the case with renewables.   It’s also a disaster for jobs – preserving the status quo is the worst-case scenario.  Back in 2018 the Sea Change report showed that the more investment is shifted to renewables and oil and gas production is phased down the greater the number of jobs available in the energy supply sector.

But the North Sea Transition deal isn’t just a deal between the big oil and gas producers and the Westminster government – the Scottish government and the unions that organise offshore workers are also signed up to it.  There are welcome signs that the Scottish government would wish to pursue a different path, but it has yet to make a clean break.  The unions argue that they work with the oil industry to protect jobs – but the benefits from this partnership have all accrued to the industry not to the workers.  I’d argue that while energy policy and investment is guided by this agreement, and as long as unions are tied into this grotesque partnership, the ability of oil and gas workers to act in their own best interests will be severely constrained and there will be little chance that they will be convinced that a just transition is possible.  So, while we campaign to Stop Cambo, Rosebank, Jackdaw and all of the other new developments that are in the queue, we also need to highlight the rotten agreement that drives these developments, and campaign for the unions to end their partnership with fossil capital.  

This would be a bleak scenario were it not for the example being set as workers across multiple sectors are forced to protect themselves in the face of the cost-of-living crisis, by small groups of workers offshore taking unofficial action, and the continuing organisation of young people that time and again is taking the urgency of the need for transition back into their homes and communities. It’s a campaign that we can and must win.

Carbon Capture – video

Jess Cowell from Friends of the Earth Scotland introduced a discussion on Carbon Capture and Storage at a Scot.E3 public meeting on Friday 18th June.

Thanks to Sally from Biofuels Watch for these useful links:

1) Drax admits to environmental campaigners that its carbon capture and storage claims are not based on real world evidence: https://www.biofuelwatch.org.uk/2021/drax-plcs-carbon-capture-claims-not-based-on-any-real-world-evidence-company-reveals-to-campaigners/

2) Written responses from Drax to environmental campaigners during Drax’s BECCS public consultation in March which reveal that Drax’s “BECCS assumptions are not based on trials” & its BECCS pilot project with C-Capture was not using ‘proven technology’: https://www.biofuelwatch.org.uk/2021/drax-beccs-response/

3) Conflict of interest concerns over Rebecca Heaton’s role at Drax and her membership of the Climate Change Committee which is advising the UK Government on BECCS policy: https://www.ft.com/content/36c582e9-24af-425b-8952-054153ac5609

4) Why BECCS is a false climate solution: https://www.scotsman.com/news/opinion/burning-trees-will-not-save-us-climate-crisis-richard-dixon-3112293

You can download the Scot.E3 briefing on Bio Energy with Carbon Capture and storage from this sites resources page.

Andreas Malm and Wim Carton have also published an interesting paper on the political economy of carbon capture. You can download it here.

Just Transition of Aviation

We reprint a press statement from the PCS Union and Stay Grounded published on February 8th 2021.

Today, the UK trade union PCS and the global network Stay Grounded published together a paper entitled “A Rapid and Just Transition of Aviation – Shifting towards Climate-Just Mobility”. Tahir Latif, PCS Aviation Group President, says: “This paper clearly shows: the aviation workforce needs to accommodate the urgent requirement for a reduction in flying. This is imperative to avoid climate catastrophe. We need to retain job security through retraining and redeployment into jobs, some within aviation and some in other sectors, that help to restore the planet, not destroy it.”

This Paper makes it clear that there is no option to go back to business as before Covid-19: instead of bailing out airlines, airports and manufacturers, recovery packages must directly finance a just transition. This includes providing a living wage and social protection for workers leaving the industry, retraining programmes, creating jobs in climate-safe sectors and fostering alternatives to flights and harmful mass tourism.

Public money must save people, not planes”, says Magdalena Heuwieser, from Stay Grounded. “If we try to go back to the old high-speed fossil-fuelled transport system, it will crash very soon. Let’s be realistic: aviation will change, and it will do so either by design or by disaster. So let’s choose design.

The discussion paper has a global scope and is the result of a collective writing process by people active in the climate justice movement, trade unionists, indigenous communities and academics from around the world. Several aviation workers who were involved also advocate for a just transition and less flying, like ex-pilot Paul Taylor: “I was made redundant from my airline due to Covid-19 – and I won’t go back to flying. I realised it’s neither healthy for me, nor for the planet.”

The document has its focus on the question of how to fairly reduce passenger flights and it makes clear links to freight as well as tourism. ”Mass sun and beach tourism is a sector that is highly dependent on aviation and very vulnerable, as the Covid pandemic has shown. We need to focus on more inland and local tourism, based on sustainability, respect for the territory and on more sustainable mobility options,” says Carlos Martínez, member of the Secretary of Environment from CC.OO. The Trade Union Confederation of Workers’ Commissions (Confederación Sindical de Comisiones Obreras) is one of the biggest Spanish unions. In another paper published in January 2021 with the biggest Spanish environmental NGOs, it argues for reducing dependency on mass tourism and air travel.

