All articles in the ENERGY TRANSITION Section:


Kaduna Electric Disco (KAEDCO) is Granted a 2MW Renewable Energy Sub-Franchise

Konexa, a renewable energy developer with funding from Climate Fund Managers (CFM), has partnered with Kaduna Electric Distribution Company (KAEDCO), to co-develop a private renewable energy generation and distribution sub-franchise project in the Kaduna state, Nigeria.

The project will consist of the development and construction of a 2.5MW solar PV plant with the potential to include a storage component:

  • Construction of eight solar mini-grids and associated distribution works;
  • Roll out of solar home systems, deployment of smart metering infrastructure;
  • an integrated cutting edge information and operations technology platform, grid network upgrades, as well as securing energy supply from nearby existing renewable generation assets.

The project, requiring an investment of approximately $50Million, will enable Konexa to serve the entire range of customers in its sub-franchise area – from large commercial and industrial customers that currently cannot rely on KAEDCO due to supply reliability and quality issues, to small rural customers that are not viable to be reached by the grid.

The project’s promoters are taking advantage of the Nigerian government’s eligible customer regulation, ratified in 2017, which states that customers with energy demand of more than 2MWh/h per month can directly buy power from a grid connected Genco at a mutually agreed price.

The promoters say that this is an opportunity to contribute towards Nigeria’s grid stability, accelerate the country’s sector reforms and demonstrate the private sub-franchise model.

Donors to the project include donors include Shell and Rockefeller Foundation, the UK’s Foreign, Commonwealth and Development Office and Power Africa and the CFM.

The Nigerian energy sector is notable for its significant energy deficit which has hindered economic growth for many years. Lack of access to grid power has resulted in around 55% of the population resorting to self-generation and has created a $15Billion off-grid market that is primarily fossil-fuel based, Konexa says in a statement.

 

 


Why the Current Energy Market Reminds us of ‘Tulipmania’

By Gerard Kreeft

 

 

 

 

 

 

 

Tulipmania  got its name from the Dutch tulip market bubble, which occured in the early to mid-1600s, when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person’s annual salary.

Translated otherwise: tulips sold for approximately 10,000 Dutch guilders, equal to the value of a mansion on Amsterdam’s Grand Canal. The mania and crash occured in the short period of 1636 – 1637 when contract prices collapsed abruptly and the trade of tulips ground to a sudden halt.

The Tulipmania bubble of the 17th century is an apt description of the gas and oil sector of the last 75 years. The great divide is the 2015 Paris Climate Agreement.

Post-Paris there are two very differing scenarios emerging. Scenario Renewable, as the name suggests, is a proponent of renewable energy—be that hydrogen, wind, geothermal and solar energy. Scenario Oil, also as the name suggests, is a staunch believer in oil production.

Can the two scenarios be reconciled with each other?

Scenario Renewable is playing out in various versions in Europe. Offshore- wind, solar and hydrogen projects are key ingredents for Europe’s major oil and gas companies who include BP, ENI, Equinor, Shell and TOTAL.

A key strategic question is juggling funding to ensure that both oil and gas projects and renewables can be managed and implemented. Whether both types of assets can be financed and managed successfully under one roof remains unanswered.

To date, all of Europe’s majors are playing their cards close to their chests, hoping their twin stakes—oil & gas and renewables—will ensure them the best of both worlds; a continuous stream of good margins from their oil and gas assets and stable revenues from their renewables. The makings of the energy company of the 21st century.

A competing factor are Europe’s energy companies—Iberdrola, Engie,Vattenfall, RWE, Orsted, Enel—who have already drawn up their green strategies.

Increasingly, the lines of demarcation are being drawn up.

Scenario Oil is best represented by the American oil companies ExxonMobil, Chevron, and such large independents as Occidental, Marathon and Devon Energy, whose portfolios only include oil and gas projects. Any discussions about the energy transition are confined to within the scope of oil and gas. In other words: no Plan B.

Begining this October, Chevron surpassed ExxonMobil in terms of market capitalization. Since the start of 2020, ExxonMobil has lost 50% of its market value, compared with Chevron’s 39%. ExxonMobil was also forced out of the Dow Jones Industrial Average due to its sharply diminished market capitilization.

