A sectoral sustainable development study of the UK

A sectoral sustainable development study of the UK offshore oil and gas sector Professor Paul Ekins Robin Vanner Policy Studies Institute James Firebrace JFA Stakeholder Forum Tuesday 19 th April 2005 Church House, London 1

Objectives To develop a generic sectoral sustainable development methodology To deliver useful insights into important issues for the oil and gas industry sector 2

The UKOOA-PSI Study • Two year programme – April 2003 to March 2005 • Funding – PSI externally funded by EPSRC grant under DTI Sustainable Technologies Initiative – Much of UKOOA contribution in kind through data provision and industry analytical input • Staffing – One researcher + UKOOA and PSI Leads • Governance – Joint UKOOA-PSI Management Group, including representation from four companies 3

Project design • Development of a generic sustainable development methodology – Applicable to the oil and gas industry – And to other sectors, thus of wider public benefit • The application of this to four topical industry issues – Produced water (OSPAR 2006 target and potential further tightening) – Energy Use (EU emissions trading 2005) – Decommissioning (derogation of footings, future of drill cuttings /pipelines) – Social issues during transitions (key concern of some stakeholders) 4

Process Link to UKOOA Sustainability work (Striking a Balance) Issue Leads – Industry expert in the area – Follows the work and give guidance when discussed at MG Interest Groups – Each met once towards end of main research phase, when first draft produced Independent peer reviews of Working Papers – Expertise from outside the industry DTI (+OSPAR) – Understanding of regulatory pressures 5

Outputs • Final project seminar for industry in Aberdeen in March • Working papers completed on produced water, decommissioning, nearly completed on offshore energy use, social issues during transitions, in preparation on methodology. • Journal articles submitted on produced water, decommissioning. Further articles to be submitted on energy use, methodology • SPE article on produced water accepted, to be presented in September at Offshore Europe conference 6

Methodology 7

Sustainable development • Core of agreement, widespread differences in interpretation • Environmental, economic, social dimensions • Jacobs (1999) core: – – – environment-economy integration environmental protection futurity equity quality of life participation 8

A Sectoral Sustainable Development Methodology to enable businesses and industrial sectors: – To gauge whether or not they are using natural resources and the environment sustainably, the extent of their wider contribution to society; and – To find ways of improving their environmental and social performance that are most likely also to improve economic performance. 9

Methodology • Material flow analysis (environmental) • Energy flow analysis (environmental) • Value chain analysis (economic) • Relationship analysis (social) • Case studies (decommissioning, produced water, offshore energy use, initiatives related to transitions [especially in terms of employment]) • No attempt to value/weight and aggregate different impacts 10

Decommissioning 11

Introduction • Issue context: – 266 structures on the UKCS – 33 large fixed structures (topside, jacket, footings, drill cuttings, pipelines) – OSPAR presumption of removal of structure, possible derogation of footings > 10, 000 tonnes; no ruling on drill cuttings, pipelines – Estimated total real term costs of £ 8. 8 billion (UKOOA in 2002) – UK tax payer to pay between 30% and 70% of these costs via offset revenues (assumed to be 50% in report) • Study objective: – ‘Develop an understanding of the relationship between decommissioning options, costs and full cycle environmental impacts’ 12

Stakeholders • Seven kinds of decommissioning consideration • Rank order depends on stakeholder perceptions, preferences and priorities • No objectively right solution Political environment Technical feasibility Reputation Safety Regulatory framework Environmental impacts 13 Cost

Approach • Compare the various decommissioning solutions against a hypothetical ‘do nothing and monitor’ reference • Capture all of the various material and energy flows with their associated financial expenditures • Qualitatively assess the non-financial outcomes (- - / +++): – (1) clear seabed, (2) health and safety, (3) UK employment, (4) marine environmental impacts, (5) conservation of stocks of nonrenewable resources, (6) the impacts of resource extraction, (7) impacts of landfill, (9) impacts on the fishing industry, (10) and impacts on fish • Generate implicit valuations for non-financial outcomes • Results under journal peer review 14

Produced water 15

Introduction • Issue context: – Discharges of OIW are projected to increase in coming years – OSPAR recommends an OIW limit of 30 mg/l and an absolute reduction of 15% by 2006 – Esbjerg Declaration (endorsed by OSPAR) envisages: • ‘continuously reducing discharges, emissions and losses of hazardous substances from all sources, and endeavours to move towards the target of cessation of by the year 2020’ • The latter is interpreted to imply the injection of all produced water throughout the North Sea by 2020 • Study objective: – ‘Develop an understanding of the relation between reduction goals, costs and environmental impact, and an understanding of the practical meaning of ‘no harm’ and ‘precautionary action’ 16

Risk and the policy-making process Policy makers (OSPAR & DTI) Regulatory response Manufacturers of equipment Oil & gas Industry Abatement response Public, NGOs & scientists Marine discharges Materials, energy & money Waste & emission impacts Material flow Information flow (Thickness of arrow relative to level of information) Risk perception filter (personal or institutional) 17 Public, NGOs & scientists

Evidence of harm • Components of concern are polycyclic aromatic hydrocarbons (PAHs) and alkylphenols • Field studies have not identified any negative environmental effects from any components of produced water discharges • Assessments of risk based on modelling PEC: PNEC ratios suggest that no adverse or chronic effects on marine organisms would be expected from PAHs or alkylphenols found in produced water, except for areas very close to the discharge points • Outstanding concern for reef populations of fish around structures - needs to be better understood 18

