Valentine’s Day 2023: Who will be my Valentine?

By Gerard Kreeft

Valentine’s Day is fast approaching…a time to set your heart throbbing…and perhaps a time to pick a new and exciting partner who can whirl you both to new heights of joy and excitement! If you are a member of the Green Alliance– Enel, Engie. Iberdrola, and Ørsted—it is sure sign that you will be appreciated and loved. These companies are hard to hate. Each of them has already unfolded their green strategies for 2023:

Enel: committed to achieving CO₂ neutrality by 2040 instead of 2050, achieving 75% of electricity from renewables and 80% digitalization of its customers on the grid  by 2025. and having an installed generating capacity of 75GW by 2050.

Engie: pledged to reduce to CO₂ neutrality by 2045, 45% of investments is focused on renewables and by 2030 will have 80GW of installed generating capacity.

Iberdrola: in the period 2023-2025 the company will invest $50Billion and achieve net zero for Scope 1, 2 and 3 before 2040. By 2030 the company will have installed capacity of 100GW, valued at $70Billion.

Note: Essentially, scope 1 and 2 are those emissions that are owned or controlled by a company, whereas scope 3 emissions are a consequence of the activities of the company but occur from sources not owned or controlled by it.

Ørsted: the Danish wind energy pioneer is the world’s No.1 offshore wind farm developer and achieved a record-high operating profit for 2022.  Ørsted share price in December 2022 was $93; five years earlier in 10 June 2016 it was $37. By 2030 the company’s goal is to have an installed capacity of 50GW.

These companies have created a huge competitive advantage which will be hard to challenge by the oil and gas sector. This is bolstered by a key conclusion from BP’s 2023 Energy Outlook… “ the desire of countries to bolster their energy security by reducing their dependency on imported energy – dominated by fossil fuels – and instead have access to more domestically produced energy – much of which is likely to come from renewables and other non-fossil energy sources”…

While the oil majors are currenting harvesting the benefits of higher oil prices, they are also looking at possible scenarios on how to maximize their gains and minimize their risks. As we march towards CO₂ neutrality in 2050, the oil majors increasingly are looking for ways to share project risks or simply unload their projects and assets. The fear of maintaining stranded assets is very real.

No where are the risks-rewards scenarios more relevant than the deepwater plays.   According to WoodMackenzie deepwater is the fastest growing upstream oil and gas resource: production is expected to hit 10.4MillionBOEPD(barrels of oil equivalent per day) in 2022 and will reach 17MillionBOEPD by the end of the decade.

Below a summary discussion of some of the major African projects which will come in play. 

TOTALEnergies

TOTALEnergies recently announced that it would be on track, by 2050, to have 50% of its energy mix in renewables + 25% in “new molecules”(green fuels). The remaining 25% would be comprised of oil and gas including LNG.

Much of the 25% forecasted hydrocarbon budget, proposed for 2050, will be focused on African low-cost, high-value projects, including promising deepwater plays in Southern Africa, squeezing more value out of  various African assets to ensure a prolonged life cycle.

A prime example is TOTALEnergies’ Mozambique LNG project, which is expected to cost $20Billion and produce up to 43Million tons per annum. The project is currently on hold because of a security alert.

In Angola the company produces more than 200,000BOEPD from its Blocks 17 and 32, and non-operated assets including Angola LNG.

In Namibia TOTALEnergies has made a significant discovery of light oil with associated gas on the Venus prospect, located in block 2913B in the deepwater Orange Basin, offshore southern Namibia.

In South Africa the company is focused on its recently discovered two South African natural gas and condensate assets: Brulpadda and Luiperd, the second discovery in the Paddavissie Fairway in the southwest of the block.

Question: Currently TOTALEnergies’ capital expenditures for the period 2022-2025 is anticipated to be between $14Billion-$18Billion per year: 50%  ($7Billion-$9Billion) on hydrocarbons and only 25% ($3.5Billion-$4.5Billion) on renewables. How will the company produce a sharply reduced hydrocarbon budget, on the way to 2050, develop its Southern Africa deepwater assets and also deliver Mozambique LNG?

Will TOTALEnergies’ deepwater  division seek other parties to ensure that its various projects can be delivered without additional risk? The Mozambique LNG project will also require an immense amount of capital and risk to deliver. Will these projects be spun-off as joint ventures to ensure that the 25% hydrocarbon ceiling of 2050 is met?

On the way to 2050 the company has a number of other problems to resolve:

TOTALEnergies’ 31% stake in the Fort Hills Oil Sand Project in Northern Alberta, Canada and its 50% stake in the Surmont Thermal Project also located in Northern Alberta. Recently, TOTALEnergies acquired Teck Resources’ stake of 6.7% in the Fort Hills Oil Sand Project. TOTALEnergies’ total cashflow from these oil sands projects (also called “tar sands”) is approximate $1.5Billion.  In 2023 these entities will be bundled and spun off as a separate Canadian company. Why? To ensure the company’s green image is maintained.

The East African Crude Oil Pipeline (EACOP) is proving to be harmful to the company’s green image. Public dissent has been mounting and financial hurdles have yet to be resolved. Continued delays only make the completion of this on-going saga more uncertain. Will this too be spun off as a separate entity? 

BP

A key strategy is to decrease its oil production by 40% by 2030. In Angola  BP has merged its upstream activities with ENI to form Azule Energy. Could this become a model for other African countries?

BP’s Greater Tortue Ahmeyim (GTA) field in Mauritania and Senegal is one of the few oil and gas projects which the company is developing. For 2023 the company has earmarked up to $7.5Billion for oil and gas projects.