Simon Flower, Chairman & Chief Analyst of the consultancy firm of Wood Mackenzie stated in a recent study that ExxonMobil is exposed to high-cost, low margin assets, principally oil sands and other areas including Alaska.

According to the study, ExxonMobil’s cash margins are the lowest of the majors based on $30 per barrel. ExxonMobil owns 60% of the majors’ lowest assets based on $30 barrel.

In a scathing report on ExxonMobil’s CEO Darren Woods, IEEFA (Institute for Energy Economics and Financial Analysis, based in Cleveland, Ohio, USA) has asked the Board that Woods be sacked.

IEEFA maintains that ExxonMobil defined itself as the oil industry’s  global leader which all others followed. In the short span of three years (2017-2019) Woods has presided over a significant deterioration of the company’s finances.

“By both short- and long-term financial measures, ExxonMobil has shown significant signs of slippage against past performance. Faced with the same market challenges as its peer-competitors (Shell, TOTAL, BP and Chevron), Woods’s tenure has been marked by a faster rate of decline or deeper losses in profits, cash and shareholder value. Based on actual performance, IEEFA recommends that the board of directors move to replace Woods.”

Yet Chevron should not gloat. Some 50% of its oil production comes from only two key regions, making it very vulnerable in terms of diversity of supply, as highlighted:

Tengiz in Kazakhstan which in 2018 celebrated its 25th anniversary and geared to produce up to 1MMBOPD (oil equivalent). With its highly sulfur-rich oil, Tengiz could well become an ugly duckling.

Africa: Nigeria, Angola,Republic of Congo and Egypt- having a daily net oil production for Chevron of 412,000BPD (oil equivalent). Sub-Saharia Africa could also turn sour. Angola, where Chevron is a major oil producer, once the darling of the continent, has seen its oil production continuing to slip downward, now at 1,200,000 BPD.

Yet, with both ExxonMobil and Chevron there is a complete lack of any strategic discussion as to whether renewable fuels play a role. Their entire energy transition strategy is solely done within the confines of the fossil bubble.

The Spoiler: Saudi Aramco

The spoiler in both energy scenarios could be Saudi Aramco, the state oil company of Saudi Arabia. Consider the following: Saudi Aramco has 20% of the world’s oil reserves, can produce oil for only $4.00 per barrel and can quickly increase production up to 13Million barrels per day.

Regardless how low the oil majors manage to bring down their barrel of oil production price, who can compete with production costs of only $4.00 per barrel? If you are the Minister of Energy in a petro-economy, does it not make more sense to close shop and simply import Saudi oil?

The  low oil price and COVID-19 have also impaired the US shale operators, seen by the Saudis as competition needed to be sidelined. The Deloitte study entitled “The Great Compression: Implications of  COVID-19 for the US  shale market” is forecasting impairments of up to $300Billion and that 30% of shale operators are technically insolvent.

If COVID-19 and the oil spat continue for a longer period, will the Saudis  pump more oil to ensure market share and economic gain? Even at the cost of taking a wrecking ball to OPEC and the international majors?

Saudi Aramco’s message is very simple: pump the oil while it still has economic value. In 15-20 years it could become a vast stranded asset.

Saudi Aramco also has extensive downstream ambitions: possibly investing in China’s Zhejiang refinery and petrochemicals complex south of Shanghai.

Aramco is also in talks with Reliance Industries to buy a 20% stake in its oil-to-chemical business in India.

Finally, Saudi Aramco has also unveiled its renewal strategy, launching a $500Million fund to promote energy efficiency and renewables. It aims to generate 9.5 GW of renewable energy by 2030.

Saudi Arabia’s Vision 2030 outlines the country’s three objectives wanting to create a :

Vibrant society

Thriving economy

Ambitious nation.

Expect Saudi Aramco to take an aggressive marketing stance in the coming months in order to be able to finance its domestic agenda.

Conclusions

How can Europe’s majors avert a modern version of tulipmania by continuing to fund both renewables and oil and gas projects and still be competitive?

Will we see more  spin-offs and specialization? For example, to ensure that deepwater projects can be cost effective. In the meantime, offshore wind projects are rapidly gaining due to economies of scale.

What is the role of Europe’s green energy companies?

How should the oil and gas majors co-operate with Saudi Aramco?

What will be the role of Saudi Aramco in the energy transition?

