Economic Report 2020

of higher prices to encourage investment, and the very negative impact these can also have on UK industrial activity, including oil and gas production, especially if activity is displaced to other locations globally. In general, this sector, like many others, is looking for a stable long term trading scheme that is capable of being linked to other global initiatives. As countries and sectors continue to align with the Paris Agreement and progress net-zero projects, it is expected that carbon and trading schemes will continue to develop and grow in value. The global carbon market continues to expand at pace, growing 34 per cent in 2019 to $215 billion, and this trend is expected to continue. Offshore electricity infrastructure and supply As offshore installations are not connected to the national grid, typically UKCS oil and gas producers generate their own electricity on site from available produced gas and, in some cases, by using diesel. This process accounts for around 75 per cent of production emissions. Significant step changes in emissions from oil and gas production will therefore require connection of offshore facilities to electricity networks. Achieving this requires both a competitive level for electricity prices, and suitable development of the offshore infrastructure. These steps could mean oil and gas producers becoming participants in the electricity market as set out below. Power generation on offshore production facilities

Source

Output

Electrified onshore

Independent electricity

Excess sold to the grid

Offshore electricity cable

has been largely exempted from the main regulatory framework around electricity production and supply. This also avoids many of the additional levies that have been added to industrial electricity prices with respect to earlier subsidy schemes in support of power generation and various network charges. This situation will need to continue in some form if electricity prices are to be affordable for offshore producers. The efficient development of appropriate electricity infrastructure is also an important facilitator of emission reduction. Currently offshore transmission is organised in a piecemeal fashion around individual offshore wind generation development. There is a recognition that this must change to facilitate the planned growth of offshore wind to 40GW of capacity. BEIS and Ofgem have recently launched a review of the arrangements and this also will provide an opportunity to examine potential synergies with serving the oil and gas production facilities.

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