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Electrifying UK North Sea operations

Monday, August 8, 2022

UK offshore operators are making plans to electrify operations, in order to meet a target to reduce emissions from upstream activities by 50 per cent by 2030. A webinar discussed developments, ideas and challenges

The UK oil and gas industry has agreed (with the government) a target to reduce greenhouse gas emissions from upstream activities by 50 per cent by 2030, compared to 2018 levels, with further reductions to zero by 2050.

A big part of achieving that is running offshore platforms from electricity, either from nearby renewables, or from the onshore grid. Plans were discussed in a webinar on March 23, 2022, 'Electrifying North Sea Oil and Gas production', organised by Offshore Energies UK.

Because offshore generation from generators can be inefficient, big CO2 savings can be achieved by connecting to onshore grid power, even if it is generated from fossil fuels. The UK's onshore grid, powered by a mixture of sources, makes a quarter as much emissions per MWH as offshore generation.

And 50 per cent reductions in emissions almost certainly cannot be achieved just by running equipment more efficiently or flaring less - it probably does need some kind of electrification.

Meanwhile shore power in the UK is getting more expensive, and there may not be enough of it available, with many thermal (fuel combustion) power plants being closed in Scotland.

Using nearby wind power may seem like the better option, because it avoids the need to lay cables from shore. But there are complexities, in that wind turbines need a certain lifetime, typically 30-40 years, to be cost competitive. This lifetime may be much longer than the expected life of the platform. And of course, you will need power when it is not windy.

Power from shore is probably easier to set up than offshore generation, noted James Bridgland from ABB.

But perhaps the right answer over the longer term is a combination of nearby wind generation, existing onsite generation from diesel, and connection to the onshore grid for both buying and selling surplus electricity.

Guy Appleton, Finance and Growth Director, Kellas Midstream, a company which operates gas transmission infrastructure, noted that power prices in Norway are lower than in the UK. But similar electrification projects have still proven commercially challenging in Norway. 'It is challenging for companies to recommend spending a substantial amount of money to a project which is uneconomic,' he said.

However, Norway is approaching 40 per cent of oil and gas production electrified 'in a few years.' The Norwegian side of the North Sea has many of the same operators and suppliers as the UK side.

Any offshore electrification solution needs to have connectivity to the grid if the economics are going to work, otherwise the wind farms will be stranded assets if the associated platforms are decommissioned, Mr Appleton believes. 'It's not in anyone's interest to put wind farms in the North Sea which have a life of 10 years.'

'If you can't get grid access by 2025, that will be a major barrier for offshore electrification.'

ABB, Aker Solutions and Kellas Midstream announced in early 2020 a plan to join forces to explore offshore electrification in the UK, pooling their expertise, which covered design, infrastructure and commercial innovation.

They looked at a number of different options for how it could be achieved commercially, what changes to the regulatory model would be needed. They also looked at what could be learned from Norway. This includes Norway's CO2 tax and its lower electricity costs.



Wind lease round

The UK government has a special lease round in 2022 offering companies the right to build wind farms close to oil and gas platforms, specifically to supply the platforms with wind generated power.

Companies can apply to build up to 5.7 GW of wind farm, to operate for around 25 years. The wind farm can be sized up to 5 x the electricity needs of the platform, or hubs of platforms, it will connect to.

There is a separate 500MW 'innovation lease' specially for new technology.

The application takes place in June 2022, with offers made in Autumn, and final planning approvals to be completed in 2023.



Regulatory perspective

Under UK electricity regulations applying onshore, companies purchasing power pay a number of different levies, including transmission costs and renewable obligations costs.

Whether or not these levies would apply to offshore customers would be a major factor in the commercial viability. 'The question is whether it's realistic or reasonable for the offshore industry to bear such levies,' said John Grady, Partner, Shepherd and Wedderburn LLP, a corporate and commercial law firm.

'Those levies are all targeted by activities which benefit onshore consumers, not offshore consumers.'

If the oil and gas industry makes a private arrangement to take power direct from offshore wind farms, it can avoid these levies, and would not need to rely on the national transmission systems.

Power could be sold at a fixed price, with an agreement that the oil and gas company would have first option for all power generated, before the power is then made available to the onshore grid. Although the wind farm could not provide a 'generation guarantee' since wind cannot guarantee a specific level of output.

It is probably important to keep the gas and diesel generators in the North Sea available for security and reliability reasons, he said. The electricity from these generators could perhaps also be sold to the onshore national grid at times of severe shortage of power.

Oil and gas companies considering offshore renewable power may want to consider a number of risks, including being reliant on a wind farm which hasn't been built yet and may have construction problems, or that the electricity supply has outages, planned and unplanned. Also, that the generator may become insolvent. 'I would want a portfolio of sources of power,' he said.

Having a fixed price agreement with a wind farm operator means that an oil and gas operator has some protection from electricity price changes.

Wind farm contracts are typically 15 years at least, in line with arrangements for financing projects, which can be for 15+ years.

'For some platforms it's not going to make much sense, because the platforms have a shorter life.' In this case, 'we need a solution where the platform takes [the power] for 10 years and someone else for 5-10 years.'