In 15-20 years will the tulip be a symbol of value or a bad memory?

Gerard Kreeft,  BA ( Calvin University ) and  MA (Carleton University, Ottawa, 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.

 

 

 

 


BP’s Rocky Road to Becoming an Energy Company

By Gerard Kreeft

 

 

 

 

 

 

 

 

BP’s 2020  Energy Outlook is timely both for its insightful energy scenarios and as a tool for scrutinizing the company’s journey towards a greener future.

It outlines three energy scenarios in which all record a  decreased use of fossil fuels:

  • Business as Usual(BAU) records a decrease of fossil fuels (as a share of primary energy) to 80%, based on 2020 statistics; both renewables and electrification play a modest role.
  • Rapid records a decrease of fossil fuels (as a share of primary energy) to 40% and renewables rise to 40% as share of primary energy. Electricity consumption also rises above 40%.
  • Net Zero has a decrease of fossil fuels(as a share of primary energy) to 25% and renewables rise to 60% and electricity rises above 50%.

In terms of CO2 reduction the Net Zero scenario is the obvious safe choice(see below) if “Well Below 20C is to be reached by 2050.

In all three energy scenarios natural gas is a constant bridging fuel. Even under the Net Zero Scenario  the growth of natural gas to

the period  2050 remains constant.

A key point of BP’s data analysis is that non-fossil and natural gas are the winners in India and other Asian countries, while use of coal and crude oil decreases(see above).

In all three scenarios the cost of wind and solar continues to decrease substantially: using 2018 as a baseline the cost of wind energy is down some 25% and solar 50%.

Between 2030-2040 wind and solar capacity under the Net Zero Scenario apex at some 1000GW.

Average annual investments in wind and solar(based on 2018 figures) vary between $300Billion (BAU) to more than $1.1Trillion(Net Zero).

The Greening of BP

In the following 5 year period BP paints a glowing portrait of how it will reach the promised green land,for its shareholders:

  • An underlying EBIDA(Earnings before interest, depreciation and amortization) of between  5% – 6% per year through to 2025 with returns in the range of 12% – 14% in 2025 – up from around 9% today.
  • After allowing for the impact of divestments, and reflecting the expected share buyback commitment, EBIDA per share is expected to grow by 7%- 9% per year through to 2025.
  • From  2025 onwards when its low carbon projects start to kick in expect growth of between 12%- 14% to be maintained.

According to BP, its $25Billion divestment will provide the basis for up-scaling its low-carbon business. A pipeline of 25  oil and gas projects, and and additional 18 projects  in the pipeline are also key factors.

Yet key questions remain.

This year BP already wrote off $16.8Billion and in the 2nd Quarter halved its dividend. The Corona-19 crisis and the energy stalemate are  key factors for these impairments.

What if the crisis endures an additional year? Can BP’s ‘Wall of Cash’ withstand that?

An additional write-off in 2021 and a further continued reduction of the golden dividend is not unthinkable.

Then there is the paradigm of an oil company becoming an energy company. The oil company strategy: high risk = high returns is being replaced by high risk= low/no returns.

Energy companies by contrast– Vattenfall, RWE, Engie, Orsted– all are low risk:  low or no dividends for 2019. Yet their stock prices are steady and positive. Their green strategy has been delivered, in place  and accepted by the investor community.

It should not be surprising that the investor community is wondering how a transformed BP can become an energy company promising to deliver results that other energy companies can only dream about: an    EBIDA per share of between 7%- 9% per year through to 2025 and from  2025 onwards when  low carbon projects start to kick in growth of between 12%- 14%.

Then there is  the slight inconvenience of TOTAL’s  announcement: taking on board the IEA’s (International Energy Agency)  Sustainable Development Scenario(SDS) for medium/long term.  Meaning “well below 20C.” This requires a further explanation.

In July of this year TOTAL announced that it was declaring two of its oil sands projects(Canada) stranded assets even though they were classified as ‘proven reserves’.

TOTAL has in essence taken on a new classification system for struggling oil companies seeking a green future. In short, casting aside the The Society of Petroleum Engineers’(SPE) classification system which for decades has given legitimacy  for petroleum reserves.

BP has announced it wants to reduce its oil production by 2030 by 40%.  Which BP  assets will become stranded  assets?

