Perspectives
31 October 2022
As we look back on the UK’s more than 50 years of economic success tied to the North Sea, local communities and industry with connections to the region are preparing for new opportunities as it transitions to become a globally significant centre for the low-carbon economy.
The North Sea is already home to an established oil and gas industry and a world-leading offshore wind sector. New industries like hydrogen production and carbon capture and storage are also attracting significant investment, creating jobs and growing export potential.
“The UK has a great opportunity to be the energy hub of Europe,” Martin Bradley, Macquarie Asset Management’s Head of Infrastructure in EMEA, told Bloomberg News1.
Its rapidly expanding offshore wind sector not only promises to meet much of the UK’s domestic demand for clean power2, but could also be harnessed to produce green hydrogen. Meanwhile, the North Sea’s depleted oil and gas fields could be used to store carbon.
Offshore wind is already a success story for the UK, which was an early adopter of the technology. A successful programme of focused government support has helped to drive the installation of more than 11.3 GW of capacity around the country3. This has created thousands of highly skilled jobs, often leveraging the deep offshore expertise developed within the UK’s long-established oil and gas sector.
But this is only the beginning, with the aim being to increase the UK’s offshore wind capacity to 50 GW by 20304. In addition to meeting demand for power – which is set to soar as the electrification of the UK economy accelerates – offshore wind could also help kickstart the UK’s hydrogen economy.
Macquarie has helped finance projects and supporting infrastructure representing approximately 50 per cent of the UK’s operational offshore wind capacity5.
Macquarie’s investments in the sector since 2010, accelerated following its acquisition of the Green Investment Bank from the UK Government in 2017, have made it one of the largest investors in UK offshore wind6. While managing investments across a range of operational projects, Macquarie is supporting the development of around 5 GW of potential generation capacity through its funds and London-headquartered offshore wind platform Corio Generation7.
In addition to investing directly in the sector, Macquarie is also providing advisory services to local and international clients. This work is assisting existing and new projects in the region to attract equity and debt investment, supporting the continued growth of the local industry.
Green hydrogen could be central to decarbonising major parts of the UK economy8. First, it is needed to decarbonise current processes that rely on natural gas-derived hydrogen, such as oil refining and the production of fertilizers. Hydrogen’s high energy density also allows it to be substituted for coal and gas in steelmaking, and for oil-derived fuels in heavy transport and aviation. It will also replace natural gas in domestic and industrial heating. In addition, by using offshore wind energy to run electrolysers – which split water atoms to produce hydrogen and oxygen – there is the possibility of creating low-cost green hydrogen for export.
We are supporting initiatives which we expect to create both increased hydrogen supply and demand in the UK. Via investments in National Gas and Cadent, supporting efforts to test the readiness of gas transmission and distribution infrastructure to transport hydrogen for use by homes, industry and power generators. Investment to upgrade and repurpose existing gas infrastructure could see hydrogen produced using renewable energy from the North Sea transported nationwide via a hydrogen backbone network.
We have also invested in Storegga, best known as the lead developer of the Acorn Hydrogen and Acorn Carbon Capture and Storage projects. These are some of the UK’s most advanced CCS storage initiatives - expected to store up to 10 million tonnes of CO2 per year by 2030.
This is where the next part of the North Sea clean energy opportunity lies. The depleted oil reservoirs deep beneath the sea have the potential to be safe, long-term repositories for sequestered emissions. This could be an important solution for storing the likes of carbon dioxide captured from industrial sectors that will find it impossible or prohibitively expensive to entirely eliminate their greenhouse gas emissions by 2050. Heavy industry, like petrochemical, steel, and aluminium producers could capture the carbon emitted to meet the UK’s net zero goals9.
Exhausted oil and gas fields have been proven to offer effective long-term storage for carbon, with existing platforms, pipes and storage reservoirs in the North Sea able to be repurposed to support this new industry. Onshore, Macquarie is also supporting National Gas’ collaboration with the Scottish Cluster, a collection of industrial carbon capture and carbon dioxide transportation and storage infrastructure projects, to repurpose and develop its pipeline network to transport carbon dioxide.
Leveraging the energy legacy and future potential of the North Sea could create a fully integrated clean energy system at scale. This could make a major contribution to the UK’s decarbonisation objectives while providing significant benefits to both the national economy and regional communities.
The development and upgrade of renewable energy, hydrogen, carbon capture storage and related infrastructure could deliver significant added value to the economy - creating a new energy export while helping to offset the tax relief set aside for the decommissioning of North Sea oil and gas fields. The clean energy sector is expected to create significant opportunities for well-paid employment and the transitioning of jobs currently supported by the offshore oil and gas sector.
Macquarie continues to play a role in supporting the managed transition of the North Sea so it can become the low-carbon engine room of the UK’s energy system, improving security of supply at the lowest cost while meeting the UK’s net zero ambitions.
