All posts tagged energy


The Three – Service Sector- Musketeers of the Energy Transition: The Emerging Energy Value Chain

By Gerard Kreeft

 

 

 

 

 

 

 

 

All- For-One; One-For-All

Musketeer 1 Oilfield Services

Musketeer 2 New Energy Service Companies

Musketeer 3 Energy Service Companies Africa

There is growing evidence of a new convergence between Musketeer 1 Oilfield Services  and Musketeer 2 New Energy Service Companies. 

Perhaps not so much convergence but cross-overs and falling by the wayside of others and in the process creating new alliances.

Little attention has been paid to Musketeer 3- Energy  Service Companies Africa- perhaps viewed as the junior musketeer, but nonetheless playing a significant role.

Their- All- For-One; One-For-All requires  further explanation.

Peak Oil and What to Anticipate From the Majors

Rystad Energy is a preminent independent energy research and business intelligence company, headquartered in Oslo, Norway.

The COVID-19 pandemic, according to the company, has accelerated the global peak demand for oil to 2028, instead of 2030 and cut peak oil demand to 102Million Barrels Per Day. This corresponds with BP’s peak oil analysis of 2025 and demand of 100MMBOPD.

Nonetheless, Rystad  calculated that oil demand,  in 2020, declined to 89.3MMBOPD, compared with 99.6MMBOPD in 2019. This is now termed “COVID-19 induced demand destruction”.  It is only in 2023 that demand will recover to pre-Covid-19 levels and jump back to 100.1MMBOPD.

There is also little evidence from the oil and gas majors to indicate that there will be a quick recovery. In 2021 the sector’s growth in Africa will be halting and slow:

ExxonMobil: Deepwater Offshore Guyana,  Rovuma LNG Mozambique are the company’s key challenges. Expect little else and no plans on renewables.

Chevron: Only $1.5Billion dedicated to possibly Angola, Equitorial Guinea and Nigeria. Attention is focused on Tengiz, Kazakhstan which is receiving 75% of Chevron’s budget outside the USA. Only fossil-based investments.

Equinor: Attention is largely  being devoted to expanding its offshore windpark capacity, all outside Africa.

ENI: With its large African footprint in Angola, Nigeria and Egypt the company is in prime position to expand its African operations. Green energy plans are being made.

Shell: reducing its oil and gas assets to 9 key hubs which includes Nigeria. Green shoots on the horizon.

TOTAL: its Brulpadda and Liuperd (Leopard) prospects in South Africa, together with its Mozambique LNG project will be the focal points in 2021. Little room for further plans. Green plans play a strategic role.

BP: intends to reduce its oil production by 40% .How will this affect the Greater Tortue Ahmeyim  development in Mauritania and Senegal, its Algerian, Angolan and  Egyptian assets? The first green plans are being unveiled.

Musketeer 1 : Oilfield Services

Global demand for oilfield services (OFS), measured in the total value of exploration and production (E&P) company spending, has in 2020 dropped a massive 25% as a result of the Covid-19 caused oil demand destruction, According to Rystad.

Spending in 2020 is at year’s end expected  to be $481Billion and take the first step to recovery will take place in 2021.

“The recovery will accelerate further in 2022 and 2023, with OFS spending by E&Ps reaching some $552Billion and $620Billion, respectively. Despite the boost, purchases will not return to the pre-COVID-19 levels of $639Billion achieved in 2019.”

 

Audun Martinsen, Rystad Energy’s Head of Energy Research, argues that the comeback will not be visible across all OFS segments. Well services and the pressure pumping market will be the first to see a boost, while other markets will need to get further depressed before recovering.

“Despite the recovery in oil prices, it will take many quarters before all segments of the supply chain see their revenues deliver consistent growth. In case of an upturn, operators would prefer flexible budget items with production increments and high-return investments with short pay-back times. Therefore, we expect well service segments to be the first to recover, while long-lead segments will pick up much later.“

  • Maintenance and operations: is poised for consecutive yearly rises in the next three years after slumping to $167Billion this year from $202Billion in 2019.
  • Well services and commodities: is set for a similar recovery, but only after slumping to $152Billion in 2020 from $231Billion in 2019 – the biggest decline among segments in absolute numbers.
  • Drilling contractors: falling to $46Billion in 2020 from $62Billion in 2019, and then rising to $57Billion in 2023.
  • Subsea segment: will fall from $25Billion in 2019 to $22Billion in 2021 – before starting to rebound to $24Billion in 2022 and to $29Billion in 2023.
  • EPCI: fell to $81Billion in 2020 from $105Billion in 2019, sliding further to $74Billion in 2021, before rising back to $81Billion in 2022 and growing to $106Billion a year later.
  • Seismic: declined to $12Billion in 2020 from $15Billion in 2019, dropping to $10Billion in 2021, before rebounding to $11Billion in 2022 and to $13Billion a year later.

The Players- BakerHughes, Halliburton and Schlumberger

Baker Hughes, Halliburton and Schlumberger, the traditional giants of the service providers, have experienced a long trek through the wilderness. Is relief on the way? A mixed bag.

Their stock prices have tanked: in December 2016 Baker Hughes’s share price was $65, now December 2020, it was $21; Schlumberger in December 2016 was $85, December 2020 it had dropped to $21; Halliburton in December 2016 was $55; in  December 2020 it was $19.

81,000 jobs have been lost since November 2019, to go by the report of the Petroleum Equipment and Services Association  (PESA).  In a recent forum PESA President Leslie Beyer stated: “The majors are making carbon reduction and setting net zero goals. Then they’re turning to their OFS sector partners and saying, ‘How are you going to help us get there?’”.  How indeed!

The strategies of both Halliburton and Schlumberger are defensive and show little reason for optimism:

Halliburton on its website talks about further digalization of its services, lower capital intensity and being committed to provide technologies that reduce emissions/environmental footprint.

Olivier Le Peuch, Schlumberger’s CEO, recently announced a major strategic restructuring creating four new divisions- Digital & Integration, Production Systems, Well Construction, Reservoir Performance.

Within the confines of the E&P bubble both major service companies continue on with what they anticipate what the IOCs (International Oil Companies) are dictating: belt tightening, a reduced head count, with the hope for a better tomorrow. Simply re-shuffling the deck chairs on the Titanic.

The one exception is Baker Hughes who has recently unveiled a forward looking strategy focused on CCS (Carbon Capture Storage), Hydrogen, and Energy Storage. Key themes for the Energy Transition.

The Drillers

Hans Hagelberg, Bassoe Offshore, has estimated that in the last 12 months the offshore rig fleet has lost almost 42%, or $30Billion of its total value. A large portion of the global fleet is now cold stacked. Of the 103 cold stacked, 94 have been stacked for 12 months or longer.

