All posts tagged energy


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?
  1. 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?
  1. 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?
  1. 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.
  1. 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?

  1. 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

 

 


TOTALEnergies in 2050: The Day After the Night Before

By Gerard Kreeft

TOTALEnergies has recently announced that by 2050 the company will be on track 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. Guillaume de Witt, TOTALEnergies’ Hydrogen Lead Negotiator for Europe & North Africa unveiled this strategy during the Amsterdam Offshore Energy Exhibition & Conference 2022.

Guillaume de Witt, TOTALEnergies’ Hydrogen Lead Negotiator

While this is most newsworthy the question remains: how is this transition to take place? Where is its 2050 roadmap? Shareholders and energy analysts will no doubt be on a constant search for additional information. That TOTALEnergies can indeed surprise and pursue a well-thought-out strategy is certainly within the company’s DNA.  If successful, this will totally transform the oil and gas sector unlike anything in the recent past. It would totally destroy the comfortable vision of the integrated oil and gas sector of the last 50 years and create new alliances.

In TOTALEnergies’ new constellation, key questions remain: can the company compete with the green energy companies–Enel, Engie, Iberdrola, and Ørsted?  What will happen to its innovative deepwater exploration sector in which TOTALEnergies is a market leader? Given the resources required, will its deepwater exploration operations be spun off to possibly joint venture with other companies to ensure economies of scale? How will this affect TOTALEnergies’ African ventures, where the company has many of its assets?

Re-examining the TOTALEnergies Strategy

To understand the company’s strategy we must go back to 2020. Then TOTALEnergies took the unusual step of writing off $7Billion in impairment charges for two oil sands projects in Alberta, Canada. Both projects were listed as proven reserves. By declaring these proven reserves as null and void, with one swoop of a pen, TOTALEnergies cast aside the petroleum classification system, which was the gold standard for measuring oil company reserves.

The company simply decided that these reserves could never be produced at a profit. Instead, TOTALEnergies has substituted renewables as reserves that can be produced profitably.

TOTALEnergies’ strategy is based on the two energy scenarios developed by the International Energy Agency (IEA): the Stated Policies Scenario (SPS), which is geared for the short to medium term, and the Sustainable Development Scenario (SDS), which focuses on the medium long term.

Taking the “Well Below 2 Degrees Centigrade” SDS scenario on board, TOTALEnergies has, in essence, taken on a new classification system. By embracing this strategy, the company is the only major to have seen a direct benefit from using the Paris climate agreement to enhance its renewable energy base.

While it wrote off some weak assets, it also did something else: TOTALEnergies began to sketch a blueprint for how to transition an oil company into an energy company.

Patrick Pouyanné, TOTALEnergies’ chairman and CEO, then stated that by 2030 the company “will grow by one third, roughly from 3Million Barrels of Oil Equivalent per Day (BOED) to 4Million BOED, half from LNG, half from electricity, mainly from renewables.” This was the first time that any major energy company translated its renewable energy portfolio into barrels of oil equivalent. So, at the same time that the company has slashed proven oil and gas from its books, it has added renewable power as a new form of reserves.

Proven reserves long stood as the holy of holies for the oil industry’s finances—the key indicator of whether a company was prepared for the future. For decades, investors equated proven reserves with wealth and a harbinger of long-term profits.

Because reserves were so important, the reserve replacement ratio (RRR), the share of a company’s production that it replaced each year with new reserves, became a bellwether for oil company performance. The RRR metric was adopted by both the Society of Petroleum Engineers and the US Securities and Exchange Commission. An annual RRR of 100% became the norm.

But TOTALEnergies’ write-offs showed that even proven reserves are no sure thing and that adding reserves doesn’t necessarily mean adding value. The implications are devastating, upending the oil industry’s entire reserve classification system as well as decades of financial analysis.

How did TOTALEnergies reach the conclusion that reserves had no economic value? Simply put, reserves are only reserves if they’re profitable. The prices paid by customers must exceed the cost of production. TOTALEnergies’ financial team decided those resources could never be developed at a profit.

The company had not abandoned its oil and gas investments. However, its renewable investments were seen as additional ballast to its balance sheet, keeping it afloat as it carefully chooses investments, including oil and gas projects, with a high economic return.

Now apparently oil and gas are being viewed as liabilities and possible future stranded assets. The French giant is hastening the departure from fossil fuels or simply reducing its oil and gas portfolio.

Beyond the Green Challenge

Of the oil majors—BP, Chevron, ENI, ExxonMobil, and Shell—only Equinor has pledged to have more than 50% of its capital budget devoted to renewables by 2030. By signaling such a radical move, TOTALEnergies will ensure that the rest of the sector must react. This is not only a move to green itself but also a sign that it wants to become part of the Green Alliance, namely to join such companies as— Enel, Engie. Iberdrola, and Ørsted—who have pole position in determining the direction and scope of the global renewables market:

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, continues to set new records. 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. Ørsted is also involved with the building of two energy islands– Bornholm and North Sea– which will deliver 10GW of power.

What has set these companies apart is that they have created a huge competitive advantage which will be hard to challenge for newcomers. Moreover, they have moved well beyond simply dabbling in green energy. These companies have become specialists and now moving on to the next level: creating a digital platform on which value does not reside in owning resources but rather in managing data-driven ecosystems. Essentially borrowing a chapter from Uber, which does not own taxis or Booking, which does not own hotels. Creating a digital platform on which value does not reside in owning resources but rather in managing data-driven ecosystems.

How will shareholders react to these companies in 2023?  To date there is good news and bad news for green energy companies.

Table 2: Stock market prices of new energy companies 2018-2022

Year Enel Engie Iberdrola Ørsted
2018 $5 $16 $7 $49
2022 $5 $14 $12 $93

Note: Value based on January 2018 and December 2022

Enel, the Italian power company has seen its share price remain flat. Engie, the large French energy giant has seen its share price decrease by 12.5%. Iberdrola, the Spanish power company has had an increase of 71% and Ørsted, the Danish power company, has seen its stock soar by 90%.

The Challenges Ahead

For the oil majors economic challenges lie ahead. The Dow Jones Industrial Index in the period January 2018-December 2022 rose 31%: increasing from 25,295 to 33,147. The oil majors—BP, Chevron, Eni, ExxonMobil, Equinor, Shell, Repsol,  and TOTALEnergies—have shown mixed results in their stock prices between 2018 and 2022.

