The North Sea is the key to European energy security, with Simon Sjøthun

0:00 [Music] This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm your host, Noah Brener, and each week, we're bringing you an inside look at the dynamics shaping global energy markets through in-depth conversations with our own Rystat Energy experts, as well as some special guests. In today's episode, we're diving into the North Sea to analyze the latest developments in a place you could call the epicenter of Europe's energy industry. Since the first discovery of oil and gas at Echoisk, offshore Norway in 1969, the basin has provided Europe with its largest volumes of domestic oil and gas. While fossil fuel production has peaked in the basin, the North Sea has become a leading frontier for the development of offshore wind. Now, the strategic value of that regional energy production has become even more vital following Russia's invasion of Ukraine and the resulting energy shock from Europe's push to kick its dependence on Russian oil and gas. So, what is the outlook for both fossil fuel and renewable energy production in the North Sea? What do companies need to do to ensure that those projects are going to be globally competitive when they do come online? And finally, how should we think about the strategic importance of North Sea energy production for the countries that are sharing it as well as for the broader European continent in an age of growing worries about energy security? To help us understand everything happening in the North Sea. I'm joined today from London by Simon Schoin, who leads our advisory business across Europe and the Middle East and has worked on a raft of oil and gas projects, as well as renewable projects, I should say, spanning the North Seas Chile waters. Simon, welcome to the program. Thank you very much. Happy to be here. Let's talk energy. So, I'm sure many of our listeners know this, but for those that don't, when we're talking about the North Sea, that is split between a large portion that's controlled by the UK and a large portion that's controlled by Norway. And then there are smaller parts that are controlled by, you know, they're in Danish, they're in Dutch waters, but generally, you know, when we're talking today, those aren't going to be a big part of our discussion. Uh, so really, it's kind of tale of two basins right now or two sides of the basin. So can you quickly break down for us I guess what we've seen in terms of the production trends from the overall North Sea and then you know what it's been from kind of from each side of the sector. 4:00 The North Sea sort of adventure right it started back in in the 1960s. Um that's when uh there was thinking and ideas that there might be a working petroleum sort of system under the North Sea. Um so you started to have uh licensing rounds and and awards and exploration uh both on UK and and the Norwegian sector um in that sort of mid60s onwards time frame and subsequently the first sort of commercial discoveries were made in the in the early '7s and production started fairly rapidly thereafter. So in that sense that the you know you've had 50 years thereabouts uh of uh of production and and history in in the basin. Norway and and UK they they both started development fairly similarly right like any kind of traditional virgin territory. You start to find the biggest stuff first right so you have a pretty big ramp up relatively speaking in your production and your uh and your developments. Um that was also the case here with the big fields DF few and Brent and Echopisk and so on being discovered in in those decades and that ultimately took um both areas up to a uh peak production in the early early 2000s around 2001 and 2004 if I remember correctly uh for for UK and Norway respectively but that's when the it started to diverge more right um so so from that sort of 4 millionish um barrels of oil equivalents per day. Uh the UK sector declined quite rapidly while the Norwegian sector stayed fairly fairly stable around that 4 million bars world equivalent mark and and the big difference is really down to gas production whereby the Norwegian sector had um um sort of been blessed with with bigger the biggest gas fields in in the in the air in in the area right the toll field oscow and so on. So that that has helped to keep the Norwegian production at that level since um since the early uh early parts of this millennium while the UK sector has declined down towards a sort of 1.2 1.3 million barrels of oil equivalent per day level uh today a fairly similar start and then it started to diverge quite rapidly at the at the ear early part of this millennium. You and and others here at Ryad have have argued that the basin's status as Europe's really only material source of domestic oil and gas uh production give those barrels outsized importance and so you know this idea that basins are are strategically geostrategically advantaged is it's something we talked about a little bit on episode 14 with Lars Irick Nicoleas um when we were talking about which parts of the energy sector are poised to to create value to make money um but can you explain I guess what this means this idea of an advantaged basin means in the context of of the North Sea today. 