West Africa has been one of the hardest hit areas in 2020, according to IHS Markit: the region saw 11 contract cancellations from March to July 2020, the most of any area. Most of those cancellations were associated with jackups.

Jackup utilization in West Africa fell from 71% in September 2019 to 29% in September 2020, while drillship utilization fell from 48% to an abysmal 19% in the same time frame, according to Bassoe.

Dayrates for drillships in West Africa are currently between $150,000 and $200,000 per day, while jackups currently sit between $70,000 and $90,000. Looking to 2021, Teresa Wilkie, Offshore Rig Market Analyst, Bassoe,  rig utilization in West Africa is likely to stay flat, unless there is a marked increase in oil demand. With rig oversupply set to continue in the region, she expects dayrates to remain at the same level in 2021; further reductions are unlikely as the current rates are around operating cost level.

Marine Contractors- Two  key players- TechnipFMC & Heerema

Marine contractors have not been sitting idle. They are demonstrating adaptation and innovation.

The 2017 merger of Technip and FMC featured distinct market segments: subsea, onshore and offshore and surface projects. Now Technip Energies- entailing LNG, sustainable chemistry and decarbonization- is being spun off, creating new innovative options.

Arnaud Pieton, President and CEO of Technip Energies, says that the company is well placed to produce green hydrogen, given  that some  270 plants worldwide have their origin with TechnipFMC.  A strategic alliance with McPhy, a builder of electrolyzers, is expected to help enhance the production of green hydrogen. 

Heerema, which had its own enormous fabrication yard in Angola,  recently announced that it shut down operations citing poor  market conditions and sustained low oil price.  Instead the company is investing in the Offshore Wind Sector.

Heerema Marine Contractors recently signed a contract  to support the construction of the Changhua Windfarm Phase 1 project, Offshore Taiwan. Heerema will take on the installation of 21 jacket foundations (4 legged) for the Changhua project.

Musketeer 2 New Energy Service Companies

Siemens Energy

Siemens Energy has operations in 90 countries offering a full project cycle of services: generation, transmission and storage from conventional to renewable energy. Two examples:

  • Service center and a training academy in Egypt. The service center is the first of its kind in the region, combining a repair center, a tooling center and a spare-parts warehouse under one roof; and
  • Siemens Energy will supply six SGT-800 industrial gas turbines to the Mozambique LNG Project that will be used for low-emissions onsite power generation.

Cummins

Cummins operates in 51 countries in Africa and market leader in fuel cell and hydrogen production technologies. Cummins began developing its fuel cell capabilities more than 20 years ago.

In 2019 Cummins purchased Hydrogenics, a leader in hydrogen technology. This accelerated Cummins’ ability to further innovate and scale hydrogen fuel cell technologies across a range of commercial markets.

Two examples of Cummins’s presence in Africa:

  • Cummins Angola operations, which is a joint venture partnership with Angolan ProjectNet. Cummins Angola currently occupies 1,000-square meters of office and parts outlet space, as well as 1,750-square meters of rehousing.  Cummins is working closely with the Angolan government to maximize the Private Public Partnership Framework to invest in the energy sector.
  • Cummins has supplied a power solution based around four of its 630 kVA generator sets to Standard Chartered Bank in Ghana. The system will provide the bank’s head office in Accra with standby power whenever interruptions to the grid supply require it.

ITM Power

ITM Power Plc designs and manufactures products which generate hydrogen gas, based on Proton Exchange Membrane (PEM) technology. This technology only uses electricity (renewable) and tap water to generate hydrogen gas on-site and can be scaled  up to 100MW+ in size.

Two examples:

  • The REFHYNE project to be installed and operated at the world’s largest hydrogen electrolyser at the Shell Rhineland Refinery in Wesseling, Germany.The PEM electrolyser, built by ITM Power, will be the largest of its kind to be deployed on a large industrial scale.
  • HyDeploy the £6.8Million project, funded by Ofgem and led by Cadent and Northern Gas Networks, UK, is an energy trial to establish the potential for blending up to 20% hydrogen into the normal gas supply to reduce carbon dioxide emissions. HyDeploy will run a year-long live trial of blended gas on part of the University of Keele gas network to determine the level of hydrogen which could be used by gas consumers safely and with no changes to their behaviour or existing domestic appliances. ITM Power is supplying the electrolyser system.

Musketeer 3: Energy Service Companies Africa

Musketeer 3 has huge challenges if Africa is to be lit up by 2025. The African Development Bank envisages:

  • 160 GW of new capacity for On-grid generation;
  • 130Million new connections for On-grid transmission and grid connections;
  • 75Million connections for Off-grid generation, an increase 29 times more than what Africa generates today;
  • Access to clean cooking energy for 130Million households.

There is a strong need to enhance the capability of Musketeer 3- Energy Service Companies Africa- to build coalitions across the sector and the region,  including the oil and gas and the renewable sector.

Some examples

  • Clean Energy Corridor which aims to support integration of cost-effective renewable power options to national systems, promote its cross-border trade and support creation of regional markets for renewable energy. The Clean Energy Corridor initiative has two African components:   (1.) African  Clean Energy Corridor(ACEC) for the member countries of Eastern and Southern African power pools.  (2.) West African Clean Energy Corridor(WACEC) within the Economic Community of West African States.
  • Partners should also include National Governments and their National Power Companies, including companies from Asia, Europe, the Americas, and the Middle East.
  • Finally this should include the oil and gas sector accustomed to carrying out large -scale projects. Providing them an opportunity to participate and be a partner in renewable energy.

The increased speed of the Energy Transition is not necessarily good news for Africa. The greening of Europe by the  majors could  mean reducing oil and  gas activities in Africa.

Why? Simply because the oil and gas majors are choosing  low carbon prospects and natural gas projects on a massive scale  leaving many potential prospects in doubt. Other smaller oil and gas projects will not be treated so kindly.

How will oil and gas prospects in Africa be judged? Do the various governments have the management skills to properly assess their energy scenarios?

Do they have the technical knowledge, capability and expertise to manage and implement oil and gas projects?

Then there is the matter of developing national service companies which have the technical capacity and knowledge to implement projects.

Conclusions

  1. Musketeer 1- Oilfield Services is in the sunset of his youth. Oilfield Services will continue but in a diminished marketplace. With the majors cutting back their oil and gas investments there is little room for optimism. Halliburton and Schlumberger must seriously re-examine their energy scenarios. Baker Hughes is showing investors that they have a Plan B.  Also the marine contractors- both TechnipFMC and Heerema- are making bold energy transition moves.
  2. Musketeer 2- New Energy Service Companies are defining the energy transition. Siemens Energy, Cummins and ITM Power are examples of new companies delivering energy systems for a renewable world.
  3. Musketeer 3- Energy Service Companies Africa could well become an alliance of national oil and gas companies, power companies and service companies in order to meet the requirements of the energy transition. They could well receive assistance from Musketeer 2-New Energy Service Companies.

