Oil and gas sector licence to operate under threat

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gas pipes valves

The oil and gas industry’s “social licence to operate is under threat and there is no scope for a second chance”. Strong words that sound like they could have come from a left-wing politician or an environmental campaigner. Read on for more details from the Switch.


Who made the threat to fossil fuels?

Oil and Gas Authority (OGA) chairman Tim Eggar alerted an audience of extraction company elites and government ministers to the looming danger.

Mr Eggar was addressing a meeting of the Maximising Economic Recovery UK Steering Group, which brings industry and politicians together to decide how to squeeze the most money out of the UK’s fossil fuel resources.

Attendees were told the industry had to “act much faster and go farther in reducing its carbon footprint.”

Mr Eggar, a long-term user of the revolving door between industry and Westminster, was announced as the OGA head in March 2019.

The OGA is an economic regulator set up in 2015 by the Department for Business, Energy and Industrial Strategy to manage and promote the UK’s fossil fuel extraction industries and help them to maximise their economic potential.

He said the industry had changed much in the last 25 years, but that “the biggest challenge though has been the speed of the shift in public and industry opinion on climate change.”

“I have been involved one way or another in this industry for over 40 years. I have been through a number of oil price cycles but I cannot remember anything like the industry rethink of the last few months,” he said.

"Clearly, climate change is happening right now. That debate is over. The framework, the licence to operate for the industry, has changed fundamentally and, unlike the oil price, forever."
- Oil and Gas Authority Chairman, Tim Eggar


Where does the industry stand?

The former MP said that public opinion on climate change, and the UK’s legally-binding commitment to net-zero emissions by 2050 meant the OGA, along with every fossil fuel company, had to work towards the goal.

Despite some companies promising carbon reduction targets, reducing waste and experimenting with carbon capture, he complained that the public and the media continued to see oil and gas companies as part of the problem rather than part of the solution.

“Industry is not even really in the argument never mind winning it,” he warned.

“It is, in my opinion, collectively not doing enough and its social licence to operate is under serious threat.”

He advised that “ambitious thinking, capital investment and bold leadership” are needed to speed up the transition towards a cleaner and more efficient way of extracting fossil fuels.

"The oil and gas industry should be the leader in developing some of the solutions to tackling climate change, rather than continuously being seen as the problem or the blocker."
- Oil and Gas Authority Chairman, Tim Eggar

The chairman said it was “quite feasible” for the UK’s oil and gas fields to become carbon negative by 2050.

This doesn’t mean the firms are going to start leaving fossil fuels in the ground and sealing their mines and wells.

Rather he believes their extraction processes can be made greener and more efficient.

“It goes without saying that industry has to reduce its own production emissions further – driving to net zero carbon from operations,” he said.

Highlighting the November COP26 in Glasgow as a sort of veiled threat, Mr Eggar said it was not the time to be waiting on anyone else.

He warned the companies must come up with a “a compelling package of measures” well before the UN climate conference.

methane gas flame

Among the goals he suggests are a commitment to “clear measurable greenhouse gas targets,'' a substantial reduction in methane emissions and the initiation of two or more major Carbon Capture and Storage projects.

He went on to call on the government to develop a comprehensive policy on Carbon Capture, Utilization and Storage (CCUS) and deliver “a firm and verifiable plan for industry.”

Capturing carbon emissions, transforming them and storing them is an initiative he believes could make the extraction process carbon negative, but the government must take the lead. So much for “not waiting on anyone else.”


What else was said about the oil and gas industry?

Profits from oil and gas do “not need to be in conflict with the transition to net zero,” he claimed.

“They can and should be fully integrated. That’s why this year the OGA intends to fully integrate net zero into our requirements.”

The OGA also plans to investigate the issues of flaring and venting, a common practice of burning off or releasing excess gases into the atmosphere.

Done for safety reasons, to avoid explosions or leaks, and to get rid of commercially non-viable gases, it also leads to drastic reductions in air quality around facilities and contribute to climate change.

More integration of renewables, electrification, CCUS and hydrogen is in the works too.

While industry could expect an increased levy to cover the cost of the plans, he reassured his audience that the authority’s core work and “business as usual” would continue.

However, towards the end of his address he returned to the theme of playing catch-up with popular sentiment.

“Real leadership right now is vital if industry is to convince the public and politicians of our relevance; if we do not do so we cannot hope to thrive, compete for talent or continue to access capital,” he said.

“You are now facing a more fundamental challenge; a challenge outside your comfort zone. If together, we do not surmount it we will all be doing the world’s environment a major disservice.”


Can fossil fuel companies really go “carbon negative”?

The extraction companies appear to be feeling the heat from the climate emergency at last.

Mr Eggar’s advice follows dire predictions made by the outgoing head of the Bank of England and new UN special envoy for climate change and finance, Mark Carney.

Mr Carney warned the financial sector that the climate emergency meant money tied up in fossil fuels could soon be at risk of becoming worthless.

“Up to 80% of coal assets will be stranded, up to half of developed oil reserves,” he said.

"A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan?"
- UN Special Envoy, Mark Carney

Universities, pension funds and other organizations have started taking their investments out of fossil fuel energy companies.

Goldman Sachs has announced it will not fund any prospecting for oil in the Arctic or lend any money for new coal mines.

The European Investment Bank will not finance any new coal, oil or gas projects from the end of 2021. Other banks across the world have announced similar policies.

At first glance, cleaner processes for companies which profit from digging up fossil fuels and selling them on may well seem like a good thing.

In the long term, it smacks of greenwashing in the extreme. All those adverts showing beautiful forests, clean oceans, happy dolphins and smiling children sponsored by Shell, BP or Total were about retaining a “social license to operate” too.

The fossil fuel companies can work towards carbon negative extraction all they want, but at the end of the day their profits come from people burning oil, coal and gas to heat their homes, cook their dinners and run their businesses even though alternatives exist.

It’s only by abandoning dirty fuels completely that significant progress can be made towards forcing these companies out of the emissions business.

The Switch is here to help you, your family and friends make that possible. We can help you make the switch from fossil fuels and start using 100% renewable energy today.

by Damien Crossan

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