8:00 So I think for oil part right oil is much more of a global commodity. It's literally liquid and and you know flows around the world fairly unconstrained and you know you put it on a vessel and then you can take it anywhere with very low production costs or transportation costs. While gas is much more constrained by pipelines and infrastructure and if you want to transport across the ocean you have to cool it down to make it liquid and put it on big vessels and these kind of things, right? So, so gas has a much more constrained market access than oil. I'd say oil is is less important from an energy security lens, right? Just because it's such a it's much more of a liquid commodity. Yes, the basin of the area is is mature and everything, but there's al also a lot of infrastructure that has been built. So, you've built all the big platforms, you've built the, you know, different pipelines and different uh terminals. And that means that any sort of incremental discoveries or incremental projects that are to be um executed on typically have fairly decent economics also in a global context, right? It wouldn't be discoveries you could just develop from scratch without any existing infrastructure in the neighborhood. You are dependent on these big big facilities that's been in the in the ocean for for decades many times. But for these incremental decisions uh it still is a a fairly attractive uh basin. On the gas side then the commodity is much more of a strategic sort of energy security imperative as well. Right. Uh it's about u 100 billion cubic meters coming out of the Norwegian shelf. U about 40 billion cubic meters if I correctly out of the UK Danish and and Dutch shelves. And that is, you know, stack that up against a European demand of about 400 or 350 to 400 billion cubic meters, it is a pretty significant source of that domestic energy, right? And without the Russian gas as the other kind of big piped gas supplier, you you are kind of left with this with this supply, right? And and the balance more or less has to be uh made up with with LG imports from from other places in the world. You don't want to be reliant on those imports and and gas is a much more let's call it infrastructure constrained type of uh commodity then uh than the North Sea becomes quite central and very important to to maintain that uh energy security lens and resilience economics more kind of resource intrinsics point of view the same story that I told on on G on oil still applies to gas right you built you built a lot of the platforms you built a lot of the pipelines so again each increment al kind of cubic meter of gas you bring to the market is is typically very competitive especially measured up against the US LNG which which you know typically is looked at as the marginal supply um piping that gas from the North Sea to the continent to be used is is typically much more uh attractive than LG imports but you simply don't have enough of it that's why you still need LG at the end of the day. How does this play out on on the ground for for a company working there. I mean, if we're saying, look, you know, there's an opportunity to make money in this sector uh moving ahead over the next couple of years. Um, you know, how do these advantages manifest, I guess, in maybe a corporate bottom line? 12:00 If you find a a pocket of oil fairly close to existing infrastructure in an RFC, that should be a fairly attractive development stacked up against um kind of shale and oil sands and these type of things that you typically, you know, otherwise would view as the most expensive oil resources in the world. So, it's not it's not that u it's out competed per se, right? It's just that it's difficult to find and you don't have an endless pipeline of of new projects to to bring to the to to production. It's not like shale where you know that there are hundreds of square kilometers of of of sort of formation rock that you can just drill and drill and drill and drill. You don't have that certainty in in in this um in this basin. Uh so that's kind of the drawback, right? And then from a gas perspective, it's uh um I mean you basically get piped access to the to the most premium gas market on on the planet, right? European gas prices are are very high. So just from up your kind of dollars, euros and pound perspective uh if you can produce that gas uh in the North Sea and and sell it at uh the TTF MVP price points, then uh that is a pretty decent margin that you're making, right? uh and a higher margin that than what you get from a has got a net back mechanism or you know selling sort of the American gas in Europe with every cost element in between right if you subtract that then that what what you're left with there is is less than what kind of the typical North Sea cubic meter of gas would would be left with if you can find the resources in particular if you can find some gas um it's it's very attractive to bring to the market but it's it's tricky to find right I mean that's kind of the the downside side if you want of of of playing in this in this basin. You've mentioned a couple of times kind of these differences between the UK and between Norway. Um we're going to talk in just a second about the UK budget and how that might impact the outlook there. Um but first off, I mean, you've mentioned rocks, you mentioned fiscal regimes. Um you you've kind of laid out an an idea of of rocks fiscals and and time when you're thinking about how to compare these two. So break it down for us in terms of what rocks, fiscals and time looks like on each side of this and then how that's led to these outcomes. So think about rocks as being that's sort of the resource intrinsics, right? Before you kind of mix in all of these kind of human elements, right? Where is the resources located? What is the reservoir quality? How big is the accumulation? How easy is this to take it to the market uh with existing infrastructure and and so on. Um all of that kind of plays into this kind of rock element, right? or or just just is a rock good from a North Sea perspective. UK and Norway is is fairly similar. Uh it's from geological point of view, right? Uh but the UK has always been a little bit ahead of off of Norway, more exploration wells drilled. 