MOWU on Clair

  • The UK and Norway have set ambitious emission reduction targets for 2030
  • Offshore floating wind has been identified as the key tool to de-carbonise the oil and gas industry in both countries
  • Policymakers must enable the floating offshore wind industry to deliver on these targets

The UK is hosting the COP26 summit on climate change in Glasgow. The COP26 summit brings nations together to agree and accelerate actions to reach the goals of the Paris Agreement and the UN Framework Convention on Climate Change. It is definitely time to move from ambition to action. We are optimistic about the outcome of the summit in terms of how policymakers can enable the accelerated de-carbonisation that is urgently needed.

Ambitious 2030 de-carbonisation targets - unclear path for how to reach them

The UK has set a step-by-step reduction target of 25% by 2027, 50% within 2030 and 78% in 2035. The government in Norway has a 55% reduction target set for 2030. The petroleum sector accounts for a relatively large share of the countries’ carbon emissions. Hence, the de-carbonisation measures for this sector are key to achieving these targets. We expect that the ambition level will be further re-iterated during COP26, but there is a need for concrete solutions with significant impact already in 2030. With the targets being set at such ambitious levels, what are the solutions to get there?

Offshore wind is the solution for achieving the 2030 emission targets within oil and gas

The green shift has encouraged a substantial amount of R&D capita being targeted towards emission-reducing concepts. In Odfjell Drilling, a lot of time has been invested to assess what technologies to focus on near term, with a noticeable emission reduction impact already in 2030. There are four main solutions that could potentially deliver on this target; offshore wind, power from shore, zero-emission fuels and carbon capture and storage (CCS). It was evident that only offshore wind can have the desired impact in the near term if we use mobile wind units directly connected to the field centre. Permanent wind farms will take too long to develop for this purpose, and provided a phasing out of oil and gas, it will be serving a temporary need with a permanent solution, hardly good resource management. CCS only makes sense on greenfield projects due to the costs and complexity of retrofit. Green fuels like hydrogen and ammonia are still to be qualified for large scale commercialisation, and likely an expensive alternative in the initial phase. Please see the article below for more details on our assessment of these alternatives:

Electrification with power from shore has always been a controversial solution. However, when power supply was relatively abundant and low priced in Norway, shore power was advocated on a broad scale as the solution for de-carbonisation of oil and gas. The huge challenges with power from shore have further materialised recently with surging power prices combined with high pressure on the onshore grid from both new and existing industries requiring power supply. Power from shore is also a suboptimal solution because no new power is added to the grid. We have elaborated more on the challenges with power from shore below:

Our conclusion back in 2019 was that floating offshore wind was a solution that can be matured for rapid deployment, and with potential for scaling up in order to have a material impact on the 2030 emission reduction targets.

We observe that the governments in both UK and Norway have come to the same conclusion. This is of particular interest in Norway where offshore wind is highlighted as the preferred solution for de-carbonisation. The new government stated the following in their accession document “Hurdalsplattformen”:

“The government will ensure further electrification of oil and gas fields, while simultaneously safeguarding sufficient renewable energy to new and existing onshore industries. Electrification of the Norwegian Continental Shelf shall to the greatest possible extent occur using renewable power produced on the Shelf”. (Our translation)

Similarly, Scotland has recently launched a fast-track process in parallel with Scotwind called Sectoral Marine Plan for Offshore Wind for Innovation and Targeted Oil and Gas Decarbonisation (INTOG). In the public consultation document, offshore floating wind is singled out as the preferred solution for reaching the ambitious de-carbonisation targets for oil and gas in 2030:

“Offshore wind is a large scale technology with the potential to play a pivotal role in Scotland’s energy system over the coming decades. The development of technologies such as floating wind, which offer scope for development in deeper water, have significant potential to contribute offshore wind energy supply at affordable prices. Floating technology is particularly well suited to the deeper water abundant around Scotland and in the vicinity of oil and gas infrastructure”.

Odfjell Oceanwind is in active discussions with most of the oil and gas operators in both the UK and Norway. It is apparent from these discussions that there is broad alignment between both the authorities and the operators of the fact that floating offshore wind is the de-carbonisation tool that can have an effect already in 2030. Consequently, there are agreed ambitions and a suitable solution. So how do we get started?

Enabling offshore floating wind to deliver on the 2030 emission reduction targets     

We have to recognize that there is a misalignment between the stated ambitions and the reality we operate in. We have addressed how the gap between stated ambitions and policies can be closed in countries that want to accelerate de-carbonisation in the article below:

This article concludes with recommending the introduction of predictable CO2 taxes, in addition to the less predictable quota system, a CO2 fund allocating parts of the CO2-tax proceeds to investment support, provision of innovation grants and fit-for-purpose regulations. These financial incentives have proven effective, but few nations have adopted this approach, including the UK. In general, fit-for-purpose regulations for the rapid deployment of renewable energy solutions are non-existent. It requires a significant amount of time and resources to work with regulatory issues in unchartered territory. Our impression is that regulators have adapted regulations suitable for multi-year processes for the development of wind farms only. In this context, there is plenty of time to conduct comprehensive impact assessments and area evaluations. Fit-for-purpose regulations for smaller, temporary near-field developments that could be deployed already in 2024, does not exist, nor is it on the agenda to prioritise this to enable acceleration of emission reductions towards 2030.

