Gas output up off Aberdeen amid Dundee renewables jobs fears

Shell has underlined the potential to produce lots more oil and gas in the North Sea amid fresh concerns that the long-awaited boom in renewables jobs will fail to materialise.

The London-based giant has just completed a revamp of a mature field that will unlock significant gas reserves and is preparing to drill an exploration well targeting a big prospect with a relative minnow.

The moves come after smart battery maker AMTE Power apparently raised the prospect that it could build a megafactory planned for Dundee in the USA instead to capitalise on the lucrative subsidy schemes introduced by President Biden.

They could increase pressure on new First Minister Humza Yousaf to rethink the opposition to exploration in the North Sea expressed in its new energy strategy.

The extended consultation process on the strategy ends on May 9.

Mr Yousaf has already backtracked on key policy commitments made by his predecessor Nicola Sturgeon in respect of the controversial bottle recycling scheme and the proposed National Care Service.

However, Mr Yousaf needs to keep the Scottish Greens onside as he tries to maintain his grip on power amid the financial crisis engulfing the SNP.

The energy strategy says Scotland must accelerate efforts to reduce its dependence on fossil fuel by developing renewable energy sources, on environmental grounds and because North Sea oil and gas output is in natural decline.

However, Shell and others have provided fresh evidence that there is still lots to go for in the area.

Shell restarted production from the Pierce field east of Aberdeen following a ‘significant upgrade’ that will allow it to produce gas as well as oil from the asset.

The upgrade, will allow Shell to capitalise on the surge in oil and gas prices fuelled by Russia’s war on Ukraine.

The additional 15,000 barrels oil equivalent peak production it will facilitate will be worth around $500 million a year at current prices.

Friends of the Earth Scotland complained last week that the government’s energy strategy contained “pie in the sky” claims about the export potential of hydrogen.

By contrast, Pierce shows how oil firms can utilise advances in exploration and production technology to squeeze significant amounts of additional resources from fields that have been in production for some time.

The project provided valuable work for the supply chain.

Industry body OEUK said output from Pierce would support the energy security drive in the UK, which it reckons needs to maintain the hunt for more oil and gas as low-carbon technologies are deployed.

In the announcement of the Pierce restart Shell rehearsed concerns that the windfall tax imposed last year raised questions about the attractiveness of the UK as an investment location.

However, the company has sent clear signals that it may still develop new fields in recent months.

In October it acquired control of the Victory find off Shetland from Reabold Resources.

Shell has just made a bumper gas discovery with Deltic Energy with a well it started drilling in November. The windfall tax rate was increased to 35% that month, from 25%.

Deltic said last week that it plans to drill a well on another big North Sea prospect with Shell next summer. Deltic has a stock market capitalisation of around £35m compared with Shell’s £168 billion.

A firm that achieved dramatic growth in production after acquiring North Sea assets amid the last downturn has also highlighted the potential to make new finds, while boosting output from existing assets.

Serica Energy recently posted £178m annual profits, up from £79m last time. This was despite its tax bill rising to £278m, from £16m.

In its results announcement, chief executive Mitch Flegg lamented the windfall tax but said Serica still expects to invest in growth in the North Sea.

The company increased its presence in the area significantly in December through the £370m acquisition of Tailwind Investments.

Serica said it plans to invest in growing output from producing assets acquired with Tailwind as well as fields bought previously from BP.

Swiss energy trading heavyweight Mercuria became a significant investor in Serica through the Tailwind deal.

While Serica suffered disappointment recently with the North Eigg exploration well, it is drawing up plans to drill one on the Skerryvore propect.

 Meanwhile, Kistos noted last month that exploration costs can be reduced significantly in UK waters under the generous investment allowance introduced alongside the windfall tax. The company is drilling a well off Shetland with TotalEnergies.

 Kistos announced last week that it was expanding into Norway claiming windfall taxes created barriers to growth in the UK and the Netherlands.

However, firms pay a 78% tax rate in Norway. They pay 75% in the UK, including standard corporation tax.

Signs the North Sea has more to offer on the oil and gas front than the Scottish Government recognises have been accompanied by reminders that renewables may not represent the panacea that some think.

While US private equity fund Quantum has just committed £300m to support plans to turn Ardersier port near Inverness into a major windfarm support hub, job creation in the renewables sector in Scotland has fallen well short of expectations in recent years.

As a result, AMTE Power’s announcement in July that it planned to build a battery factory in Dundee that would employ 200 people was well received.

 In March the company secured £580,000 loan funding from Highlands and Islands Enterprise.

However AMTE’s chief executive Alan Hollis told Sky News that it was very difficult to justify keeping production in the UK given the incentives being offered to companies to make green technology in the US under the Inflation reduction Act championed by President Biden. The act has caused alarm across Europe.

 Mr Hollis has said AMTE wants to remain in the UK and is committed to its existing Thurso plant. However, the stock exchange-listed firm will be obliged to consider other options.

Mr Hollis’s comments put pressure on the Scottish and UK governments to ensure they provide the right support for renewables firms.

In response Roz Foyer, general secretary of the Scottish Trades Union Congress, said that after years of failed promises on green jobs from UK and Scottish Governments the vital work offered by AMTE for Dundee had to be retained.

But talk of providing increased subsidies for renewables firms may concern those who remember how much money Scotland handed to overseas corporations such as the Chunghwa television group to encourage them to launch projects that failed to deliver anything like the benefits expected. 

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