What will happen to BP’s 20% share in Russia’s Rosneft which comprises three oil and gas joint ventures? Maintaining a presence in Russia could be very strategic, given the country’s oil and gas assets and the fact that a green strategy is still waiting to be discovered.

What about BP’s assets in Africa where the company has a considerable footprint. Some examples:

In Algeria BP has helped to deliver two major gas developments at Salah Gas and In Amenas, both of which are joint ventures with Sonatrach and Equinor.

BP currently produces, with its partners, close to 60% of Egypt’s gas production through the joint ventures the Pharaonic Petroleum Company (PhPC) and Petrobel (IEOC JV) in the East Nile Delta as well as through BP’s operated West Nile Delta fields.

In Angola BP is the operator of blocks 18 and 31 and have non-operated interest in blocks 15, 17, 20 as well as the Angola LNG plant in Soyo.

In Mauritania and Senegal,  BP and its partners are developing  the  Greater Tortue Ahmeyim  gas field with a 30-year production potential.  The field has an estimated 15Trillion cubic feet of gas and is forecast to be a significant source of domestic energy and revenue.

Many of these projects are natural gas related and could provide the bridging fuel needed for the energy transition.

The Green Competition

BP also announced that it will be spending $5Billion per year to green itself and by 2030 will have 50GW of net regenerating capacity.  To date the company has a planned pipeline of 20GW of green generating capacity.

How does this compare to its green competition:

  • Iberdrola: in the period 2018-2022 will be spending €34Billion on renewable energy and has a pending target of 45GW of installed wind capacity and a pipeline of an additional 10GW.
  • Engie: in 2020 will spend €7.4Billion on investments across a broad swath of sectors including solar, wind (on and offshore), hydro plants, biogas and developing gas and power lines , and will have 33GW of global renewable installed capacity by 2021.
  • Vattenfall: In the Nordic countries Vattenfall has low emissions with practically 100% of the electricity produced based on renewable hydro-power and low-emitting nuclear energy.
  • RWE: by 2022 RWE will have 28.7 GW of installed wind and solar capacity.
  • Orsted:has an installed capacity of 10GW and a build-out plan to increase capacity to 15GW.
  • Enel(Italy): strategic plan outlines total investments of €28.7Billion, of which 50% will be geared for deployment of 14 GW new renewable capacity.

Recently BP and Equinor announced that BP would become a 50% partner, of the non-operated assets Empire Wind(Offshore New York State) and Beacon Wind (Offshore Massachusetts).

Possibly more joint-actions can be anticipated. Why? Economies of scaling up quickly in a growing offshore wind market. Moreover, the majors have always shared costs to reduce risks in developing oil and gas assets, a tradition sure to be followed in the offshore wind sector.

Perhaps also anticipate that both BP and Equinor spin off their wind assets as a separate company.

BP’s Net Zero Scenario of reducing fossil fuels to 20% of today’s share of primary energy by 2050 is an indication how quickly this energy transition can occur. The urgency of the task ahead is virtually a guarantee that this BP scenario will happen sooner rather than later. Do not be surprised that 2030 could become the new date to become 20C neutral.

 

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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The New Map: Energy, Climate and the Clash of Nations

The COVID-19 pandemic has brought new disruption to a world already struggling over how to satisfy its energy needs, address climate change and cope with new power relationships in a complex new era of “Energy Transition,” according to a new book, The New Map: Energy, Climate and the Clash of Nations, by IHS Markit Vice Chairman Daniel Yergin.

“As a result of the pandemic, an uncharted chasm has suddenly appeared on the map, which the world is now beginning to work its way around,” Yergin writes.

In The New MapYergin, author of The Quest and The Prize (for which he received the Pulitzer Prize) looks at an energy world already being reshaped by myriad forces—from the remarkable change in the energy position of the United States in the middle of a contentious presidential election, to geopolitical tension with China and Russia, to the reappearance of the electric car, the growing global role of renewables and the “post-Paris” era of energy transition.

“This is no simple map to follow, for it is dynamic, constantly changing,” Yergin says, as major countries chart intersecting and sometimes conflicting geopolitical paths in a new era of “great power competition.”