Table 1: Stock market prices of  majors 2018-2022(NYSE)

 

Year Repsol       BP       Shell Eni Total

Energies

Chevron ExxonMobil Equinor
2018 $17 $43 $69 $35 $58 $128 $87 $23
2022 $16 $35 $57 $29 $62 $179 $110 $36

Note: Values based on January  2018 and December 2022

 Repsol down 5%

BP down 19%

Shell down 17%

Eni down 17%

TOTALEnergies up 7%

Chevron up 39%

ExxonMobil up 26%

Equinor up 57%.

Whether a company is an oil company or an energy company seems to matter little to investors. Instead, they demand clarity. That is why Chevron, which is on track making 2022 the 35th consecutive year with an increase in annual dividend payout per share, has maintained its value. And why Equinor’s message of spending more than one-half of its capital spending on low carbon energy by 2030 is a leader in offshore wind technology, has caught the fancy of its investor community.

Will TOTALEnergies’ new message resonate with shareholders? Key challenges remain.

On the renewables front TOTALEnergies has confirmed it will have a 100GW capacity by 2030.

A key to TOTALEnergies success is its ability to step into projects at an early stage, some examples:

  • A 50% share of Adani Green Energy Ltd., India installed solar activities.
  • A 51% stake in the Seagreen Offshore Wind project in the United Kingdom.
  • Major positions in floating wind farm projects in South Korea and France.

TOTALEnergies new energy strategy is also heavily dependent on a number of subsidiary companies in which the company has invested. These include:

TotalEren: an IPP(Independent Power Producer) developer involved in all phases of project development and implementation with a generating capacity of 3.7GW and 4GW under construction.  According to Africa Oil and Gas Report, the company could become a candidate for a top-ten list of Africa’s leading  renewable developers.

Sunpower: has 6 GW of photovoltaic power installed globally.

Saft: a leading battery producer, whose lithium-ion batteries can store large amounts of electricity in a small amount of space.

Yet the various asset groups have failed to attract investor confidence. Why? Simply because they have created a diffused and splintered view of what TOTALEnergies is offering shareholders.

With the new strategy the investor community must be convinced that renewables  are not a second-tier after-thought. Currently TotalEnergie’s 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. What is the vision for 2050?

This is in sharp contrast to Equinor. Equinor expects gross investments in renewables of approximately $23Billion from 2021 to 2026, and to increase the share of gross capex for renewables and low carbon solutions from around 4% in 2020 to more than 50% by 2030.

African Challenges

Much of the 25% forecast hydrocarbon  budget, proposed for 2050,  will be focused  on African  low-cost, high-value projects, thus squeezing more value out of  various African assets to ensure a prolonged life cycle. Will TOTALEnergies’ deepwater  division seek other parties to ensure that its various projects can be delivered?

A prime example is TOTALEnergies’ Mozambique LNG project, which is expected to cost $20Billion and produce up to 43Million tons per annum.

In Angola the company produces more than 200,000BOED from its Blocks 17 and 32, as well as non-operated assets, including AngolaLNG.

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

In South Africa the company is focused on its two assets: Brulpadda(drilled to a final depth of more than 3,600 metres) and Luiperd, the second discovery in the Paddavissie Fairway in the southwest of the block.

Some Final Thoughts

Charles Donovan, then director of the Centre for Climate Finance and Investment at Imperial College and lead author of a recent (May 2020) study released by Imperial College and the IEA (International Energy Agency) found that renewable energy investments are delivering massively better returns than fossil fuels. The study analyzed stock market data to determine the rate of return on energy investments over a five-and ten-year period.

Renewable investments in Germany and France yielded returns of 178.2% over a five-year period, compared with -20.7% for fossil fuel investments. In the UK, also over five years, investments in green energy generated returns of 75.4% compared to just 8.8% for fossil fuels. In the US, renewables yielded 200.3% returns versus 97.2% for fossil fuels.

Green energy stocks were also less volatile across the board than fossil fuels, with such portfolios holding up well during the turmoil caused by the pandemic, while the oil and gas sector collapsed. In the US, which provided the largest data set, the average market cap in the green energy portfolio analyzed came to less than a quarter of the average market cap for the fossil fuel portfolio—$9.89Billion for hydrocarbons versus $2.42Billion for renewables.

Speaking to Forbes.com, Donovan said “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”

Given the dominant market position that TOTALEnergies has in Africa it is in pole position to play a key role in launching renewable energy projects. A sub-market which TOTALEnergies has overlooked.

TOTALEnergies’ 2050 announcement will start a new round of mergers, joint ventures and consolidation. The energy transition has its own speed and takes no prisoners. But this we do know: 2022 started with an energy crisis involving Russia and the Ukraine, and the last apple has not fallen from the TOTALEnergies’ tree.

 Note: Portions of this article have been previously published but have been included to give you the reader a more complete picture of this fast-moving drama.

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). 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

 

 


Solarise Africa Receives ~$40Million for Kenyan Expansion

The European Union’s ElectriFI Electrification Financing Initiative (EDFI) has joined a league of funders injecting new money into Solarise Africa.

In addition to $33.4Million from the Energy Inclusion Facility (EIF), Oikocredit and the AfricaGoGreen Fund (AGGF),  ElectriFI will fund Solarise Africa with $3Million , to expand its operations in Kenya.

The European Union (EU)-funded Electrification Finance Initiative (EDFI), is managed by EDFI Management Company, whereas the Sandton, South Africa-based Solarise Africa builds solar photovoltaic power plants that are then leased to commercial and industrial (C&I) customers.

“As an existing shareholder holding shares in Series A and B, EDFI ElectriFI is proud to strengthen its partnership with Solarise Africa and support the service platform to grow its portfolio of assets in Kenya. We expect this investment to bridge the funding gap until the company closes its next round,” says Geraldine Crosset, Senior Investment Officer of ElectriFI at EDFI MC. Solarise Africa was advised in this transaction by Viruni Capital Partners, a financial services provider based in Dubai, United Arab Emirates.

EDFI ElectriFI is providing this financing under its country window for Kenya. “The ElectriFI country window for Kenya is developed in partnership with EU delegations and host governments. In particular, it contributes to Kenya’s national electrification strategy as part of a Team Europe approach,” says EDFI ElectriFI.

Solarise Africa, founded by South African and Swiss entrepreneurs, is active in Kenya, Uganda Rwanda and South Africa.


