Energy Transition Series: Five Things to Know about Oil & Gas Electrification

This is part one of our 'Energy Transition Series', in which we offer our insights on new technologies and their role in driving the energy transition.

Against the backdrop of the UK's ambitious net zero 2050 strategy and renewed energy security considerations, momentum is continuing to gather at pace regarding a relatively little-known piece of this puzzle – the electrification of existing and future oil and gas ("O&G") platforms in the North Sea.

Ahead of the opening of the bidding window for the Crown Estate's Innovation and Targeted Oil and Gas ("INTOG") offshore wind leasing process (expected this month), here are five things to know.

O&G electrification: a primer

Output from offshore O&G installations in the North Sea has to-date formed a crucial part of the UK's energy make-up. O&G installations typically rely on in situ power generation (turbines and engines powered by gas or diesel) to power the installations. Naturally, such power consumption comes with a hefty climate cost – in 2018, production from O&G platforms was responsible for approximately 13.2 million tonnes of carbon dioxide ("CO₂") emissions.^[1]

Given that power from O&G installations will still be required up until at least 2050, there is a need to urgently reduce CO₂ emissions from offshore O&G installations through electrification, by replacing existing power sources with electricity from cleaner alternatives. The North Sea Transition Authority ("NSTA") (formerly the Oil & Gas Authority) estimates that electrification of the offshore O&G production process in this way could abate emissions by 2-3MtCO₂ per year by 2030, the equivalent of reducing 20% of today’s production emissions, rising to 40% by 2030.^[2]

O&G electrification and offshore wind: electrifying potential

While various electrification options are being discussed, the three most viable options appear to be: (i) power from shore, whereby the O&G installation would be connected directly to the onshore grid via a cable link; (ii) power from interconnectors, whereby a direct cable link would be established between the O&G installation and the national grid of another country (for example Norway); and (iii) power from offshore wind farms, comprising a direct connection between existing or planned offshore wind farms and O&G installations.

While each option has its advantages and limitations, power direct from offshore wind farms is gaining the most traction among the government and industry players. This focus on offshore wind is borne out by the announcement in February 2022 of the INTOG leasing round, in which developers will apply for the rights to build small scale innovative offshore wind projects of less than 100MW as well as larger projects that are connected to O&G installations to provide electricity to those installations.^[3]

Technological challenges

1. Floating wind. The success of floating wind turbines (a relatively nascent technology compared to conventional fixed-bottom turbines) is critical to the potential for electrification of O&G platforms using power from offshore wind farms. The signs so far are promising: the results of the ScotWind leasing process in January represented a breakthrough for floating wind technology in the UK, with 11 of 17 awarded sites planning to develop floating wind projects; Equinor is developing the Hywind Tampen project in the Norwegian North Sea, which will be the first floating wind farm to power offshore O&G installations; and developers are exploring the potential to develop commercial-scale floating wind projects in key floating wind locations, including France, the United States, Japan and South Korea. Nevertheless, there is still some way to go to fully commercialise floating turbines, including for electrifying offshore O&G installations.
2. Back-up power. For all of wind energy's many advantages, it is inherently intermittent, meaning that some form of back-up power will be required during periods of low wind power generation. Most likely this will necessitate some form of hybrid power generation whereby the bulk of the power demand of the platform is met through electricity provided from an offshore wind farm, with generators or motors powered by fuel extracted on the platform kept on standby to provide top-up power (this is the approach being adopted on the Hywind Tampen project). The INTOG leasing round also goes some way to addressing this: the innovation component encourages the exploration of storage solutions such as battery or hydrogen while the main O&G installation connection component allows for over planting of turbines (i.e., to generate excess power), which could be combined with a viable storage solution.
3. Grid access and the offshore network. Significant transmission system upgrades and grid reinforcement works are required in order to enable the UK to meet its ambitious offshore wind ambitions. Ofgem has launched the Offshore Transmission Network Review ("OTNR") with a view to developing what it terms a 'Holistic Network Design', taking into account existing and future offshore wind farms in the UK and interconnection capabilities. While O&G electrification has not been included in the OTNR, it is expected to be brought within its scope as a coordinated approach will be required to determine the interaction of INTOG projects with the wider offshore network.

Commercial considerations

1. Brownfield v Greenfield electrification. Brownfield installations would require potentially significant modifications and retrofits as well as new electrical equipment, a process akin to "open heart surgery" according to Shell's former North Sea head.^[4] Greenfield assets by comparison can from the outset incorporate electrification into the design, allowing for key features such as storage capacity and optionality regarding array/umbilical cable connection as well as the potential to simplify the installation design resulting in CAPEX cost savings over time.
2. Offtake arrangements. As the CES Offshore Market Review rightly points out, the INTOG leasing round creates the potential for a full or partial offtake agreement with O&G installations, enabling financial stability and potentially avoiding the need for an OFTO, TNUoS costs, network reinforcement and associated timing constraints.^[5] For larger INTOG projects (other than those in the innovation category) the capacity limit is five times the annual O&G installation power requirements. Developers will likely be eager to commercialise any excess electricity generated. This could be achieved for example through on-site green hydrogen production using electrolysers, transmission to the UK grid or beyond via interconnectors.
3. Coordination synergies. Coordination and cross-industry synergies have the potential to improve the economics of O&G electrification projects. Some examples include the potential to extend the operating life of existing O&G installations and drive cost efficiencies in the development of new O&G installations, and also establish a potential route to market for gas-to-wire generation from the O&G installation (in which case the offshore wind developer and O&G installation owner could share transmission infrastructure investment costs).

Regulation: the need for speed

The UK government has been clear in signalling its support for offshore O&G platform electrification (see its commitments made in the Energy White Paper and the North Sea Transition Deal, funding provided as part of the NSTA competition and now the INTOG leasing round). However, more is needed in order to bring offshore O&G platform electrification projects to fruition within acceptable timeframes to achieve a meaningful reduction in CO₂ emissions and also to ensure value creation for stakeholders. A regulatory pathway needs to be created which aligns the relevant planning and consenting processes for O&G installations and offshore wind farms that are to be coupled in an electrification project to, where possible, ensure that those projects are expedited. In addition, offshore O&G electrification projects should be brought within the scope of the OTNR and form part of Ofgem's plan to develop the Holistic Network Design. This would, amongst other things, create the potential for developers to explore a route to market for surplus power beyond offtake arrangements with O&G installations through cooperation with other offshore infrastructure.