Where the energy transition converges

E-FWD executive summary:

• Floating offshore wind generation will be an essential tool in decarbonising the UK’s offshore oil and gas industry.
• The Innovation and Targeted Oil & Gas (INTOG) leasing round, launched by Crown Estate Scotland, exemplifies the collaboration required if the UK’s energy transition is to be successful.
• Only those oil and gas assets with at least 10 years of production life remaining, once wind generation starts, are likely to be economically viable to electrify.
• Accelerating the permitting of floating offshore wind farms increases the carbon abatement opportunity.
• If Scotland maintains its first mover advantage in floating offshore wind it could export that expertise across the globe, helping other countries decarbonise their offshore oil and gas assets too.

Electrification is the single biggest opportunity to decarbonise the UK’s offshore oil and gas sector and meet the targets outlined in the North Sea Transition Deal (NSTD). Combustion of natural gas and diesel for power generation accounted for almost 80% (8.4 Mt CO2) of offshore emissions from the UKCS in 2022. This far outweighs gas flaring (16% of emissions), venting (4%), and other non-combustion processes (2%).

There are two main ways to electrify the UKCS: offshore platforms could receive power from the mainland using a network of transmission cables, or operators could generate electricity using floating offshore wind turbines. These are not mutually exclusive and a combination of the two could offer the most feasible option for some installations.

That said, floating wind generation offers some crucial advantages compared with powering platforms from the mainland. The price of power from floating wind generation is cheaper than having to take the merchant power price via the grid. There is less need for infrastructure that could end up being redundant when the platforms reach decommissioning – especially important in a declining basin such as the North Sea. Floating wind farms can even be repositioned to where demand for power from the offshore oil and gas sector is greatest.

Norway leads the way

There is only one offshore wind farm currently being used to generate electricity for offshore oil and gas production. The Hywind Tampen wind farm in the Norwegian North Sea, is the world’s largest, with 11 giant turbines and a nameplate capacity of 88 MW. Power from the wind farm – which started operations in August 2023 – is expected to cover about 35% of the annual electricity demand from the Snorre A and B and Gullfaks A, B, and C platforms.

Equinor owns and operates both Snorre and Gullfaks oil and gas platforms and the floating wind farm. The wind farm is based on Equinor’s 30 MW Hywind Scotland facility, which became the world’s first floating wind farm when it went live in 2017.

The Norwegian offshore oil and gas sector benefits from being connected to the mainland electricity grid, coupled with the existence of a large integrated fossil fuel and renewable energy company that can develop, finance and commission such a technologically demanding project.

A different approach is required in the UK.

Summonsing the C-word

If the essence of E-FWD could be boiled down to a single word, it would be collaboration. As we spelt out in a recent article, the UKCS energy transition will only take place if disparate segments of the energy industry adopt an abundance mindset, rather than a zero-sum approach. Collaboration will enable the UKCS to move faster towards net zero, and lead the rest of the world towards decarbonising the oil and gas industry:

“There is no winner-takes-all technology in the energy transition. Hydrogen, power-to-X, carbon capture utilisation and storage (CCUS), and oil and gas electrification are all interdisciplinary endeavours. They defy sectoral boundaries, necessitating a collaborative ethos that transcends the isolationist tendencies inherent in the conventional energy landscape.”

E-FWD, ‘What is being created is critical’

There are already some great examples of collaboration happening, bringing previously siloed segments of industry together to move the UKCS energy transition forward. For example, in response to demand from industry and government to meet the North Sea Transition Deal (NSTD) decarbonisation targets, Crown Estate Scotland launched the Innovation and Targeted Oil & Gas (INTOG) leasing round. INTOG was the world’s first leasing round designed to enable offshore wind energy to directly supply North Sea oil and gas platforms located in Scottish waters.

The leasing round allowed developers to apply for seabed rights to develop offshore wind projects that either reduce emissions from the North Sea oil and gas sector (TOG) or consist of small-scale innovative (IN) projects of 100 MW or less. In November 2023, Crown Estate Scotland announced that a total of 12 projects have now been approved and can now move into development stage. The proposed projects include up to 449 MW of capacity for IN and up to 5 GW for TOG.

Once one project can demonstrate that it is economically viable, then others are likely to follow in its wake.

Earlier in 2023, Cerulean Winds, one of the biggest players in offshore wind power for oil and gas platforms, revealed plans to build the North Sea Renewables Grid (NSRG) along with consortium partners. An offshore integrated green power and transmission system, the NSRG will allow offshore oil and gas platforms to access 3 GW of floating wind generation capacity. Cerulean Winds secured most of the capacity on offer in the INTOG leasing round and is slated to begin generating power in 2028.

The best of both worlds

Gigawatt-scale projects such those being developed by Cerulean will also be linked back to the shore via High Voltage Direct Current (HVDC) cable. The problem of intermittency is solved by being able to access power from the grid, while the wind farm will also be able to sell power back to the grid whenever there is surplus power generation.

