Mark WIlliamson: Cambo U-turn will not help cut emissions

After pressing on with plans to develop Cambo in the face of fierce opposition from the green lobby, Shell shocked the industry with the announcement last week that it had decided not to go ahead.

In late October chief executive Ben van Beurden had made the case for Cambo with some force on a call with journalists.

READ MORE: Shell boss defends plan to develop Cambo find and declares North Sea is 'outstanding' basin 

He observed: “If you say we’re not going to develop our national resource in a basin that has one of the most progressive regulations when it comes to the energy transition, done by a company that is going to use some of that cash flow to actually drive the energy transition in other parts of the energy system … let us just import it from elsewhere – how does that make sense?”

Shell has said it will use the profits generated from oil and gas activity to fund investment in the cleaner energy systems the world needs, along with increased payouts to investors.

This week the group declined to elaborate on the short announcement it made regarding the change of heart about Cambo.

In this Shell said: “After comprehensive screening … we have concluded the economic case for investment in this project is not strong enough at this time, as well as having the potential for delays.”

The most telling part of that statement may be the reference to the potential for delays. Shell bosses probably concluded the company had little to gain by pressing on with a project that could be complicated by the action of campaigners when it has plenty of other things to do with its money.

The likes of Greenpeace have shown they can secure funding for costly legal cases and take direct action offshore in their efforts to try to slow work on North Sea projects.

READ MORE: Campaigners cleared to take Government to court over support for oil and gas industry 

Shell may have been more prepared to press on with Cambo had it received clearer indications of official support for a project that could generate big economic benefits. Its partner in the licence concerned, Siccar Point Energy, reckons the Cambo development could create around 1,000 skilled jobs directly and support thousands more in the supply chain.

The UK Government has the authority to decide whether or not North Sea projects go ahead.

However, First minister Nicola Sturgeon’s recent decision to say that Cambo should not be approved, after months of prevarication on her part, must have been greeted with dismay in the Shell boardroom.

Ms Sturgeon’s statement indicated she thinks there are more votes to be won among the under-30s the SNP is targeting by pandering to green campaigners such as Swedish teenager Greta Thunberg than by promoting the interests of an industry which has long been a mainstay of the Scottish economy.

Ms Sturgeon fought the 2014 independence campaign alongside erstwhile first minister and SNP leader Alex Salmond on the promise that North Sea oil and gas would assure a prosperous future for Scotland.

Anyone who asks now how the Scottish Government proposes to manage without the tax revenues it expected to reap from the North Sea is likely to be dismissed as an agent of “Project Fear”. 

READ MORE: Scottish energy giant in war of words as activist investor calls for shake-up

Shell has said it remains committed to the North Sea and left open the prospect it could think again about Cambo in future. It seems unlikely though that it will be in a hurry to take on the challenges involved.

Siccar Point remains a firm believer in the value of the project but could face an uphill struggle if it wants to find another firm to take Shell’s place following recent events.

Shell chairman Sir Andrew Mackenzie grew up in Kirkintilloch near Glasgow

The fear for champions of the North Sea industry will be that firms which are considering developing some of the other huge undeveloped finds off Shetland will lose interest in them.

These include Rosebank, which has been described as the largest undeveloped find in UK waters. Norwegian oil giant Equinor showed its belief in the potential of the field just two years ago by acquiring Chevron’s stake in the asset.

READ MORE: Plans to develop billion barrel find off Shetland set to be revived

In April EnQuest breathed fresh life into hopes that the billion barrel Bentley find off Shetland could be developed when it acquired control of the field in a multi-million dollar deal.

The future of fields that would require firms to complete big greenfield developments will remain uncertain at least until the Westminster Government makes it clear whether they are likely to win approval.

What seems clear, however, is that global demand for oil and gas will increase in coming years given expected growth in the economies of huge countries such as China and India and associated lifestyle changes.

Last week Bank of America Merrill Lynch predicted the price of Brent crude would average $85 per barrel in 2022, against $70/bbl this year, citing the recovery in demand following the pandemic. It cautioned: “Spot prices could rise to $120/bbl by mid-year as a strong global air travel season kicks off.”

As the UK does not generate anywhere near enough renewable energy to meet the total demand for power of the country’s households and businesses, the failure to develop fields like Cambo will probably mean it has to increase imports, potentially from areas in which production methods entail higher emissions.

Lots of work is being done to help cut emissions associated with UK production.

This week Orcadian Energy won funding from the regulator to  evaluate an approach to the electrification of North Sea oil and gas platforms which it reckons will dramatically cut carbon emissions.

READ MORE: Orcadian eyes oil field development off Aberdeen as regulator highlights potential of North Sea

Orcadian has won investor backing to help advance plans to develop the Pilot oil find, which is smaller than Cambo.

Despite the uncertainty caused by the Cambo controversy, overseas investors have bought big North Sea portfolios in recent weeks. NEO Energy, which is backed by Norwegian investors, acquired JX Nippon’s UK North Sea assets in a $1.7 billion deal. Israeli-owned Ithaca Energy bought Marubeni’s North Sea business in a deal worth up to around $0.4bn.

The buyers clearly believe they will have no problem selling the millions of barrels of oil and gas they will acquire through the deals.

Against that backdrop, firms may be prepared to invest in relatively small scale North Sea developments that can be tied in to existing facilities. These will provide only limited help for the hard-pressed supply chain in the area.

Meantimes, booming investment in renewables in Scotland fails to provide the expected boost to jobs.

Last week SSE announced that it will help fund the development of what it billed as the UK’s largest offshore wind tower facility at a former oil rig fabrication yard at port of Nigg on the Cromarty Firth.

READ MORE: Boss of giant Torness nuclear power station hails record performance by East Lothian plant amid pandemic

Ms Sturgeon hailed the investment as “ truly transformative”.

The plant is expected to support the creation of up to 400 manufacturing jobs.

But a wind turbine factory in Campbeltown, Argyll, which once employed around 100 people, closed earlier this year.

Fife-based Buntisland Fabrications (BiFab) went into administration in December last year after missing out on work on giant windfarms that are being developed off Scotland.

The Scottish Government came under fire for not providing enough support for BiFab but claimed that its hands were tied by rules on state aid set by the EU.