THE GREENING OF THE OFFSHORE ENERGY SECTOR IN THE NORTH SEA

A methodology was developed to determine the future size of the offshore renewable industry based on the concept of employment factor, or number of people required to maintain each unit

THE GREENING OF THE OFFSHORE ENERGY SECTOR IN THE NORTH SEA

Miguel Esteban 1 , David Leary 2 , Qi Zhang 1 , Agya Utama 1 and Keiichi Ishihara 1

1 Kyoto University, Energy Engineering Department, Sakyo-ku, Yoshida Honmachi, Kobakubu-1-Gokan,

353-goshitsu, Kyoto T606-8501, Japan, Tel: +81-75-7534750, Fax: +81-75-7534750

2 University of New South Wales, UNSW Sydney, NSW 2052, Australia Tel: 9385 9552 Fax:

+61-93851775

The year 2008 saw the emergence of the first generation of commercial ocean energy devices, with the first units being installed in the UK and Portugal This means that there are currently three ways of obtaining energy from sea areas, namely from wind, tides and waves The dynamism of the sector contrasts with the declining production of the traditional offshore energy sector in the UK, based around the production of oil and gas from the North Sea A methodology was developed to determine the future size of the offshore renewable industry based on the concept of employment factor, or number of people required to maintain each unit of electricity production Based on this it will be shown how the renewable offshore sector could produce between 5 and 7%

of the world`s electricity by 2050 and employ between 600,000 and 700,000 people An assessment will be made

of the decline in the number of people employed in oil related jobs in the North Sea and the gap that this could create in the UK`s economy unless this offshore expertise could find an alternative employment in the renewable sector The paper will also investigate the effect of gradually transforming the UK’s oil and gas sector into offshore renewables If this was to happen by 2050 the UK offshore renewable industry could produce between

103 and 118 TWh, equivalent to around 50% of the current energy consumption in the country The results shown are not unique to the case of the UK, and a discussion of the potential of the offshore renewable sector in various countries will be made at the end of the paper

Keywords: Ocean Energy, offshore wind, employment, scenarios, oil industry, decline

1 Introduction

As a consequence of climate change, how to reduce greenhouse gas emissions has becomeone of the most important issues facing the international community Under the KyotoProtocol adopted in 1997, 37 industrialized countries (referred to as Annex I countries)committed themselves to a reduction of four greenhouse gases (GHG) and two groups ofgases produced by them, and all member countries gave general commitments [1]

The development and diffusion of new technologies is seen as essential to achieve reductions

in these greenhouse gases, as recognised by the 1992 United Nations Framework Convention

on Climate Change (UNFCCC) The United Nations Intergovernmental Panel on ClimateChange (IPCC) in its Fourth Assessment Report has also highlighted the important role thattechnology will play in addressing climate change [2]

The present paper draws attention to the fact that aside from any climate changeconsiderations, there are other reasons why renewable energy should be pursued, namelythose of guaranteeing energy security and job protection While the authors agree entirelywith the objectives and reasoning of the UNFCCC and IPCC, the focus of this paper will besomewhat different, and emphasize other important aspects of why renewable energy should

be pursued In particular, after decades of exploitation some traditional extraction grounds forfossil fuels are starting to become depleted, lowering the level of resources that can beextracted from them each year In particular the present paper will explore the situation of theNorth Sea oil in the UK, although the challenges faced by the UK are similar to those faced

by other countries as it has already past its “peak oil” production This concept of peak oildescribes the time when production of oil peaks and then enters a gradual decline, as hashappened in many countries and may be happening to global production, as will be discussedlater in this paper

The beginning of the main phase of exploration and exploitation of the North Sea followedthe introduction of the UK Continental Shelf Act in May 1964, which lead to majordiscoveries and production rate increases during the 70’s and 80’s The production saw itspeak in 1999 with a production of 950 000 m³ (6 million barrels) of oil per day Natural gasproduction was nearly 280×109 m³ (10 trillion cubic feet) in 2001 and continues to increase,although British gas production is also in sharp decline [3] Production rates declinedsignificantly after that Currently the UK’s oil and gas sector directly employs around 34,000people, with many more indirectly employed through supply chains (a total of around 350,000jobs, of which 230,000 are within the wider supply chain and another 89,000 supported by theeconomic activity induced by employees’ spending) [4] It is estimated that in addition to thisthe export oil and gas employs a further 100,000 people [4] As the oil starts to dry out thesejobs will slowly start to disappear, which will have a detrimental effect in the economy of thecountry and will result in the loss of valuable expertise in offshore construction andoperations

However, in this paper we argue that this does not need to be the case Already in the UK theimportance of offshore wind energy is reflected in many businesses working in thesesegments in the industry, and the country also has some of the largest wind engineering andconsultancy companies [5] The wind industry is believed to have already created around

4,000 to 4,800 jobs, with an installed capacity of 882MW at the end of 2009　[5].