INTOG has been instrumental in moving the UK’s use of floating wind for oil and gas decarbonisation forward according to Jamie MacDonald, Head of Offshore Renewables at global energy consultancy Xodus.

“[Before INTOG] it wasn’t clear where the use of floating offshore wind to decarbonise oil and gas sat from a regulatory approval perspective…There wasn’t that clarity. INTOG was essentially a government intervention. They inserted a process that brought together those opposing industries. There really is nowhere else in the world where that’s been done.”

Decarbonise or decommission?

According to analysis by Xodus, floating offshore wind generation only really makes sense for oil and gas platforms that have 10 or more years of production left. It’s only then that operators can get a return on their investment. This will vary from asset to asset depending on the available reserves, as well as their process systems – for example, whether the platform needs to generate heat as part of its oil and gas process systems.

Every year that can be taken off the floating wind development time increases the opportunity for the UKCS to cut production emissions.

However, challenges remain, not least the long development time horizon. MacDonald estimates that floating offshore wind project development is “at best a 7-year horizon, but more likely a 10-year horizon,” and so once you add on the 10 years or minimum that it takes projects to become economical from an oil and gas perspective, “you start looking at decarbonising assets that have got a 20-year life.”

Out with the old…

How big an impact could floating wind have on UKCS decarbonisation? The first step is identifying those oil and gas assets that have at a minimum of 10 years, but ideally at least 17-20 years of production life remaining. That’s difficult as estimated cessation dates for individual production assets tends to be a closely guarded secret, and one that could change significantly depending on how energy prices and technology evolve.

Looking at the overall basin, the most recent projections by the North Sea Transition Authority (NSTA) suggest that oil and gas will continue to be extracted from the UKCS until at least 2050, albeit in much smaller quantities. However, that doesn’t really tell us what proportion of could potentially be electrified using offshore wind. Nor does it say much about production and current emission intensities.

Economic modelling of UK assets, published by Westwood Global Energy Group in 2022, estimated the number of oil and gas hubs that are at risk of closure by 2030 under a range of oil price scenarios. Their base case scenario (which assumed $65 per barrel and 47p per therm) resulted in the number of UK operational hubs declining by more than half, from 78 in 2022 to 37 in 2030.

Only a subset of these remaining platforms is likely to be suitable for offshore wind, based on their distance from the shore, how far they are from other hubs that have been electrified, and the wind generation potential of their location.

…in with the new

On the face of it that suggests the impact of floating wind could be limited. However, limiting the potential to just those assets currently operational would be a mistake.

In addition to the North Sea, the West of Shetland region is also expected to be an important area where floating wind can contribute to decarbonisation. It’s here for example that Rosebank, the first major new field to be approved by the UK government, is in the process of being developed with first oil expected around 2026/27.

Accelerating the development timescale, for example by ensuring regulations are in place that can speed up permitting, will be key to maximising the opportunity to electrify UKCS assets – both existing and upcoming – through floating offshore wind. Every year that can be taken off the development time increases the opportunity for the UKCS to cut production emissions.

The price is right

The first gigawatt-scale project to generate clean electricity for the offshore oil and gas industry is expected to be the Green Volt floating wind farm. The operation stands to benefit from an increase in the maximum price for the next Contracts for Difference (CfD) auction, scheduled to take place this year.

In November 2023 the UK Government raised the maximum strike price for floating offshore wind projects by 52%, from £116 per MWh to £176 per MWh, for The sixth allocation round (AR6). The boost could persuade oil and gas developers that floating offshore wind projects can be economically viable.

Operators that have previously been hesitant to commit to a particular TOG project given uncertainty about the price points are now more likely to move forward with developing floating wind generation capacity. Once one project can demonstrate that it is economically viable, then others are likely to follow in its wake, unleashing “a program of projects, rather than this piecemeal approach that we have seen to date,” according to MacDonald.

The export opportunity

The discovery and exploitation of oil and gas under the North Sea in the 1980s signalled to the world that energy exploration and production in the most inhospitable areas of the planet was economically and technologically viable. Scotland’s first mover advantage means it could export its expertise across the globe.

Scotland could now become a test bed for a new technological development. A recent report from RenewableUK, the renewable energy trade association, predicted that it could account for over half of the UK’s offshore wind generation by 2050.

Not limited to domestic waters, floating offshore wind generation could be the next technology that Scotland’s industry can export. From less than 250 MW currently, global floating offshore wind generation capacity is expected to reach 300 GW over the next three decades.

Rather than helping other countries extract more and more oil and gas from inhospitable waters, this new technology could enable Scotland to lead the world in decarbonising offshore oil and gas production that is slated to be developed in spite of climate and emissions targets.