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.

 

 


Africa’s Electricity Unlikely to Go Green This Decade

PARTNER CONTENT

New research from the University of Oxford predicts that total electricity generation across the African continent will double by 2030, with fossil fuels continuing to dominate the energy mix – posing potential risk to global climate change commitments.

The study, published by Nature Energy, uses a state-of-the art machine-learning technique to analyse the pipeline of more than 2,500 currently-planned power plants and their chances of being successfully commissioned. It shows the share of non-hydro renewables in African electricity generation is likely to remain below 10% in 2030, although this varies by region.

“Africa’s electricity demand is set to increase significantly as the continent strives to industrialise and improve the wellbeing of its people, which offers an opportunity to power this economic development through renewables” says Galina Alova, study lead author and researcher at the Oxford Smith School of Enterprise and the Environment

“There is a prominent narrative in the energy planning community that the continent will be able to take advantage of its vast renewable energy resources and rapidly decreasing clean technology prices to leapfrog to renewables by 2030 – but our analysis shows that overall, it is not currently positioned to do so.”

The study predicts that in 2030, fossil fuels will account for two-thirds of all generated electricity across Africa. While an additional 18% of generation is set to come from hydro-energy projects. These have their own challenges, such as being vulnerable to an increasing number of droughts caused by climate change.

The research also highlights regional differences in the pace of the transition to renewables, with southern Africa leading the way. South Africa alone is forecast to add almost 40% of Africa’s total predicted new solar capacity by 2030.

“Namibia is committed to generate 70% of its electricity needs from renewable sources, including all the major alternative sources such as hydropower, wind and solar generation, by 2030, as specified in the National Energy Policy and in Intended Nationally Determined Contributions under Paris Climate Change Accord,’ says Calle Schlettwein, Namibia Minister of Water (former Minister of Finance and Minister of Industrialisation). “We welcome this study and believe that it will support the refinement of strategies for increasing generation capacity from renewable sources in Africa and facilitate both successful and more effective public and private sector investments in the renewable energy sector.”

“The more data-driven and advanced analytics-based research is available for understanding the risks associated with power generation projects, the better”, Mr. Schlettwein argues. “Some of the risks that could be useful to explore in the future are the uncertainties in hydrological conditions and wind regimes linked to climate change, and economic downturns such as that caused by the COVID-19 pandemic.”

The study suggests that a decisive move towards renewable energy in Africa would require a significant shock to the current system. This includes large-scale cancellation of fossil fuel plants currently being planned. The study also identifies ways in which planned renewable energy projects can be designed to improve their success chances – for example, smaller size, fitting ownership structure, and availability of development finance.

“The development community and African decision makers need to act quickly if the continent wants to avoid being locked into a carbon-intense energy future’ says Philipp Trotter, study author and researcher at the Smith School. ‘Immediate re-directions of development finance from fossil fuels to renewables are an important lever to increase experience with solar and wind energy projects across the continent in the short term, creating critical learning curve effects.”

 

 

 


Shaky Before the Goal Post: Business Lessons from Austin Avuru’s Biography

By Toyin Akinosho

One evening in 2009, Austin Avuru, then CEO of Platform Petroleum, received a call from Nasir Ado Bayero during which the latter asked if Platform would be interested in purchasing Shell’s stake in Oil Mining Lease (OML) 38, in the western Niger Delta.

The offer, it turned out weeks later, was on condition that Platform was willing to go into partnership with Shebah Exploration and Production, then headed by Ambrosie Bryant Chukwueloka (ABC) Orjiako, a flambouyant orthopedic surgeon who was becoming widely known for his interest in oil and gas. Shell could divest its stakes in OMLs 4, 38 and 41 to the partnership.

“I had never really met Dr. A B C Orjiako until that time”, Avuru says in A Safe Pair of Hands, his just released authorized biography, written by Peju Akande and Toni Kan. “I knew him from a distance. I had known people who were working for him and I always saw him in the same mould as Kase Lawal, whom I had worked for: young men who were operating at a very high level in the O&G industry. Now, that itself was an issue because I had to treat him with absolute caution. I didn’t want to go into partnership with somebody that could “swallow” me. My thinking was, I don’t want wahala”.

Considering that Avuru had earned a reputation, already at the time,  as a public intellectual and strident critic of Nigeria’s policy choices, it is quite instructive to find that he harboured a sense of insecurity at the thought of meeting a potential business partner. It’s an enormously useful piece of information for Business students:  knowing that people they see as phenomenal also have their vulnerabilities.

“For a start”, Avuru recalls, “we had to name our new company, so I suggested that we joined Sepcol and Platform together to form SEPLAT”.

That Avuru led the company as CEO for 11 years is a well-documented part of Nigeria’s corporate history. But the story above is one of the many nuggets that make A Safe Pair of Hands, published in Lagos by RADI 8, such a riveting business thriller.

There’s one revealing anecdote after another startling insight.

A few of the passages that leapt at me from the pages:

The authors, Toni-Kan, left and Peju-Akande

Keep your eyes on the ball:

Shell didn’t have faith in Nigerian banks. They wanted Letters of Credit backed with cash guarantees. They preferred to deal with a global player.

ABC Orjiako suggested BNP Paribas, the French bank he usually did business with. Austin Avuru thought it was a good idea but the moment BNP Paribas asked for a $3Million transaction fee, Austin Avuru flew into a rage.

“For what?” he thundered. “How can they charge $3m for merely facilitating a deal? I won’t hear it.”

ABC Orjiako urged his new partner to be calm.

“Austin, I will pay the $3Million myself if need be but we need a bank with global connections, one that speaks the language of global finance and confident enough to get Shell back to the table.”

BNP Paribas turned out to be what was needed. Once the deal was signed they made a suggestion that changed the whole process and saw Seplat buy up OML 4, 38 and 41 without spending one kobo.

How did this happen?

BNP Paribas informed Seplat that a French company had just sold its interests in Congo and was awash with cash. Would Seplat like an introduction?

Maurel and Prom was interested in the deal put forward by Seplat and BNP Paribas and agreed to go with Seplat to London.

BNP Paribas was already earning its fee and Austin Avuru could see clearly now that the move to get a western bank was a smart one.

Deep knowledge will set you free from the tyranny of NNPC

After we had reached agreement with Maurel & Prom, the chairman of Maurel & Prom said he would like to visit Nigeria to see for himself the field his company was investing in.

