The Board of Directors of the African Development Bank has approved a $57.67Million loan to Eskom Holdings SOC Ltd, South Africa’s public electricity utility—and Africa’s largest— to harness battery storage technology that will increase electricity generation from reliable and efficient renewable energy sources.
The Bank’s financing, a concessional loan, will come from the Clean Technology Fund, a multi-donor trust fund under the Climate Investment Funds. The pioneering Battery Energy Storage Systems Project is being co-financed with the World Bank and the New Development Bank.
The project involves the development of 200MW of battery storage with four hours of energy storage capacity per day, or 800MW in total, at seven sites in South Africa’s Western Cape, Northern Cape, Eastern Cape and KwaZulu-Natal provinces.
Once onstream, Eskom will be able to dispatch electricity sourced from variable renewable energy that would otherwise have been wasted, reducing reliance on fossil fuel-generated electricity at peak times of the day.
Daniel Schroth, the AfDB’s Acting Director for Renewable Energy and Energy Efficiency, says:: “The approval of the Climate Technology Fund facility reflects the African Development Bank’s strong commitment to support South Africa’s Just Energy Transition plans, prioritizing investment in new low-carbon generation capacity and new technologies such as battery storage. This comes at a critical moment as the world is gearing up for action at COP26.”
The large utility-scale battery storage project, the first of its kind in Africa, is expected to contribute to a reduction in CO2 emissions of as much as 0.292Million tons. It will also inform the rollout of similar projects across the continent. Many African countries are implementing an energy transition as they strive to meet net zero emissions targets.
The project also contributes to South Africa’s ambitious Nationally Determined Contribution, part of compliance with the Paris climate agreement.
The $5.4Billion Clean Technology Fund promotes low-carbon technologies with significant potential to reduce long-term greenhouse gas emissions. The African Development Bank has been an implementing entity of the Climate Investment Funds since 2010.
The African Energy Chamber is set to host the first-ever African Energy Week (AEW) in Cape Town on 9th – 12th November 2021.
Replacing Africa Oil Week, the four-day interactive conference seeks to unite industry stakeholders, international speakers and movers and shakers from the African oil and gas sector.
The conference comprises high-class networking events, innovative exhibitions, and one-on-one private meetings, with a golf tournament on the final day, providing a one-of-a-kind experience for stakeholders interested in the growth and success of the African energy sector.
The African Energy Chamber (AEC) is excited to announce the official launch of African Energy Week (AEW) 2021, taking place in Cape Town on 9th – 12th November 2021. AEW 2021 will showcase the first-ever African Energy Village, an interactive exhibition and networking event that seeks to unite African energy stakeholders, drive industry growth and development, and promote Africa as the destination for African-focused events.
Commencing with a three-day conference and ending with a golf tournament on 12th November, the event’s primary focus is to define and promote the African energy agenda through development, deal-making, and private sector participation. Key topics include making energy poverty history before 2030 and the future of the African oil and gas industry; African upstream, midstream and downstream opportunities; African oil, gas and finance in the face of the energy transition – highlighting African financing institutions such as the African Development Bank, the African Export-Import Bank, the African Financing Corporation, Africa50, the Industrial Development Corporation and the Development Bank of Central African States; local content; women in energy and making African energy competitive for investment into a decarbonized Africa.
Additionally, the conference will address the role of the Organization of the Petroleum Exporting Countries (OPEC), the Gas Exporting Countries Forum (GECF), the International Energy Agency (IEC), the African Petroleum Producers Organization (APPO), the International Association of Geophysical Contractors (IAGC), and the American Petroleum Institute (API) and Africa. By opening the dialogue on Africa’s gas miracle and its potential in markets including Senegal, Mozambique, Nigeria, Ghana, South Africa, Algeria, Tanzania, Equatorial Guinea, Congo-Brazzaville, and Angola – as well as small-scale Liquified Natural Gas, intra-African trade and the African Continental Free Trade Agreement – the conference represents the ideal networking and deal-making platform for all African energy stakeholders.
The AEC’s commitment to hosting this Africa-focused event in Africa comes at a crucial time for the oil and gas industry. In light of recent developments that seek to suggest that Africa is not capable of hosting events of global standards, the Chamber feels responsible to voice against this and lead by example by showcasing the continent and all its profound beauty.
With this in mind, the only African-focused, in-person energy event aims to capture the essence and cultural hub that exists in Cape Town. The AEC will not abandon the continent for international venues. AEW 2021 is an energy event like no other and the AEC is fully focused on promoting African development and growth through African-held events.