This industry is not the only one that is able to extract energy from offshore areas The year

2008 saw the introduction of the first generation of commercial ocean energy devices, withthe first units being installed in the UK and Portugal (SeaGen and the Pelamis respectively).This sector has the potential to make an significant contribution to supply electricity toregions located close to the sea, though this source of renewable energy has so far not beenutilised on a significant scale [6]

There are currently three types of energy mechanisms in sea areas from which energy can begenerated in a commercial way (i.e wind, tides and waves) For the purpose of this paper wedescribe all of these together in the term “offshore renewable energy”, as all three types ofenergy production share the common constraint of having to work in difficult offshoreenvironments With comparatively smaller visual impact (to land-based wind turbines),virtually zero CO2 emissions, and minimal environmental impacts relative to othertechnologies this group of technologies appears to offer significant environmental andeconomic benefits as compared to other forms of energy production

The objective of the current research is to try to understand what would happen if instead ofallowing the jobs in the offshore oil & gas sector to disappear as oil stocks slowly diminishthe sector was re-structured into an offshore renewable energy industry The paper will arguethat this would allow the UK to retain an important pool of talent which is not necessarilypresent in many other countries, which offers significant advantages to its economy and thatcould form a corner-stone of an “export” services renewable industry

2 Decline in North Sea Oil Production

The North Sea has been the source of most of the UK`s oil for the last few decades, providingemployment for thousands of people in the north and east of the country However, data from

BP shows how oil production peaked in 1999 and has been in decline ever since, as can beseen from Fig 1 [1] This decline in oil production is often referred to as oil depletion, and

it occurs in the second half of the production curve of an oil well or oil field The Hubbertpeak theory [7] makes predictions of production rates based on prior discovery rates andanticipated production rates, essentially approximating the production curves of non-renewingresources approximate a bell curve Essentially when an oil field is completely drilled out,production goes into a sharp decline as the average production of its wells enter decline Thenature of this decline is exponential, meaning that initially the rates of decline will be quitesharp and then production will eventually level off and may continue at relatively low ratesfor a number of years

In the North Sea, the rate of decline after that has varied from year to year but has averaged ataround 7% [1] The present work however considers the effects of two different oil depletionscenarios, with Scenario A showing an average annual decline of 5% and Scenario B of 7%,

as shown in Fig 1 This decrease in oil and gas production will have fundamental impacts onthe number of people employed by the industry, which in turn will have profoundconsequences for the society and economy of the UK The key challenge that this depletionrepresents is how to transform the economy of the areas that depend on this industry, withoutlosing the expertise and jobs of people used to working in these difficult marineenvironments

Fig 1 Historical production of UK`s North Sea Oil and depletion scenarios

3 Offshore Wind and Ocean Energy in the UK

Offshore renewable energy systems have the potential to absorb a great deal of the jobs thatwould otherwise be lost in the offshore oil industry Currently the UK’s oil and gas sectordirectly employs around 34,000 people, with many more indirectly employed through supplychains (a total of around 350,000 jobs) As the oil starts to dry out these jobs will slowly start

to disappear, which will have a detrimental effect in the economy of the country and willresult in the loss of valuable expertise in offshore construction and operations

3.1 Offshore Wind

Global output of wind power is expected to have increased eleven fold by 2010 to become thesecond largest source of renewable energy after hydro-electricity Industry projectionspublished prior to the current global financial crisis suggested the global wind market will

grow by over 155 per cent to reach 240 GW of total installed capacity by the year 2012 [8].