The New Energy Players: Their Progress and Beyond for 2023!

By Gerard Kreeft

1989 was when I first set foot in Newfoundland (Canada).

 I was a Member of a Netherlands Trade Mission focused on oil and gas developments. We were warmly welcomed.

 Newfoundland’s fishermen had in large quantities become unemployed. A boycott had been placed on cod fishing, the mainstay of many of the Islanders. Would a Trade Mission featuring oil and gas provide them with the pot of gold they were so desperately in need of?

No, the story does not have a happy ending. Their talents were not usable in the oil and gas renaissance which would follow.

 Fast forward to 2023 and now it’s the former talents of the oil and gas world—geologists, geoscientists and drillers– who are to become redundant, much like Newfoundland’s fishermen. Instead, algorithms, digitalization and electrification of energy systems have become the new symbols of the energy transition in 2023.

 Below a story of the various players who are playing component parts in the ongoing energy transition. A transition being driven by earlier CO2 deadlines, which for a majority of new energy companies, have given them a commercial edge. The swiftly changing landscape provides these new energy companies with technical specialization, virtually a guarantee that their market share and value will only increase. In some cases, creating near monopoly situations.

 A key question remains: have they forgotten their green heritage?  Have they forgotten that an important part of the green heritage is to help those in need? Not out of pity but a humane act of kindness. Forget not that Sub-Sahara Africa will one day will become a dominant green market. Can Sub-Sahara Africa with its 568Million people who have no access to electricity and 900Million, who have no access to clean cooking fuels and technologies be ignored (The Energy Progress Report 2022)? Finally, forget not that one day you may require the humanity of Sub-Sahara Africa.

The Trend Setters

 ENEL

Enel’s Strategic Plan 2023-2025 is designed to make the company leaner and meaner: Shedding $21Billion in assets to reduce debt, a sharpened focus on six key countries, electrification and digitalization of its customer base, achieving CO2 neutrality by 2040 instead of 2050 and increasing profitability.

Enel’s core operations have been reduced to six key countries: Italy, Spain, the United States, Brazil, Chile and Columbia. The key will be to add some 21GW (gigawatts) of installed capacity so that by 2025 the company will have an installed generating capacity of some 75GW, to create a digital platform on which value does not reside in owning resources but rather in managing data-driven ecosystems. A key goal is to achieve 75% of electricity from renewables and 80% digitalization of its customers on the grid by 2025.

Note: 1GW can generate electricity for 750,000 households.

 Enel’s strategy is simple: “The term platform often refers to a business model typical of digital companies which, very efficiently, manage to connect assets and services that they do not own.” This, in effect, borrows a chapter from Uber, which does not own taxis or Booking, which does not own hotels. A digital platform on which value does not reside in owning resources but rather in managing data-driven ecosystems.

To spur its growth outside its six-core-country strategy Enel has developed a Stewardship Model.  Enel, together with partners will invest $15Billion in infrastructural investments in countries where the company has a potential interest.

In Africa Enel (Enel Green Power) has teamed up with the Qatar Investment Authority (QIA), an investment fund to invest on a 50/50 basis in all of the new ventures and opportunities in renewables in Sub-Saharan Africa. Already QIA has taken over half of Enel’s stake of 800MW of existing projects in South Africa and Zambia.

ENGIE

Engie is pledged to reduce to CO2 neutrality by 2045. The company has indicated it will reduce its focus to 30 countries instead of 70. Four new core divisions have been implemented:

Renewable energy

Energy solutions

Networks

Thermal production and energy supply.

45% of investments is focused on renewables. Between 2023-2025, an additional capacity of 4GW per year will be added; 6GW per year from 2026 onward, resulting in almost 80GW by 2030.

Hydrogen production in 2030 will be 4GW, 700 km of dedicated hydrogen networks will be in place, and more than 100 fueling stations for hydrogen mobility will be rolled out.

 Engie has strong ambitions in Africa comprising 3,000MW of electricity generation facilities, both in operation and in construction, located in Egypt, Morocco, Senegal and South Africa; service activities in Algeria, Burkina Faso, Côte d’Ivoire, Ghana, Mali, Morocco, Mozambique, Niger, Senegal, South Africa, and Tunisia; decentralized power generation, mini-grids development and Solar-Home-Systems (SHS) in 9 countries serving over more than 4Million people.

IBERDROLA

Iberdrola’s 2023-2025 Strategic Plan indicates that 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.

Key markets include France, Germany, United Kingdom, Spain, USA, Brazil and Australia.

Offshore wind projects, totaling $18Billion in France, Germany, UK and the USA, are the key investments of the company.

Net profitability by 2025 will increase to more than $5Billion, up from $4Billion in 2022.

Electrification of all sectors is high on the company agenda.

The company under its Electricity for All Programme has carried out projects in Benin, Ethiopia, Kenya, Rwanda, Tanzania and Uganda.

 ØRSTED

Ørsted, the Danish wind energy pioneer, continues to set new records. Its 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. Ørsted is also involved with the building of two energy islands– Bornholm and North Sea– which will deliver 10GW of power.

The company’s return on investment is predicted to be 12% EBITA (earnings before interest, taxes and amortisation) for the period up to 2027.

The company has projects in Taiwan, Japan, South Korea, throughout Europe (Belgium, Germany, Denmark, France, Netherlands, Poland, and UK) and the USA.

 The Equalizers

 ACWA

ACWA is Saudi is a developer, investor, and operator of power generation and desalinated water plants.  The company has 66 assets, spread over 12 countries, valued at $68Billion and has 44.6GW generating power. Some examples:

In Morocco ACWA has developed three solar parks totalling 500MW for the Moroccan Agency for Solar Energy (MASEN).

In the Republic of Uzbekistan, it is developing the 1.5 GW Kungrad wind farm in the republic of Karakalpakstan. The wind farm will comprise three 500MW wind power projects.

ACWA is in agreement with nine renowned Chinese entities for financing, investment and construction of ACWA Power’s global clean and renewable energy projects in Saudi Arabia and Belt and Road Initiative countries.

There is also an agreement with The Sovereign Fund of Egypt (TSFE) to explore a joint investment in the 1.1 GW Wind Energy project, located in the Gulf of Suez in Egypt.

The company has an extensive memorandum of understanding (MoU) exploring a partnership for the development of green hydrogen and its derivatives in the Republic of South Africa.