16:00 Uh they were faster with developing all of the different fields. So you're you're you're a bit further ahead if you want right on the sort of maturation scale than the Norwegian sector. And Norway is also helped by being able to tap into the Norwegian Sea and the Baron Sea and sort of additional provinces um in a way that the UK can't really do right in in the same in the same fashion. West of Shhatland perhaps a little bit but it's not not to the same scale. There's still a bit more you know juice left literally uh in in the Norwegian sector statistically speaking because it's not been as drilled up and as developed as on the UK sector. It can always be surprises of course but that's you know then you're then you're playing against the odds so to speak. Then on the fiscals which obviously with the budget that was at at you know at the time of recording was released uh you know mere minutes ago also make a big impact like what is the distribution of the of the resource rent. So basically the revenue coming out coming out of these resources between the the companies that are developing this and between the the state right I mean ultimately nature gives these resources away for free that's just the headline number the tax rate right but there's a lot of nuances there on um capital allowances and uh depreciation schedules and all kinds of of stuff that is perhaps a bit too uh technical but there's a lot of things going on under the hood that ultimately decides how this resource rent is distributed and ideally right it should be a neutral system whereby both the companies and and the and the state is all happy right they both have aligned incentives uh but you can have fiscal systems that don't have that where the where the state or for that matter the companies get an outsized portion of this um of this resource rent cake right and that can lead to you know suboptimal development kind of concepts and and suboptimal use of of the resource base that's that's in place. And that's where there's a pretty stark difference between the Norwegian sector and the UK sector whereby the UK sector has seen multiple you know probably about what 10 different at least double digit different uh tax regime changes over the last uh 20 years which just makes it very difficult to plan right you don't really know what parameters you're operating under while the Norwegian sector has been much more stable you've had some tweaks here and there yes but it's by has followed you know the same rules uh over the same same time period. And there just there's not many times in in your life where you get paid for doing nothing. But in this instance, right, doing nothing just builds confidence and and that builds uh security and and comfort around putting uh literally billions of of uh dollars or euros and pounds into these projects and that you get the returns that you're expecting and so on and so forth. So on fiscals, there's a pretty big difference. I I'll give the Norwegian side a sort of a green flag there and and the UK side it's it's hard to to not give it anything else but a big big red flag. 20:00 The last point and I think the last point is and that's time and I think that's you know let's say you have resources in uh in the ground right not not yet developed not yet able to bring to the market but just how much time does it take to find the resources and bring them to the market right I mean those resources have no value unless you can sell them and get revenue um and that time is typically considered to be too long right um and then region sector in particular it's it's it's a big sort of pain point now just just how much time it takes to take these new projects to production. That's also where the UK took has been a bit better, right? The UK has been faster at developing things. Uh but that also reveals a bit of a philosophical difference, I'd say, between the UK and the and the Norwegian sector. The UK sector has been more of a less affair kind of everyone building their own system and there's no kind of o overarching or kind of architectural design philosophy if you want to use those kind of words but while in the Norwegian sector you know through gasco and gas and ecanor as the big dominant sort of operator and puru as a big uh partner in the big fields also representing state interest and so on you've had a much bigger or much more stronger forces than trying to coordinate everything to maximize the overall pie. Right? While the UK sector has a lot of different hubs, smaller hubs and many different pipeline systems, the the Norwegian sector would have bigger, more stronger hubs with with perhaps more consolidated pipeline systems. I think it's a bit uh the jury is still a bit out in my opinion on this whole time element because yes you can criticize and you can you can point to the region sector of taking a lot of time from development or sorry from discovery to production but perhaps that time is actually worth it because you end up with a much more efficient and productive production time right where you have lower unit costs lower emission intensity and ultimately higher margins. So that's a bit