All posts tagged energy


Mozambique Picks EDF-Led Consortium to Build a 1.5GW Hyropower Plant

Mozambique’s Ministry of Energy has announced a consortium consisting of Electricité de France (EDF), TOTALEnergies, Sumitomo and Kansai Electric Power (Kepco) as preferred bidder to build the Mphanda Nkuwa hydropower plant in Tete province.

The four companies will manage the financing, construction and operation of the 1.5GW, $4.5Billion run-of-river hydropower plant.

The project will be concessioned under a Build, Own, Operate, and Transfer (BOOT) model. EDF &Co will hold 70% of the shares in the project, with the rest held by the Hidroeléctrica de Cahora Bassa and state energy company EDM. It will feature a 1,300km high voltage transmission line to be built between the dam and the capital, Maputo. That project includes the segment from Temane to Maputo which is already under construction.

The contract is expected to be signed by the end of July 2023.

The Mphanda Nkuwa Hydroelectric Project Implementation Office (GMNK) is aiming for financial close on the project by 2024, and for it to be commissioned by 2030.

Financing discussions have been held between  GMNK and putative lenders, including the World Bank, International Finance Corporation (IFC), African Development Bank (AfDB), Agence Française de Développement (AFD), European Investment Bank (EIB), Norwegian Investment Fund (Norfund), KfW Development Bank, US Development Finance Corporation (DFC), Development Bank of Southern Africa, Japan International Cooperation Agency (JICA), the Chinese and US Exim banks, and others.

There is potential for the reserve bidder; the consortium led by ETC Holdings and including Zambian utility ZESCO, CECOT (a subsidiary of Mota-Engil), and PetroSA, to join the winning consortium if they request to and are accepted, which will depend on their capital contribution to the project.

EDF & Co will be responsible for investing between $400-500Million in Mphanda Nkuwa and the corresponding high voltage power transmission line between Tete and Maputo. The consortium will also  be expected to underwrite $15Million at the time of signing and provide a further $40Million for development costs.


Ivory Coast To Complete 70MW Solar Plant by December 2024

Ivory Coast’s Council of Ministers has approved the concession agreement for the construction of a photovoltaic solar power plant in Bondoukou, in the country’s northeast. The plant is due to start commercial operations in 15 months’ time.

The electricity infrastructure is a public-private partnership (PPP) under which the concessionaire will develop, finance, build and operate the Bondoukou photovoltaic solar power plant.

Independent power producer Amea Power signed the concession contract for the construction of the power plant, in January 2023. It also signed a power purchase agreement (PPA) under which the output from the Bondoukou solar power plant will be sold to the compagnie ivoirienne d’électricité Ivorian Electricity Company (CIE) for 25 years.

The Bondoukou solar power plant, in the Gontougo region, will be installed on an 85-hectare site 420 km north-east of the economic capital Abidjan. The plant will be capable of injecting 87,100 MWh of electricity a year into Ivory Coast’s national grid. The Bondoukou photovoltaic solar power plant will require an investment of 56Million Euros (37Billion CFA francs).

 


Savannah Continues its African “Empire Building”, Despite the Obstruction in Chad

British junior Savannah Energy is forging ahead on its empire building in African energy, despite the obstruction posed by the nationalization of the assets it bought in Chad.

The company signed a Memorandum of Understanding MoU with the government of Niger Republic to construct 200MW capacity solar plants on May 11, 2023. That’s less than two weeks after it concluded an agreement with the Cameroonian Government, to build a 75MW Hydropower Plant in that country.

The proposed solar plants, in Niger, two of them, are to be sited within 20 km of the cities of Maradi and Zinder, respectively, in southern Niger. They will be connected to the South-Central section of Niger’s electricity grid, which is forecast to be interconnected to the Western electricity grid zone (which serves Niamey) by 2026, as part of a World Bank funded project.

These solar plants come in addition to the up to 250 MW Parc Eolien de la Tarka, the wind farm project, for Niger Republic, which Savannah signed with the government in 2022, and is expected to start construction in 2024. In total therefore, the solar and wind power projects to which Savannah has committed to, in Niger Republic, totals 450MW in capacity. These are projects outside its main purview: to monetise oil and gas resources.

In Cameroon, the signing of the MoA for the Bini a Warak Hydroelectric Project, located in the country’s northern Adamawa Region, will be followed up with an updating of existing feasibility studies and work with power industry authorities and development finance institutions to finalise the development, financing and resumption of construction. Savannah expects to fund the Bini Project from a combination of its own internally generated cashflows and project-specific debt.