At this point, Shell did not want their staff to know that they were on the verge of selling their assets. I remember when we made the trip to Sapele and Oben to inspect the facilities, Shell had to tell their staff that Platform Petroleum, which had a marginal field in there was merely inspecting their facility just in case we needed to send our production there.

After that trip, we were meant to take the chairman of Maurel & Prom to go and see the minister. Dr. Rilwanu Lukman was the adviser then. We had spoken to him before and he was very happy that we were doing that transaction. He said “oh, yeah, we will talk to NNPC and once NNPC gives the approval, we will approve it, that’s it.”

But in between giving us that promise and when we physically went to visit him, operatives inside NNPC and the DPR had given him an opinion that he should not allow us to proceed with the transaction.

In fact, some whiz kid head of legal at NAPIMS had given him an opinion which generally said that Shell had nothing to sell, that under the Petroleum Act, everything inside the ground belonged to the Federal Government.

But what he glossed over was the fact that all the operators who have a JV interest have an economic interest. That’s why they can list the value of their economic interest on the stock exchange. So, how can you then say that they have no value to sell?

‘Rags to Riches’ is not a cliché:

“I was very short before I went to the boarding house. When I got to the boarding house, the food they ate was beans and yam, rice and dodo and the occasional swallow. I came in October, then went home for mid-term in December. When I got to Abbi, I just sauntered into my compound. My aunt was visiting and she looked up and asked “who is this o?” I said I was the one. She peered close and exclaimed – “You are tall.” Not understanding what she was saying I went inside. Back then we had all these long mirrors at home. I stood in front of the mirror and looked and saw that it was true. I had sprung up. If I hadn’t go to that boarding school, I would have died a short man. What had happened was simple; I had started eating balanced diet.”

From the backwaters of the Niger Delta, in Nigeria’s oil rich region, to one of Africa’s most influential boardrooms, Austin Avuru’s story of becoming reads like a dream. Despite its being a master class work on the audacity of entrepreneurial undertaking, the 220 page story is an old fashioned, feel good tale. And that’s because it has benefitted from careful research and painstaking delivery by a pair of writers with a keen eye for the diversity of human relationships: our foibles, triumphs, generosity, candor, nepotism.

This book is a must read for anyone who believes in potential.

 


IFC Bolsters South Africa’s Renewable Energy Credentials

By Ahmed Gafar

The International Finance Corporation (IFC), will provide up to $200Million to finance renewable energy projects in South Africa.

Nedbank, the country’s third largest lender, is the vehicle through which the facility will run.

It is essential that we seize this opportunity to rethink the structure of our economies, to build a fairer, more resilient and low-carbon future,” declares Adamou Labara, IFC Country Director for South Africa.

Between 2011 and 2015, South Africa was the powerhouse of renewable energy in Africa and one of the most progressive supporters of green energy developments in the developing world

But all that came to an abrupt end, when Eskom, the country’s powerful utility, declared that renewables would escalate the cost of electricity in South Africa. Bid rounds for renewable energy projects were halted in the aftermath of that declaration.

Nedbank’s loan agreement with IFC is part of the signals that South Africa, which now has over 3,000MW of installed solar and wind power generating plants, is back in the renewable energy business.

“The loan agreement is part of the IFC’s efforts to develop South Africa’s climate finance market and support the South African government’s plan to move to a low-carbon economy”, IFC says in a release. “South Africa has set a target of reducing its greenhouse gas emissions by 42% by 2025 and diversifying its power generation to reduce its reliance on coal by 2050”.

Nedbank declares its “commitment to engage in alternative climate finance mechanisms that will further develop markets and support projects that create positive impacts aligned with UN sustainable development goals,

Describing itself as “the first carbon neutral bank on the African continent”, Nedbank says it became, in 2019 “the first commercial bank in South Africa to launch a green bond on the Johannesburg Stock Exchange”.


The Three Musketeers of the Energy Transition: The New Emerging Energy Value Chain

All- For-One; One-For-All

Musketeer 1 Big Oil: ExxonMobil, Chevron, Equinor, BP, Shell, TOTAL,  and ENI

Musketeer 2 New Energy: Enel,  Iberdrola , Engie, and Ørsted

Musketeer 3 Energy Africa

There is growing evidence of a new convergence between Musketeer 1: Big Oil  and Musketeer 2: New Energy Companies.

Perhaps not so much convergence but cross-overs and falling by the wayside of others and in the process creating new alliances.

Little attention has been paid to Musketeer 3: Energy Africa, perhaps viewed as the junior musketeer, but nonetheless playing a significant role.

Their- All- For-One; One-For-All requires a further explanation.

Musketeer 1 Big Oil

 

 

 

 

 

 

The company is not having a Merry Christmas and there’s little to cheer about in 2021. It has recently written down between $17–$20Billion in impairment charges, seen its market cap plunge to $140Billion, and is capping capital spending at $25Billion a year through 2025, a $10Billion reduction from  pre-pandemic levels.

Key questions remain: how long can ExxonMobil  afford paying its sacred dividend which is costing $15Billion annually at a time when the company is bleeding red ink? Which key projects- Deepwater Offshore Guyana,  Rovuma LNG Mozambique, or others- will see development spending slowing down or frozen until ExxonMobil can get its house in order? If it can get its house in order!

 

 

 

 

At first appearances the company seems to be weathering the storm somewhat better. The Chevron share has lost some of its glitter but has remained resilient over the last 5 years, continuing to hover in the $90 range. In October 2020, its market cap was $142Billion, surpassing ExxonMobil for the first time.

Why?  Primarily lower debt levels, a constant dividend, and an image of being in control. Spending  in the period 2022-2025 will be $14-16Billion, instead of $19-22Billion: $3.5Billion outside the USA, of which 75% will be dedicated to Tengiz in Kazakhstan and the remaining $1.5Billion elsewhere.

The Tengiz Project deserves some attention, given that it in a time of Chevron’s austerity, it is swallowing up 75% of the international oil and gas  budget. Tengiz currently produces 580,000Barrels Per Day(BPD) and is to be expanded  by some 260,000BPD. Total costing is estimated at $45Billion.

Expiry date for the Tengiz concession is 2033. Will this short timeframe allow Chevron to regain its investment costs? Will Tengiz, with its high development costs,  become a huge white elephant? Leaving Chevron with a legacy to match that of ExxonMobil?

To date Shell has abandoned two Kashagan projects in Kazakhstan because of high costs.

This is not promising for Africa where Chevron has major operations stretched across the continent:  major projects in Angola and Nigeria and interests in Equatorial Guinea, receiving very limited funding in order to bankroll Tengiz.