By the end of 2008 in Europe there was more than 2.053 GW of off-shore installed capacity,

as shown in Fig 2 with several new large offshore projects planned in these and several otherEuropean countries in the near future [9] Fig 2 shows how the U.K currently has moreinstalled capacity than any other country [10] Growth in the industry is expected to expandconsiderably in the following years, going from an annual installation of 194MW in 2008 toover 400MW in 2009, and in the order of 800 to 1,000 MW per annum for the period 2010 to

2014 [10] Eventually it is believe that the UK's seas could provide enough extra wind energy

to power the equivalent of 19m homes by having an extra 25GW of electricity generationcapacity in addition to the 8GW of wind power already built or planned offshore – enough topower every household in the UK [11] This would provide more than a quarter of the UK'selectricity needs and could generate up to 70,000 new jobs according to some estimations[11]

Fig 2 Offshore wind installed capacity (2009, in MW)

3.2 Ocean Energy

While there has been much attention given to developments in relation to offshore windenergy, wind is not the only source of renewable energy in offshore areas In the last decade or

so a new generation of Ocean Energy technologies have also emerged Ocean Energy defines

a wide range of engineering technologies that are able to obtain energy from the ocean using avariety of conversion mechanisms [12], with the first commercial units coming online in 2008and 2009

The potential of this source of energy is promising [13] [14] “especially on west-facing coasts

in either hemisphere with latitudes between 40° and 60°” In the United Kingdom the CarbonTrust recently estimated the extent of the economically viable offshore resource at 55 TWhper year, about 14% of current national demand [13]

The biggest ocean energy installation was a tidal barrage build at La Rance in France in 1966,which is still in operation today In the UK, tidal barrages, such as the one proposed for theRiver Severn, are currently being re-appraised, although opposition to schemes such as theSevern Barrage appear to make it unlikely that the project will ever be constructed [15]

However in the last couple of years a new generation of modern ocean energy devices havestarted to move from the prototype stage to installation of the first showcase commercialfarms The first of these have just recently come into operation, with the Pelamis project(which has had its first commercial wave farm installed in Portugal) and SeaGen (in NorthernIreland) having just completed installation at the end of the summer of 2008 [16] SeaGen, forexample, could be compared to an underwater wind turbine, and its rotors operate for up to18-20 hours per day, producing energy equivalent to that used by 1000 homes [17] A number

of other devices have completed prototype testing and are awaiting planning permission, such

as the WaveDragon, which currently awaiting environmental consent to construct and deploy

a full-scale 7MW commercial demonstration unit in Pembrokeshire, Wales [18] Also, thereare currently a number of other projects and prototypes undergoing full scale testing (forexample at the European Marine Energy Centre (EMEC), which has 4 grid connected birthsfor wave and 5 for tidal devices, all of which are either in use or booked [19]) or awaiting forsupport installations to be constructed (such as the WaveHub)

4 Methodology

In this paper we try to see what could be achieved if each job lost in the oil and gas sectorwould be replaced by a job in the renewable sector Part of these newly created jobs would gointo the installation and manufacturing and part would go into the operations andmaintenance of the increasing number of installed devices

4.1 Employment factors

To estimate the amount of capacity that could be installed it is first necessary to understandthe number of people required to install, manufacture and maintain each MW of installedcapacity, which is defined as the employment factor Employment factors for offshore windand ocean energy are given in [20] for the present date However, general advances intechnology and methodology are likely to reduce these factors, and hence it is necessary toalso use decline factors (or learning adjustment rates), which will reduce the employment

factor by a given percentage each year, to take into account this reduction in employment asthe technologies mature [20] Although [20] make a difference between offshore wind andocean energy (see Table 1), our assessment is that the factors given for ocean energy areprobably too optimistic Though we note that the factors given in [20] are referenced, thereferences given are to reports from the early 2000 and for a study on the Wave Dragon unit,which although an advance prototype, is still to enter commercial production Considering thenatural similarities between the installation and maintenance of offshore wind and oceanenergy (poor weather, difficult marine environment, the fact that technologies such as SeaGenrequire similar monopole installations as offshore wind structures, etc) we believe that it ismore realistic to use for ocean energy similar factors as those used for offshore wind Thefactors given in [20] are only up to 2030, and after this date the present study assumes that thelearning factor will be 0% Although this does not appear realistic, there is very little availabledata at present, and keeping it at this level will nevertheless produce a conservative answer

For the case of the oil and gas industry the employment is estimated to be directlyproportional to the level of current production Hence, it will also follow a declineproportional to the depletion rates of each scenario The current study does not include thepeople employed in the wider supply chains of either the oil and gas or renewable sector Theoil and gas sector employs 34,000 people directly and an estimated extra 319,000 people inthe wider supply chain (230,000 in the wider supply chain and 89,000 supported by theeconomic activity induced by the employees’ pending) [4] Such a detailed assessment doesnot exist for the renewable energy sector, and although less jobs are required for the transport

of the raw materials, jobs still would be needed in the maintenance of the grid lines, transport

of the different devices for maintenance or refitting, etc However, as these factors aredifficult to assess at present these indirect jobs were not taken into account