This is closely linked to the general infrastructure development strategy of many countries to build floating offshore wind resources. Many concept developers advocate for mega-scale systems with several power hubs to serve several fields, and with onshore grid connections to be developed in a concerted effort to achieve synergies. This is a typical “winner-take-all” approach that takes several years to mature due to the many stakeholders involved, complex commercial arrangements, consultation processes and more. We are quite confident that these solutions will take far too long to be able to have an impact towards the 2030 emission reduction targets. Regulators know that these mega-scale projects are not feasible before 2030, yet they have committed to these ambitious emission reduction goals. So what are the alternatives?

A more robust and proven approach to infrastructure development

An alternative approach is to start with smaller isolated pockets, field-by-field, and gradually evolve them into hubs. This is how the Norwegian gas infrastructure system, Gassled, was initially developed. Several field-specific pipelines, terminals and processing plants were developed by different operators and served dedicated fields at start-up. These infrastructure assets were eventually merged and pipelines like Tampen Link were added as the Gassled system became more integrated with both the Norwegian and UK gas infrastructure. Another example is how Tampnet’s offshore fibre infrastructure was developed in smaller incremental pieces before eventually evolving into an integrated system. Point being that the entrepreneurial fast-tracks can be achieved in smaller settings for rapid execution and impact, and then evolve into an integrated system with hub considerations to naturally follow at a later stage. It is important during design thinking to have this potential merger of systems in mind.

To put the design considerations above in context with reality, Odfjell Oceanwind can mature several projects with separate operators in parallel with field-specific, bilateral agreements for commencement of wind operations already in 2024, with scale effects to be realised up to 2030. However, if we are supposed to wait for larger regional solutions through consortiums with several operators, we will have to add several years due to governmental processes, multi-stakeholder management and negotiations adding both time and complexity. This would delay commencement to such an extent that we most likely would not be in operation before 2030 at the earliest. At that point, the ship has sailed for any contribution to the 2030 emission reduction targets.

We cannot escape the fact that there are large industrial conglomerates with a strong operating presence within oil and gas. They can leverage this position to mature regional power solutions to serve their own fields, often in cooperation with other industrial conglomerate players in the vicinity. Consequently, they can set up models where they are both on the producing and consumer side of renewable energy at the same time. In this context, fit-for-purpose and field-specific solutions hold no commercial merit, despite being superior in terms of emission reduction potential in light of 2030 targets, requiring less capital investments and lowering the cost of energy compared to “as is”.

This mix of roles in the offshore wind value chain may create unhealthy oligopoly situations with a few players completely dominating both the oil and gas and power supply infrastructure. This potentially limits market access for players independent from the conglomerates and may be detrimental to the development of alternative solutions that are economically and environmentally more sustainable.

From ambition to action

Floating offshore wind is the right de-carbonisation tool to deliver on the 2030 ambitions for the UK and Norway. There are a few enabling factors that must be in place for this to happen:

1) Commercial and legal frameworks need to be in place in order to enable floating offshore wind projects. Our recommendation is the introduction of predictable CO2 taxes, the setup of a CO2 fund, provision of innovation grants and fit-for-purpose regulations that will allow consenting of field-specific wind parks as part of the consenting for the petroleum activity.

2) The infrastructure design strategy needs to make room for small scale developments to ensure that a broad set of projects can be developed by a diverse set of industrial players, rather than the large regional hub projects that increase complexity, adds time and limit available projects to a few large players, with only a few alternative concepts being developed on a mass scale.

3) Fast-track processes are introduced for field-specific floating offshore wind projects meeting certain criteria. These criteria can include limited installed effect, power supply to a dedicated oil and gas license only, a temporary solution and no export to the onshore grid. This fast-track process can enable rapid industrialisation of floating offshore wind with different solutions being applied. This will strengthen capabilities and lower costs quicker, compared to waiting for the large scale developments from 2030 onwards.

4) Power from shore is disqualified as a de-carbonisation tool for oil and gas fields. The solution is suboptimal from a resource management perspective, and it doesn’t generate any new renewable power. This will ensure a full focus on floating offshore wind.

Action to meet the emission reduction targets is needed now. The president for COP26 and Minister of State at the Cabinet Office, Alok Sharma, put the situation very well into context with this statement ahead of the COP26 conference:

“We cannot wake up in 2029 and decide to slash our emissions by 50% by 2030”.

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Merete Lie Holen-1

 

 Merete Lie Holen co-authored this article. Merete Lie Holen is VP Sustainability and responsible for the sustainability strategy of the Odfjell Drilling group. She worked with corporate/M&A before joining Odfjell Drilling as legal counsel in 2014, and has held different positions in the company since. She holds a Master’s degree in law from the University of Oslo and is an Insead Global EMBA alumni.