It also inked agreements with both the National Water Company of Senegal (SONES) and the National Electricity Company of Senegal (SENELEC) for the development of a 300,000 m3/d seawater reverse osmosis plant (SWRO) in Grande Côte; and working closely with SENELEC to develop a Combined Cycle Gas-Turbine (CCGT) plant in Cap des Biches with an initial design capacity of 160 MW.

Lekela

Lekela’s current portfolio includes more than 1GW of power involving projects in Egypt, Ghana, and South Africa.

The company’s focus is utility-scale projects which supply much-needed clean energy to communities across Africa.  The focus is on taking projects from mid-or late-stage development into long-term operation.

Scatec

Scatec is a Norwegian, renewable power producer, developing, building, owning and operating solar, wind and hydro power plants and storage solutions. Scatec has more than 4.6GW in operation and under construction on four continents. The company is targeting 15GW capacity by the end of 2025. In Africa the company has projects in, Burundi, Cameroon, DRC, Egypt, Gabon, Guinea. Malawi, Madagascar, and Rwanda.

Key Takeaways

  1. Enel, Iberdrola, and Ørsted have focused their strategy to the markets of North America, South America and Asia where growth is expected to flourish.
  2. The Energy Transition is gathering speed: Witness the bringing forward the dates of CO2 neutrality to 2040 instead of 2050 that both Enel and Iberdrola are proposing.
  3. The increased specialization and experience that Enel/ Iberdrola/Engie have achieved is a steep barrier for new entrants. Think of the oil majors who for the most part have only symbolic experience in renewable energy. The one exception is Equinor which will have more than 50% of its capital budget allocated to renewables by 2030.
  4. That the primary focus of Enel, Iberdrola and Ørsted is not on Sub-Saharan Africa should come as no surprise. This has simply not been a key portion of their market. Can this continue? Is it not time that these companies put together a Marshal Plan for Sub-Sahara Africa? True Enel through its Stewardship Model and Engie with its African footprint have seized business opportunities but much more is needed. Sub-Sahara Africa can very quickly become a primary renewable marketplace!
  5. Sub-Sahara Africa is receiving a sharp focus from both the development banks and such companies as ACWA, Lekela and Scatec.

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). 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

 

 

 

 

 

 

 

 

 

 

 

 


COP27: How has Africa fared in this Global Poker Game?

By Gerard Kreeft

Two weeks of debate and discussion at the COP27 UN Sharm el-Sheikh conference have now passed. The dust is beginning to settle and its time to assess What’s in it for Africa. There are some very glaring and disturbing facts that deserve more than passing attention.

Firstly, the African initiative entitled AJAETI (Africa Just and Affordable Energy Transition Initiative), a name adopted with little thought to what its purpose and strategy should be. The Sharm el-Sheikh communique plainly states that $100Billion pledged in 2020 to assist under-developed  economies has not been fulfilled. Now AJAETI is committing itself to new donor pledges:

Governments took the ground-breaking decision to establish new funding arrangements, as well as a dedicated fund, to assist developing countries in responding to loss and damage. Governments also agreed to establish a ‘transitional committee’ to make recommendations on how to operationalize both the new funding arrangements and the fund at COP28.”

If commitments for 2020 have not been addressed, is it any wonder that the establishment of AJAETI has gained little or no legitimacy and will remain a paper tiger?

Then there is the matter of Agenda 2063: “Africa We Want“, proposed by the African Union which has seven lofty goals:

  1. A prosperous Africa based on inclusive growth and sustainable development.
  2. An integrated continent, politically united based on the ideals of Pan Africanism and the vision of Africa’s Renaissance.
  3. An Africa of good governance, democracy, respect for human rights, justice and the rule of law.
  4. A peaceful and secure Africa.
  5. An Africa with a strong cultural identity, common heritage, values and ethics.
  6. An Africa, whose development is people-driven, relying on the potential of African people, especially its women and youth, and caring for children.
  7. Africa as a strong, united, resilient and influential global player and partner.

Who could fault such lofty aims? Yet such promises fall on deaf man’s ears when viewed with what is actually happening on the ground. The Energy Progress Report 2022 shows that 568Million people in Sub-Saharan Africa has little access to electricity and 900Million Africans have no access to clean cooking fuels and technologies.

Coupled with unkept promises of funding from 2020 and hollow pledges for new additional funding beyond 2022 is it not time to conclude that COP28 has no basis for success and has lost its legitimacy before actually happening?

What to do?

COP27 was attended by a garden variety of people—200 countries, politicians of all stripes, lobbyists representing business interests of the most diverse sort, and NGOs proclaiming doom and gloom—all eager to save our little planet.  Under the best of circumstances, it would be impossible to cobble together an agenda for such a diverse group of people. A recipe for disaster.

The results of COP27 have been predictable:  At one end of the spectrum, a proposal to start AJAETI(Africa Just and Affordable Energy Transition Initiative) which already has a dubious beginning and at the other end of the spectrum the Africa Union’s pledge of Agenda 2063, promising Africans heaven on earth.

What to do?

Firstly, a decoupling from COP28. An African Energy Renaissance has little to do with the Agenda of COP27 with its key emphasis on CO2 reduction. Not one African country, in terms of CO2 emissions, is even mentioned as a key emitter (see chart below).

Source: Carbon Brief analysis of figures from the Global Carbon Project, CDIAC, Our World in Data, Carbon Monitor, Houghton and Nassikas (2017) and Hansis et al (2015).”

Secondly, the need to ensuring a more focused agenda. Having an agenda and summit for CO2 rich-countries and a sequel second summit for developing economies to discuss strategy and implementation of their energy transition plans. It is only by decoupling these two groups that it will be possible to have a semblance of any meaningful discussions which avoids a Tower of Babel confusion.

There is also a high need to dispel a number of illusions that continue to exist. For starters that the oil majors have contributed a net worth to Africa’s economies.  According to Toyin Akinosho, publisher of Africa Oil+ Gas Report, African revenues from the oil and gas majors are financing the energy transition in the rest of the world: “. . . the oil majors are funding clean energy from the balance sheet of dirty oil.”[1]

Around 30% of TOTALEnergies’ production is in Africa, but less than 0.5% of its new energy investment will directly benefit the continent. Yet, according to Akinosho, TOTALEnergies is the best African renewable energy investor out of the six majors. These include:

  • ENI: Launched with fanfare the installation of a 14 KW solar system in a medical facility in Angola. In Egypt, where ENI is a major player, the company has not featured in the country’s relatively aggressive renewable energy plan.
  • BP: The company has pumped over a billion barrels of oil out of Angola in the last twenty years but has excluded Africa from all of its renewable energy plans.
  • Equinor: It pumps 120,000 BOEPD(Barrels of oil equivalent) in Angola but has no plans for renewables.
  • Chevron: Its focus is not so much on investing in stand-alone renewable projects but increasing renewable power in support of its business to lower its carbon intensity.
  • Shell: The company will likely take $7.5Billion out of Nigeria from 2021–2025. Shell has funded some off-grid projects through solar developers in Nigeria, which basically represents Shell’s footprint in Africa.