This already-disrupted world is now being further disrupted by the coronavirus and its dire impacts on people’s daily lives and the habits that underpin the global energy system. “The office of the future” for many will end up “at home”, he writes, which will mean less commuting, and thus reducing gasoline demand. But that will be offset by more people driving their own cars to avoid mingling with others on public transportation, as indicated by the upsurge in the sale of used cars indicates. And “electrons will replace molecules” as business travelers make more of their trips digitally, rather than in airplanes.

COVID-19 has also opened a wholly new era for world oil—what Yergin calls the era of the “Big Three”—the United States, Saudi Arabia and Russia.

When COVID-19 triggered the shutdown of entire economies, what Yergin describes as the “economic dark age,” it caused an unprecedented collapse in oil demand and (briefly) the unthinkable—oil priced at less than zero. That is when the United States, now the world’s largest oil producer, took the extraordinary step of brokering an agreement between Saudi Arabia and Russia to rebalance the market.

The pandemic also raises the big question: will the pubic health related upheaval speed or hinder the much-debated “Energy Transition” from fossil fuels to renewables? Yergin recommends a degree of caution against expectations for a rapid transformation.

“The notion of a fast track to a wholesale energy transition runs up against major obstacles: the sheer scale of the energy system, the need for reliability, the demand for mineral resources for renewables, and the disruptions that would result from speed,” Yergin writes. “On top of all of that is the high cost of a fast transition and the question of who pays for it—especially given the staggering amounts of debt that governments took on in 2020 to fight the economic consequences of the coronavirus.”

“Energy transition certainly means something very different to a developing country such as India, where hundreds of millions of impoverished people do not have access to commercial energy, than to Germany or the Netherlands,” he adds.

Yergin also observes how the global health crisis has underscored the role of plastics, made from oil and natural gas—whether for food and sanitary purposes, its multiple applications in hospital operating rooms, the indispensable N-95 mask or the-now-ubiquitous plastic shields that protect shopkeepers and essential workers.

The New Map is also a story of the clashing paths of global powers:

  • New Cold Wars

Energy looms large in the new cold wars that are developing between the United States on one hand, and Russia and China on the other.

Russia’s path on The New Map is a mix of energy flows, geopolitical competition, contention over the unsettled borders left in the wake of the Soviet Union’s collapse—and “Vladimir Putin’s drive to restore Russia as a Great Power.” This includes Russia’s “pivot to the east,” geared mainly towards one country, China and its energy needs for what will become the world’s largest economy.

The New Map looks at how swiftly (and potentially perilously) the relationship between China and the United States is changing from “engagement” to “strategic rivalry” at a time when “China is expanding its reach in all dimensions”, most visibly via the trillion dollar-plus Belt and Road Initiative.

It is also asserting control for almost all of the South China Sea, through which $3.5Trillion of world trade flows and nearly half of all the global oil tanker shipments travels. The most critical oceanic route in the world has become the “sharpest point of strategic confrontation with the United States.”

  • Rivalry in the Middle East and “Peak Demand?”

The Middle East, still the source for a third of the world’s oil and gas, continues to be shaped by rivalry, most notably between Saudi Arabia and Iran, and by jihadism. But it is also being reshaped by concerns over “peak demand”—how long consumption of oil will continue to grow and when it will begin to decline. This has fueled a new urgency for exporters to diversify and modernize their economies—an urgency heightened by the collapse of demand in the wake of COVID-19.

  • “Auto-Tech” and the “Mobility Revolution”

Concerns of “peak demand” have been driven in no small part by the emergence of the electric car, ride-hailing and ride-sharing services, and automated vehicles. This “New Triad” is challenging oil’s century-long dominance of the transportation market and creating a new contest for what could be a new trillion-dollar industry—what is dubbed “Auto-Tech.” But here too, the coronavirus may have “disrupted the disruption”—as consumers turn more to personal vehicles rather than shared ones.

  • A Mixed Energy System of Rivalry and Competition

Yergin says that the next few decades will likely see the world’s energy supplies coming from a mixed system of rivalry and competition among energy choices—one where oil retains a preeminent position as a global commodity. He also emphasizes that technological innovation will be the critical factor for the future of energy.

“How fast the mix changes will be determined not only by politics and policies, but by technology and innovation,” Yergin writes. “That means the ability to move from idea and invention to technologies and innovation and finally into the marketplace. This is not something that necessarily happens fast.”