“We are happy with the tremendous support from so many in-and-outside Africa. Our Oil and Gas producers have been a force for good and we must be proud of this industry. We must also welcome energy transition and engage Africa with the most forceful conversation and solutions for the future. AEW 2021 offers a unique and interactive networking experience in which global energy stakeholders can unite and participate in the continent’s transformation. The time is now,” says NJ Ayuk, Executive Chairman, African Energy Chamber.
“Africa Energy Week will have a bold message that encourages energy solutions that cut out entitlements, handouts and foreign aid. No one owes us anything and in order for so many Africans who want to make energy poverty history to triumph, we must embrace all forms of energy in our energy mix. We must attract investors and push our leadership so that each country wins when we create and encourage an enabling environment,” adds Ayuk.
AEW 2021 is taking place with the full support of prominent African and global industry leaders and oil and gas organizations and is focused on expanding opportunities in Africa. Additionally, AEW 2021 will present innovative exhibition spaces at Cape Town’s V&A Waterfront that aim to promote African heritage and culture, while showcasing the exciting technological advancements the industry has to offer.
“African energy producers can only grow and meet energy demand when we all do our best to mobilize our resources and advocate for important principles of personal responsibility, smaller government, lower taxes, free markets, personal liberty, and the rule of law. This will kick start investment and make a transition that works for Africa. Let’s do this in Africa, for Africa and for the energy sector,” concludes Ayuk.
Of equal importance, the event will take place under strict COVID-19 protocols to ensure the safety of all attendees. In line with current government regulations, AEW 2021 will host a series of networking events across a variety of locations at the V&A Waterfront, thereby ensuring social gathering limits are in place at all times. Additionally, through mandatory testing and the availability of personal protective equipment and facilities, AEW 2021 aims to protect attendees while ensuring a successful and productive event.
United States-based Husk Power Systems has signed a grant agreement with Nigeria’s Rural Electrification Agency (REA) to install solar mini-grids in seven rural communities in the country’s Northcentral state of Nasarawa.
The grant is under the purview of a subsidy, implemented by the REA support suppliers of green mini-grids, whose power generation and distribution systems are a major asset for rural electrification in elsewhere in sub-Saharan Africa. Performance-Based Grants (PBGs) are awarded under the Nigeria Electrification Project (NEP), co-financed by the African Development Bank (AfDB) and the World Bank.
Husk Power will install its mini-grids in Doma Local Government Area (Rukubi, Idadu, and Igbabo) and Lafia Local Government Area (Kiguna, Akura, Gidan Buba, and Sabon Gida).
This mechanism increases access to electricity for unsaved and underserved communities using hybrid solar technology.
Husk estimates that these mini-grids will provide electricity to 5,000 households, as well as rural small and medium-sized enterprises (SMEs). With the PBG, for each connection, the mini-grid provider will receive a $350 grant or $10,000 for each green mini-grid installed in Nasarawa State. The completion of this project will expand Husk’s portfolio.
Husk Power operates 130 green mini-grids in India and Tanzania.
It has deployed its facilities at eight sites in Tanzania and provides electricity to 1,349 people while employing 23 others. Nearly a year ago, Husk secured $5 million from Maatschappij voor Ontwikkelingslanden (FMO), the Dutch development finance company, to expand its services in Africa and Asia.
Shell’s unveiling of its Refhyne Hydrogen Project, located at its Energy and Chemicals Park in Rhineland, Germany has attracted much attention. Plans are underway to expand the capacity of the electrolyzer from 10 Megawatts to 100 Megawatts. Shell also intends to produce sustainable aviation fuel (SAF) using renewable power and biomass in the future. A plant for liquefied renewable natural gas (bio-LNG) is also in development.
As part of the Refhyne European consortium and with European Commission funding through the Fuel Cells and Hydrogen Joint Undertaking (FCH JU), the fully operational plant is the first to use this technology at such a large scale in a refinery.
“Shell wants to become a leading supplier of green hydrogen for industrial and transport customers in Germany,” according to Huibert Vigeveno, the company’s Downstream Director. “We will be involved in the whole process — from power generation, using offshore wind, to hydrogen production and distribution across sectors. We want to be the partner of choice for our customers as we help them decarbonize.”
Shell has a target to become a net-zero-emissions energy business by 2050. The company plans to transform its refinery footprint to five core energy and chemicals parks, reducing the production of traditional fuels by 55% by 2030.