Nor should we imagine that national oil companies have a better track record. Africa’s two major national oil companies in Sub-Sahara Africa—Nigerian National Petroleum Corporation (NNPC) and Sonangol (Angola)—have demonstrated little hope of becoming national energy champions.

Take the Nigerian Petroleum Development Company (NPDC), the operating subsidiary of the NNPC, which “is a massive incompetent wrecking ball, which has been gifted joint-venture participation in 10 mining leases (OMLs) all of them producing.”

The NPDC is seen as a bright star within the NNPC’s portfolio. Why? Because the degree of its performance is in direct proportion with the help it gets from its partnership with other oil majors.

Sonangol, the Angolan state oil company, has had a rocky ride since 2017. In the past Sonangol had two roles: that of concessionaire, a highly judicious key role that gave it power and legitimacy, and being a state oil company with its responsibilities for exploration and development of the resources. Sonangol was then stripped of its concessionaire role, which was given to the newly created National Agency of Petroleum, Gas, and Biofuels.

In Angola today, power has become diffused. Sonangol has been stripped of its concessionaire role and is loaded with a mountain of debt, and the IOCs have the freedom to explore and market their natural gas. Developing green energy is certainly beyond the competence of Sonangol.

Instead of prescribing new energy directions for Africa I recommend no prescription. Africa must choose its own energy transition path.

Perhaps the last word can be given to Tony Attah, former CEO of Nigerian Liquified Natural Gas (NLNG). At the February 2022 SAIPEC conference (Sub-Saharan International Petroleum Exhibition and Conference)he stated:

“We need to promote Africa to become an energy market of its own by deploying the resources in Africa especially gas for the use of Africa essentially, creating dedicated gas hubs, storage and markets to take advantage of the opportunity to use oil and gas locally to develop and support domestic economic activities like gas to power, feedstock for petrochemicals, feedstock for fertilizer, gas to transport and as a catalyst for industrialization with LPG as a substitute for biomass.

While fossil fuels will continue to be relevant in the global energy mix, renewables will achieve greater growth with gas as the transition fuel for a very long time. That said I personally believe that energy transition is a given and the global energy mix will change whether Africa is ready or not.”

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 guest contributor to IEEFA(Institute for Energy Economics and Financial Analysis). 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

 

 


Financing Close Reached for Three More Wind Power Projects in South Africa

Red Rocket and its partners have reached financing close for the Brandvalley, Rietkloof and Wolf wind projects in South Africa.

The projects are now in the construction phase.

With a combined capacity of 280 MW, these wind farms are being built under public-private partnerships (PPPs).

The projects, developed by G7 Renewable Energies and taken over by Red Rocket, are being implemented under the 5th round of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

The three wind farms were approved for financing, construction and operation by Red Rocket by the South African Department of Mineral Resources and Energy on 28 October 2021. IPP has also secured the construction of the 84 MW Wolf Wind Farm in the Eastern Cape. With a combined capacity of 280 MW, the Brandvalley and Rietkloof wind farms will be built in the Western Cape.

According to Red Rocket’s projections, once operational, the Brandvalley, Rietkloof and Wolf wind farms will be capable of producing 1,500 GWh of clean electricity per year, helping to reduce the carbon dioxide (CO2) emissions associated with electricity generation in South Africa.

Red Rocket is pursuing the development of these three renewable energy projects in partnership with the African Infrastructure Investment Managers (AIIM) IDEAS fund, South African investment company H1 Holdings, Jade-Sky Energy and local community trusts. The electricity generated by the future wind farms will be sold to the South African state-owned utility Eskom. Red Rocket and its partners will have to invest 9.3 billion South African rand, more than 537 million dollars.


ACWA Power Targets Building a 10GW Wind Farm in Egypt

Saudi renewable energy developer ACWA Power will build a 10,000MW (10GW) wind farm in Egypt.

The company signed an MoU with the North African country’s New and Renewable Energy Authority and the Egyptian Electricity Transmission Company on November 1, 2022.

The first phase of the project will have a capacity of 1.1GW and cost up to a 1.1Billion. Construction will begin at the beginning of 2023 and take two years to complete.

ACWA has one of the 10 largest portfolios of renewable energy projects on the African continent and has, recently been signing MoUs to develop future energy solutions in focused African countries.

It particularly has an affinity for Egypt, South Africa, and Morocco.

Mohamed Shaker, the Egyptian Minister of Electricity has, in Riyadh for most of the week of October 31, 2022, been meeting with five other Saudi firms over more than $3billion worth of renewable energy projects. The companies include FAS Energy and Al Fanar. Mr. Shaker is also reportedly meeting with Saudi financing institutions to help drum up financing for the projects.


Support for Fossil Fuels by G-20 Nations at Highest Level Since 2014

By BloombergNEF

The 19 individual country members of the G-20 (the world’s richest countries) provided $693Billion in fossil-fuel support in 2021, thereby slowing down progress on reaching the goals of the Paris Agreement, according to a new report released by Bloomberg Philanthropies and BloombergNEF (BNEF). This quite substantial sum distorted prices, encouraged potentially wasteful use and production of fossil fuels, and resulted in investment in long-lived, emission-intensive equipment and infrastructure.

The Climate Policy Factbook evaluates the progress made by each G-20 nation in three concrete policy areas: 1) phasing out support for fossil fuels, 2) putting a price on emissions, and 3) enforcing climate-risk disclosure. The report aims to increase transparency and inform policy priorities ahead of the G-20 Summit in Indonesia and COP27 climate conference in Egypt, where much of the discussion will focus on how to realize the many pledges and targets announced at COP26 in Glasgow in 2021.