 

 


German Solar Firm Sells its Stakes in Egypt’s 1,650MW Benban Park

ib vogt GmbH has announced the sale of its shareholding in the 64.1 MWp “Infinity 50” photovoltaic project in Benban, Egypt to Masdar, Abu Dhabi’s renewable energy company.

ib vogt and Masdar have additionally signed agreements of intent concerning the purchase of ib vogt’s shareholdings in three more solar parks also located in the Benban solar complex which have a combined volume of 166.50 MWp.

The Infinity 50 solar plant, inaugurated in early 2018, was the first large-scale PV power plant built in Egypt and the first to mark what would later become the Benban Solar Development Complex, one of the largest utility-scale grid-connected solar power complexes in the world. The complex comprises 41 solar plants,  developed on plots ranging from 0.3km² to 1.0km² in size, constructed by different consortia, totaling 1,650MWp in capacity.  It represents a landmark in the development of renewable energy infrastructure, both in Africa and in the Middle East North Africa (MENA) region.
The project was jointly developed, built and has been operated by ib vogt together with its partner Infinity Energy S.A.E. One of only two projects that qualified for Egypt’s very demanding, highly competitive Feed in Tariff (FiT) Round 1 programme, it is contributing to Egypt’s renewable energy targets under a 25-year Power Purchase Agreement.

“As the first major utility-scale solar plant in the country, this was a complex undertaking, a group effort from the very beginning and would not have been possible without the absolutely fantastic collaboration of countless parties including our financing partners, suppliers, advisors, governmental and local authorities and the local communities…a very challenging project which has been very well executed and very successful for all the stakeholders”, says Anton Milner, Managing Director of ib vogt GmbH.

“This strategic investment for Masdar marks our first collaboration with Infinity Energy under the platform our two companies announced at Abu Dhabi Sustainability Week earlier this year – Infinity Power – to pursue renewable energy opportunities in Egypt and elsewhere in Africa. We see numerous opportunities for our partnership in this region and continue to work closely with Infinity Energy on the future success of Infinity Power,” said Mohamed Jameel Al Ramahi, Chief Executive Officer of Masdar. “We also thank ib vogt for its professionalism and support on this strategic transaction for our company in Egypt and look forward to engage on other major opportunities with the company.”


In Pursuit of Africa’s Green Deal

By Gerard Kreeft 

 

 

 

 

 

 

The call to leave fossil fuels in the ground is a Western narrative and fails to factor in the needs of low-income Africans who would gain from a strategic approach to oil and gas operations, job creation and local enterprise opportunities,”. Quoted by NJ Ayuk, Chair, African Energy Chamber in Upstream.

NJ Ayuk’s remarks are directed to the IMF, IEA, and OECD, who are urging African countries to abandon their oil and gas assets and instead become pro-active and join the Energy Transition.

Solar, wind and hydropower are the symbols of this transition.

Setting the Scene: The External Constraints

While Ayuk’s sentiments  may strike a responsive chord it also invites a measured response. The Energy Transition is global and not restricted to Africa. It supercedes national boundaries.

The response from the oil and gas community, given that many of the oil majors work on a global basis, is also done on a global basis. This past six months, with the double curse of an oil trade war and COVID-19, the response was a global lockdown, regardless of where the majors had operations. While this double jeopardy has little to do with the Energy Transition, the global affect factor is omnipresent.

Of importance to Africa is the rate of impairment to oil and gas projects on a global scale. The most radical sign was  TOTAL’s writing down two oil sands projects in Canada which it had categorized previously as “proven assets”.

The SPE (Society of Petroleum Engineers ) on behalf of the industry,  is responsible for categorizing oil and gas reserves. The category “proved reserves”is the gold standard for indicating  a company’s oil and gas reserves. If proven reserves indeed becomes the equivalent of stranded assets this should sound off alarm bells in the board rooms of all the majors.

TOTAL’s strategy is focused on the  two energy scenarios developed by the IEA (International Energy Agency). Stated Policies Scenario(SPS) is geared for the short/ medium term;  Sustainable Development Scenario(SDS) for medium/long term.  The scenarios are in line with the Paris Climate Agreement. Taking the “well below 2oC ”SDS scenario on board, TOTAL has in essence taken on a new classification system for struggling oil companies seeking a green future.