Table 1 Employment factors for offshore wind and ocean energy

Installation

andManufacturing

(Personyears/MW)

OperationandMaintenance(Jobs/MW)

DeclineRates injob factors2010-2020

DeclineRates injob factors2020-2030

DeclineRates injob factors2020-2050

4.2 Capacity Factors

To estimate future electricity production an assumption also needs to be made about the level

of the average capacity factor of each renewable Renewable energy, suffers from the problemthat it cannot produce electricity all the times, as the driving force behind it varies with timeand is sometimes not present The capacity factor is thus defined as the ratio of the actualoutput over the maximum theoretical output during a certain period of time Differentcapacity factors are offered by a variety of different studies For example, Lemming et al [21]assume a capacity factor for offshore wind of 37.5% for the whole period until 2050, as theyexpect the higher production of new turbines to moderate the lower availability of good windsites However, the average for offshore wind in the UK for the last 5 years was only 27.2%[22] For the case of tidal barrages the load factor is much lower, typically around 23% [23] It

is claimed, however, that modern ocean energy devices are able to achieve much highercapacity factors than tidal barrages, in the range of 40-50% for tidal flows, and also aroundthe figure of 40% for wave [24] Results for the WaveDragon device quote capacity factors of37% [25] However all of these figures should be treated with caution, as there is yet nodefinitive evidence for them Reliability and access to devices is going to be the key driver forwave and tide and as yet there are no tidal or wave devices in the water that can really give areliable estimate of this for the capacity factor For this reason, we decided to use a rathermore conservative value for the capacity factor of the ocean energy, and for the sake ofsimplification it was made the same as the one used for offshore wind, 27.2%

5 Results

Using the methodology described, and assuming that adequate policies were put in place toensure that the offshore renewable industry could develop adequately and absorb each yearthe loss of jobs originating from the depletion of oil, an estimate can be made of the size ofeach industry in 2050

Fig 3 shows the number of people employed for each of the North Sea depletion scenarios forthe renewable and fossil fuel sectors According to this by 2020 the oil and gas industry wouldemploy between around 14,000 and 18,000 people (depending on the scenario) and therenewable sector would have between 1,400 and 1,800 employees maintaining structures and14,000 and 18,000 involved in the installation of new devices By 2050 the oil and gasindustry would only have between 1,600 and 4,000 employees left, but the offshore renewablesector would be employing 10,000 to 12,000 people in maintenance and 19,000 to 20,000people in the installation of new devices The scenarios propose suggest that in the comingyears there should be a rapid expansion in the installation of offshore units, as these would be

a rapid expansion in the number of jobs in the sector, with the number of jobs peakingsomewhere between 2034 (Scenario B) and 2040 (Scenario A)

According to these two scenarios by 2050 between 39 and 45 GW of offshore energy capacitycould be installed (see Fig 4), which could be producing between 93 and 107 TWh per year(scenarios A and B respectively), as shown in Fig 5 This would represent around between 42and 49% of the energy sector consumption in the UK in 2006 [26] There are a number ofstudies estimating the level of electricity consumption in the UK in the future, each yieldingdifferent results depending on the assumptions in the study For the case of this paper we havechosen to show those by the Institute of Mechanical Engineers, showing a gradual decrease inelectricity consumption, reaching 111 TWh in 2050 (a reduction of 48% over 2006 levels[26]), a similar figure to that achieved by scenario B in the present work

Fig 3 Employment levels in the offshore industry for Scenarios A and B

Fig 4 Installed capacity of both offshore wind and ocean energy for Scenarios A and B

Fig 5 Electricity production and electricity demand scenario

6 Recommendations for Trade Unions, Policy Implications and Discussion

In February 2003 in an Energy White Paper the UK government laid out its energy policy tocreate a low carbon economy of the future Three key strategies were at the core of this newpolicy, securing the UK`s energy supplies one fossil fuels start to run out, updating the UK`senergy infrastructure and tackling climate change [28] However, this paper highlights theoften ignored fact that the decline in oil production will have a profound impact on the society

of some countries and on the labour market It would be highly desirable to pressure