 

 

 

 

Equinor’s recent top management shuffle has signaled that renewable energy, offshore wind energy, will be the company’s growth engine. By mid 2021, Equinor’s Renewables Division will have its own  reporting structure. It’s the most obvious sign yet  that in the future offshore wind energy could be spun off as a separate company.

The key indicator is the development of Dogger Bank, located in the North Sea and expected to produce some 3.6 GW of energy, enough to light up 6Million households. It is the company’s showcase project.

Together with SSE Renewables, the joint partners of the project since 2017, Dogger Bank is heralded to become the world’s largest offshore wind farm.

More recently ENI has purchased a 20% stake in the Dogger Bank A & B Project. Why? So that, according to ENI chief executive Claudio Descalzi,  it can develop the skill sets needed to better understand offshore wind energy works.

Shell has recently entered a 15-year Power Purchase Agreement (PPA) for 20% of Dogger Bank A and B. With this stake, Shell will use 480 MW of the wind farm for power offtake.

Equally important is Equinor’s Empire Wind and Beacon Wind assets off the US east coast. In September 2020, it was announced that BP was buying a 50% non-operating share, a basis for furthering a strategic relationship. The two projects will generate 4.4 GW of energy.

 

 

 

 

 

 

 

 

What is BP’s current status in the Energy Transition and what can we anticipate in 2021? Two encouraging signs:

  • BP’s 50% participation in Equinor’s Empire and Beacon Wind assets off the US East coast, a strategic partnership which could grow very quickly;
  • BP and Ørsted announced that they will jointly develop a full-scale green hydrogen project at BP’s Lingen refinery in Germany. The two firms intend to build an initial 50 MW electrolyser and associated infrastructure, which will be powered by renewable energy generated by an Ørsted offshore ‎wind farm in the North Sea and the hydrogen produced will be used in the refinery.‎

Key questions remain:

  • BP announced that it will be spending $5Billion per year to green itself and by 2030 will have 50 GW of net regenerating capacity.  To date the company has a planned pipeline of 20 GW of green generating capacity. What actions can we anticipate in 2021?
  • BP has announced it wants to reduce its oil production by 2030 by 40%. Which BP  assets will become stranded  assets?  BP’s 20% share in Russia’s Rosneft?
  • What about BP’s assets in Africa where the company has a considerable footprint. Some examples:
  • In Algeria BP has helped to deliver two major gas developments at Salah Gas and In Amenas, both of which are joint ventures with Sonatrach and Equinor.
  • BP currently produces, with its partners, close to 60% of Egypt’s gas production through the joint ventures the Pharaonic Petroleum Company (PhPC) and Petrobel (IEOC JV) in the East Nile Delta as well as through BP’s operated West Nile Delta fields.
  • In Angola BP is the operator of blocks 18 and 31 and have non-operated interest in blocks 15, 17 & 20, as well as the Angola LNG plant in Soyo.
  • In Mauritania and Senegal, BP and its partners are developing  the  Greater Tortue Ahmeyim  gas field with a 30-year production potential.  The field has an estimated 15Trillion cubic feet of gas and is forecast to be a significant source of domestic energy and revenue.

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

Between 2016-2019 Shell spent $89Billion in total investments, of which only US$2.3Billion was devoted to green energy. In 2019, Shell’s overall operating costs came to $38Billion and capital spending totaled $24Billion.

 

 

 

 

 

 

 

 

IEEFA(Institute for Energy Economics and Financial Analysis) recently evaluated Shell’s green progress. According to Clark Butler, the author of the report, Shell must shift at least $10Billion per annum or 50% of total capital expenditures from oil and gas and invest in renewable energy if they are to reduce their carbon intensity in line with their own stated goals.

At present Shell is undertaking a major cost-cutting operation, dubbed ‘Project Reshape’ across its three major divisions:

  • 35% -40% cuts at the Upstream division where focus will be reduced to 9 core hubs such as Gulf of Mexico, Nigeria and the North Sea.
  • Integrated gas division, which includes the company’s LNG business, deep cuts are anticipated.
  • Downstream, the review is focusing on the company’s 45,000 service stations, designed to play a key role in the energy transition.

Will this be enough? By all accounts Shell is taking an incremental, testing-the -waters approach. Expect no mega-deal such as the British Gas takeover of 2015. Instead fiscal discipline in order to be able to continue paying its somewhat reduced, but still royal dividend of 4%.

There are signs of green shoots:

  • NortH2Vision in which Shell and Gasunie have combined forces to create a mega-hydrogen facility, fed by offshore wind farms, which by 2030 could produce 3-4 GW energy and possibly 10GW by 2040.
  • Completing the largest PEM electrolyser in the world at the Rheinland refinery in Germany (10 MW).
  • Biofuels using alternative feedstocks such as forestry, agricultural and municipal wastes.

Shell’s  incremental, cautious approach may be too little too late. What is urgently required is a forward-looking strategic green roadmap.

 

 

 

TOTAL’s energy production in the period 2020 -2030 “will grow by one third, roughly from 3Million Barrels of Oil Equivalent Per Day (BOEPD) to 4MillionBOEPD, half from LNG, half from electricity, mainly from renewables”, according to  Patrick Pouyanné, Chairman and CEO.

This is the first time that a major operator has wittingly or unwittingly translated its renewables to BOE. The golden rule was that RRR(Reserve Replacement Ratio) was always used  to assess a company’s hydrocarbon reserves. According to Rystad, the RRR rate for the industry is 7%, a historic 20 year low. The norm is 100%.

This author has for some time argued that oil companies also include other fuels in their reserve count—be that wind or solar– to create a basket of energy reserves, thus increasing one’s reserve count and buttressing up one’s  fossil reserves and adding value to your offshore assets.

That the petroleum classification system  is in need of drastic repair is also reflected by the action taken by TOTAL in the summer of 2020. TOTAL took the unusual step of writing off $7Billion  impairment charges for two oil sands projects in  Canada.  Both projects at the time were listed as ‘proven reserves’. Have proven reserves become the equivalent of stranded assets?

TOTAL’s strategy is focused on the two energy scenarios developed by the International Energy Agency (IEA): Stated Policies Scenario(SPS) is geared for the short/ medium term; and Sustainable Development Scenario(SDS) for medium/long term.

Taking the “Well Below 2 Degrees Centigrade” SDS scenario on board, TOTAL has in essence taken on a new classification system.

By embracing this strategy TOTAL is the only major to have seen the direct benefit of using the Paris Climate Agreement to  enhance  the investment climate thus supporting its deepwater portfolio in Africa and expanding its renewable energy base.

