One of the unfortunate side effects of a steeply rising oil price this year is that it seems to have undermined the potential profitability of the Cambo oil field off the Shetlands. Announcing this morning that it was pulling out of the project, in which it had a 30 per cent share, Shell said it had re-examined the figures and ‘concluded the economic case for investment in this project is not strong enough at this time.’
No, it doesn’t make much sense to me, either. If Shell was happy to go ahead with the Cambo project this time last year, when oil was $40 a barrel it is hard to see what has changed to make it less economic with oil at $70 a barrel and the longer-term outlook for oil prices much higher. I suspect that it would be much closer to the truth to say that Shell has decided that opening a new oil field in the North Sea has become too much of a political liability and that its board is too feeble to stand up to environmental activists who have targeted the company, and who are bound to turn up at every AGM from now on and glue themselves to the lectern. Shell has decided it could have a quieter life trying to make money from ‘nice’ things like running my broadband – an activity in which it is a little easier to reduce your corporate carbon emissions than the mucky business of sucking oil out of the ground.
It is strange to think that just seven years ago the Scottish National Party ran an independence campaign predicated on the idea that Scotland could grow rich by taking control of oil revenues from the North Sea. Now, Nicola Sturgeon has come out against Cambo and one of the Green ministers in her government, Patrick Harvie, was positively wetting himself on the Today programme at the news, claiming how it showed that the big oil companies are finally coming round to accepting we are headed for climate doom, and we are all now going to speed ahead to a greener future.
Except, that is, Shell pulling out of the Cambo project hasn’t reduced the global appetite for oil one jot. Britain might have bound itself to a zero carbon future by 2050, but the US, China and most of the world have made it quite clear that while they might have vague ambitions to eliminate carbon emissions at some point in the future they are not going to compromise the living standards of their people in order to get there.
What Shell’s decision does do is to speed up the day when no FTSE-listed company will dare involve itself in fossil fuels. Rather, that business will be left to overseas companies and to private equity, such as Siccar Point, the company which owns the rest of the Cambo project and which has indicated it has no intention of withdrawing. How much easier it is to run an oil company in the age of Greta when you operate below the radar of public consciousness.
But if activists do succeed in preventing Cambo producing oil, all it will mean is that we will end up importing more oil instead. Green transition or not, we will still need fossil fuels for many years to come – for rather longer, I suspect, than the government’s ban on new petrol and diesel cars from 2030 would imply. A sharp rise in the prices of rare metals has just knocked ministers’ claim that petrol and electric cars could be heading for price parity with petrol ones by 2024.
The government has been as feeble as Shell’s board in making the case for the Cambo oil field. But if large corporations flee the North Sea it certainly won’t help the transition to Net Zero. On the contrary, the ‘net’ bit of net zero is going to require the development of large scale carbon capture and storage – capturing carbon, liquidising it and, perhaps, pumping it into underground chambers vacated by extracted oil and gas. Push the major oil companies out of the North Sea and you take away the businesses best placed to develop that. Not that there is a lot of forward thinking in the mad, emotional dash to Net Zero.
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