By around the end of Q1 2016, the Government hopes that the legislative process of passing the Energy Bill to bring regulatory reform of the UK oil and gas industry will be complete. At the same time, DECC and the OGA are working to complete the first Strategy for Maximising Economic Recovery of Offshore UK Petroleum (the “Strategy”).
Our last Law-Now on this topic commented on the latest developments regarding the draft Strategy which has yet to be finalised.
Meanwhile, having been initially considered by the House of Lords, the Energy Bill is proceeding through the House of Commons. As part of its Committee stage review, an Energy Bill Public Bill Committee debated key provisions of the Bill on four occasions, most recently on 4 February 2016 and a version of the Bill as amended at Committee Stage was published the next day. Leaving aside amendments regarding onshore wind farms (which we have been reporting on separately), the Public Bill Committee agreed to only a small number of changes to the Bill.
Firstly, the House of Lord’s amendment that OGA’s performance should be reviewed annually has been reversed, so that three yearly review cycle proposed in the original draft Bill has been reinstated.
Secondly (and for the UK oil and gas industry, probably most significantly of these) the House of Lords’ amendments to section 9A(1) of the Petroleum Act 1998 have been overturned. That section contains the definition of “principal objective”, which is of course key to the implementation of the new regulatory approach, underpinning the reform of the UK oil and gas industry triggered by Sir Ian Wood’s UKCS: Maximising Economic Recovery Review.
The statutory definition of the principal objective (as originally enacted via the Infrastructure Act 2015) focussed on maximising economic recovery, through development, construction, deployment and use of equipment and collaboration between the key parties in the oil and gas industry. The House of Lords had agreed to amend this to refer to maximising economic return “while retaining oversight of the decommissioning of oil and gas infrastructure, and securing its re-use for transportation and storage of greenhouse gases”. Hansard records suggest that the Lords’ intention with this amendment was to widen the scope of the principal objective to encompass matters that, whilst separate from oil and gas production, are interlinked with it and may be affected (in the medium to long term, positively or negatively) by decisions taken over the next few years in relation to oil and gas production. The concern has been voiced repeatedly by the Opposition that, if oil and gas production facilities are decommissioned too soon, this may cut off significant carbon capture and storage opportunities that may become technologically feasible and economically viable in the future.
The Public Bill Committee agreed to remove this amendment from the Bill, so that no amendment to the principal objective is now proposed. However, this doesn’t necessarily mean that the industry can entirely ignore questions around the transportation and storage of greenhouse gases. In debating whether or not the definition of the principal objective should be amended, the Minister of State for Energy argued that it was unnecessary to amend the principal objective because a separate Government amendment to the Bill (made during its consideration in the House of Lords) extends the list of matters to which the OGA is required to have regard in the exercise of its functions so that it includes “the development and use of facilities for the storage of carbon dioxide, and of anything else (including, in particular, pipelines) needed in connection with the development and use of such facilities”. The implication is that whilst industry may not be expressly directly required to include the transportation and storage of greenhouse gases in its operational and strategic thinking, the OGA still is. Whether there is any practical difference between industry being directly obliged to consider these matters in order to comply with the principal objective and being directly accountable to a regulator who is obliged to do so, is unclear.
Nevertheless, the rejection of the proposed change to the principal objective is perhaps a recognition that it could have represented a significant increase in complexity for an industry that is being squeezed by low oil prices and, consequently, striving to simplify itself and become more efficient. The inclusion of a requirement to re-use oil and gas infrastructure for transportation and storage of greenhouse gases had been raised as a matter of particular concern by the industry, and was considered by some to be at odds with the Government’s recent decision to axe £1 billion of funding for carbon capture and storage projects. This proposed amendment therefore raised significant and potentially conflicting policy issues, particularly the pressure to support the struggling UK oil and gas industry versus the move away from carbon intensive energy sources buffeted by the Paris climate change agreement.
If the Lords’ amendment to the principal objective definition were enacted, then the proposed Strategy for Maximising Economic Recovery of UKCS Petroleum would also have required substantial revision in what is already a tight schedule for its publication. Section 9F of the Petroleum Act 1998 obliges the Secretary of State for Energy and Climate Change to publish the Strategy by 12 April 2016.
The Energy Bill is also on a tight schedule, as the Government intends for it to be enacted before the Strategy is published. Amendments to the Bill must be considered by both Houses before it is enacted. The Lords were clearly more sympathetic to the Opposition’s amendment to the principal objective than the Public Bill Committee. The Public Bill Committee’s removal of amendments relating to carbon capture and storage may not, therefore, be the end of the matter.
The next step in the Bill’s passage through the Commons is the Report Stage; no date for that has yet been scheduled.