“Governments continue to subsidize fossil fuels – undermining the pledges they’ve made, harming public health, and shrinking our chances of avoiding the worst impacts of climate change”, says Michael R. Bloomberg, UN Secretary-General’s Special Envoy on Climate Ambition and Solutions and founder of Bloomberg LP and Bloomberg Philanthropies.  “We need to dramatically speed up the shift to clean energy and away from coal and other fossil fuels, and this report highlights some of the most important steps governments can take.”

The share of G-20 fossil-fuel support allocated to coal is slowly shrinking – from 4.1% in 2016, to 2.9% in 2021. But coal still attracted a total of $20Billion of government support in 2021. This is surprising given that much of the effort to phase out fossil-fuel support has focused on coal, including pledges announced at recent G-20 summits and COP26.

While 2021 estimates are provisional, they suggest fossil support spending surged 16%. This spike was not simply due to economic recovery and higher energy use as 2021’s total was 5% higher than 2016, a year in which energy use was approximately level. In fact, the 2021 increase was driven by a 16% increase in support to fossil-fuel producers and utilities.

“The G-20 and G-7 governments have announced a range of seemingly more ambitious commitments to phase out fossil-fuel subsidies,” said Victoria Cuming, head of global policy at BloombergNEF and lead author of the factbook. “But they always seem to include imprecise language and caveats, giving governments wiggle room to interpret these pledges as they wish. BNEF’s analysis shows that there seems to be little evidence of those countries delivering on their promises.”

At the national level, China may have accounted for the largest share (26%) of G-20 fossil-fuel support in 2020 (the latest year for which country-level data is available). But it is well below other G-20 members on a per-capita basis – at $111 in 2020 compared with, for example, Saudi Arabia ($1,433), Argentina ($734) and Canada ($512). It also scaled back this support by 12% over 2016-20, while Canada more than doubled fossil-fuel support over that period. The US has the lowest per-capita total out of the G-20 (at $34 in 2020) but provided 57% more of such subsidies in 2020 relative to 2016.

To effectively lead the phaseout of coal and other fossil fuels, G-20 countries must introduce a meaningful carbon price, so that companies and consumers pay for their greenhouse-gas emissions. In total, 12 member countries of G-20 have nationwide carbon pricing. Europe and Canada remain G-20 leaders for robust carbon policies. In particular, prices are close to or far above the level needed to limit global warming to 2C above pre-industrial levels by the end of the century. The World Bank estimates this range to be $40-80 per metric ton by 2020 and $50-100 by 2030. The other G-20 countries with nationwide schemes have an average carbon price of $8/ton and the US, which has several state-level programs, has an average price of $9/ton. Most of these programs are less effective as they cover such a small share of national emissions or offer concessions that are too generous to participants.

The third priority area is to enforce climate-risk disclosure by companies and financial institutions. Policymakers are more loudly than ever voicing concern that climate change poses major risks to financial stability. However, out of the G-20 countries, only the EU and UK have passed laws or regulations to mandate specific, nationwide climate-risk disclosure for investors, while the US has issued a proposal to take this step. Instead, most G-20 governments have only gone as far as launching pilot projects and issuing voluntary guidance documents. These may mark a change in rhetoric and help improve financial market participants’ capabilities without being too disruptive for current market practices. But this type of voluntary approach allows institutions to delay action. ​


Tullow’s Marriage with Capricorn – Abandoned at the Altar

By Gerard Kreeft

In was only a few months ago—June 2022—that it was announced that Tullow Oil and Capricorn Energy were smitten and anticipations were high. The relationship would flower and blossom, setting new precedents for Africa focused Independents. Now September 2022 Capricorn and NewMed Energy, an Israel-based natural gas company, have found each other and Tullow has been stood up at the altar. What is behind this change of heart?

The simple answer is geo-politics. NewMed has seized the moment to position itself to be an early provider of natural gas/LNG to Europe. Capricorn, with its London stock market listing and its proximity to European markets gives NewMed excellent access to European gas markets. To entice Capricorn shareholders, a dividend of $620Million is being offered at the completion of the deal. Capricorn shareholders will retain a 10.3% of the share capital of NewMed. NewMed will hold 89.7% of the group’s share capital.

Capricorn: A Case of Take the Money and Run?

The Capricorn-Tullow proposed merger, was announced as a merger of equals. Yet Capricorn would be taken over by Tullow. By all accounts Capricorn has a very tenuous existence and was looking for a better suitor. Capricorn Energy’s sole production of some 36,500Barrels of Oil Equivalent Per Day (BOEPD), is coming from its Western Desert, Egypt asset which it bought from Shell in September 2021.

The Shell connection also takes us to India. The Rajasthan asset was bought by Cairn from Shell and discovered in 2004. At the time this was the largest onshore discovery in India for more than 25 years with the potential to provide more than 30% of India’s daily crude oil production.

Cairn Energy sought to raise capital for its India subsidiary Cairn India in order to further develop the Rajasthan block. Subsequently Vedanta Resources purchased a majority stake of Cairn India in 2010 from Cairn Energy for $8.48Billion. According to the Capricorn website $4.5Billion was paid out to shareholders between 2006 and 2012.

Along the way, the Indian government made a retrospective tax demand, and the dispute that lasted seven years and was finally settled by arbitration. The Government of India was required to make to Cairn/Capricorn a final payment of $1.06Billion. This payment has bolstered Capricorn’s wallet.

While its Indian debacle was playing out, Capricorn continued exploration activities elsewhere. It discovered the Sangomar Field in Senegal in 2014, and subsequently sold it to Woodside. Upon first oil, anticipated in 2023, Woodside will pay Capricorn $100Million. Capricorn also participated in the development of two of the largest projects in the UK North Sea, Catcher and Kraken, which began production in 2017 and subsequently sold in November 2021.

Capricorn may now have exploration rights in the UK, Egypt, Israel, Mauritania, Mexico and Suriname but these properties add little to the company’s value at a time when oil and gas assets, especially exploration assets have a diminishing value.

The Capricorn share price on January 5, 2018 was 266 pence, and on June 1, 2022 was 202 pence. At the time of the announced merger with NewMed on September 30, 2022, the share price had increased to 245 pence.  Capricorn’s stock market capitalization as of October 3, 2022 was 755Million British pounds.