It is key that the climate justice movement, trade unions and workers join forces to fight for our future”, concludes Magdalena Heuwieser from Stay Grounded. The demand for a just transition has been developed by trade unions and the climate justice movement. It aims to protect workers and communities currently dependent on fossil fuel industries, but is also a broader process to help safeguard the future of workers, communities and the planet. It is not an argument for delaying the changes needed, rather for managing them effectively, fairly and democratically.

The Public and Commercial Services union (PCS) is one of the largest unions in the U.K., with around 180,000 members. PCS represents workers in the civil service and ex-civil service areas that are now in the private sector, including aviation. PCS is one of six UK unions with members in aviation, representing around 1,800 workers in air traffic management, airport ground and security staff and in civil aviation regulation.

Stay Grounded is a network of about 170 member organisations from all over the world, among them: NGOs, climate justice groups, indigenous organisations, labour unions and civil initiatives against airport noise and expansion. Together, they fight for climate justice and a fair reduction of aviation.

Stoking the Climate Fire

Two recent posts on the People and Nature blog take a look at China’s plans for post Covid recovery and at the new book by US activist Richard Smith – ‘China’s Engine of Environmental Collapse’.   The first post picks up on work from Carbon Brief who analyse China’s plans for reviving the economy.  Just as after the 2008 crash the emphasis is on high carbon energy and infrastructure project that will put three times as much cash into fossil fuel projects as into renewable energy.  These plans are completely incompatible with Xi Jinping’s aims for climate neutrality by 2060.  Smith’s book provides the context and shows how China’s role as workshop for the world has resulted in extreme environmental degradation – severely impacting on the health and welfare of the population.

Read both posts on the People and Nature blog.

Where the virus grows

We’ve published a number of posts on Covid and Climate, most recently ‘Covid, Climate and Transition’. Graham Checkley continues this theme reflecting on the links between ecology, environment and pandemics.

Habitat destruction has been pointed out, by both the UN and the World Health Organization, as a major contributing factor behind pandemics.  In such situations we see displaced and stressed animals, carrying their own viruses and probably sick, coming in to contact with new potential hosts, including humans.  It is not only the animals that are stressed; people, driven off their land and deprived of any other food, can end up eating dangerously prepared and already diseased meat.

Nature does not usually do things this way; a common analogy for the relationship between species is a long, slow, evolutionary arms race between predator and prey, sometimes, oddly, to mutual advantage.  But there is a potential for violent change, and from an evolutionary point-of-view it is nothing personal, just a virus living through a period of mass species extinction by evolving to use a novel new host, all 8 billion of us.  Avian flu, Ebola, HIV and SARS have all jumped the species gap from their original host to humans; Covid-19 is only the latest virus to do this, and with global habitat destruction it will not be the last.

While the habitat destruction in Africa, Brazil and China makes the headlines, something just as terrible is happening here in Britain, a few trees at a time.

The report from the state of nature partnership for the UK in 2019 documents that 15% of UK species are threatened with at least local extinction, and that 41% have decreased in abundance over the last 50 years.  Perhaps most alarming is the 60% drop in UK priority species over that period, species identified as key indicators of the health of UK biodiversity; what this means in practice is that our habitat is becoming less species rich and as a result less resilient to change.

Habitat loss is a major factor here, putting pressure on wildlife as thousands of hectares of farmland, woodland and wetland are built on every year to meet the needs of our increasingly urbanised population.  However, it is local government policy that is driving that urban sprawl, a policy with an emphasis on city centre offices, shops, cafes, restaurants, hotels, Airbnb, student accommodation and no affordable housing.  Family home in Edinburgh?  You need to move out to East Lothian and commute.

How things often are: Graham Checkley

At a more detailed level we see one development project after another leading to habitat destruction.  While the most infamous have been the destruction of ancient woodland for the HS2 rail project and the conversion of SSSI protected dune systems into golf courses, we also see proposals for a theme park on Swanscombe Marshes and the building of a dual carriageway through bat habitat in Norfolk.  But perhaps the most bizarre and revealing piece of un-joined-up thinking is a proposed development in Edinburgh, felling more than 800 trees to create a new green corridor walking and cycle pathway; a development green-washed by planting 5000 new trees, aka trees moved there from a nursery that may never grow to maturity and do their bit to combat climate change.  In other words, a net loss of trees.  It is perhaps not surprising to discover that biodiversity is a declining government priority, with expenditure in this area dropping by 42% in 5 years; it now stands at 0.02% of GDP.

However, the good news is that good work is still being done.  Local Ranger Services still look after important biodiversity sites, public groups participate in such work both physically and financially, and conservation groups can still celebrate major achievements in habitat restoration and species re-introduction.  Similarly, some species have benefited from improved legal protection under EU law, but Boris Johnson wants to see an end to that.

But why does it have to be such a struggle?  Surely the science tells us that we need a healthy ecosystem to avoid pandemics, and aren’t we all in this together?

I believe that the answer goes back to the question of the 8 billion hosts; not all hosts are born equal.  Covid-19 has proved to be a disease spread by the rich that kills the poor; a president who catches it is guaranteed a place in hospital, a slum resident is not.  The rich can afford to self-isolate, the front-line worker cannot.  So, for the rich few of the 8 billion it is just a case of hanging out by their personal pool until they can get a private vaccination for this pandemic, and for the one after that, and for the one after that, and…  Also, many of them have money invested in mining companies, where environmental destruction comes as standard.  Given a choice between green and money, well, money will pay for that emergency bunker and the security guards to go with it.