Does Shell’s goal for its energy and chemical parks fit within the verdict brought down by the Dutch courts ordering Shell to cut by 2030 its CO2 emissions by 45% compared to 2019 levels? Is Shell still in charge of its energy transition scenariosor is it desperately playing catch-up to ensure that its influence and strategy has an impact on the swiftly changing energy landscape?
In Shell’s latest energy scenario update, four conclusions are stated:
• Energy needs will grow
• Energy system will be transformed-speed is the issue
• Transformation will have costs and benefits
• Action accelerators are necessary to meet climate aspirations.
Shell in its Sky 1.5 Scenarioanticipates a rapid and deep electrification of the global economy, with growth dominated by renewable resources. Global demand for coal and oil peak in the 2020s and natural gas in the 2030s.
In the sectors that are more difficult to electrify, liquid and gaseous fuels are progressively decarbonized through biofuels and hydrogen.
“Globally, the world is proceeding towards achieving the stretch Paris ambition-temporarily rising above and then limiting average global warming to 1.5C above pre-industrial levels before the end of the century-accelerated decarbonization now”.
Before returning to Shell…a short summary of the competition.
The Remainders: ExxonMobil and Chevron, two companies who continue to believe that decarbonization is only being done within the confines of the hydrocarbon world. CCS (Carbon Capture and Storage) is only understood to at least give a pretense that the companies are tuned in to the energy transition. Look forward to both companies developing a closer relationship to maintain economies of scale.
First Adapters: TOTALEnergies, in the summer of 2020, 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’. By declaring these proven reserves as null and void, TotalEnergies, with one swoop of the pen, 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): 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:TOTALEnergies has in essence taken on a new classification system. By embracing this strategy, the company is the only major to have seen the direct benefit of using the Paris Climate Agreement to enhance its renewable energy base.
Decentralizers: Will BP become the first super-major to become an investment vehicle that is both green and can guarantee shareholders a handsome return on investment? BP is building an investment structure, which requires only a few skilled accountants. The company has either sacked employees or will be delegating BP’s headcount to its joint ventures. The goal is becoming lean and mean, reducing costs and hopefully increasing margins. In short, an investment vehicle.
BP is promising returns in the range of 12% -14% in 2025 –up from around 9% today, financed by a $25Billion divestment fund and a pipeline of 25 oil and gas projects. Oil production will also be reduced to 40% by 2030. To date, the company has initiated a series of joint ventures in order to speed up its transition.
New Energy Giants: New boys on the block, who will provide green leadership and challenge the oil majors.
Engie: in 2021, will spend €11-12Billion on investments across a broad swath of sectors including solar, wind (on and offshore), hydro plants, biogas, and developing gas and power lines, and will have 33GW of global renewable installed capacity by 2021.
Enel: Enel’s strategic plan outlines total investments of €190 billion by 2030 and tripling renewable capacity to 145GW.
Ørsted: By 2030, Ørsted will have an installed capacity of 50GW.
Iberdrola: In the period 2020-2025, Iberdrola will be spending €75 billion on renewable energy and has a pending target of 95GW of installed wind capacity.
RWE: By 2022, RWE will have 28.7GW of installed wind and solar capacity.
Vattenfall: In the Nordic countries Vattenfall has low emissions with practically 100% of the electricity produced based on renewable hydropower and low-emitting nuclear energy.
Shell: In Search of its Soul?
Shell’s energy prognosis is certainly in line with other sources who are sounding alarmed about global warming and the need for rapid de-carbonization. Yet how will this affect Shell as a company? Is the company nimble enough and has the dexterity to ensure it will be a force for good in the next phase of the energy transition? The signs are not encouraging.
In 2020, IEEFA (Institute for Energy Economics and Financial Analysis), 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.
Between 2016-2019, Shell spent $89Billion in total investments, of which only $2.3Billion was devoted to green energy. In 2019, Shell’s overall operating costs came to $38Billion and capital spending totaled $24Billion.
How will Shell’s re-branding affect the company’s three major divisions- Upstream, Integrated Gas, and Downstream?
Upstream is still on the operating table but the immediate signs are not encouraging. Shell’s Nigerian assets-onshore, and shallow water- are already on the auction block, encouraging Nigeria’s independents to pick up potential assets. Shell, meanwhile, will instead move further downstream to ensure continuity of its gas-related and trading activities in Nigeria. Helping the company to portray a greener image.