Tullow: An Orphan seeking a Home

Tullow Oil, long seen as a preeminent Africa focused independent, has in the last 3-5 years been forced to face, squarely, the reduction of its huge debt load. In December 2019 CEO Paul McDade was sacked by Tullow’s board of directors because the company had to write off $1.2Billion, resulting in a halving of its share price, and a cancellation of any possible dividend. The company share price was 220 pence on January 5, 2018 and on June 1, 2022 it had been reduced to only 55 pence per share price. A four-fold reduction! In the period July-September, 2022 the share price has floundered between 40-43 pences per share.  Tullow’s stock market capitalization on October 3, 2022 was 606Million British pounds which was 20% lower than the market capitalization of Capricorn.  An amazing disparity in investor confidence and stock performance.

Tullow’s debt also was accumulated because of missed production predictions from its flagship operations in Ghana. The company suffered setbacks in Uganda, Kenya and Guyana. In 2020, in order to raise cash, the Irish producer sold all of its Uganda assets to TOTALEnergies for $575Million.  In 2021 the company produced 59,000 bopd (barrels of oil per day): 42,000BOPD from its Jubilee and TEN fields in Ghana and an additional 16,000BOPD from non-operating assets in Gabon and Ivory Coast.

At the time of the merger talks with Capricorn, Tullow Oil’s CEO Rahul Dhir promised production of some 125,000BOEPD by 2025 which it will certainly need in order to further reduce debt and develop its exploration assets. The need for a new plan is urgent.

NewMed: The Prince in Waiting

Yossi Abu, CEO of NewMed Energy, is the prime strategist in building Israel’s natural gas entity which could become an important source for the European Union.  NewMed is Israel’s leading energy partnership in exploration, development, production and sale of natural gas and condensate.  NewMed’s shares trade on the Tel Aviv stock exchange.  In June 2022 the EU, Egypt and Israel signed a tripartite agreement to ship LNG to Europe via Egypt’s LNG infrastructure.

NewMed, originally named Delek Drilling, was founded in 1993 to search for natural gas in the Mediterranean. Subsequently Noble Energy (now Chevron) and two additional companies also farmed in. ‘Yan Tethys’ in 2004 became Israel’s first natural gas project.

Other successes followed:

  • Tamar reservoir in 2009 with proven reserves of 306Billion cubic metres (Bcm).
  • Leviathan reservoir with proven reserves of 650 Bcm in 2010 and FID(final investment decision) in 2017 and now shipping natural gas to customers in Israel, Jordan and Egypt.
  • Aphrodite, in the Cyprus EEZ zone (Exclusive Economic Zone) in 2011 together with Shell and Chevron.

NewMed states that the Leviathan+ Aphrodite fields have gas reserves of 13.4 tcf, comparable to Angola which has gas reserves of 11 tcf. By 2030 the expanded Leviathan Project(1B) + Aphrodite will have production of  200,000BOEPD.

Concluding Remarks

What is surprising is the fluidity and speed of the changing energy landscape. The Tullow-Capricorn merger, once seen as a done deal, was scrapped and instead NewMed has emerged as a potential regional gas player. Given the EU’s search for alternative gas resources NewMed has proven to be at the right place and at the right time.

The real loser is Tullow which must (again)seek new opportunities in the African landscape. Not just oil and gas projects but gas projects seen as a stepping stone to meet CO2 neutrality by 2050. The Tullow dilemma is also a warning to other independents seeking new opportunities. Green deals may be closer than you think.  Also, in its weakened position, Tullow could be swallowed by a larger company who wishes to increase their footprint in Africa.

Capricorn has been rescued from an untimely demise. Shareholders will receive a handsome dividend and Capricorn will be remembered only as providing NewMed access to London’s money markets and to the EU’s heartland. No doubt we will hear more from NewMed in the future.

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 contributes to IEEFA(Institute for Energy Economics and Financial Analysis). His book ‘The 10 Commandments of the Energy Transition ‘is available 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

 

 

 


ENI: The Joker in the Deck?

By Gerard Kreeft

ENI, the Italian-based oil and gas giant is often overlooked in any discussions involving the other oil majors-BP, Chevron, Equinor ExxonMobil, Shell and TOTALEnergies. Yet ENI could be the Joker in the deck providing surprises to an unwitting public and be an upstart which deserves the needed attention. ENI’s strong presence in North Africa—Algeria, Egypt, and Libya—could in the coming months become one of Europe’s substitute provider of natural gas. The company operates in the frontier areas seldom mentioned in the daily news media.

For starters the company produces 1.7Million barrels of oil equivalent per day (MMBOEPD), has a balance sheet which has an economic leverage of 20%, and has, according to its website, an Internal Rate of Return (IRR) of 34%, the highest of all its peers  for the 2012-2021. Also, its RRR (Reserve Replacement Ratio) of 110% for the period 2012-2021 is the highest compared to its industry peers.

ENI further states that 90% of exploration capex is spent on near fields and proven basins. Some $11Billion in the last 10 years has been spent on its dual exploration model—near fields and proven basins. The company states that it only requires three years—from first discovery of oil to market—twice as fast as the industry average.

Yet ENI’s stock market price, like the other oil majors, has performed badly in the period between January 2018 and June 2022. While the DOW Jones Industrial Index rose 23% (25,295 to 31,097) in this period, most of the majors, with the exception of Equinor and Chevron, have underperformed dramatically. The ENI share price has, for example, in this five-year period  decreased by 20%.

Table 1: Stock market prices of  majors 2018-2022(NYSE)

Year Repsol       BP       Shell ENI Total

Energies

Chevron ExxonMobil Equinor
2018 $18 $43 $69 $35 $58 $128 $87 $23
2022 $13 $29 $53 $28 $49 $157 $88 $34

Note: Values based on  January  5 2018 and  June 30 2022

During this 5-year period the share price of the oil majors is as follows:

  • BP is down 32%
  • Repsol is down 28%
  • Shell is down 25%
  • ENI is down 20%
  • TOTALEnergies is down 16 %
  • ExxonMobil remained flat
  • Chevron’s stock up 23%, and
  • Equinor up 48%.

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 and at the same pursuing new strategies as part of its energy transition plan. Three examples:

 Vår Energi, Norway was formed in 2018 following the merger of ENI Norge AS and Point Resources AS, owned by Hitec Vision, a private Norwegian investment fund.  The company’s primary focus is oil and gas developments on the Norwegian Continental Shelf. ENI controls 69.6% of the shares, and HitecVision 30.4%. Vår Energi has production in 36 fields and produces 247,000 boepd.