 TOTAL has confirmed, on the renewables front, that it will have a 35 GW capacity by 2025, and has the ambition of adding 10 GW per year after 2025. Translated, that could mean creating an additional 250 GW by 2050. The vision is there, now the implementation.

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

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

Total’s fiscal and technical discipline will ensure that its offshore portfolio and renewables  find traction in Africa.

 

 

 

 

 

 

 

ENI’s 20% purchase for a  stake in the Dogger Bank A & B Project is  an early indication of ENI’s green future. Why? So that, according to ENI chief executive Claudio Descalzi,  it can develop the skill sets needed to better understand offshore wind energy works.

ENI is also teaming up with Enel to develop two green hydrogen projects.The partners plan to produce two pilot projects; each pilot project will feature electrolysers of around 10MW.

ENI has confirmed that it will virtually be starting green projects from scratch.

Eni has pledged to reach 15 GW  by 2030 and 55 GW by 2050,  mainly by building its own capacity. The company’s 2050 strategic plan to reduce its carbon footprint includes the following goals:

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

Musketeer 2 New Energy: Enel,  Iberdrola , Engie, and Ørsted

 

 

 

 

Enel has announced that it is to invest €160Billion over the next 10 years to meet the demand for green energy and electrification. Over the next three years, about €40Billion will be spent, half of this on renewables.

Enel said almost half of its investments will be directed to developing infrastructure and networks, while the rest will be allocated to power generation. The company expects to have about 120 GW of installed capacity by 2030, almost three times more than the current level.

Expect more development projects from the international oil companies and Enel.

 

 

 

 

 

 

Spain’s largest energy group has projects in Europe(Germany, UK, and Spain), USA, and Brazil.

 

 

 

 

 

Up to 2021 the company  will spend between  €11Billion – €12Billion on investments across a broad swath of sectors including solar, wind (on and offshore), hydro plants, biogas and marine technology. Some examples:

  • Storengy, Engie’s gas storage arm, will provide hydrogen storage capacity for Europe’s future hydrogen market;
  • Construction of two solar power plants with a combined generation capacity of 30 MW in Burkino Faso;
  • Ocean Winds, joint venture between EDP Renewables (EDPR) and ENGIE are combining their offshore wind assets with 1.5 GW under construction,  0 GW under development, with the target of reaching 5-7 GW of projects in operation or construction, and 5-10 GW under advanced development by 2025;
  • 126 biomass plants by 2030 capable of producing 4TWh of power.
  • Together with ArianeGroup, developing liquid hydrogen fuel for maritime sector;

By 2025 Engie, through its affiliate Power Corner, will have installed 1000+ mini-grids across Africa reaching 2Million people.

 

 

 

 

The Danish Offshore Wind Farm giant has since 2016 seen its share price more than quadruple. In 2016 it had a stock price of $35 and has now climbed above $140.  It has a market cap of approximately €65Billion.

Currently the company has an installed capacity+ FID(final investment decision) of almost 20 GW and a build-out plan for new awards to reach 25-30 GW in the coming 15 months.

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

Musketeer 3 Africa

The increased speed of the Energy Transition is not necessarily good news for Africa. The greening of Europe, for example, could in the short and medium term have a boomerang affect .

The greening of Europe by the  majors could  mean reducing oil and  gas activities in Africa. Are  Africa’s oil and gas assets competitive and worthy of development, compared to other global projects?

The oil and gas majors are choosing  low carbon prospects and natural gas projects on a massive scale  leaving many potential prospects in doubt.

Energy scenarios released by both BP and TOTAL are predicting a sharp decrease of oil production, adding to the view that exploration budgets of the majors will not be a priority item. Instead as TOTAL has explained low cost, high value projects are the goal. Squeezing more value out of its various African assets to ensure a prolonged life cycle.

How will oil and gas prospects in Africa be judged? Do the various governments have the management skills to properly assess their energy scenarios?

Many of Africa’s new fledging  state oil companies, have been proxies to the international oil majors. In the process not developing technical knowledge, capability and expertise to manage and implement oil and gas projects.

Being hostage to the whims of the oil majors is no formula to ensure that a country’s oil and gas assets are to be developed. Certainly when the window of opportunity to develop oil and gas assets  could be closing within the next 20-25 years.

Rystad, the Norwegian energy research  company has recently reminded the investment community that the oil and gas majors are actively pruning their oil and gas assets and that the world’s largest oil and gas firms could sell or swap oil and gas assets of more than $100Billion in order to adjust and transform to cleaner sources of energy.

The Rystad Energy Study covers a wide geographical spread  and includes  ExxonMobil, BP, Shell, TOTAL, ENI, Chevron, ConocoPhillips, and Equinor. The eight companies may need to divest combined resources of up to 68Billion barrels of oil equivalent (boe), with an estimated value of $111Billion and spending commitments in 2021 totalling $20Billion.

The key criteria for determining whether a major would benefit from staying in a country are the company’s cash flow over the next five years, the potential growth in its current portfolio, and its presence in key E&P growth countries towards 2030. Based on this, Rystad claims that majors may seek to exit 203 country positions and, as a result, reduce their number of country positions from 293 to 90.

Conclusions

  1. Sustainable Development Scenario(SDS) based on a  well below 2C is   the new  classification norm, replacing the Hydrocarbon Classification System  which instead of measuring provable reserves is now  synonymous for stranded assets.
  2. Musketeer 1 Big Oil is a house divided: Exxon Mobil having to finance major projects in Angola, Mozambique and Guyana and facing its own financial meltdown; Chevron using most of its international funding to prop up Tengiz in Kazakhstan, leaving little future funding for Africa.
  3. Shell is clustering its upstream activities in nine hubs, which includes Nigeria and the Gulf of Mexico; BP is reducing by 40% its oil production. This does not bode well for Africa.
  4. TOTAL and ENI with their African operations could play key roles in further developing Africa’s Green Transition. Their oil and gas operations will be extended and no doubt their host governments will be demanding green solutions.
  5. Equinor, with its increased offshore wind portfolio, could see the start or emergence of new players: A combination of Equinor/BP and Musketeer 2 New Energy players such as Enel,  Iberdrola , Engie, and Ørsted.
  6. Many of Musketeer 2 New Energy players have limited or no African experience. Certainly It is imperative that both Eni and Total, together with host African governments introduce New Energy companies to these African markets.
  7. Additional practical measures for Musketeer 3 Energy Africa:

Developing a mini-Norwegian system of having a Sovereign Wealth Fund and ensuring that the state be a participant in all concessions.

Clear definitions  of regulatory power: does Government’s  regulatory regime  give the Ministry of Natural Resources a clear mandate as opposed to the goals of state oil company?

Improved fiscal and tax incentives to encourage new exploration companies to participate.

