North Sea Oil and Gas and the Cost of Living

Report of a public meeting called by ScotE3 on 12th September

The conversation at this meeting between about 40 people from widely differing backgrounds was both extremely valuable and extremely lively. It’s clear that a lot of people have got their blood up.

The meeting was kicked off by contributions from Neil Rothnie, who has spent much of his life as a North Sea offshore worker, and from Pete Cannell, a founder member of ScotE3. You can watch the video of their talks on YouTube

Three climate activists – Quan Nguyen (Climate Camp), Zareen Islam (Muslim Women’s Association of Edinburgh), and Phoebe Hayman (Just Stop Oil) – were then asked to react to Neil and Pete’s contributions. You can watch the video of their reactions here

Here are some of the points that Neil and Pete made in their introduction

  • The meeting has been called ostensibly about the cost-of-living crisis and North Sea oil and gas, but if we’re not talking about climate change, we’re not really talking about the real world.
  • The oil companies operating on the North Sea have a plan to explore for, and produce, every single barrel of oil and gas that exists there.  It’s called Maximising Economic Recovery. It’s written into law and has been since way before COP26.  And if it’s the oil industry plan for the North Sea, it’s the oil industry plan everywhere.   The deal to expedite Maximum Economic Recovery – called the ‘North Sea Transition Deal’ is signed up to by Scottish and UK governments and unions.
  • Almost all the gas used for heating in the UK comes from the British and Norwegian sectors of the North Sea and comes ashore via pipelines.
  • Only a very small amount of gas used in the UK ever came from Russia – it came by tanker – and was primarily used for plastic and other industrial processes not for heating.
  • The huge hike in gas prices came before the war in Ukraine.  Gas and oil prices have been highly volatile for many decades.  Not long ago the price dipped below zero for a short period.  
  • Liz Truss has confirmed the enormity of the cost-of-living crisis, driven largely by North Sea gas here in the UK, in spectacular fashion by throwing £130 billion at it. Money she’s going to borrow in our name and make us pay back. 
  • The fantasy is she’s going to grow the economy to pay for this.  The madness is she thinks she’s going to do it by being cheerleader for the oil and gas industry on the North Sea and by fracking for shale gas in England. 
  • The reality either way is that is she is going to try and make the people pay.
  • Truss treats the global market price for gas as if it is God given.  The price bears no relation to how much gas costs to produce.  It’s set by speculation (by hedge funds) betting on what the price might be at some point in the future.
  • There’s been no significant increase in the cost of gas production on the North Sea.
  • The finances of the poorest, the most vulnerable, those with special needs, are stretched to the limit by the price hikes that are already in place and would have been wrecked immediately by the October rise had it gone ahead as planned.  The Truss decision to freeze energy bills for the next two years is not some sort of act of charity or generosity, but an admission that to proceed with the planned rises in retail energy prices till they met the wholesale energy price levels that profiteering by the gas producers and electricity generators and the market speculators have engineered, is just not acceptable.  The people after years of austerity and real wages reductions, just could not, and would not, shoulder this burden.  
  • The £130 billion package, even if the plan is that we eventually pay for it somehow in energy bills over the next 10 years, is a kind of a victory.  At the very least it gives us the breathing space to begin to build a response in the communities.  But that is still urgent.
  • Had the October cap rise gone ahead it is likely that catastrophic levels of poverty would have been the result and that local communities would have been faced with a couple of immediate challenges. How the most vulnerable were to keep warm? How they were to stay fed?  These challenges have been at best delayed for many people but are still present for many already on prepayment meters and are likely to be unable to heat homes effectively or afford inflated food prices this winter.  
  • The people of Pakistani heritage living in Govanhill and Pollokshields have watched as their families, friends and erstwhile neighbours in about a third of the districts and 12% of the land surface of Pakistan are devastated by floods which even the Government of Pakistan, recognises are a direct result of global warming driven by fossil fuel burning.  Fossil fuel burning specifically not by most of the victims.
  • While trying to raise aid for the victims in Pakistan, this part of our community is facing their own fossil fuel induced crisis, a cost-of-living crisis that threatens to drive them into cold and hunger and which is driven by profiteering on North Sea gas. 
  • The extraction of megaprofits from the North Sea is driving the current cost of living crisis.  Longer-term Truss’s ‘payback plan’ and the government’s plans for Nuclear, Hydrogen for heat and fracking will ensure a high-cost energy future and continue to trash the environment.
  • A sustainable future requires breaking the power of the big energy companies on the North Sea, and through democratic public control phasing down production, ending the subsidies and shifting all that investment into renewables.
  • When they shout – It’s the war in Ukraine.  We’ve got to shout it’s profiteering on North Sea gas.

