AS oil and gas firms grappled with the turmoil caused by the crude price plunge an announcement by the North Sea regulator last week stoked controversy about the industry’s role in climate change.

The Oil and Gas Authority said it was revamping its strategy to include a requirement for the industry to help the UK Government achieve the target of net zero greenhouse gas emissions by 2050.

The announcement seemed to raise the prospect that the regulatory regime could be beefed up to extend well beyond the existing health, safety and environment rules that firms have to comply with.

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The OGA said that under its updated strategy relevant persons would be required to “reduce as far as reasonable in the circumstances greenhouse gas emissions from sources such as flaring and venting and power generation” and to support carbon capture and storage projects.

The OGA appeared to be clear that any increase in formal responsibilities associated with the net zero drive could be accompanied by significant commercial opportunities.

Chief executive Andy Samuel said: “The Government’s commitment to reaching net zero greenhouse gas emissions by 2050 provides an opportunity to the oil and gas industry, which should be well- placed to play a leading role.”

This could include drawing on the capabilities of oil and gas firms to help maximise the potential of technologies such as carbon capture storage and usage and hydrogen fuel production.

The OGA opened a 12-week consultation period which will allow firms to have input in the development of the strategy.

However, it soon became clear that opinions about the move had already divided along predictable lines.

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The UK Government welcomed the announcement.

Minister for Energy and Clean Growth, Kwasi Kwarteng said: “I share the Oil and Gas Authority’s view that encouraging and supporting the sector to minimise carbon emissions will be increasingly important as we emerge from Covid-19 and focus on supporting a clean recovery of our economy.”

Climate change campaigners gave the plan short shrift.

“The Oil and Gas Authority’s plan to achieve net zero is unworkable, because it demands a continued reliance on fossil fuels, which is destroying our climate - what we really need is a zero carbon economy,” declared Mel Evans, senior climate campaigner for Greenpeace UK,

She added: “To protect our future, the OGA must stop exploration for new oil and gas and retire North Sea assets. Industry workers must be supported to reskill and find good, well-paid jobs in sustainable sectors as we move towards a renewable energy economy.”

Some might feel that Greenpeace is always likely to take a sceptical view of any pronouncement on climate change that is made by the OGA. The organisation was formed amid the official drive to help support the North Sea industry in the fightback following the downturn triggered by the last crude price slump.

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Maximising the recovery of the North Sea’s oil and gas reserves has been the OGA’s core purpose since day one.

As the body has been operating since 2015, the decision to wait until now to make supporting the transition to net-zero a core part of its strategy may have strengthened the hands of critics.

Andy Samuel noted last week that even before the coronavirus and resulting oil price slump the industry was facing questions about its “social licence to operate” regarding its role in climate change and changing public opinion.

The OGA’s chairman Tim Eggar warned as long ago as January that threat was serious.

Against that backdrop there will be concern that when announcing the strategy change the OGA felt obliged to underline its view that the industry needed to go considerably faster and farther in reducing its own carbon footprint.

When industry body Oil & Gas UK launched its Roadmap to 2035 strategy update in September last year it highlighted the need to reduce the emissions associated with production.

In the months since then some firms have done work in areas such as using renewable energy to power offshore installations but there have not been dramatic changes.

It is notable that much of the production in the North Sea comes from mature fields linked to ageing infrastructure.

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Spending on the kind of upgrade work required to reduce emissions from these may not be a priority for firms that are looking to save every penny possible following the oil price plunge triggered by the coronavirus.

There could be forceful lobbying against any proposals that might be seen to increase the burden on firms.

Some may worry that increases in regulatory costs could increase the chances of fields being shut down.

Greenpeace might argue that that would be no bad thing, in terms of the environment.

Spending on the kind of exploration work the organisation wants to be halted is likely to be cut to the bone.

But there have been signs that there has been a shift in thinking about the importance of climate change issues at some oil giants, which may withstand the pressures resulting from the current market turmoil.

In April Royal Dutch Shell announced plans to become a net zero business by 2050.

These will involve the company cutting its own emissions and working with firms in the supply chain to help reduce those associated with use of its products.

The announcement came as it became increasingly clear that the industry was facing a crisis amid the intensifying fallout from the coronavirus.

It was welcomed by investor groups that have used their clout to try to get firms to do more to tackle climate change, including the Church of England Pension Board.

Shell hails potential of bumper Shetland field after oil giant slashes dividend

Two weeks later Shell turned heads by announcing plans to cut its dividend by 65 per cent after suffering a near 50 per cent drop in first quarter profits.

The dividend cut was the first Shell had made since World War Two.

Chief executive Ben van Beurden said the company had made the move after considering the interests of a range of stakeholders.

He said it was necessary to ensure Shell could continue to invest in areas that will underpin growth in future earnings, including renewable energy.

Shell will continue to produce the oil and gas it reckons will be needed to power global economic activity until enough clean energy capacity is installed. But oil and gas will become a smaller part of its business over time.

As Mr van Beurden noted that Shell’s current business plans have not yet been adapted to reflect the net zero ambition, the dividend move is unlikely to silence the critics.

Shell will face close scrutiny when it updates on its plans later this year.

The decision to cut payouts to investors had huge symbolic importance nonetheless.

It reflected a recognition that companies could no longer expect to be able to fund ever increasing returns for shareholders simply by investing in oil and gas.

Sector-watchers said it could put pressure on other giants to follow suit.

Tom Ellacott at oil and gas consultancy Wood Mackenzie said: “Shell’s dividend cut has thrown down the gauntlet to the supermajors. BP, Chevron, ExxonMobil and Total are due to pay out US$41 billion of dividends in 2020. Combined pay-outs would fall by US$27 billion if they all cut by 66%.”

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However, BP increased its first-quarter dividend after unveiling plans in February to become a net-zero company by 2050.

Chief executive Bernard Looney told the FT on Tuesday that he thought demand for oil may have peaked.

He noted there was significant interest in what the company might do on the dividend front but gave no indication what its next move would be.