So, if this explains the, at best, indifference of the rich, what about our elected representatives?  There are some good ones who lobby to see the right thing done, but they are mostly mesmerized by the money, and trees do not pay council tax.  Decades of cuts have made councils very developer friendly when it comes to planning regulations and decisions; they will enforce the letter of the law, but why should a little less woodland matter?

If we don’t force system change, the system will produce pandemic purgatory.

Time to divest

The non-profit organisation, Platform, commissioned Transition Economics to conduct an analysis of investments by Scottish local government pension funds in fossil fuel companies. The analysis reveals that £194 million was wiped off Scottish council pension funds due to their oil and gas investments crashing over the past three years. This post summarising the Platform report is reprinted from a press release by Friends of the Earth Scotland.

The largest losers were Strathclyde Pension Fund which lost £46,374,450, Lothian Pension Fund which lost £36,077,023 and Falkirk Council’s Pension Fund which saw losses of £34,769,723. These amount to losses of £626 per member of the Strathclyde Fund and £429 per member of the Lothian Fund.

In March this year, Strathclyde Pension Fund (SPF) managers argued that they should be allowed to keep investing over £700 million of their members’ pensions in fossil fuel companies such as Shell, BP, Exxon, and Chevron – despite major concerns about the climate impact of these companies and despite Glasgow City Council’s declaration of a Climate Emergency in 2019.

This analysis concluded that, across the UK, local authority pension funds could have lost at least £1.75 billion in value over the past three years as a result of retaining their investments in just nine oil & gas companies.

In 2018 the advisory board for Scotland’s local government pensions began investigating major reform. A full merger was being considered and could improve transparency and make it easier to pursue ethical investments. As this would require legislative change it could be an issue in the 2021 Scottish elections.

Divest Strathclyde is a Glasgow-based campaign for fossil-free local government pensions. Sally Clark from Divest Strathclyde said:

“We have repeatedly presented the Strathclyde Pension Fund with evidence demonstrating the dangers of continued fossil fuel investments and the need to rapidly decarbonise the fund. This loss is the direct result of a conscious failure to act, causing harm to the finances of pension holders by continuing to invest in fossil fuel extraction companies that are poor investments and endanger all our futures through exacerbating climate change.”

“This news is a further demonstration that fossil fuel investments are neither good for the planet nor our pensions. Forward looking pension funds can instead support the transition to a more sustainable Scotland, investing in sectors that will enhance the wellbeing of citizens while ensuring good returns for pensions holders.”

Robert Noyes, Platform, responsible for the data said:
“It is well past time for pension funds to drop oil and gas stocks, both for the climate and their future valuation. Funds like Strathclyde, Lothian and Falkirk lost tens of millions by sticking with BP and Shell. They should have listened to divest campaigners. Instead, the burden is being dumped on the public, pensioners and the Global South.”

Losses of Scottish local government funds

Strathclyde Pension Fund: £46,374,450
Lothian Pension Fund: £36,077,023
Falkirk Council Pension Fund: £34,769,723
Tayside Pension Fund: £30,005,131
North East Scotland Pension Fund: £15,780,431
Dumfries and Galloway Pension Fund: £13,506,338
Highland Council Pension Fund: £11,650,109
Fife Council Pension Fund: £2,356,219
Scottish Borders Pension Fund: £1,968,406
Orkney Islands Council Pension Fund: £1,625,133

Total: 194,112,963

Shetland Islands Pension Fund were excluded from analysis due to lack of data on direct equity holdings in oil & gas companies

Notes to Editors

Original report:

Scottish losses by percentage value of the total pension fund:
Falkirk Council Pension Fund 1.69 %
Dumfries and Galloway Pension Fund 1.62 %
Tayside Pension Fund 0.88%
Highland Council Pension Fund 0.66 %
Lothian Pension Fund 0.49 %
Orkney Islands Council Pension Fund 0.48 %
North East Scotland Pension Fund 0.39 %
Scottish Borders Pension Fund 0.30 %
Strathclyde Pension Fund 0.24 %
Fife Council Pension Fund 0.11 %

Divest Strathclyde campaign for the Strathclyde Pension Fund to divest from the fossil fuel industry and invest in environmentally and financially sustainable alternatives.

Platform London is a research and advocacy organisation with a focus on energy system change, that supports campaigns to divest local government pension funds out of fossil fuels.

Friends of the Earth Scotland is:
* Scotland’s leading environmental campaigning organisation
* An independent Scottish charity with a network of thousands of supporters and active local groups across Scotland
* Part of the largest grassroots environmental network in the world, uniting over 2 million supporters, 75 national member groups, and 5,000 local activist groups.

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:

2Saudi Arabia11,800
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.


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
Refinery Fuel1.85>
Liquid Natural Gas4.0
Aviation Fuel9.0
Diesel/Light Oil25.0
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