Adam Brooks, Senior Associate at CMS Energy and Infrastructure, discusses what is needed for the UK oil and gas industry to achieve a net zero target:
“Economic recovery of oil and gas need not be in conflict with the transition to net zero”, according to comments by the North Sea Transition Authority (NSTA). The NSTA highlights how the oil and gas industry has “the skills, technology and capital to help unlock solutions required to help the UK achieve the net zero target”.
OGA Strategy’s Central Obligation legally obliges operators to promote efforts to reduce greenhouse gas emissions
The OGA Strategy’s Central Obligation incorporates the core tenet of taking appropriate steps to reach the net zero target. In doing so, UKCS operators are legally obliged to carry out activities in such a way as to promote further efforts to reduce greenhouse gas emissions.
For supply chain businesses primarily concerned in the energy transition, the requirement creates substantial commercial opportunities across the sector. The NSTA believes in the pivotal role that the supply chain will perform:
“A strong supply chain is essential to establish the UK as the ‘go to’ centre globally for offshore mature basin solutions, including energy transition, subsea and decommissioning.”
At the recent Society of Petroleum Engineers Offshore Achievement Awards, a diverse blend of finalists competed across a range of categories including Emerging Technology, Innovator, Energy Transition, Carbon Reduction in Conventional Assets, and Digital Innovation, all of which reflect the industry’s growing focus on the net zero transition.
Points to consider
However, capitalising on these opportunities raises several issues from a risk and contract management perspective. Some key aspects to consider include:
- Supply chain integrity: mitigating the risk of supply chain breakdowns through misalignment, regulatory issues, performance delays and/or failures
- Balance of risk: between service providers and their customers
- Funding: considering how the company or project will be financed
- Intellectual property: innovation and new technology will be key to achieving the net zero target which will lead to new IP being created, commercialised, protected and enforced
In plotting the best course of action, parties must consider the most appropriate form of contractual structure, which may differ from traditional relationship structures. Alternative structures may be a better fit, including:
- Collaboration agreements: where parties share resources in the development stage and post-development rewards
- Proof of concept: where particular products or service are tested with single or groups of interested parties
- Funding: on a joint industry, commercial or wider government funding basis
Going forward, businesses will need to be conscious of the specific contractual risks, as well as the benefits and drawbacks of alternative contractual structures. In doing so, they will better equip themselves to meet the opportunities of the energy transition and drive the changes that the industry seeks.
Adam Brooks is Senior Associate at CMS Energy and Infrastructure. CMS Cameron McKenna Nabarro Olswang LLP is hosting its inaugural supply chain conference on May 24, 2023 at the P&J Live, Aberdeen. Learn more about CMS Energy and Infrastructure today.