'You could have some sort of common purchasing body and tie it to grid access once platforms have shut down.'

The regulatory framework around the onshore network may need to be reviewed so it can accommodate power supply from offshore much faster.

There are also regulatory concerns about having a complex offshore power network which won't be needed once the platforms are no longer operational.

But also, there needs to be acceptance that perfect planning is not possible and caution itself comes at a cost, including in energy security terms.

'There has to be an acceptance that things will go wrong - we will build assets which may be stranded, and errors will be made. It is just inevitable because none of us have perfect foresight,' he said. 'Things need to be built and decisions have to be made and some of those will not turn out as we hoped.'

'The onshore grid isn't going to be ready for some time,' he said. '2030 is probably highly optimistic.

'We've got to do each stage in as simple a way as possible, so it doesn't close off optionality later on.




DNV / power grids perspective

Michael Dodd, business director power grids UK and Ireland, discussed the challenges of putting together a suitable power grid.

There are various initiatives to build an offshore grid, with bodies involved including OEUK, NSTA, the UK government and National Grid. There's 'a huge momentum rapidly gathering,' he said.

There is likely to be power interconnection from this offshore grid with other countries, including Norway, Belgium and France.

'When you start to map out what that looks like - it gets very complicated very quickly,' he said. 'We're looking at different ways of planning the offshore grid space to make sure co-ordination is able to be delivered.'

'Offtake arrangements will get increasingly complex.'

There could be a wind farm making power which goes to a platform or goes to shore, or being used to generate green hydrogen, which is then sold.

Mr Dodd noted that standalone turbines can be more expensive to build and operate per turbine than an array. Also, their costs increase as you go further offshore, and use floating rather than fixed turbines.

An electrification system will need control systems, perhaps batteries, and a security system.

While the costs of wind are falling rapidly, higher costs make it harder to make projects work, he said. Having a wind turbine dedicated to one offshore platform would be very hard to make commercially viable.




OEUK perspective

Will Webster, Energy Policy Manager, Offshore Energies UK, said that the challenge could be defined as working out what can be done most quickly.

It is complex technically, commercially and in terms of regulations. We 'need to ensure the frameworks work for all the parties involved.'

The power connections between parties are different to how they have been done in the past, with multiple options involved.

And there will be continuously increasing demands for power offshore, and more connectors. 'The upgrades required to the system will probably increase.'

'The more complex connections become - the more difficult they become to integrate with the wider system.'

He noted that one advantage of wind is that it can be built at any scale, unlike, say, nuclear power. This provides more flexibility.




Worley Parsons

Graeme Wilson, business development director of engineering contractor Worley Parsons was asked what he thought was the easiest way to electrify from a technical perspective.

Better co-operation helps increase the pace, he replied. Not just with regulators, but also within operators and supply chain companies.

Technical standardisation would help, he said. Some areas are particularly complex, such as modifications to brownfield assets, which has been likened to 'open heart surgery', since these systems were never conceived to run on an outside electricity supply.

Standard modules would make it more straightforward. 'That's how we make it as simple as possible in the grand scheme of electrification.'

'What we're talking about is very complicated. An element of simplification is required to make us work at pace going forward. Pace is really important, to meet the targets set out by the North Sea transition deal.'

Mr Wilson was asked, as an engineering contractor, whether it is easier to work with a blank sheet, or to re-use existing assets. 'When doing large projects, working from a blank sheet of paper is in ways easier,' he replied. 'But the old infrastructure shouldn't be written off.'

'Some assets designed and built in the 70s and 80s now have 20-30 years life [left], they were so well engineered. [We can] take that as an opportunity.'




Best model for electrification

Speakers were asked which model they would prefer, one where a regulated 'transmission owner' (TO) designs, builds and operates the transmission network, or it is done by an independent developer; or if there should be a separate 'Independent Transmission Operator (ITO)' appointed to run the network, maybe with some involvement in the construction.

There is general agreement that the transmission system should not be operated by an oil and gas company, in case they deny access to competitors.

Thibaut Cheret of trade association Offshore Energies UK said he preferred the option where a transmission owner designs it, and then there is a competition for a transmission operator to build and operate it.

John Grady, Partner, Shepherd and Wedderburn LLP said he preferred that a developer design and build the network, and then a transmission operator to operate it, or a transmission owner would build and operate it. 'These are the simplest options. They involve less regulatory changes, [so] they might happen sooner.'.

Will Webster, Energy Policy Manager, Offshore Energies UK said he preferred the option where an oil and gas company designs and builds the transmission network, and then hands it over to an operator; or alternatively a single transmission owner builds and operates the network.

Michael Dodd, DNV noted that the quickest way to do it would be something akin to plug and play, 'which in my mind means centrally planned and centrally delivered, to the extent that its possible.'

James Bridgland of ABB agreed that systems being centrally planned and delivered would work well from an ABB perspective and may mean less competition. 'To drive the cost of electricity to a level which is beneficial, you need the competitiveness of the marketplace,' he said.

Graeme Wilson of Worley noted that 'competition is great but sometimes stifles innovation. Whatever we go after needs to be done in an innovative manner. What we are doing here is pioneering.'

You can watch a video of the webinar online here



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