ExxonMobil is following a similar line. In a recent filing with the US Securities and Exchange Commission, the company indicated that it is possible it will write down its  Kearl Project proved reserves in the Canadian Oil Sands of its Canadian affiliate Imperial Petroleum, which account for 20% of the company’s 22.4 BOE ( billion barrels  oil equivalent) reported at year 2019.

Finally there is the Deloitte study entitled “The Great Compression: Implications of COVID-19 for the US  shale market”. Deloitte is forecasting impairments of up to $300Billion; and 30% of shale operators are technically insolvent.

The Deloitte study notes: “New telecommunicating norms, regionalized trade and supply chains and the stable business profile of new energies have fast forwarded the spector of peak demand to the present”.

What the study is really concluding is that the oil and natural gas infrastructure is crumbling before our eyes and being replaced by new energy which is reliable and stable!

For the service sector both Rystad Energy and the Boston Consulting Group have little good news. At the beginning of this year, according to Rystad, ultra-deep day rates were moving to the mid- $250, 000 –$260, 000 for spot work, and expecting to cross the $300 000 threshold for work with long lead times. Now further rate drops could push day rates to a level of the offshore driller’s operating expenditures.

The Boston Consulting Group, in a recent study, concluded that in 2021 the service sector will be asked to reduce costs between 20 -25%.

An African Response

Africa has 10% of the world’s oil reserves and 8% of the natural gas reserves.

African countries are also revising their energy plans. Angola’s Council of Ministers  approved a revised hydrocarbon exploration strategy that will be in effect until 2025. The strategy aims to guarantee a baseline production of over 1MMBOPD (Million barrels per day) by 2040 and the discovery of 17.5Billion bpd of oil (barrels per day) and  27 tcf of natural gas. Currently the country’s production is 1.2MMBOPD.

In a mature petro-economy where oil assets are starting to age, perhaps a bold strategy.  Yet the Government with this plan is admitting that production will  be halved compared to  the 1.8MMBOPD of a decade ago.

Angola’s goal of 1MMBOPD of production is not guaranteed.  A writ from the Angolan Government having such a strategy is dependent on  factors beyond its control. Is there any guarantee that a portion of these potential reserves will  not become stranded assets?

What about the majors, in particular TOTAL, which has a dominant position in Africa. In the past months TOTAL’s strategy was to reduce spending, sell marginal North Sea assets, buy Tullow’s Uganda assets at fire sale prices, and seek financing of its  Mozambique LNG project.

The speed of bringing projects to market will not be determined by the Government of Angola, but rather TOTAL’s pursuit of following the IEA norm of well below 2oC.

Clark Butler, author of the IEEFA’s (Institute for Energy Economics and Financial Analysis) reports in a  study “Oil Supermajors’Trajectory Towards Renewables Needs to Scale Up and Speed Up” that TOTAL must drastically increase its renewables and decrease its carbon intensity if it is to meet its climate goals. This can only mean reducing its carbon footprint and yes, in  Africa, and in this case Angola will be thrown under the bus.

Is Angola the exception? Not likely. Other African producers  have varying energy and environmental  policies. Africa is a house divided. Many countries, Many policies.

An African answer can possibly be found  in the long-delayed African Continental Free Trade Area (AfCTFA) which kicks in next year. Then  1.2Billion people across 55 nations needing access to an integrated regional energy market supported by local supply chains and intra-African trade will take place.

Highlighting the agonies of the oil and gas sector tends to blot out the march that renewables are making. Again take Angola and the goals that are being set:

  • The Laúca Hydropower Plant, once completed will reach an installed capacity of 2, 070 MW, becoming one of the largest hydropower plants in Southern Africa, alongside the Cahora Bassa Hydropower plant, in Mozambique.
  • The Baynes Hydroelectric Dam. Located on the Cunene River on the border between Angola and Namibia, the 600-megawatt dam is planned for commencement of construction in 2021, with an estimated cost of $1.2Billion and a completion date scheduled for 2025. Of the 600 MW to be produced by the plant, 300 MW will be directed to Angola and Namibia, respectively.
  • Improving the access to energy services in rural areas based on renewable sources.

