Consultation on Legislative Proposals for Offshore Hydrogen Pipelines and Storage

United Kingdom

Introduction

Following the Government’s Hydrogen Transport and Storage Infrastructure Consultation, the Department for Energy Security and Net Zero (“DESNZ”) has announced a consultation for offshore hydrogen pipelines and storage (the “Consultation”). The proposals within the Consultation are hoped to enable and realise first-of-a-kind offshore hydrogen projects, supporting the UK’s ambitions to produce 10GW of clean hydrogen by 2030.

The Consultation focuses on two particular areas for legislative change:

(1) the granting approval for the construction; and

(2) the operation of offshore pipelines and the licensing of offshore hydrogen storage.

A summary of the principal changes, to be imposed through secondary legislation, is outlined below.

Construction and use of offshore hydrogen pipelines

Background

The current regulatory framework for offshore oil and gas is governed predominantly by the Petroleum Act 1998 (the “Petroleum Act”). Under the Petroleum Act, a specific Pipeline Works Authorisation (“PWA”) is required to construct and use new subsea pipelines in the UK Continental Shelf and territorial seas.

The application process for obtaining a PWA is laid out in Part 3 of the Petroleum Act and, in summary, provides that pipelines used in relation to oil, gas or carbon dioxide require authorisation. An application for a PWA is made to the regulator for offshore oil and gas, the North Sea Transition Authority (“NSTA”), via a portal system with supporting documentation comprising of technical, operational and geographical data.

Part 4 of the Petroleum Act also governs the decommissioning of offshore oil and gas installations (and offshore carbon capture usage and storage). The aim being that those who have benefited from the exploitation or production of oil and gas bear the responsibility for decommissioning. 

Proposal

DESNZ, in recognising the benefit of extending the existing PWA regime, proposes to make an order under powers conferred under the Petroleum Act to bring offshore hydrogen pipeline within its scope. Thus, the NTSA would be granted the power to award PWAs in relation to the construction and use of subsea pipelines for offshore hydrogen pipelines.

If this proposal were to be accepted, then it would consequently mean that the hydrogen pipelines would fall within the decommissioning provisions mentioned above.

The Consultation seeks views from the industry’s stakeholders on DESNZ’s proposal to extend the scope of the Petroleum Act to capture the application for the construction and use of offshore hydrogen pipelines and also to regulate its decommissioning.

Offshore storage licensing

Background

The Energy Act 2008 (the “Energy Act”) implements a licensing regime for gas importation and storage activities. Under the Offshore Gas Storage and Unloading (Licensing) Regulation 2009, such licenses are granted by the NTSA. At present, neither these regulations nor the Energy Act recognise hydrogen as a "gas" and therefore do not currently apply to hydrogen importation and storage activities.

Proposal

DESNZ proposes to use existing regulatory regimes to enable the realisation of offshore hydrogen projects. As such, it is considering extending the existing law to designate hydrogen as a "gas". This would enable the NTSA to issue offshore licenses for hydrogen importation and storage projects. If such a proposal was employed, any such decommissioning would consequently be governed by Part 4 of the Petroleum Act.

Environmental regulation of pipeline and storage

Background

While the Petroleum Act is the principal piece of legislation governing the consenting regime for offshore pipeline and any decommissioning, the Offshore Oil and Gas Exploration, Unloading and Storage (Environmental Impact Assessment) Regulations 2020 (the “EIA Regulations”) apply to offshore oil and gas exploration, production, unloading and storage (including storage of carbon dioxide).

Additionally, the Offshore Petroleum Activities (Conversation of Habitats) Regulations 2001 (the “Habitat Regulations”) provides the framework for protecting the national network of protected sites. The Habitat Regulations provide that before the grant of any licence, consent, authorisation or approval involving a proposal that is likely to have a significant effect to a protected site, the Secretary of State must make an appropriate habitat assessment considering the possible implication to a site, taking into account its conservation objectives.

Proposal

While the Consultation does not propose any reform to the existing environmental legislation, if the abovementioned proposals are implemented, then the scope of the existing environmental legislation will automatically catch offshore hydrogen projects.

For example, classifying hydrogen as a "gas" for the purpose of the Petroleum Act would mean that offshore hydrogen pipeline and storage would be in scope of the EIA Regulations. Similarly, if hydrogen projects required a PWA licence under the Petroleum Act, then the Habitat Regulations would apply, and in granting a PWA, a habitat assessment would be required for certain activities caught, including gas storage.

CCUS parallels - a sign of what’s to come?

The proposals outlined in the Consultation regarding the decommissioning of offshore hydrogen projects share similarities with those adopted for CCUS projects. If adopted, both CCUS and hydrogen decommissioning regimes will fall under the Petroleum Act, following established processes in the oil and gas sector.

It is worth noting that the CCUS transportation and storage regime, including provisions for decommissioning, is subject to proposed changes in law under the Energy Bill. The Energy Bill introduces an economic model for carbon transport and storage, including an economic licensing framework which empowers Ofgem to grant licences for the operation of a CO2 storage site and pipeline transportation of CO2 for storage. This differs to hydrogen transport and storage which will be subject to the existing regulatory regime that applies to natural gas network operators. The CCUS regulatory regime is currently under development and will feel broadly similar to the gas regime, though it is anticipated that there will be divergences to reflect the contextual differences e.g., the fact that there will be no offtakers from carbon networks. 

As mentioned above, the Offshore Gas Storage and Unloading (Licensing) Regulations 2009 provides that the NTSA governs offshore gas storage activities which includes the issuance of licences. To enable the NTSA to issue licences for offshore hydrogen storage, DESNZ are proposing to implement regulations to designate hydrogen as a gas under section 2(4) of the Energy Act 2008. On the other hand, under the Carbon Dioxide Regulations 2010 (SI 2010/2221) the Oil and Gas Authority (“OGA”) is the licensing authority for offshore CO2 storage. As a result of DESNZ’s proposal to designate hydrogen as a gas under section 2(4) of the Energy Act 2008, hydrogen storage would fall under the definition of “offshore installation” in section 44 of the Petroleum Act 1998. The installation would be subject to the decommissioning regime, the Offshore Petroleum Regulator for Environment and Decommissioning (“OPRED”), in Part 4 of that Act. This is similar to the decommissioning of offshore CCUS which also falls under the definition of “offshore installation” and is therefore subject to OPRED. 

The coordination of these two technologies remains uncertain, however, the progress of policies such as the Energy Bill and the Consultation present an exciting opportunity for the net-zero transition.

Next steps

The proposals in the Consultation recognise the change that is required to meet the UK’s hydrogen targets and the evolutionary realisation, and development, of first-of-a-kind offshore hydrogen projects. The proposals, implemented via secondary legislation, hope to enable and operationalise viable hydrogen projects in the near term to ensure UK targets and Government ambitions are met in the transition to net zero. However, the Consultation does not explore in any detail what the potential implications of these proposals would be. For example, there is no indication as to any detailed implications of extending the section 29 notice regime to these types of infrastructure or the companies that may design and install them, nor an indication whether it is envisaged that arrangements would be required similar to the extensive decommissioning security arrangements that are commonplace in the oil and gas industry. It will be interesting to see to what extent respondents to this consultation have and draw upon practical experience of the regulatory framework under the Petroleum Act in commenting on these proposals. 

The Consultation closed on 22 May 2023 with a summary of responses expected to be published later this year.