my some of the reflections on this you know rock time and and fiscal kind of framework of thinking about the resource competitiveness across across different sectors. I want to talk specifically about the UK because as we mentioned earlier in the the program um we're taping just a few hours uh or literally actually probably less than that um after the release of the 2025 budget or the latest budget um from UK's Labor government which keeps in place the um the EPL the excess profits levy or energy profits levy um which is it keeps it in place through 2030 uh at basically a tax rate of roughly 78% uh I think you know proponents of that say well it's the same as Norway. You pointed that out earlier. Um but at the same point you know we've got uh trade groups industry saying look this is stifled investment in the sector and some of that has to do with the way that it makes allowances for for investments. But um so as it stands now I mean I guess what does this keeping in place mean um for the companies working there? And and I should just give a caveat that look this is under discussion. Um, OEUK has definitely asked for for a meeting with um with the Labor government to to try to argue for for some changes here, but as it stands now in the proposed budget, things stay the same. So, what does that mean for how that production trend might look in the UK? 24:00 Imagine you making a big acquisition or make making a big big field in the field development decision and and you and you put uh you know lots of money on the table and you and you expect this and this tax rate and then suddenly that is changed right and and you have to pay you know 30% more or or you know it just changes the rules right and that just creates a lot of frustration it creates uncertainty and it creates an environment where you're where you're if you have two opportunities of fairly similar nature, one in uh UK and one elsewhere in the world, you are or less equal more likely to look at deploying that capital and and and that focus on on on the opportunity somewhere else, right? Just because you have greater security or greater comfort around what what what rules you're playing with, right? Or rules you're playing by. So in in isolation, the EPL as it is is nothing there's nothing particular with it, right? It has say if a fairly neutral kind of approach, right? Yes, you have a high tax rate, you also get pretty, you know, pretty sizable allowances and so on. If that was in place from day one, right, that then you would have played with by the same rules, right? So, it's this is the volatility of the of of of the rules changing, that's really the the damaging part, right? Uh it doesn't it doesn't help with with comfort, right? And this is not really something only applying to the oil and gas industry across any type of industry where you have u huge capital investments that are supposed to you know be alive and and then pay back over many decades. No. Okay. The the EPL is supposed to now end in 2030, right? But but will it uh I mean we saw today in the budget that the um the the income tax thresholds were were also postponed, right? They were supposed to end in 29. I think it was now they're supposed now they will be frozen till 31. If you are sitting there trying to do your your calculations on whether or not this project will make the return that you're expecting, it just makes it really hard to know what to plug in, right? uh there there's too many scenarios and permutations you can play with, right? I think that is really what's what's um damaging the um investment activity that otherwise should have been there, right? Just looking at looking at it from this rock and and time kind of perspective that I outlined earlier in the in the conversation. Is there anything that you would recommend that Norway needs to do or or is it really just the best thing to do is simply leave things leave leave well enough alone? Not many times you get you get paid for not doing anything, right? I think and and that's also that's also for anything that is uh you know kind of positive if you want from an from an audience perspective right I think the co changes was a mistake right you you open Pandora's box by by introducing changes when market conditions you know turn either really bad or really good right it's just you have to find a system that works through these types of of cycles right I didn't look at the co package with sort of big welcoming eyes I think Well, it's just it's just distorting this uh this sentiment that you should not really you should be very careful about touching these rules, right? 28:00 And then the the changes made after the co package where you where you kind of moved away from again we're getting into some of the technicalities here, but you moved away from like a multi-year depreciation schedule down to a sort of more of a cash flow based tax system. I think it's not only the tax system that is important or makes um kind of forms part of the regulatory environment, right? There's also access to um areas that might not be uh open for activity. It can be um you know CO2 taxation and and electrification mandates and it can be access to power and all these kind of things. So so granted there there's more to the let's call it the regulatory package than just the fiscal uh side of it. But but that's obviously the fiscal is very much the the the the current the hard currency that you that you see at the bottom line. Right. So that's why it certain certainly gets an outsized importance in this discussion. I want