Ranking the Majors on Energy Transition

By Gerard Kreeft

 

 

 

 

 

 

Musical Chairs in Slow Motion

What is the status of the energy transition plans of the various oil and gas majors as they struggle to reduce their carbon footprint? What strategies  and energy scenarios are they developing? How can they be ranked? Below is an overview of their plans.

Equinor

Equinor is perhaps the company all of the majors are watching most closely. Equinor is dedicated to maintaining its oil and gas assets and also preparing to make massive investments in offshore wind energy. Equinor argues that its offshore oil and gas experience will complement its offshore wind activities.

Yet the stock market is not convinced. Currently an Equinor share is selling for approximately $15 (New York Exchange); in 2018 a share was valued at $25. Whether both oil and gas and offshore wind energy have a combined added value is a question that must still be answered. To date Equinor insists that the company’s strategy is that of defending  its  twin pillars of oil and gas and offshore wind.

While it may be too early to encourage spinning off wind energy as a separate company, it is important to watch Equinor’s plans for the future. Dogger Bank, located in the North Sea and which will produce some 2.6 GW of energy, enough to light up 4.5Million households, is the company’s showcase project.

Equinor is on course to produce 4-6GW energy by 2026 and 12-16 GW by 2035. Market leader Orsted has a current capacity of 10GW. In Europe the need for new energy in 2023 is expected to be 60GW.

Equinor’s more traditional natural gas business continues to be a reliable source of income: the company is Europe’s second largest gas supplier. Combined volumes from Equinor and SDFI(Norwegian state’s gas volumes) constitute more than 20% of Europe’s gas market.

A final footnote: Equinor has been in Angola since 1991. With it’s 17 employees the company in 2019 had an average daily oil and gas production of 140,000BOE! A small example of how Angola is helping Equinor make its offshore wind farms bankable.

TOTAL

TOTAL, always a player to watch, has not disappointed. The company has embarked on a strategy of reducing spending, selling marginal North Sea assets, buying Tullow’s Uganda assets at fire sale prices, and financing  Mozambique LNG with off-balance sheet funding.

TOTAL, with its deepwater track record in Angola Block 17, will certainly play a key role in new deepwater projects. Its Brulpadda Deepwater Project in South Africa(drilled to a final depth of more than 3,600 meters)  bears testimony of its deepwater agility. In Africa TOTAL is the undisputed energy champion helping to leapfrog exploration and development hurdles ensuring that oil and gas projects are implemented, on time and under budget.

TOTAL is also becoming an offshore wind player in the North Sea. Recently it purchased from SSE Renewables the majority stake in the Seagreen 1 project which can generate 1.14GW energy.

TOTAL also entered the Spanish electrical market with its purchase of Energias de Portugal’s portfolio of some 2.5Million customers, representing an electrical generating capacity of nearly 850 megawatts.

Through Eren, its affiliate, TOTAL develops projects in countries where renewable energy provides an economically viable response to growing power demand. Eren, in 2016, delivered a 10MW facility for the Soroti Power Plant, Uganda’s first-grid connected solar plant generating clean energy for 40, 000 households. In 2018 Eren installed the world’s largest hybrid solar/thermal plant with a capacity of 15MW for the IAMGOLD Mine in Burkino Faso. The company also provided two photovoltaic power plants (PV) with a capacity of 126MW for the Benban Complex, Aswan Province, Egypt.

According to TOTAL, low carbon electricity could account for 40% of its sales by 2050. TOTAL’s gross low carbon power generation capacity is 9GW, including 5GW from renewable energy.

ENI

ENI’s 2050 strategic plan to reduce its carbon footprint includes the following goals:

  • Natural gas will account for 85% of upstream production; 80% reduction in scope 1 emissions (from company assets) scope 2(indirect emissions) and scope 3 (entire value chain).
  • Production of 55 GW electrical generating capacity.

ENI produces 1.8 Million barrels of oil equivalent a day (1.8MMBOEPD), and has a large geographical presence throughout Africa, including Algeria, Angola, Egypt, Gabon, Ghana, IvoryCoast, Kenya, Libya, Morocco, Mozambique, Nigeria, Republic of Congo, South Africa and Tunisia.

