In Scotland’s oil and gas capital, uncertainty clouds the green transition

In his first week as first minister of Scotland’s devolved government, Humza Yousaf visited the city of Aberdeen to tout the North Sea oil and gas powerhouse as the potential “net zero capital of the world”.

The Scottish National party government had a “clear vision” for the transition to renewable energies and a 10-year, £500mn fund to ease the transition, Yousaf declared during his trip last month.

But many in the North Sea energy industry, a vital driver of the economy of north-east Scotland, are deeply concerned that Scottish and UK government promises of transformation to a low-carbon future are being undermined by a lack of planning and slow decision-making.

The Scottish government has a policy of opposing most new oil and gas exploration, an approach the Aberdeen & Grampian Chamber of Commerce says will be “economically damaging and seriously risks creating an adverse environment for investment”.

And while energy policy is mainly reserved to the UK government, which backs new exploration, oil producers and unions complain about Westminster’s windfall taxes on the sector. At the same time, investors are frustrated by its indecision over whether to back a carbon capture project in north-east Scotland.

In the past year, the UK North Sea has gone from having one of the lowest effective tax regimes in the world — an approach aimed at encouraging investment in the ageing basin — to one of the highest as the government captures more of the profits made by producers following a surge in prices after Russia’s full-scale invasion of Ukraine.

Since January 1, oil and gas companies have faced taxes as high as 75 per cent, compared with 19 per cent corporation tax for other industries, though investments can be liable for hefty tax deductions under the programme.

Maggie McGinlay, chief executive of Energy Transition Zone, a company backed by the Scottish and UK governments to support the energy transition in north-east Scotland, said inconsistent policymaking was damaging. “Companies and investors need confidence that this is a place to invest,” she said.

Transforming the UK’s oil and gas capital to its main centre for net zero would require “significant investment and effort, and the right regulatory environment”, McGinlay added.

London and Edinburgh are under pressure to accelerate the shift to clean energy while sustaining economic growth and energy security. The UK government last month admitted it would miss milestones towards its legally binding goal to reduce gas emissions to zero by 2050, while Scotland is also behind on its even more ambitious 2045 target.

With decades of experience and expertise in oil and gas, Aberdeen should be well placed to shift to the technologies and skills needed to develop and service renewable resources such as offshore wind. But despite surging energy prices since the start of the war in Ukraine, the mood in Aberdeen is gloomy.

Many feel the pro-independence SNP, which for years made oil revenues central to its economic case for Scotland leaving the UK, has turned against the industry. The party, which governs with a co-operation agreement with the environmentalist Scottish Greens, in January announced it would have a “presumption against new exploration for oil and gas”.

Yousaf has promised his government will “maximise the deployment of wind, solar and hydro generation on public assets” and create “thousands of high-quality, sustainable jobs”.

“Unlocking this renewable energy potential will secure our energy security and reduce energy bills,” he said during a campaign visit ahead of his election as SNP leader and first minister.

Colette Cohen, chief executive of the Aberdeen-based Net Zero Technology Centre, said there was a lack of detailed UK and Scottish plans for shifting household and industrial energy consumption that could encourage investment in new technologies.

“We have a clear destination put out by the Scottish and UK governments but we have no route map to get us there,” said Cohen, whose centre supports energy start-ups.

Trade body Offshore Energies UK said last month that more than three-quarters of the UK’s energy needs were being met by oil and gas, while the number of British homes reliant on gas boilers was actually increasing.

Murray Whittaker, director of projects at Whittaker Engineering, a family-owned business based in Stonehaven, south of Aberdeen, said both UK and Scottish governments needed to set short-term policies rather than unrealistic targets. “They are setting themselves up for a fall,” Whittaker said. “Don’t promise arbitrarily something that all of us in the room know we can’t deliver.”

Bob Sanguinetti, chief executive of the Port of Aberdeen, said the port was in the throes of a £400mn expansion but did not know which low-carbon fuels would be used by shipping in the future.

“We could take a punt and fit electric cables and charging points for ships, but we don’t know what the demand is going to be and whether we will get a return on our investment,” he said.

Nick Cooper, chief executive of carbon capture and storage developer Storegga, is frustrated at the failure of the UK government to make a final decision on whether to approve a large-scale CCS project in north-east Scotland.

The Acorn project would involve pumping carbon dioxide back into depleted North Sea oil and gasfields and it secured provisional deals with customers including ExxonMobil and Royal Dutch Shell as far back as 2021.

“We’ve been progressing as if we were approved, spending a lot of money and advancing the project, but that can’t continue indefinitely,” Cooper said.

The Scottish government predicts that the transition to net zero will create 77,000 “low carbon” jobs by 2050. But a report by professional services company EY for the government highlighted how tricky that transition will be for workers, even in such a case.

Workers directly employed by companies in oil and gas were paid an annual £88,000 on average, more than twice the Scottish average of £29,000 and well above the likely pay for “low carbon” jobs, EY said.

And for all its marine energy expertise, being an oil hub offers no guarantee that Aberdeen can fend off competition from other parts of the UK that are keen to play a central role in offshore renewable development.

Still, Sir Ian Wood, the Aberdeen-born billionaire who is a byword for the region’s oil wealth, said more certainty on energy policy could secure the city’s future.

“I am part of a lucky generation that got great benefit from oil and gas. What I’d like to see is the next generation inheriting at least the same momentum and potential that we had,” Wood said. “I still think that’s possible.”