Future oil and gas development in the North Sea may be facing its “death knell” after colossal fossil Royal Dutch Shell announced Friday that it is withdrawing from the controversial Cambo oilfield off the Shetland Islands.
The project had been one of a litany of embarrassments for the Boris Johnson government in the lead-up to the COP 26 climate summit in Glasgow. U.K. environmental law charity ClientEarth had threatened legal action, and one cabinet secretary ludicrously suggested the project would not be a major climate risk because the petroleum it would produce—and the carbon dioxide emissions it would embody—could sit in barrels rather than being burned. Even so, the U.K. was widely expected to approve the oilfield, whose capacity has been estimated at between 255 and 800 million barrels, in the weeks after the COP.
But now, “sources said Shell’s project partner, the private equity-backed Siccar Point, would struggle to find another partner to take on Shell’s 30% stake in the new oilfield,” The Guardian reports. “Shell’s retreat has cast doubt over the future of a project that could yield hundreds of millions of barrels of oil, and sources say it raises fresh doubts over the North Sea’s future large-scale oil projects, too.”
While Shell’s public position on the project is that the “economic case for investment” was not strong, The Guardian says the company stepped away after the government called for “climate concessions” before it would approve the project.
“This is a turning point,” one industry source told the paper. “Companies will be thinking: if Shell can’t do it, can we? I just don’t see any truly large-scale projects being sanctioned in the North Sea any more. There will still be small developments around existing fields. But this is a death knell for major new projects in the UK.”
The source added that “there are no listed oil companies which would look seriously at this project, and the private companies don’t typically have the track record in project development which Shell brought to the table.”
But with the Aberdeen and Grampian Chamber of Commerce calling for what it calls a “reasoned debate” on oil and gas extraction and the jobs it creates, BBC climate editor Justin Rowlatt says it’s premature to write the North Sea oil and gas industry’s obituary.
“Whatever Shell says in public, this is about reputational cost, not conventional economics,” he writes. “Battling environmentalists and the Scottish government for the right to drill for oil is not a good look for a company that claims to be transitioning away from fossil fuels.” But with oil currently selling at US$70 per barrel, “there are lots of less high-profile companies who would be willing to suffer some bad publicity for a cut of that prize.”
Which means “the real question Shell’s decision raises is whether the U.K. government is willing to put its net-zero ambitions ahead of the huge tax revenues the project could deliver and deny a licence to develop the oilfield.”