Approach • Assessment in terms of material, energy and financial flows of different technologies – Filtration – Produced water reinjection (PWR): into existing nonproductive well, as pressure support for production, into new well – C Tour – Epcon • Only PWR can prevent all components of oil-in-water from entering the marine environment • PWR (unless used as pressure support) is most expensive option, and most energy-intensive option (with associated emissions) • Detailed results under journal peer review 19

Three precautionary approaches to produced water management 1. • 2. • 3. • • Maintain current standards of produced water management with additional targeted actions Implementation of the 30 mg/l limit, continued substitution of introduced chemicals with additional monitoring and research Maintain the current regulatory approach of reducing permissible discharges on an ongoing basis Provides theoretical reductions in risk, does not allow industry to plan their investments and the partial nature may not satisfy concerned stakeholders Reduce discharges of produced water to zero over the long term Would provide a clear message to the industry and satisfy concerned stakeholders Most expensive approach 20

Energy Use Offshore 21

Introduction • Issue context: – Emissions trading schemes place explicit financial value on gas fuel use – Falling levels of production require energy-intensive production support activities and techniques – Therefore, the Energy Intensity (EI) of oil and gas production can be expected to increase as the North Sea matures • Study objective: – ‘Develop an understanding of the industry’s use of energy at the various stages of the operational lifecycle and thereby generate insights into potential efficiency measures and performance indicators’ 22

Key parameters • • • – – – Process issues System operating pressure Systems throughput Topsides process stability Equipment issues Compressors, turbines, motors Electric submersible pumps Water injection Gas lift Equipment redundancy/reserve Facility modifications Sophisticated controls systems for turbines and compressors Operator focus ‘Real-time’ surveillance of energy use data Energy use as a performance target 23

Data and approach • 15 Shell facility case study datasets were compiled: – Only operational offshore energy use considered – Uncertainty about the accuracy of the energy use data before mid 1990’s and beyond 5 -year business planning timeframe • Datasets were re-base-lined and combined, so that all data could be plotted from ‘first year of production’ • Trend in Energy Intensity (GJ/GJ) were plotted by field type 24

Headline results LIFE OF FIELD Oil - 0. 7 to 2. 7% (mean = 1. 6%) Oil/Gas - 1. 4 to 3. 7% (mean = 2. 0%) Gas - 2. 3 to 6. 5% (mean = 4. 7%) 25

Historical data (oil) 26

Energy management staircase 27

Social Issues in Transition 28

Introduction • Study Objective – Review small number of company initiatives in the context of a mature industry in transition, and seek to better understand stakeholder issues relating to these transitions • Issue context – – – Peak UKCS production for oil and gas Past structural change (e. g. fabrication yards) Potential future synergies (e. g. offshore renewables) Corporate social responsibility (CSR) debates Integrating social with economic/environment into single SD methodology 29

Case study 1: The Post-Shearwater initiatives • • • Shell (+Exxon. Mobil/BP) in Tyne/Teeside in 2000 30, 000 employed in NE England at its peak Seen as last of the large UKCS structures Partnership (NOF, PNE, ONE) Two dimensions: – Support for local companies (major contractors + SMEs) towards export business and showcasing of region’s capability worldwide – Support for workforce via resource centres etc • Major leverage on ~£ 300 k • Yard won further large Shell contract (Bonga) 30

Case Study 2: My Future’s in Falkirk • Grangemouth, Scotland’s largest industrial site – 80 years old • 2001 restructuring to ensure sustainable future – loss of 1000 jobs • MFi. F set up to support economic diversification of surrounding region – 3 year partnership BP +Falkirk Council +Scottish Enterprise Forth Valley • Move from charity to focused outcome model – BP’s contribution conditional on leverage (£ 2 m generates £ 14 m public money +private investment) – Intellectual contribution seen as more important than the funds – Emphasis on education, training and skills 31

Case Study 3: Beatrice Windfarm Demonstrator • Talisman operated platform in Moray Firth with existing power cable to shore • Potential beginning of new generation of offshore windfarms in medium depth water (40 m) • 2 turbine Demonstrator (Talisman + Scottish and Southern Energy) as learning for potential 200 turbine (1 GW) windfarm • Public co-funding from EU, DTI, Scottish Executive • Social implications for skills and regional employment / economic impact 32

Methodology and Findings • Understanding corporate social actions in terms of relationships and mutuality • Sustainable development benefits to society – Shearwater: further contracts, skills diversification, lower unemployment, participation/social cohesion – MFi. F: regeneration/business opportunity, skills transfer, local economic development experience – Beatrice: energy transition (new industry/skills/ employment, need to local participation) • Benefits to the business – ‘Licence to operate’, reputation (global, national, local), regulator relationships, potential competitive advantage from heightened morale, employee commitment, understanding of social concerns and expectations 33

More general conclusions • Expectation management needed on extent of role industry can play in transitions • Potentially important contribution as – Challenger of assumptions, market realism, data – Contributor of focus, discipline, innovation, impetus and leadership • Doesn’t need large amounts of funds – High leverage possible – Could involve senior staff time • Needs understanding of other realities (supply chain, local communities, environmental/social concern) 34

Issues for Discussion 35

Issues for discussion • Feedback on methodology used • Feedback on results/assessment where available • Implications of the conclusions for stakeholders (industry, regulator, local communities, NGOs) 36