High on the list of priorities should be knowledge transfer and development of local talent, which the majors should provide.

To date the international multilateral agencies- be that the World Bank, African Development Bank, or the International Monetary Fund- were reluctant to throw new petro-economies a life line, based on oil and gas potential.  This should be re-evaluated so that both oil and gas and renewables can be used to evaluate a country’s financial needs.

  1. There is mounting evidence that the Energy Transition is showing a trend break: the western industrialized countries such as Western Europe, Japan, South Korea, and Taiwan where the Musketeer 2 New Energy Companies are finding lucrative markets; and developing countries of Africa where few of the Musketeer 2 companies are found.

 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 NetherlandsHe writes on a regular basis for Africa Oil + Gas Report.


Opportunities Outweigh Cost in Moza’s Gas Development

By Florival Mucave

 

 

 

 

 

 

 

For far too long, descriptions of Mozambique have contained some variation of the following: Mozambique one of the poorest Least Developed Countries in the world faces endemic droughts, floods and widespread poverty.

But we’re closer than ever now to changing that narrative, to being able to say: By strategically managing its vast natural gas resources, monetizing them, and harnessing them to industrialize the country and develop the private sector across the country, Mozambique is ushering in a new era of widespread economic growth and stability.

Unfortunately, not everyone agrees with this vision. A number of environmental organizations argue that the benefits of natural gas production in Mozambique are negligible and not worth the environmental costs.

Last month, NJ Ayuk, Executive Chairman and CEO of the African Energy Chamber, made a case for Mozambique developing its natural gas resources to build its economy. He criticized some environmental groups—UK-based Friends of the Earth in particular — for attempting to interfere with the UK government’s $1 billion funding commitment to Total’s Mozambique Liquified Natural Gas (LNG) Project. (Export credit agency UK Export Finance, had agreed to contribute funding because of the project’s potential to transform Mozambique’s budget and create jobs in the UK.)

Shortly after Ayuk released his piece, journalist Ilham Rawoot, who works for Friends of the Earth Mozambique (Justica Ambiental) and is the coordinator of the organization’s No to Gas! campaign, responded with an equally passionate opinion piece opposing his stance. She took issue with Mr. Ayuk’s commentary on environmentalists’ interference and his views on the potential benefits of LNG projects, asserting that Mozambique would be better off without natural gas production or LNG projects.

I respect Ms. Rawoot’s right to express her views on any matter.

I only wish that she, and others who are intent on saying “no to gas” in Mozambique, could start by making a thorough analysis on the pros and cons of Mozambique developing its vast natural gas reserves. The spillover and multiplyer effects in terms of socio-economic development, from training and capacity building, employment, Government revenue, industrialization through domestic gas utilization and energy security. Natural gas production truly represents an opportunity for Mozambicans, and there are solid reasons to believe that Mozambique can take the steps necessary to reap significant benefits from the three LNG projects currently being developed here: the TOTAL led Mozambique LNG project, valued at $23Billion; the ExxonMobil-led Rovuma project valued at $23.9Billion; and the $4.7Billion Coral Floating LNG project. But not only that, I’ve witnessed the positive impact of natural gas industries in other jurisdictions, from Trinidad and Tobago, Qatar, Nigeria, Australia, Norway and the United States of America. These are some of the reasons I’m confident when I say Mozambicans can shift our country’s trajectory for the better: We can transform our reality from poverty despite our resources to prosperity because of them.

We Need This Opportunity

From my perspective, we should welcome Mozambique’s natural gas industry and LNG projects, more importantly because there is empirical evidence demonstrating that in Mozambique, the tangible benefits resulting from LNG projects, outweigh by far any negative impact . Currently, economic opportunities in Mozambique are at a minimum, and natural gas production has the potential to simultaneously meet multiple pressing needs: job creation, capacity building, economic diversification, access to power and more importantly, poverty alleviation.

In order to have a sustainable economic development, through industrialization, Mozambique needs to increase access to power. The Mozambican Petroleum Law 21/2014, states that” Petroleum resources are assets whose proper exploitation can contribute significantly to national development”. This position is also echoed in the Mozambican Gas Masterplan, which suggests that the Government of Mozambique should develop natural resources in a manner that maximizes benefits to Mozambique’s society, in order to improve the quality of life of the people of Mozambique, while minimizing adverse social and environmental impacts.

So many of our struggles in Mozambique are rooted in our lack of reliable electricity: Only 29% of our population has access to power. In order to tackle the limited access to power by Mozambicans, the Petroleum Law 21/2014, incorporates a clause on domestic gas, according to which, 25 % of the natural gas produced in Mozambique must be used domestically. As a result of domestic gas obligations we are starting to see sizeable new investments in gas to power projects in Mozambique, such as the Ressano Garcia CTRG Project, the Kuvaninga project, the upcoming Temane Regional Electricity Project, which will include a 400-megawatt gas-fired power plant and the planned 250-megawatt electricity plant in the Nacala district that will be fueled by gas from the Rovuma LNG project.

Keep the Long Game in Mind

In her opinion piece, Ms. Rawoot states that few of the construction jobs for the TOTAL operated LNG plant have gone to locals, and she’s right. But to be fair, the LNG industry in Mozambique is in its infancy and we don’t yet have the trained labour force capable of participating in the oil & gas industry. As much as we would love to have a 70% majority of Mozambicans building everything, we still need international companies with the necessary skills to get the work done on time and on budget. Training is underway, but the experience and technical know-how are not there yet. However, that doesn’t mean we should kill the projects. We have to push forward, and at the same time, work on building local content laws that promote the inclusive participation of Mozambicans in the oil & gas industry. I hope we’ll see the western environmental community supporting these efforts. They can be a powerful and important voice on the importance of local content that promotes the inclusive and sustainable participation of Mozambicans in oil & gas projects.

When the Mozambican Oil and Gas Chamber and the African Energy Chamber talk about job creation from LNG projects, we’re not simply referring to construction jobs. We’re also talking about qualified and highly skilled jobs in the plants once they’re operational, jobs with local companies contracted by the plant, and also, jobs created as Mozambique harnesses its natural gas industry to industrialize its economy.

Gas Is Only the Beginning

The tourism industry in Southern Africa was growing exponentially before COVID-19 and will return to growth after the pandemic. Mozambique’s, natural gas can be a catalyzer for the growth of the tourism industry. The Mozambican Government has tourism as one of its economic pillars and although the tourism industry has been severely hurt by cyclones and COVID-19, its great potential remains untapped.

Despite its great potential, Mozambique’s tourism industry will not be able to grow and flourish without reliable power. Even with our pristine beaches, and some of the most beautiful islands in the world, only a few tourists will come if we don’t have reliable power. We want tourists to be able to enjoy our beautiful country, and we want a dynamic tourism sector that contributes to long-term economic growth and job creation. To achieve that, we need reliable power, we need infrastructure. Mozambique can achieve all of that with LNG production and revenue.