You can watch a full video of the introductory talks here

And here is an attempt at summarising the general discussion which followed:

Actions we can take immediately

  • Most people don’t understand what’s happening. We need to get out into the streets with leaflets and speak to people – which is the key strategy of Just Stop Oil.
  • We should speak more about our ideas, and less about ‘theirs’.
  • A good talking point is the recent worst flooding ever in Pakistan. At the same moment when Pakistani families living in Scotland were watching their relatives dying on the news, many of these families, for example on the south side in Glasgow, are facing the impossibility this winter of both keeping warm and having enough to eat. Both these disasters are a direct result of the world continuing to burn fossil fuels as its main source of energy.
  • We need to keep expressing our solidarity with the people of the global south who are enduring the worst effects of global heating.
  • The power of the big North Sea oil and gas companies, through lobbying, bribery and their control of the media, is huge. This is a war we’re fighting, not a battle.
  • Beware these companies as they begin to invest in renewables. If we allow ourselves to be fooled by this they will make sure that renewables are developed in a way which is most profitable for them instead of prioritising public benefit.
  • We need to fight for state ownership of not only distribution of energy but also its production. 
  • The processing plant at Mossmorran must be shut down.
  • One participant suggested that we should get into the Labour and LibDem parties and make the politicians listen to what we have to say.
  • We should organise for COP27 (to be held in November at Sharm El Sheik, Egypt).
  • At the same time as addressing the big political picture, we need to provide support for the many people in our communities who will be in desperate need this winter – for example by setting up ‘Warm Banks’, as communities in North Edinburgh are planning towards.

Workers and Unions

  • The unions need to come together with the workers, demanding with a single voice no more fossil fuel extraction and just transition for the workers.
  • There will be no pay and no jobs on a dead planet
  • We should go to picket lines to express solidarity and not be afraid to speak about the big picture, whatever immediate demands the strikers are making. For example whatever RMT workers immediate demands, they are the people who will be running the electric trains to get people out of their cars.
  • On October 1st we should be on the streets to support the BT group workers and their Communication Workers Union
  • We should particularly express solidarity with the current wave of wild-cat strikes by the North Sea offshore workers, especially in view of their Unions’ criticisms of their strike action. The work conditions of these workers are appalling,

Our rulers

  • Do not care about us
  • Are under the control of the big oil and gas companies
  • Deserve our anger

Hopeful considerations

  • Working together: one participant talked about ‘joining the dots’ – another suggested a good way of doing this is by supporting RMT pickets and making sure that climate and supporting public transport is part of the agenda; critical to make the links between organised workers and communities – the Edinburgh Trade Unions in Communities initiative is a good example.  It was noted that the anti-fracking campaign went well because of solidarity across Scotland and England. So, the theme across these is about connecting, working together for greater impact.
  • There are now the beginnings of widespread collective action
  • The North Sea is at an end-game stage, with reducing quantities of oil and gas to extract, and the prospect of rising costs of extraction.
  • Two years ago, Platform ran a questionnaire for offshore workers which showed many hadn’t even heard about just transition, but that most would gladly move to jobs in renewables if they were given the opportunity.
  • One participant pointed out that when fundamental daily needs like warmth and food are being denied to large numbers of people, history tells us that revolution is likely. Other civilisations have fallen in similar circumstances.