The agreements for Hydropower construction in Cameroon and Solar in Niger come after Savannah sold a minor stake in the Cameroon Oil Transportation Company S.A. (COTCo) to Cameroon’s state hydrocarbon firm, SNH.

COTCo owns and operates the 903km Cameroon section of the Chad-Cameroon export pipeline, the Kome Kribi 1 floating storage and offloading facility and related infrastructure. Completion of the transfer of the Shares from Savannah to SNH will result in Savannah’s shareholding in COTCo reducing from 41.06% to 31.06%.

Savanah Energy is primarily a Hydrocarbon company; the largest project in its portfolio is ownership and operation of a gas processing plant and related infrastructure in Nigeria, from which it supplies 142Million standard cubic feet of gas per day (142MMscf/d) to several power plants, making it one of the three largest independent suppliers of gas to the country’s domestic market.

Savannah has made several oil discoveries in Niger Republic and is on course of developing them.  But the UK firm seems to have decided that one way to the hearts and minds of governments it deals with in Africa is to get involved in their power infrastructure projects.

 


Saudi Vehicle Secures Funding for Large Solar Power Plant in Kom Ombo, Egypt

ACWA Power has announced that it has signed a total of $123Million of financing package to develop the 200MW Kom Ombo project, a utility-scale solar power plant in Egypt.

The Saudi Arabia owned project developer says the package “comprises loans of up to $36Million from the EBRD, $14.6Million from the OPEC Fund, $ 14.4Million from the AfDB, $34.5Million from the GCF, $14.8Million from Arab Bank and $ 10Million from the SEFA, under the COVID-19 IPP relief programme”.

Apart from these loans, “the project already has equity bridge loans of $14Million from the EBRD and $45Million from the Arab Petroleum Investments Corporation (APICORP)”, ACWA explains.

“While the financing documentation was originally signed in April 2021 with the EBRD, the OPEC Fund, the Green Climate Fund (GCF), African Development Bank (AfDB) and Arab Bank, the dynamics in global supply chains due to COVID19 altered the dynamics for the development of solar plants”, ACWA ventures.

“This resulted in the extension for Kom Ombo’s project execution”.


Can Shareholders Anticipate a Pot of Gold from the Oil Majors?

By Gerard Kreeft

All of the oil majors— Repsol, BP, Shell, ENI, TOTALEnergies, Chevron, ExxonMobil and Equinor—are enjoying their highest earnings ever. Is the message from shareholders: do not tamper with our cash machine?

In spite of increased dividends and stock buyback programmes by oil majors, their share prices have shown mixed results. In the period 2018-2022, US oil giants Chevron and ExxonMobil have seen their share prices flourish: Chevron up 39% and ExxonMobil 26%. European oil stocks have floundered: Repsol down 5%, BP down 19%, Shell down 17%, ENI down 17%, TOTALEnergies up 7%. Only Equinor was up 57%.

In the period January-March 2023 their stock market prices have not changed.

In the same period (January 2018-December 2022) the Dow Jones Industrial Index rose 31%: increasing from 25,295 to 33,147.

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

Why is it that the share prices of Chevron and ExxonMobil have performed so well and their European counterparts have done so poorly (with the exception of Equinor)?

The message from the investor community is the clarity of the message. Chevron and ExxonMobil have as their mainstay–the production of hydrocarbons and this is the message that is preached. New energy policies including CCS (Carbon Capture and Storage) and other new energy initiatives make up only between 15-20% of their capital budgets. In the case of Chevron some $3Billion per year based on a capital budget of $15-$17Billion; ExxonMobil’s new energy comes in at $3Billion per year based on a capex of $23- $25Billion. The message is clear and simple: we are oil companies pure and simple. Done in the good tradition of John D. Rockefeller, the spiritual father of both companies.

European oil giants, have seen their dualism—wanting to maintain their green image and also  profiting from the oil bonanza—fall out of favour by company shareholders. Their clarity of messaging has been found wanting.   The sole exception is Equinor who has stated that the majority of its capex budget will be from renewables by 2030.

The Message from BP

For 2022, BP posted  a profit of $27.7Billion( underlying replacement cost profit). In the period 2018-2022, BP shares were down 19%.

A key component of BP’s original green strategy  was to build an investment structure, which would require only a few skilled accountants. The company sacked employees or was preparing delegating BP’s headcount to its joint ventures. The goal was to become lean and mean, reducing costs and, hopefully, increasing margins. In short becoming an investment vehicle. Instead the strategy has been turned on its head.

