Conclusions and recommendations
Securing the future: sector deal proposal
1.We support the proposals for an oil and gas sector deal which we believe is an ambitious and timely plan of action to strengthen an industry which is so vital to Scotland and the UK’s economy and energy supply. A sector deal would support Scotland’s oil and gas industry through a time of change; cementing its place as a global leader while it responds to new challenges. (Paragraph 20)
2.When we took evidence from the sector deal team it was clear that there was more work to be done in developing the detail of the proposal and we welcome that the Government is seeking clear commitments on what would be delivered in return for this additional investment. We recommend that the UK and Scottish Governments work with the sector to convert the ambition and vision of the sector deal into a plan that will deliver the significant benefits it envisions and prepares the sector for future challenges. (Paragraph 21)
Maximising economic recovery
3.We believe that maximising economic recovery is the right approach for the sector and welcome the steps the OGA has taken to improve collaboration. Whilst we acknowledge environmental concerns about the MER strategy, oil and gas looks likely to form a substantial part of the UK’s energy mix for at least the next 15 years. As such, we believe it makes sense to meet as much of this need as possible from domestic sources. (Paragraph 31)
4.We welcome the work that the Oil and Gas Authority is doing to stimulate exploration in the sector and its innovative approach to data use. These developments have the potential to deliver much needed improvements in the rate of exploration. We ask that the Oil and Gas Authority update us on its progress establishing the National Data Repository in its response to this Report. (Paragraph 40)
5.Continued investment in technology will be crucial to the future of the oil and gas industry. We welcome that investment that industry and both Governments have already made in technology that will make it easier and more efficient to access smaller pockets of oil and gas, which will contribute to maximising economy recovery from the UK basin. If sector deal funding for the underwater innovation centre is to be used to support further work in this area, the Government must ensure that it will deliver additional benefits beyond what has already been funded through the Oil and Gas Technology Centre. (Paragraph 44)
6.We welcome the introduction of Transferable Tax History which should help deliver the MER strategy by enabling assets to be transferred to companies who can make the best use of them. We invite the Government to set out in response to this Report how it will monitor the impact of this policy to ensure that it is delivering these benefits. (Paragraph 48)
Decommissioning
7.We welcome the current focus on reducing the cost of decommissioning and the ambition of the cost reduction target. We recommend that the Oil and Gas Authority work with industry and academia to set out a roadmap for meeting this target. (Paragraph 56)
8.Decommissioning represents a significant export opportunity for Scottish businesses. Scotland has the opportunity to become a global base for the decommissioning industry. We therefore endorse the call in the sector deal for the Government to work with the sector to develop a decommissioning export strategy. (Paragraph 61)
9.There is a clear difference in perspective between industry and the regulator on what re-use of information about previous decommissioning projects is possible under the current rules. We recommend that OPRED review how it communicates its requirement to businesses and consider how it can promote the re-use and sharing of information between companies, without compromising the need for the decommissioning company to be accountable for the evidence their plans are based on. The Government must support the industry in sharing best practice and learning important lessons from previous exercises and should consider supporting the creation of an industry standards. (Paragraph 64)
10.During this inquiry we heard mixed evidence about the “rigs to reefs” approach to decommissioning. While all parties want the same outcome, to decommission in a way that minimises the harm to the environment, there is clearly genuine disagreement about what policy on the removal of disused rigs will best deliver this. We recommend that OPRED lead discussions with industry, environmental groups, academics and other stakeholders to establish a common evidence base to allow an agreed solution to be found. OPRED should also work with the sector to better explain what is already possible under the current system. (Paragraph 73)
Preparing for transition
11.We welcome the sector deal’s proposal for a centre of excellence in underwater innovation and its focus on expanding the sector’s export performance. This is one of many areas in which the offshore oil and gas sector has the potential to improve its export performance, with decommissioning and late-life extraction being other areas of expertise. We ask that the Government outline how it will integrate these different areas of focus to provide a cohesive and unified strategy to promote the sectors’ export. The Government must move quickly in these areas to ensure that the UK does not fall behind other countries efforts. (Paragraph 79)
12.We welcome the efforts that both Governments have made to support skills transfer from the oil and gas sector to other industries. It is essential that the skills of people who have made Scotland’s oil and gas industry so powerful are not lost as the industry prepares for the future. We recommend that in agreeing the sector deal proposal the Government ensure that it contains specific and measurable outcomes on increasing skills transfer to new sectors, with clear commitments for action from both industry and Government. (Paragraph 88)
Climate change challenge
13.Adaption to a low carbon economy is one of the main challenges facing the oil and gas sector. We welcome the efforts that the sector is making to reduce the carbon footprint of the extraction process and the intention of the centre on transformational technology to develop this area. We recommend that before the Government finalises the sector deal it should ensure that the sector brings forward a more detailed proposal on how this will be achieved and how the success of the centre on transformational technology in developing low carbon technologies will be measured. (Paragraph 95)
14.Carbon Capture Usage and Storage (CCUS) technology has an essential role to play in enabling continued use of gas as a power source in a way that is consistent with the UK’s climate change goals. We believe that the sector deal could be more ambitious in this area and recommend that before the sector deal is finalised the sector should bring forward a more detailed proposal on how the three centres of excellence could support the development of CCUS technology and how their success will be measured. (Paragraph 98)
15.We welcome the Government’s ambition to support the development of CCUS clusters, which should drive up value for local economies and encourage ongoing technological innovation. We ask the Government to set out in response to this Report; what support from the announced Industrial Strategy funds will be made available for the development of CCUS cluster, how the bid for this funding will be evaluated and how it has incorporated lessons from previous failed CCUS competitions into this process. (Paragraph 105)
16.Creating a market for using stored CO₂ can make a contribution to the commercial deployment of CCUS by creating an income stream from some of the captured gas and we welcome the support that the Government has announced for businesses innovating in this area. As there is likely to be limited demand to use captured CO₂ the Government must ensure that the lessons learned from projects supported by the CCU Demonstration Fund are shared with facilities focused on the long-term storage of captured CO₂. (Paragraph 110)
17.Oil and gas infrastructure has the potential to be re-used for CCUS and it would be regrettable if this potential was lost due to a relatively short gap between infrastructure being decommissioned and CCUS becoming commercially viable. We welcome the Minister’s openness to finding solutions to this problem and invite the Government to set out what options are being considered in its response to this report. (Paragraph 115)
18.One solution that we recommend the Government considers is that it underwrites the liability for this infrastructure for a fixed time while options for re-use are explored. This would ensure that the original owners are not at risk from additional liability for keeping this infrastructure in place for an extended length of time. Ownership and liability could then be transferred to the new CCUS operator if re-use went ahead, or back to the original owner for decommissioning if the option of re-use does not materialise. (Paragraph 116)
19.We recommend that the Oil and Gas Authority take a more proactive approach to encouraging the industry to consider opportunities for infrastructure re-use and that it brings forward a strategy for how it will promote re-use of oil and gas infrastructure within the sector as soon as possible. We believe this would be a natural extension of its role to ensure the economic return from the UKCS is maximised. (Paragraph 118)
Published: 4 February 2019