The company’s operated  Zohr field is believed to be the largest-ever gas discovery in Egypt and the Mediterranean. In August 2019, production from the field reached more than 2.7Billion cubic feet of gas per day (bcf/d), roughly five months ahead of the development plan.

ENI’s key asset in Angola is the West Hub and East Hub projects, Block 15/06(ENI 36.84%, operator). Over a period of four years, eight fields have been started, four in 2018 alone. ENI also leads the New Gas Consortium(NGS), which has the mandate to explore for natural gas to be developed and supplied to Angola LNG and the domestic gas market .  NGS was created as a result of the oil and gas reforms implemented in 2018-2019: allowing companies for the first time to explore and develop natural gas assets.

Snam, Italy’s independent natural gas company, and formerly an ENI affiliate has participated in the European Gas for Climate study. The study concluded that transporting biomethane and hydrogen through existing the existing natural gas networks could result in annual savings of €217Billion by 2050.

BP

The sector is waiting, with bated breath, to see how BP’s new CEO Bernard Looney will transform the European giant to a “ net zero company”  by 2050 or sooner. No doubt BP is looking for participation in new renewable mega- energy projects.

Size matters and the time for action is now given that Looney is still in his honeymoon period. The company has introduced a far-reaching organizational change, but is this simply shuffling deck chairs on the Titanic or will we see new strategic changes?

Currently BP produces 3.7MMBOEPD. Adding a possible 1MMBOEPD of renewable energy to the reserve count can only bring a smile to the face of a BP shareholder, possibly ensuring that the 6+% annual  dividend is  safe.

Will shareholders decide that moving into a new strategic direction-taking renewables on board in a massive way- will guarantee in the long term their golden dividend? Possibly avoiding that BP’s oil and gas assets be viewed as  stranded assets.

Shell

Shareholders are united in their desire to see a greener company. Between 2016-2019 Shell spent $89Billion in total investments, of which only $2.3Billion was devoted to green energy. Its green playbook is uncertain but Shell will have to make a mega-deal to ensure it can play catch up. True Shell can boost that  natural gas/LNG in which they are a market leader, is the cleanest hydrocarbon. Will this satisfy shareholders?

If Shell wants to have an immediate green presence then a deal, much like the British Gas takeover in 2015, will be the precedent the company will follow. A possible target: Orsted, the Danish Offshore Wind Farm giant. Since 2016, Orsted’s share price has more than quadrupled. In 2016 it had a stock price of $35 and in mid-July 2020 $140( Danish Exchange). Orsted has a market cap of approximately $ 60Billion. Shell’s takeover of British Gas had a price tag of $52Billion. Although expensive by today’s prices, can Shell not afford to make a deal?

A promising and a more long-term scenario is  the NortH2 vision in which Shell and Gasunie have combined forces to create a mega-hydrogen facility, fed by offshore wind farms, which by 2030 could produce 3-4 GW energy and possibly 10GW by 2040.

Chevron

Pre-Paris Chevron was viewed as the poster-child everyone respected and awed. Daily production of 3MMBOEPD, an annual dividend that has consistently increased for the last 32 years and  world class projects. Some examples:

Tengiz in Kazakhstan which in 2018 celebrated its 25th anniversary and geared to produce up to 1MMBOEPD.

Africa-Angola,Egypt,Nigeria and Republic of Congo– having a daily production of 412, 000BOEPD.

Gorgon LNG which is producing 15Million tonnes of LNG per annum for Asian-Pacific clients.

Post-Paris raises serious questions whether Chevron understands what the Energy Transition is about. Yes, Chevron has an ESG(environmental, social and governance) policy managed and implemented at the highest levels in the company. Key measures listed include:

Lowering greenhouse gases;

CCS(Carbon, Capture and Storage) project at the Gorgon LNG project;and

Various health, educational amd community development projects.