Chevron

The company will spend $3.5Billion, or 70% of its international budget, to continue developing its Tengiz asset in Kazakhstan. The remaining $1.5Billion  will be spent elsewhere. This is not promising for Africa, where Chevron has major operations stretched across the continent, including major projects in Nigeria, Angola, Equatorial Guinea, and Egypt. Will Chevron seek buy-ins from other  players to maintain its status in Africa?

ENI

A key ENI strategy  is developing a series of joint-ventures to ensure that ENI can achieve maximum leverage for its current oil and gas assets.  A key example  is Azule Energy, Angola, a 50-50 joint venture between ENI and BP formed in 2022 to include both companies’upstream assets, LNG and solar business. Will more joint-ventures follow? 

Equinor

Equinor’s has two growth pillars: natural gas and its growing offshore wind portfolio. The company is pledged to spend some $10Billion on oil and gas projects in 2022-2023.  Key projects in Africa include the Salah and Amenas gas fields in Algeria, equity oil production of some 120,000BOEPD in Angola, and the Tanzanian Gas and LNG Project. Possibly the Tanzanian Gas and LNG Project could see farm-ins in the future.  There is no indication that the company will make other major investments in Africa.

ExxonMobil

The company’s two major projects in Africa include:

Rovuma liquefied natural gas (LNG) project is a 15.2Million tonnes per annum (MMTPA) LNG export facility planned to be developed to liquefy and market gas resources from three reservoirs in the Area 4 block of the Rovuma Basin, offshore Mozambique. Mozambique Rovuma Venture (MRV), a joint venture of ExxonMobil (40%), ENI (40%), and CNPC (20%) is the operator and holds 70% interest in the Area 4 exploration and production concession contract.

The project is currently on hold because of a security alert.

Angola Block 15 Redevelopment Project  has to date had 18 discoveries over a 20 year period and is expected to deliver around 40,000BOEPD.

For 2023 the company has stated that its capital investments will range between $23Billion-$25Billion. The company will invest 70% of its capital budget in the Permian Basin(USA), Guyana, Brazil and LNG projects.

ExxonMobil’s presence in Angola will last as long as its Block 15 continues to produce oil and gas, but is not of primary focus to the company. If Rovuma LNG continues to be listed as a security risk, Africa will no longer be a primary energy market for the company.

Shell

Shell Namibia’s Jonker-1 well discovered earlier this year in the deepwater Orange Basin and the previously successful Graff and Rona wells, both confirmed as significant discoveries, have given the company a significant deepwater cluster in Southern Africa. The company has a 45% interest, QatarEnergy also 45% and Namcor 10%.

Question: Given Shell’s green ambitions will it request additional companies to farm-in to reduce project costs?  Shell also indicated that it will reduce its upstream division to nine core hubs—Permian, the Gulf of Mexico, United Kingdom, Kazakhstan, Nigeria, Oman, Malaysia, Brunei and Brazil– and it will do no frontier exploration after 2025. What will this mean for Namibia? 

Key Takeaways

The elephant in the room  is the recurring contradictory theme  of the greening of the sector and at the same time the fixation of the hydrocarbon dilemma of ensuring maximum returns on higher oil prices while the party lasts. The Green Alliance– Enel, Engie. Iberdrola, and Ørsted—have their strategy in place. The oil majors face immense challenges.

1. TotalEnergies wants to reduce its hydrocarbon intake to 25% by 2050 . Yet its presence  in the Canadian oil sands and its involvement in the East African Crude Oil Pipeline(EACOP)are proving to be an embarrassment to its green image. Will the company seek joint venture partners to ensure that its deepwater portfolio can be leveraged properly? How long can the company continue talking about its massive  Mozambique LNG Project being feasible while the project is on a long-term security alert?

2. BP’s commitment to decreasing its oil production by 40% by 2030 could be a daunting task. In Angola BP has merged its upstream activities with Eni to form Azule Energy. Could more joint ventures follow?
   

3. Chevron is in retreat spending at the most up to $1.5Billion in Africa. Chevron has major operations stretched across the continent, including major projects in Nigeria, Angola, Equatorial Guinea, and Egypt. Will Chevron seek buy-ins from other players to maintain its status in Africa?

4. ENI: Will ENI continue to pursue a series of joint ventures to ensure that it can achieve maximum leverage for its current oil and gas assets? A key example  is Azule Energy, Angola, a 50-50 joint venture between ENI and BP formed in 2022 to include both companies’upstream assets, LNG and solar business.
   

5. Equinor: The company is pledged to spend some $10Billion on oil and gas projects in 2022-2023. Possibly the Tanzanian Gas and LNG Project could see farm-ins in the future. There is no indication that the company will make other major investments in Africa.

6.ExxonMobil: ExxonMobil’s presence in Angola will last as long as its Block 15 continues to produce oil and gas, but is not of primary focus to the company. If Rovuma LNG continues to be listed as a security risk, will  Africa continue to be deemed an investment market for the company?

7. Shell: Given Shell’s green ambitions will it request additional companies to farm-in to reduce project costs? Shell indicated that it will reduce its upstream division to nine core hubs—Permian, the Gulf of Mexico, United Kingdom, Kazakhstan, Nigeria, Oman, Malaysia, Brunei and Brazil– and it will do no frontier exploration after 2025. What will this mean for Namibia?

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report and is a guest contributor to IEEFA(Institute for Energy Economics and Financial Analysis) based in Cleveland, Ohio, USA. His book ‘The 10 Commandments of the Energy Transition ‘is on sale at https://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition