English version
Third life for the North Sea
Text by Rob van 't Wel, with a contribution of Shell Norway
For a long time, extracting natural gas from the North Sea seemed to be a winding down business. With the cuts of Russian gas flowing to Europe and spiking energy prices, the waters that connect the Netherlands, Belgium, the United Kingdom, Norway, Denmark, and Germany are back in the picture as a potential source of oil and gas.
Search the internet with keywords “North Sea” and “offshore”, and depending from where you log in, there is big chance wind farms and the shipping routes around them pop up. It is an illustration of the global energy transition we are in, and it tells the tale of the increased importance of wind as a sustainable energy source. At the same time, it says something about the reduced attention for oil and gas extraction at sea.
Things may change. For a long time, the extraction of oil and gas in the North Sea seemed to be an example of an industry that was doomed to extinction. The 'big boys' from the energy sector built up their activities in the North Sea and left the crumbs for the smaller players to get the last scraps.
As a result of the war in Ukraine, and its side effects, that image is rapidly changing. The high energy prices welcome opportunities for new, profitable activities at sea. In addition, governments are looking to reduce dependence on unreliable suppliers. It is a common thread in the development of the North Sea as an oil and gas extraction area.
Suez crisis
The first wave of investments into the North Sea for fossil energy production comes in the autumn of 1956 during the Suez crisis. Although there are reasons why tensions were growing at the time, Egyptian president Gamal Abdel Nasser's nationalization of the Suez Canal is the direct cause of armed conflict. As a result, oil exports from the Middle East to Europe are in jeopardy.
This dependence is the impetus for the search for alternatives and that is how the North Sea attracts attention. But who owns that potential wealth? Therefore, all oil activities begin with diplomatic talks. Two years after the Suez crisis, the so-called Convention on the Continental Shelf is concluded in Geneva. The agreement sets the limits for the division of the North Sea and thus the rights for exploration and production of fossil mineral resources.
A fierce hunt for oil and gas at sea is on in the 1960s, with the oil and gas discoveries on the surrounding mainland – including the Groningen field in the Netherlands in 1959 – as an extra incentive. But the results are moderate at best, which leads to a decrease in enthusiasm. Until December 1969, when the Ekofisk gas field is found in the Norwegian part of the North Sea, followed by a considerable oil field in Scottish waters.
Bonanza
The United Kingdom and Norway appear to be the main winners of the offshore bonanza. The major investments take place in their economic zones, but a period of uncertain oil supplies lies ahead: the energy crises of 1973 and 1979. Renewed tensions in the Middle East, and the Arab oil producers closing the tap, makes North Sea countries’ governments respond with new investment stimulations in their waters. In the Netherlands the so-called small fields policy is introduced in 1974. The most important element of it: there is always a buyer for produced North Sea gas. This certainty leads to a new wave of investments, because North Sea producers no longer have to compete with e.g. Groningen gas of which production costs are considerably lower.
As the first large North Sea fields reach the end of their production life, so do the glory days of offshore production in this part of the world. All easy-to-find fields have been tapped into, have passed their top production, while fossil fuels are under pressure and wind farms require space and new money. With Russia no longer considered an enemy of “the West” in the 1990s and beginning of 2000s, ever more competitive gas finds its way to Western Europe through deals made with Moscow. As a European energy “province” the North Sea is dying. Big players are increasingly selling their interests to smaller parties financed with venture capital.
Green light
It is early 2022 when yet another “world event” puts the North Sea back into focus. On 24 February, Russia launches a full-scale invasion of Ukraine – eight years after a slow and partly hybrid war in which Russia took the Crimea peninsula and parts of the Luhansk and Donetsk regions from Ukraine.
The dependence on Russia as energy supplier shows no mercy. Add energy embargoes and political wrangling and the price of energy hits record after record. Reason for countries to, once again, eye the North Sea and reduce their reliance on Moscow.
In April, the Dutch cabinet announced its intention to facilitate gas production off the coast. Britain and Denmark follow within the week. It is very much welcomed by “the market”. Together with higher gas prices, the governments’ incentives make investments more secure and profitable.
Shell announces Jackdaw
At the end of May, Shell announces development of Jackdaw, 250 kilometres (155 miles) off the coast of Aberdeen. Once in production, this large gas field will account for 6.5% of the UK's gas demand.
“The North Sea can play an essential role in limiting our import dependence,” writes the Netherlands’ State Secretary for Mining Hans Vijlbrief in a letter to the House of Representatives in July. His letter is meant to speed up the permitting processes, including the warning that “the energy transition is not arranged overnight”.
Cubic metres
Additional gas extraction at sea is more modern than before, even its transport requires less energy, lowering the overall CO2 emissions on the balance sheet. With speeded up processes in place, the State Secretary thinks the Dutch economic zone of the North Sea can provide in an extra 2 to 4 billion cubic metres of gas annually over the next five years, on top of the 8.9 billion cubic metres of last year. Earlier, production growth was to be capped at 1 billion cubic metres of natural gas. Note: the annual gas consumption of the Netherlands is about 40 billion cubic metres.
While energy from North Sea offshore wind is steeply growing, the fossil fuel activities are on the rise again as well. Jackdaw means new activities in the British part. In Norway, Shell remains a stable and reliable gas supplier to Europe, as a partner in Troll and as operator of Ormen Lange – the biggest gas fields on the Norwegian continental shelf. Back in the Netherlands, in the first half of the year 2022 alone, six exploratory drillings took place in the Dutch part of the North Sea.