Upcoming meetings

A number of events were mentioned during the discussion go to our Events page for details.

Stop Jackdaw – week of action

From 20-27 August, Stop Cambo are hosting a UK-wide week of action to #StopJackdaw. To make this work, we need many groups and individuals taking action with a range of tactics. There are many ways to support this amazing campaign – from hosting a local action to helping push the word out about the week.

Find out more and get involved here: https://bit.ly/jackdawweek

  • The UK government recently approved Shell’s Jackdaw gas field, even though scientists have said time and time again that we can’t have any  more new oil and gas if we want to stay within safe climate limits.
  • Jackdaw’s gas won’t lower energy bills, but will make millions for Shell while wrecking the climate.
  • Jackdaw is just the tip of the iceberg. The UK government wants to approve dozens of new fossil fuel projects by the year 2025 including the giant Rosebank oil field, and is due to launch yet another licensing round for new oil and gas exploration this autumn.
  • We’re going to challenge the Government and Shell from every side to delay and eventually stop this field.


Only have a minute? you can support the campaign by sharing these videos:

Stand with the people of Torry

Thanks to Friends of the Earth Scotland for sharing this call to action from a working class community in Aberdeen. Residents in Torry, just south of Aberdeen, are having their only green space threatened by an oil industry land grab in the name of ‘energy transition’. The group has been campaigning to protect their local park and for a just transition that meaningfully includes local communities. 

The oil industry and Aberdeen City Council are planning to destroy a much-loved greenspace called St Fitticks Park, which lies in the heart of Torry, a community in the south of Aberdeen. The council, together with a consortium of oil companies and Aberdeen Harbour want to dig up the park and build an ‘Energy Transition Zone’. This project now also has funding from the Scottish Government. 

St Fitticks Park is the main greenspace in Torry and is enjoyed by generations of Torry residents, as well as attracting people from outside the community due to its thriving wetland, which is a home to a variety wildlife.

A community group has formed to resist the proposals (The Friends of St Fitticks) and they have various plans to safeguard the future of the park. They support the idea of an energy transition zone in response to the climate emergency, but argue this should be located on vacant industrial land to the south and west of Torry, not on their beloved greenspace.

Unwanted industrial development has been imposed on the people of Torry down the years. In the 1970’s homes were demolished to make way for a harbour expansion to accommodate the new oil industry, but many people living in Torry have seen little economic benefit from an industry that dominates the city. So once again they are fighting one of the most powerful industries in the world. 

On Saturday 28th August, local people will gather in the park for St Fitticks day. We need to show that the community has wider support and help them to get their message heard. Please show your solidarity with the people of Torry, by either:

A) Taking a photo with ’Save Saint Fitticks Park’ placards (on your own or with your group) in your local green space and posting on social media with #HandsOffStFitticks

B) Share the graphic on social media with #HandsOffStFitticks

You can read more about the local struggle on the Friends of the Earth Scotland website.

#HandsOffStFitticks

Paid to Pollute

A court case launched today against the UK Government that exposes the billions it gives to the oil and gas industry. The case is supported by the Paid To Pollute campaign, a new initiative coordinated by Uplift and endorsed by a number of organisations including Greenpeace UK, Platform London, Oil Change International, Friends of the Earth Scotland, Friends of the Earth England, Wales and Northern Ireland, UK Student Climate Network, Parents For Future, Fridays For Future Scotland, Extinction Rebellion, and Mothers Rise Up.

From it’s beginning more than 50 years ago oil and gas extraction from the North Sea has been heavily subsidised by the taxpayer. To find out more about the UK’s North Sea oil tax regime, which has handed super-profits to international oil companies while the taxpayer now foots the bill for decommissioning, you can read the featured report on our North Sea Oil and Gas page.

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