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. Azule Energy is now Angola’s largest independent equity producer of oil and gas, holding 2Billion barrels equivalent of net resources and growing to about 250,000 barrels equivalent per day (boed) of equity oil and gas production over the next 5 years. It holds stakes in 16 licences (of which six are exploration blocks) and a participation in Angola LNG JV. The company also participates in the New Gas Consortium(NGC), the first non-associated gas project in the country.

An interesting footnote: “The JV incorporation takes place after the pending conditions were met, among them having secured a third-party financing of $2.5Billion in the form of Pre-Export Financing, and after receiving regulatory approvals.” In other words, any financing of Azule Energy will not be reflected in the ENI and BP balance sheets.

Plenitude, ENI’s new company, launched in June 2022 is an integrated business combining the generation of electricity from renewables, the sale of electricity, gas and energy services to households and businesses, and a European network of charging points for electric vehicles.

Plenitude had an installed renewables generation capacity of 1.4 GW and a pipeline of renewables projects of over 10 GW, a retail portfolio of 10Million clients and an electric vehicle charging network of 7,300 proprietary installed charging points (excluding inter-operational charging points).

“The cash flows from the retail business area will underpin the growth of the business, with the Company having sufficient leverage capacity to independently achieve its targets through a strong balance sheet and an investment-grade profile. Sustainability is at the core of Plenitude as it plans to achieve Net Zero by 2040.

ENI considers the IPO an important step in the development of Plenitude. The IPO will enable the Company to diversify its ownership structure, create a long-term shareholder base, access competitive funding, consolidate its positioning and develop more quickly while creating sustainable value for all stakeholders.”

ENI’s North African Gas Hub

 ENI’s North African Gas Hub–Algeria, Libya and Egypt–will certainly be a key provider of natural gas to Europe. The three countries together produce 648,000BOEPD, approximately a third of ENI’s total global production.

Algeria

In July 2022, Sonatrach and ENI announced that an additional 4 bcm/y(billion cubic metres per year) will be exported to Italy via the TransMed Pipeline which is a 2,475 km-long natural gas pipeline built to transport natural gas from Algeria to Italy via Tunisia and Sicily. Built in 1983, it is the longest international gas pipeline system and has the capacity to deliver 30.2bcm/y of natural gas.

ENI recently announced that it has agreed to acquire BP’s business in Algeria, including the two gas-producing concessions “In Amenas” and “In Salah” (45.89% and 33.15% working interest respectively).

In 2023 ENI’s production from Algeria will rise to over 120,000BOEPD.

Libya

The Libyan gas produced by the Wafa and Bahr Essalam fields operated by Mellitah Oil & Gas, an operating company jointly owned by ENI and NOC(Libyan National Oil Company). The gas is brought to Italy through the Greenstream pipeline. The 520 kilometre natural gas pipeline crosses the Mediterranean Sea, connecting the Libyan coast with Gela in Sicily. The natural gas pipeline has a capacity of  8 bcm/y. ENI has a production of 168,000BOEPD.

Egypt

ENI is operator of the large Zohr field which In August 2019, had a  production of more than 2.7Billion cubic feet of gas per day (Bcf/d). An important agreement was the restart the of Damietta liquefaction plant which will provide up to 3Bcm in 2022 for European customers. ENI produces 360,000BOEPD.

The Kazakhstan Connection

 ENI has been present in Kazakhstan since 1992  and is a co-operator of the Karachaganak producing field in which it has a share of 29.25% share; and is a partner of the North Caspian Sea PSA (NCSPSA) consortium which operates  the Kashagan Project.  The success of both projects is dependent on the goodwill of both Russia and Kazakhstan. ENI production in Kazakhstan is 145,000 boepd.

The Karachaganak Project produces approximately 45% of Kazakhstan’s natural gas. Peak production reached 155Billion cubic feet per year and oil production of 100,000BOPD. An important part component of this project is the Karachaganak Orenburg Transportation System (KOTS) connecting the Karachaganak field to the Orenburg Gas Plant (OGP) in the Russian Federation. Two pipelines of 28 inches in diameter transport sour gas to OGP for further treatment. In addition, there are three 14-inch lines of which one is a liquid export line and two are dual service and transport either unstabilised liquid or sour gas.

The Kashagan Field discovered in 2000 has approximately 13Billion barrels of recoverable reserves. The project has from the start been hampered by harsh weather conditions including sea ice in the winter, temperatures varying from -35C to -40C, extremely shallow water and high levels of hydrogen sulphide, together with project delays, mismanagement and disputes. In 2012 it was designated as the main source of supply for the Kazakhstan-China oil pipeline. CNN Money had estimated that field development had cost $116Billion, making it the most expensive energy project in the world. No wonder cynics named the project ’Cash-is-Gone’.

Caspian Pipeline Consortium (CPC)

An equally troubling problem is the Caspian Pipeline Consortium (CPC), which transports Caspian oil from Kazakhstan to Novorossiysk-2 Marine Terminal, an export terminal at the Russian Black Sea port of Novorossiysk. The CPC pipeline handles almost all of Kazakhstan’s oil exports. In 2021 the pipeline exported up to 1.3MMBPD. On July 6, 2022 a Russian court ordered a 30-day suspension of the pipeline because of an oil spill. The CPC appealed the ruling and the suspension was lifted on 11 July of the following week, and the CPC was instead fined 200,000 rubles ($3,300).

The incident demonstrates the vulnerability of future production. No doubt this is not the last such incident which involves Russian and Kazakhstan goodwill to ensure that Kazakhstan’s oil and production does not falter. Being dependent on Russian-Kazakhstan goodwill is the most brazen example of a lack of diversity of oil  supply.

Final Remarks

ENI’s energy scenario assumes that Brent oil will have a cushion of $75 per barrel and by 2050:

The company will reach a net zero carbon intensity.

ENI will have an installed renewable capacity of 60 GW.

The company will have 160,000 electrical charging points.

Natural gas will be 90% of ENI’s total oil and gas portfolio.

ENI operates in a very fluid market place and has shown the ability to be diverse and able to provide contrarian strategies. A characteristic needed in a fast-changing energy world. The Joker has not yet dealt his final card.

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.  Gerard has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and contributes to IEEFA(Institute for Energy Economics and Financial Analysis). His book The 10 commandments of the Energy Transition is now on sale at  Bookstorehttps://books.friesenpress.com/store/title/119734000211674846/Gerard-Kreeft-The-10-Commandments-of-the-Energy-Transition

 

 

 

 

 

 

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