The Impact of Natural Gas Production in Mozambique on the Agriculture Industry

In its five-year economic plan, the Government of Mozambique indicated agriculture as its top priority. Currently, nearly 80% of our population works in the agricultural sector, and it generates about 25% of our GDP. However, due to low productivity levels, too many of our farmers still live in abject poverty. That can be changed, though. Simply by using fertilizers, farmers can enhance their yield by nearly 40%. While imported fertilizers are too expensive for the majority of our farmers, Mozambique can create a more affordable option. By building infrastructure to transform natural gas into nitrogenous fertilizers, Mozambique would help its farmers and also create local job opportunities. Mozambique could reduce significantly its imports of agricultural products from South Africa and become an affordable source of food for domestic consumption.

Natural Gas Monetization Is Doable

I understand why some are skeptical about Mozambique’s ability, and resolve to manage LNG revenues in a way that benefits our population. It’s true: The oil and gas industry hasn’t always been good for Africa’s people. We have seen our share of government rent-seeking and corruption in the African continent. We’ve also seen the impact of resource curse, even pre-resource curse. This is why the Mozambique Oil and Gas Chamber, the African Energy Chamber and other African Oil and Gas Organizations, are working together to change the gloomy narrative of the oil & gas industry in Africa. We are new African voices in the industry, committed to transparency, good governance, economic growth and sustainable development.

I am certain that Mozambique can benefit from the painful lessons some African petroleum-producing countries have learned up to now, from disastrous policies to successful diversification of their economies. We can also learn from positive examples, such as the twin-island of Trinidad and Tobago, which like Mozambique, has sizeable reserves of natural gas. Government initiatives in Trinidad and Tobago led to significant foreign investment into downstream, gas-based projects. And that, in turn, sparked increased activity in the construction, distribution, transport, and manufacturing sectors.

Looking at Emissions in Proportion

Naturally, protecting the environment is a major concern of Ms. Rawoot, Justica Ambiental, and similar organizations — and it’s very important to us.

Global electricity demand is expected to increase by 70% by 2035, gas fired generation almost doubling to facilitate this. It is also expected that the share of natural gas in the global energy mix will be higher than that of coal and oil by 2035.

The projected growth in the energy sector has to take into account the growing concerns regarding climate change. But, combating climate change effectively should not conflict with human progress and poverty alleviation.

With regards to natural gas, its scope in the reduction of carbon dioxide (CO2) emissions is significant, as natural gas with lower default carbon content of 15.3 Kg/GJ, is a cleaner option compared to coking coal (25.8 Kg/GJ) and crude oil (20 Kg/GJ). Natural gas is indeed an option for delivering industrial emission targets. In other words, natural gas is a bridging fuel by providing a low-carbon energy alternative to other fossil fuel sources.

What about the potential environmental impact of using natural gas to power in Africa?

It has been estimated that if we triple electricity consumption in sub-Saharan Africa, all with natural gas, we would produce the equivalent of 0.62% of annual global emissions — less than the average yearly global increase over the last decade.

In Mozambique, given our natural propensity for cyclones and other natural disasters, protecting our natural habitats and wildlife as well as keep the planet healthy for future generations has long been a priority, and will remain one. However, rather than discarding LNG projects, we should be working together to find a way to develop them in an environmentally responsible manner.

Mozambicans do have a say in the Afungi Relocation Process

In her opinion piece, Ms. Rawoot argues that the TOTAL operated Moambique LNG plant not only represents an environmental threat, but also one to local people and communities. TOTAL, she writes, took the homes of 556 families for their LNG plant project and failed to compensate them fairly. Those claims are unfounded. This is a matter that was comprehensively discussed between the civil society and the Mozambican Government. Currently, the government is engaged in productive conversations with citizens and businesses on this matter. Furthermore, the oil and gas companies in Mozambique have been very sensitive to issues that impact communities and have encouraged communities to be active in the land acquisition process, a process that includes relocation, compensation, restoration of livelihoods and the creation of a community development fund for resettlement-affected communities. Additionally, through a non-government organization (NGO), legal assistance has been provided to households signing compensation and resettlement agreements.

Let’s Remove a Motivator for Violence

I won’t deny Ms. Rawoot’s point that Mozambique has struggles, including armed conflict and terrorist attacks. Insurgency in Cabo-Delgado is a fact and there is no simple solution to this dilemma. I do however believe that our government in partnership with the civil society and international community will reach a durable peaceful solution, a sine qua non condition for the viable exploitation of natural gas in Cabo-Delgado.

I also agree with journalist Oscar Kimanuka of Rwanda, who recently noted that unemployment in Northern Mozambique may be a key factor for youths to join the extremists.

It seems logical, then, that creating employment opportunities could, at least, make it more difficult for extremist militant groups and terrorists to recruit our young people. Therefore, harnessing our natural gas resources to grow our economy is a sustainable solution.

Mozambicans Deserve Chance to Help Themselves

I understand that Mozambique has its share of complex challenges, and natural gas isn’t a perfect solution. At the same time, it is preposterous for Ms. Rawoot to suggest that Mozambique must jeopardize a projected LNG investment of approximately $55Billion, equivalent to four times the size of the country’s GDP and forgo Government revenues over the next 25 years that are estimated to increase by US$ 4-5 billion per annum.

Mozambique cannot afford to continue being a country where our Government budget depends on international donor’s good will. We want Mozambicans to have the dignity of work and of building an inclusive and respectable nation. Harnessing natural gas to address poverty alleviation is a suitable solution.

Florival Mucave is Executive Chairman, Mozambique Oil and Gas Chamber (http://EnergyChamber.org)

 


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

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

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

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

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

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


Ranking the Majors on Energy Transition

By Gerard Kreeft

 

 

 

 

 

 

Musical Chairs in Slow Motion

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

Equinor

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

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

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

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

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

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

TOTAL

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

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

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

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

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

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

ENI

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

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

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

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

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

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

BP

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

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

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

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

Shell

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

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

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

Chevron

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

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

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

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

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

Lowering greenhouse gases;

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

Various health, educational amd community development projects.

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

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

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

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

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

ExxonMobil

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

Its world class projects include:

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

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

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

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

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

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

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

 Conclusions

Seven profiles varying in scenario and strategy:

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

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

 

 


Oil Companies Increasingly  Use Renewables to Power Field Operations

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

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

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

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

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

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

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

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

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

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

 


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

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

The grants will benefit two countries in North Africa.

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

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

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

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

 

 

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