In Africa BP is becoming the junior partner to ENI.  In Angola  BP has merged its upstream activities with ENI to form Azule Energy. ENI has also taken over BP’s Algerian assets.

In 2020 BP painted a glowing picture of how it would attain its green future:

  • From 2025 onwards, when its low-carbon projects would start to kick in, expected growth of between 12–14% would be maintained.
  • Reducing its oil production by 40% by 2030.
  • Its $25Billion divestment would provide the basis for up-scaling its low-carbon business.
  • Spending $5Billion per year to green itself and by 2030 the company would have 50 GW of net generating capacity.

Now the company is clawing back on reducing its oil production. Again, the duality of message has not helped the BP share price.

On the green front the company has initiated a series of joint ventures to speed up its transition.

  • BP and Ørsted have partnered to develop zero-carbon ‘green hydrogen’ at BP’s Lingen Refinery in north-‎west Germany, BP’s first full-scale project in a sector that is expected to grow rapidly. The 50 MW electrolyser project is expected to produce 1 ton of ‎hydrogen per hour – almost 9,000 tonnes a year – starting in 2024. The project could be expanded to up to 500 MW at a later stage to replace all of Lingen’s fossil fuel-based hydrogen. Final investment decision is due later this year.
  • BP and Equinor revealed that BP will become a 50% partner of the non-operated assets Empire Wind (offshore New York State) and Beacon Wind (offshore Massachusetts). BP and Equinor will jointly develop four assets in two existing offshore wind leases located offshore of New York and Massachusetts that together have the potential to generate power for more than two million homes.

BP joined Statkraft and Aker Offshore Wind in a consortium bidding to develop offshore wind energy in Norway. The partnership—in which BP, Statkraft, and Aker Offshore Wind will each hold a 33.3% share—will pursue a bid to develop offshore wind power in the Sørlige Nordsjø II (SN2) licence area.

The Message from Shell

Shell has just announced its highest results of the last 115 years: $40Billion in annual adjusted profit for 2022. Yet investor interest has been muted at best. Shell’s share price has only shown a downward spiral of 17% in the 2018-2022 period. Annual capital expenditures in the near term, according to Shell, could be in the range of $23-$27Billion up from an earlier estimate of $21-23Billion. Then the company  stated that its renewables and energy solutions would be $2-3Billion, marketing $3Billion, integrated gas $4Billion, chemicals and products $4-5Billion, and upstream  $8Billion. A more detailed breakdown is not available.

While its competitors—BP and TOTALEnergies—are busy buying and creating gigawatts of new energy, Shell maintains that it wants to focus on the value it generates for shareholders across the entire value chain. While the company is eager to proclaim value generation, there is little indication to shareholders what this means. For the period 2025-2030 Shell lumps together the capital budgets devoted to three categories:

Growth which entails renewables and marketing will receive 30% of Shell’s capital budget;

Transition which entails Integrated gas and chemical & products will receive 30-35% of Shell’s capital outlay; and

Upstream will get 30-35%.

The Dilemma of BP and Shell

Both BP and Shell continue to believe that their upstream divisions will provide the funding for their green future. Yet their share prices demonstrate that there is little trust in this vision. Depending on their upstream portfolio to lead them to a bright new green future is central to their dilemma. Upstream oil and gas is viewed by shareholders as a sunset industry. Upstream references, perhaps, a distant memory of the integrated oil companies of 50 years ago. Not one to build a green future on.

Both companies continue to believe in a dash of green and fail to understand the basic tenets of how the Green Alliance—Enel, Engie, Iberdrola, and Ørsted–is understood and viewed. What has set these companies apart is that they have created a huge competitive advantage which will be hard to challenge for newcomers. 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. They are essentially borrowing a chapter from Uber, which does not own taxis or Booking, which does not own hotels. Some members of the Green Alliance have established new goals, such as CO2 neutrality by 2040, instead of 2050 to which Shell is pledged. Consider the competition.

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

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

 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%.

Some Final Thoughts

BP

BP has become a company in search of its soul. BP’s strategy of reducing its oil production by 40% by 2030 has been cast aside.

BP’s Greater Tortue Ahmeyim (GTA) field in Mauritana and Senegal is one of the few oil and gas projects the company is developing.

For 2023 the company has earmarked up to $7.5Billion for oil and gas projects.

Shareholders continue to habour doubts about BP’s green vision.

