The North Sea Transition Authority this week fined Repsol Resources £160,000 for knowingly flaring gas at three North Sea fields in 2022. This is barely a rounding error for an operator of this size – particularly considering the huge profits earned during last year’s energy market madness. And yet it is the largest fine ever issued by the NSTA.

Repsol North Sea Limited – a unit of Repsol Resources – flared and vented more than 73 tons of gas in July 2022 at the Fulmar, Auk North, and Halley fields despite knowing that short-term consents allowing it to do so had expired. The NSTA’s sanction notice raises questions about why Repsol allowed this to happen.

On 1 July 2022, the NSTA told Repsol that continuing to flare or vent represented a breach of regulatory requirements. Repsol applied for new consents but the applications were inadequate and sent back to the operator “multiple times” until they met the regulator’s standards.

Repsol later confirmed to the NSTA that it had continued to flare and vent and accepted responsibility for the breach. It attributed this failure to its internal “tracker” omitting the application deadline, and “significant changes of personnel” at that time.

C-suite musical chairs

Repsol Sinopec, as it was known at the time, appointed a new COO in October 2022, a new CEO in August 2022 and a new decommissioning and energy transition VP in June 2022. There was another change in CEO in January 2023, and in November 2023 the North Sea joint venture was rebranded as Repsol Resources after the exit of Chinese state oil giant Sinopec.

Repsol could have either shut down the three fields, or switched to diesel generation to power the facilities. However, it decided against doing either “for operational and emissions” reasons and instead continued to operate using the fuel gas system, which resulted in the flaring and venting.

It is difficult to square the ‘staff churn’ explanation with the fact that a decision was actively made not to shut down – clearly someone was in charge at the time of the infringement. But the more pressing question here is whether a bigger fine would have resulted in a different outcome.

Cheaper to flare and pay

Repsol North Sea Limited was loss-making in 2022 but parent company Repsol Resources raked in £602 million after paying the ‘windfall tax’, a more-than threefold increase on the previous year thanks to a 45% spike in commodity prices in the wake of Russia’s full invasion of Ukraine. So, a fine of £160,000 represents just 0.03% of Repsol’s annual post-profits. Most operators can pay a fine like this without blinking, regardless of oil and gas prices.

But even if the NSTA had issued its maximum fine – £1 million – this would still have represented only 0.2% of Repsol’s post-tax profit. The maximum sanction is capped by the Energy Act 2016 and increasing this would require Parliament to amend the legislation. There is almost certainly a need to lift the cap to deter further environmental breaches, but the regulator cannot make the case until it has demonstrated that the current maximum is inadequate. The only way to do this is issue hefty fines against such transgressions and observe whether there is a reduction in wilful breaches.

An NSTA spokesperson told E-FWD: “We are satisfied that the financial penalty imposed on Repsol North Sea Limited was proportionate to the significance of the breach.” Any further regulatory contraventions could result in a more severe penalty, such as licence revocation, it added.

Showing its milk teeth

To its credit, the NSTA is increasing the severity of its fines relative to the scale of the breach. The regulator last year fined EnQuest £150,000 and Equinor £65,000 for flaring 262 tonnes and 348 tonnes of gas, respectively, in late 2021 – in both cases, more than three times the footprint of Repsol’s misdemeanour. But these are small increments and the NSTA has powers it is choosing not to exercise.

Those fines followed the release of updated flaring and venting guidance in 2021 that is designed to guide industry towards basin-wide zero routine flaring and venting by 2030 at the latest. Whether that target will be achieved is an open question. North Sea flaring has halved since 2018 following four consecutive years of reductions driven by what the NSTA describes as “tough measures”.

This might appear encouraging, but the carbon intensity of UK gas production of 21 kg of CO2 per barrel of oil-equivalent remains much higher than Norway’s 8 kgCO2/boe, thanks to Oslo’s robust clampdown on the practice and the dominance of a state-run oil major in the Norwegian petroleum sector. The UK has a lot of catching-up to do, and celebrating the fact that domestic gas production is cleaner than imported liquefied natural gas (LNG) – as the NSTA likes to do – is at best disingenuous.

Protecting revenue streams

There are circumstances when gas flaring or venting is necessary, particularly to relieve pressure during an emergency to prevent potential catastrophic failures or explosions that could endanger personnel and equipment.

The practice also allows operators to remove hydrogen sulphide through combustion, converting it into less hazardous compounds. This is crucial for protecting workers and avoiding the release of toxic gases into the atmosphere. It is also used during well testing and integrity tests.

Safety is paramount, but this does not apply to Repsol’s infringement, which appears to have been a case of convenience – or the simple fact that commodity prices were sky-high in the midst of a European energy crisis, and lost revenue from shutting down would have been orders of magnitude greater than the fine.

The company’s wilful contravention demonstrates that it often makes more sense for an operator to pay a tiny penalty than stick to the rules. Fines must rise in severity to test the hypothesis that the current deterrent is inadequate. If operators are shown to be happy to pay up to £1 million to flare or vent small amounts of gas when commodity prices are more ‘normal’, then the NSTA will need to dig deeper into the reasons for this – and lobby parliament for greater powers to address the problem.

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