Yet there is a complete lack of any strategic discussion whether renewable fuels play a role. Chevron’s entire energy transition strategy is solely done within the confines of the fossil bubble. The one example given is  developing  a 29MW system of solar panels at Chevron’s Lost Hills operation. Lost hills indeed! Surely this is a script for a Monty Python energy transition film!

In 2019 Chevron wrote off $8Billion impairment cost for its Marcellos and Utica shale operations as well as Big Foot, a Gulf of Mexico (GOM) project . Will more write downs follow? For example Tengiz, with its highly sulfur based oil, could well become an ugly duckling. Sub-Saharia Africa could also turn sour. Angola, once the darling of the continent, has seen its oil production slip to 1.2MMBOPD.

Taken together Kazakhstan and Africa account for almost 50% of Chevron’s daily production. Is there a Plan B?

As a possible insurance policy  Chevron has purchased Noble Energy, also a fossil based strategy, for $13Billion.

Chevron once the poster-child of the industry could become the black swan and a mere reflection of what it now is.

ExxonMobil

ExxonMobil, with its headquarters in Irving Texas, produces 2.28MMBOEPD. Its DNA was forged in John D. Rockefeller’s Standard Oil Company of  the 1880s.

Its world class projects include:

Rovuma LNG, Mozambique, in which the company will own a 25% indirect interest in offshore Area 4. ExxonMobil will lead the construction and operation of all future natural gas liquefaction and related facilities, while Eni will continue to lead the Coral floating LNG project and all upstream operations.

Kizomba A,B,B Block 15 Angola, has to date produced over 2Billion barrels of oil and gas. Earlier  this year the Block 15 agreement was extended to 2032. A multi-year drilling pact was signed which is expected to produce an additional 40 000 barrels per day.

ExxonMobil is well known for its technical excellence and project management style geared to ensure maximum efficiency. Its style is top-down, like an army on the march. Many companies are willing to nominate ExxonMobil as a project operator knowing that this will on a dollar-for-dollar basis  generate the best results.

ExxonMobil, at least publicly, will not participate in energy transition discussions, but is willing to pursue scientific endeavors geared to reduce CO2 levels. For example, scientists from ExxonMobil, University of California, Berkeley and Lawrence Berkeley National Laboratory have discovered a new material that could capture more than 90 percent of COemitted from industrial sources, such as natural gas-fired power plants, using low-temperature steam, requiring less energy for the overall carbon capture process.

Laboratory tests indicate the patent-pending materials, known as tetraamine-functionalized metal organic frameworks, capture carbon dioxide emissions up to six times more effectively than conventional amine-based carbon capture technology.

In ExxonMobil’s Outlook for Energy: A perspective to 2040 the company states ”Oil and natural gas make up about 55 percent of global energy use today. By 2040, 10 of the 13 assessed 2oC scenarios project that oil and gas will continue to supply more than 50 percent of global energy. Investment in oil and natural gas is required to replace natural decline from existing production and to meet future demand under all assessed 2oC scenarios.”

The report continues:”Global energy demand rises by 20 percent; market demand trends differ for OECD and non-OECD. Continued innovation will help OECD economies expand while reducing their energy demand by about 5 percent and energy-related CO2 emissions by nearly 25 percent. In the non-OECD countries however, energy use and emissions will rise along with population growth, increased access to modern energy and improving living standards.”

 Conclusions

Seven profiles varying in scenario and strategy:

  1. Equinor beting heavily on wind energy and see their oil and gas assets and experience as complementary.
  2. TOTAL, which has Africa as a home base, has the dexterity to be a deepwater player and innovative in the current energy transition.
  3. ENI, which has unveiled its 2050 plans, has the ambition to move forward but details are sketchy.
  4. BP, Beyond Petroleum, willing, but where is the plan?
  5. Shell, wants a green miracle, but will it happen?
  6. Chevron, laid-back California-style will not make you an active participant in the energy transition.
  7. ExxonMobil, their technical excellence and discipline could become an asset to the other IOCs.

Gerard Kreeft,  BA ( Calvin University ) and  MA (Carleton University, Ottawa, Ontario, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe. He writes on a regular basis for Africa Oil + Gas Report.

 

 


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