Shell

Shell should seriously consider splitting the company in two key divisions:

  • An upstream division which could be hived off to joint venture with other upstream divisions to ensure economies of scale;
  • An integrated gas division which could prove to be Shell’s star asset.

Wood Mackenzie’s AET-2 Scenario (Accelerated Energy Transition Scenario) predicts that in the following decades, market power will shift from OPEC to the giant gas producers, such as the USA, Russia, and Qatar.

According to AET-2, the “Era of carbon-neutral gas is born. AET-2 would require $300Billion to support Liquified Natural Gas growth globally and $700Billion to support dry gas development in North America.”  Given that Shell is the global leader of LNG (liquid natural gas)this is certainly a sweet sound for Shell’s LNG business.

Downstream could also prove to be a key energy transition asset. Shell’s REFHYNE Project, the Rhineland Refinery in Germany, could well become the precedent that the company needs to ensure it becomes the leading supplier of green hydrogen, where hydrogen production is powered by renewable energy for industrial and transport customers. Could the REFHYNE Project be duplicated many times over to ensure that green technology becomes a key ingredient in the energy transition?

Pay attention to Shell’s Pernis refinery in the Netherlands. One of the largest in Europe, Pernis refinery has a 400,000 b/d capacity and a complexity enabling the processing of many different crude types. The site is already deeply integrated with chemicals production and is being transformed into an integrated energy and chemicals park that will deliver low-carbon products.

The current message from shareholders is: maintain the cash bonanza and do not tamper with our cash machine. No doubt the share price of Chevron and ExxonMobil will continue to flourish. Will Europe’s oil and gas companies—in particular BP and Shell—resolve their clarity of messaging? How long will this cash bonanza last?

Finally, one should not mistake the current cash bonanza with energy security. Rather this is a sign of energy insecurity which could very quickly end without further notice. Energy security will continue to be a key theme for the coming generations and no doubt the role of the members of the Green Alliance will be crucial.

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.

 

 


TOTAL to Construct 260MW Solar and Wind Power Plants to Supply Sasol in South Africa

TOTALEnergies has signed Corporate Power Purchase Agreements (CPPA) with Sasol South Africa and Air Liquide Large Industries South Africa for the supply of 260 MW capacity of renewable electricity over 20 years.

TOTALEnergies will develop a 120 MW solar plant and a 140 MW windfarm in the Western Cape province to supply around 850 GWh of green electricity per year to the Sasol’s Secunda site, located 700 kilometres further North-East, where Air Liquide operates the biggest oxygen production site in the world.

The two projects will provide competitive and available renewable electricity to decarbonize Sasol and Air Liquide’s production. These agreements demonstrate TOTAlEnergies’ positioning to contribute to the evolution of the energy mix in South Africa.

Power cuts occur daily in South Africa, where electricity generation is still 80% based on coal.

The two projects are expected to be operational in 2025. The CPPAs with SASOL and Air Liquide were signed with a consortium of TOTALEnergies Marketing South Africa (70%), its partner Mulilo (17%) and a to-be-announced B-BBEE partner (13%).


With a $108Million, 35MW Facility, Globeleq Joins the Geothermal -to- Power Business in Kenya

UK based electricity provider Globeleq has awarded a contract for the construction of its first geothermal plant.

Toyota Tsusho Corporation (TTC) is the engineering, procurement and construction (EPC) contractor for the 35 MW Menengai geothermal project in Nakuru county, Kenya. The Japanese service provider also won a long-term service agreement (LTSA) for the project.

The $108Million Menengai project will benefit from financing agreements the company inked with the African Development Bank, the Eastern and Southern African Trade and Development Bank and Finnfund in December. 2022.

Construction is expected to begin during the first quarter of 2023 once financial close has been reached. “Having signed these key project agreements with TTC after achieving a fully committed financing in early January 2023, we will now work with the government of Kenya to reach financial close and start construction as soon as possible,” declares Globeleq CEO Mike Scholey.

Globeleq will operate and maintain the power plant once it reaches commercial operations in 2025.  The steam turbine and generator will be manufactured by Fuji Electric.

During the twenty-seventh Conference of the Parties, held in Egypt, in November, the Kenyan and UK governments jointly committed to fast-tracking green investment projects worth KSh500-billion in the country, which included the Menengai project.

The 35MW Menengai is part of the first phase of the wider Menengai complex, which is the second large-scale geothermal field being developed in Kenya after Olkaria.

Steam will be supplied to the project by Geothermal Development Company (GDC), a Kenya government-owned company under a 25-year project implementation and steam supply agreement.

 

 


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.

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