    Dr Akinwumi A Adesina, President of the African Development Bank

  • Develop the use of the new renewable technologies connected to the grid, enhancing the establishment of new markets and reduction of regional asymmetries.
  • Promote and accelerate the private and public investment in the new renewable energies.

Finally, a small footnote to congratulate Dr Akinwumi A Adesina, President of the African Development Bank on his re-election for a five-year term. Under his leadership “Light Up and Power Africa”became a key theme of the Bank.

The Bank Group has approved a 125% increase in the General Capital of the Bank raising its capital to $208Billion from $93Billion, the largest in the history of the Bank.

In the next five year period of his Presidency oil and gas assets should be viewed as a currency to finance the next step of the energy transition ensuring that Africa can  design and build its own Green Deal.

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 and + Report.

 

 

 

 


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.

 

 


Oil Companies Increasingly  Use Renewables to Power Field Operations

Striking pace of growth” in renewable projects powering oil and gas field operations

Oil and gas field operations are beginning to be fueled by a surprising source—renewable energy, according to new research by IHS Markit.

Oil and gas companies are starting to utilize such zero-carbon sources to reduce carbon emissions associated with operations, according to a new database and analysis by IHS Markit of these types of renewable energy projects.

“There is a striking pace of growth over the past few years and a dynamic commercial environment for delivering renewable energy to oil and gas operations,” said Judson Jacobs, executive director, upstream energy, IHS Markit. “Energy efficiency efforts and reductions in flaring can only do so much to lower greenhouse gas emissions, so some companies are turning to zero-carbon sources to power their upstream, midstream and downstream operations.”

While the numbers are small, they have been growing rapidly over just the past couple years. There had been fewer than 15 of these renewable energy projects from the early 2000s (when the industry first deployed such technologies) through 2017. IHS Markit now tallies more than 45 announced projects in its Oil and Gas Field-based Renewable Energy database, with 13 announcements made in 2018 and 15 made in 2019.

Projects announced in 2018 and 2019 are expected to avert more than 3 million metric tons of annual carbon dioxide (CO2) emissions combined. By contrast, projects in only one prior year averted as much as 0.3 MMT. Deployments are occurring in both new developments and existing assets, with solar the most prominent renewable technology, followed by hydropower and wind. These deployments are part of companies’ broader greenhouse gas emissions management strategies that IHS Markit tracks and analyzes.

Several factors beyond emissions reduction are also driving the growing interest for renewables in oil and gas operations, Jacobs said.

“Stakeholder pressure to reduce emissions is a factor,” Jacobs said. “It is also about steeply declining costs for renewables and the industry’s growing familiarity and experience with these technologies. And there are tangible improvements to operational performance that go along with using them.”

Field-based renewable installations are demonstrating reliability. And electrification—drawing renewable-generated power direct from the grid, as to offshore platforms in Norway—removes most energy generation equipment entirely, enabling fewer on-site personnel needed to operate it and smaller facility footprints. Additional benefits include reduced maintenance expenses and the elimination of fuel deliveries to site.

While IHS Markit expects the number of field-based renewable energy projects will continue to accelerate in the coming years, several challenges must be overcome before widespread adoption. Cost relative to traditional energy generation sources, the development of supply chains in remote regions, and energy storage for intermittent renewable sources are all significant factors currently constraining growth.

 


ENERGY TRANSITION: EU Gives €46Million Climate Grant to Egypt, Morocco

The European Union (EU) has approved €45Mllion in grants for several European Bank for Reconstruction and Development (EBRD) programmes for green investments and climate change resilience.

The grants will benefit two countries in North Africa.

€21.1Million is earmarked for Morocco, under the EBRD’s Green Energy Financing Facility (GEFF), set up to support companies and owners wishing to invest in green technologies.

The GEFF programme is implemented through a network of more than 140 local financial institutions in 26 countries, supported by more than €4Billion of the EBRD funding.

In Morocco, the EU grant (via the EBRD) will enable local companies to invest in green technologies. EBRD believes the beneficiaries will reduce their operating costs by implementing climate adaptation measures, energy-efficient technologies and renewable energies, which will also improve their overall competitiveness.

Egypt will receive €24.8Million under the GEFF to support energy efficiency and renewable energy investments through local banks for loans to private companies. The EBRD’s investment should thus support the Egyptian government’s ambition to increase electricity production from renewable sources.

 

 

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