to shift over and talk a little bit about corporates um the companies that are working here the corporate landscape that we've seen evolve um over the past maybe decade or so. And um I mean can companies simply kind of carry on you know they've been working in this basin for as you said perhaps 50 years. um can companies kind of simply carrying on doing what they're doing and count on that particularly advantaged access to to markets to infrastructure to be able to generate the returns that they need? Um or does there need to be kind of a step change improvement in in how companies are actually accessing these resources? In the early days, it was the the big big companies, the the shells and the BPs and um and so on that sort of led the charge, right? You need those types of big uh of big companies to to lift those projects, initial projects where you have to build everything from scratch and and and develop the whole industry, right? as time goes by and and those big discoveries and the big projects are no longer there and it becomes much more of a nitty-gritty industry of of squeezing out a bit a bit of extra resources here, a bit of extra resources there, right? And you also enter kind of the more the decommissioning side of the story, it's not very compatible with the competitive advantage and the the type of of business focus that these big companies wants to have, right? They want materiality. they want to be these uh big uh new developers in in in new basins right so it was a natural sort of change of guards I think that you know started in let's say u around 2005 and and onwards in both both in Norway and and and UK where you saw a lot of so-called independence right or smaller companies come in and and acquire some of these bigger older fields giving them so a lot of tender love and care to to redevelop them uh invest more and and and really try to to maximize the value out of these fields and by and large I think that's been a very successful and and natural way of uh maturing a basin so success story so far and you also see different other regions of the world looking a bit at at the North Sea to see what happened here can we recreate this where we are you know for example in Brazil you have seen some of these types of initiatives You've seen it in also in Southeast Asia where we also had the the very recent JB right between Petronus and NI as an example you know mimicking a bit the the JB that ENI made with uh with with B in Norwegian sector. 32:00 Do we see further consolidation? Is there further running room to to become more efficient for for players to get bigger? the players that do remain just to use the Norwegian sector as as the example in this case you had about 25 active uh companies in in 2000 that rose to about 55 companies around 2013 14 and now it's down to 25 again unless you do something with you know the top five in a way or at least if you unless you do something with Ecuador and Epiol's portfolio or the state's direct financial interest it's just like is is such a a all encompassing portfolio, right? That it I I struggle to see a bit how much more consolidation you can do of of of a bigger scale, right? Um of the same nature that you've seen before. And with the new tax system, you also don't have the same type of tax synergy mechanisms that also have led to quite a bit of transaction and and consolidation activities, you know, prior to that change back in 22. Yes, you still have Tuttal and Shell and Kona Phillips as the majors remaining on the on the Norwegian sector. You know, can can something happen there that would kind of follow the rule book that we just laid out about bigger companies is not of the same scale as the start hydro merger and and and some of the other big uh divestments that you've seen u over the last decades in in in both the UK and the region sector. the big flashy things have perhaps petered out a bit, but you still have to see lots of M&A and and commercial movements if you want on on the more nitty-gritty side of things. You need to align interests between different satellites developments and hubs to align commercial interest and so on. And and that's where the MLA market is is very important. It goes back to the time dimension that I mentioned earlier. A lot of the delay in getting resources to the market is that you have you have misaligned interests and that just means that you're kind of stuck in commercial negotiations a lot and and M&A is sort of one mechanism to to kind of force or to to to alleviate those types of uh misaligned interests. But you know that is just very nitty-gritty work. It's not the big flashy stuff that uh you read about in the papers. I wanted to shift over and talk a little bit about offshore wind. Um because as the uh oil and gas production, particularly on the UK side of the North Sea, has declined. Um we've seen a pretty rapid rise of of offshore wind installations. I believe UK is the largest uh installed capacity of offshore wind. Um certainly it's been a a priority for Ecuador uh and for Norway from an energy policy perspective. Um but you've said that you actually see perhaps uh maybe limited running room um for further offshore wind or at least um some economic headwinds to further development of these really large installations that we've seen so far. 36:00 It's been an amazing journey for for in particular the UK sector uh over the last decade just just how much capacity has been installed. From an offshore wind perspective, it's the it's the Dutch and Danish and German and and UK sector that is really kind of the booming areas while while the Norwegian sector doesn't really have the rocks, you know, to to use the same type of resource. So, no manure way of talking about things. Norwegian sector is too deep, the water is too deep, is too far from the from the market while you have bottom fixed offshore wind all across the southern part of the North Sea, right? So it just is one of the the the best locations in the world to actually do that, right? But offshore wind ultimately ties into the into the power market and it's a u you know it's a variable source of energy and that just means that the more capacity you add and the more percentage points of of this type of energy or electricity you get into into the power system, the more the more difficult it is to maximize the value of the electricity produced, right? Uh you get this cannibalization effect. Uh and I think that's what we've seen a lot emerging over the last years. Um you know these negative pricing environments and and uh and so on. And you you combine that also with the cost inflation that you've seen across across any industry really but but also for the for for the the offshore wind and and industry. The economic reality is not uh it's not the same as it was you know the last decade when you had lowc cost power market that was ready to absorb these electrons and you also had very low interest rates that made these investments and the debt related to them very affordable relatively speaking the European population at one point have to accept u that we have to do this do these things onshore right I mean doing things offshore is it's complicated it's expensive um maintaining the the big platforms out in Rotier cost an enormous amount amount of money, right? If it wasn't for the valuable resources that's there, you just you wouldn't do it, right? The economic reality of doing wind onshore and also carbon cap carbon storage onshore is is vastly different than what it is offshore. I'm questioning if not if if we kind of hit a bit the the ceiling what you can do offshore and if you do if you want more activity, you need to move on shore. You need to sort of something's got to give. and and the stat has to give that you need to accept these types of uh activities and and industrial activity also in in an onshore setting. I'm a bit uh reluctant perhaps to say that you'll have the same type of of booming kind of outlook for for the for the let's call it the other energy sources in the North Sea setting as you've had over the last uh last decade. Earlier in the program, we talked about the the geostrategic advantage that natural gas production in the North Sea has selling into um an established market, a high um high price market or high value market. I mean, is there a similar argument that that offshore wind could have that same geostrategic advantage um you know, if if it's able to move into Europe um if there's infrastructure available or or is the dynamic different there? It's the same dynamics, right? So uh obviously you know having locally produced um electrons so to speak it's u you know that that speaks to the energy security angle. So uh from that point of view uh it's certainly a a very important energy production source for for Europe right I mean that and that's also why you know the the governments across the North Sea have put a lot of effort on developing the offshore wind industry right because of of this particular reason along with the decarbonization agenda um to to decarbonize your power sector and subsequently the other parts of your energy system right so so that all kind of resonates on stack up. Have you taken the lowest hanging fruits, right? And and the pain points are are are kind of emerging that starts to ask these these more difficult questions, right? And and you've seen the debates in Norway around uh electrification of offshore um gas turbines, right? I mean, that was easy 10 years ago. It's not that easy today because you want to use that power for many other things and you don't want to create the the higher power prices and so on for the population. So it it's all of this has become much more politically tricky than what it just was 10 years ago. Um so I think that is that is why it's you're bumping up against some of these realities that um that perhaps has to come had to come higher on the agenda than than what's been in the past where you've been able to sort of coast along and not really touch those uh those difficult themes in the same way. Well, and if Europe's demanding green electrons, um those green electrons could be met by, as you pointed out, perhaps cheaper sources than than offshore wind. Um if you're willing to generate onshore or even even solar, you need to build redundant supply chains. That has a cost, right? So, so in a in a perfect world, right, you sort of need Russian natural resources, you need Chinese manufacturing capacity, you need American capital, and you you need European carbon taxation, right? You need all these things to fire on all cylinders. That's when things happen right now. We're trying to subtract all of these uh different elements from from u creating change and creating this transition story and it's it's just causing suboptimal solutions right from what the from what the planet and its resources otherwise can deliver. So, you know, coming from that angle, a bit kind of the can't we all just uh, you know, work together and and and optimize angle, then it's, you know, it pains me a bit to see all of these developments that we've seen over the last years on this uh on this topic. And I think that plays a bit into the this tension that I've talked about, right? it's not that easy to to to just build more of what you've done because you you're hitting certain thresholds that makes it uh less easy than what it was uh when you did it the first time around. Well, and taking a step back and thinking about kind of, you know, maybe more macro energy and climate policy. I mean really interesting to see kind of the two sides of the North Sea in the UK um and Norway perhaps kind of personifying some of the debates we're seeing around that we've seen from COP 30 um but kind of the debates we're seeing around energy pragmatism and and the idea of well in the UK at least perhaps still persisting that that you know a successful climate policy attacks the limits the upstream production of fossil fuels um whereas Norway has probably focused much more on maintaining production of fossil fuels but also then incentivizing use of of you know electricity of electrons in ways whether that's through um incentivizing EVs and other things. So I mean kind of really interesting sort of dichotomy that we're seeing in one basin um that's that's perhaps maybe playing out more broadly across the world. I mean does that resonate? Do you think that's accurate? We’ve been looking into this quite a lot right through this uh these kind of scope 3 emissions and how that relates to um field developments in the North Sea both on the UK and Norwegian sector. you quickly get into this discussion around uh elasticities, right? So, if you don't produce a barrel or a cubic meter in the North Sea, how much of it will be will be produced elsewhere in the world, right? The lower your demand outlooks are and and the more kind of abundance you have of production capacity of oil and gas globally, the the the higher the elicity is and and the less kind of let's call it a net emission bang for your buck do you get uh to to reduce local uh supply, right? I mean, um, if Saudi Arabia has two 2 million barrels of spare capacity, they can just replace those barrels that you don't produce here, right? And then you're kind of more or less even Steven, right? So it's only it's only when you kind of increase your demand outlooks you're more in this sort of if you think about the the latest IIA report in the steps or the the current policy scenario when you have still growing demand and these kind of things when you start to stress the production system or the the production capacity system globally that's when you know obviously you if you if you constrain supply uh it will have a price impact much more because the system is much more inelastic and and then you and then you can start to talk about sort Yeah, if you don't produce this barrel, you know, only half of it can be replaced somewhere else and that makes a pretty big, you know, dent on your scope 3 kind of net emission logic. But at the same time, at that in that world where you're in that type of high demand environment or the value of those that commodity is also very high. So if you then divide kind of the value of this project on the net emissions that you are saving, it becomes a very very high abatement cost. Uh, and I think, you know, if you analytically and logically think about how to abate your your emissions to reach different targets, you're starting in the wrong end of the of the scale, right? I mean, one example we looked at, you ended up with $25,000 per uh per kilo or it was just like it was I mean way off scale. You might you're better off just building a direct aircraft capture facility and offset those emissions that way instead. So it to me it just immediately kind of comes into this logic world of okay let's just follow the the the the global marginal abatement cost curve right or or do we want to follow each country's uh way of trying to optimize for their own emissions and emission uh statements and and and goals and targets right do something with demand and and then uh supply will follow I think that's certainly the the sentiment that we've been uncovering through the work that we've done in that particular sector on that particular theme. Well, and if you go the other way around and start with supply, then you start facing these questions around affordability that have plagued um many governments and and particularly have dogged um the UK here recently with with these uh higher higher energy costs. Simon, thank you so much uh for joining us, for unpacking uh these really complex interactions here in the North Sea. Um really enjoyed the discussion. Thank you very much. Let's recap. North Sea oil and gas production has peaked and further offshore wind development faces economic challenges. But both sectors can continue to provide vitally important resources if countries manage them properly. And that management is key because remaining production from the basin is more important than ever to Europe's energy security as the continent tries to end its dependence on Russian hydrocarbons and keep its industries globally competitive. Companies working there can get a tailwind from their strategically advantaged location, but they will need to build scale and to rethink their development strategies in order to bring down costs if they're going to turn a profit in a region where taxes are high and regulations are stringent. Thanks for listening to Let's Talk Energy. This podcast is a production of Ryad Energy produced by Lara Rodriguez Scow and Bod Oak. 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