Shell is one of the most adaptive of the IOCs in Canada. Noteworthy is that Canada is the world’s 4th largest oil producer at 4.7Million barrels of oil per day and is also a major producer of natural gas. The Canadian government is determined that Canada will be net-zero by 2050. Shell Canada has divested most of its heavy oil-producing assets in Alberta but is still a large producer of gas. Shell also is an operator of the leading-edge Quest carbon sequestration projects near Edmonton, Alberta. The CO2 is removed from the Scotford heavy oil upgrader. Quest became operational in 2015 and injects 3,600 tonnes of CO2 per day into a deep reservoir. To date, 6.5Million tonnes of CO2 have been stored. Shell is also an operator of the $25Billion LNG plant being built at Kitimat on the west coast of British Columbia. This is the first LNG plant to be built in Canada.
Earlier Shell indicated that it will reduce its Upstream Division to nine core hubs such as the Gulf of Mexico, Nigeria, and the North Sea and no frontier exploration after 2025. If the rush to the global exploration exit continues to pick up speed Shell may well have to reconsider its upstream strategy. Perhaps going so far as to spin the Upstream Division off as a separate entity or joint-venturing with other partners.
Shell’s Integrated Gas Divisioncould prove to be the star asset. For example, Wood Mackenzie’s AET-2 scenario (Accelerated Energy Transition Scenario) predicts that in the following decades market power will slip 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.” Certainly, a sweet sound for Shell’s LNG business.
Downstream could also prove to be a key energy transition asset. Shell’s Refhyne Project, Rhineland Refinery could well become the precedent 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 theRefhyne Projectbecome duplicated many times over to ensure that green technology becomes a key ingredient in the energy transition?
A key remaining issue is how Shell can re-allocate its resources-both financial and technical-and maintain an image of being in control of its energy transition scenarios. Upstream with its huge exploration and development costs is perhaps Shell’s largest impediment to becoming a greener company. Do not be surprised that in the coming months, Shell’s Upstream will find a new home. Freeing up funding needed for Shell’s own energy transition. Also, expect Shell’s Integrated Gas and Downstream and Renewablesto get a serious makeover vastly increasing their budgets to ensure market share and a green future.
Finally, do not be surprised that Shell, under pressure from public opinion and its shareholders becomes CO2 neutral in 2030 instead of 2050.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was the founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars, and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia, and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands. He writes on a regular basis for Africa Oil + Gas Report and contributes to the Institute of Energy Economics and Financial Analysis (IEEFA).
The South African government is registering 102 proposals for the 5th round of its ambitious Renewable Energy Independent Power Producer Procurement Programme (REIPPP).
The government is targeting 2,600MW of new clean energy capacity.
For the round, launched in March 2021 and closed on August 16th, 2021, the South African Department of Mineral Resources and Energy, expects 1,000 MW of solar power to be built, compared with 1,600 MW of new wind power capacity.
Of the 102 bids from independent power producers (IPPs), 63 bids are solar PV plants, and the rest (39) are onshore wind farms. The South African government plans to unveil the successful proposals in October or November 2021.
This is expected to accelerate with the closing of funding for the individual projects set for February or March 2022. Successful IPPs will then have 24 months to begin commercial operation of their facilities, which will be connected to the national grid, operated by Eskom, the state-owned utility.
Recent phases of REIPPP have been very successful with the construction of wind and solar farms in Africa’s most industrialised economy.
Since the programme began in 2011, over 4 201 MW of electricity generation capacity from 67 IPP projects has been connected to the national grid;
The South African government’s initiative is helping to diversify its electricity mix.
Shell has created a new company in Nigeria, named Shell Energy Nigeria.
The name, unlike Seplat Energy and TOTALEnergies, does not refer to the entire Shell Nigeria, but is one of the Shell companies in Nigeria (ScIN), like SNEPCO, the company focused on Production Sharing Contracts, SPDC, which operates the onshore JV assets and Shell Nigeria Gas, the downstream gas distribution firm.
Markus Hector, a former general manager of Shell LNG Market Development, has been tapped to drive the new unit.
Mr. Hector has a Master’s degree in engineering from the Hamburg University of Technology and MBA in General Management from the Rotterdam School of Management in Erasmus University.
He has spent close to 20 years in Shell LNG and Natural Gas Development system.
Shell entered renewables in Nigeria by seeding All On, an impact investment firm, which has invested over $21Million into the off-grid energy space since its formation.
It will now formalize its participation in the market through Shell Energy Nigeria, which will be part of a global group of energy and petrochemical companies with more than 80,000 employees in more than 70 countries.
Shell Energy was first registered in the UK as a home energy business born out of Shell’s acquisition of energy firm, First Utility in 2018.
Shell New Energies, a related company in the United States, works in new fuels for transport, including advanced biofuels and hydrogen; and power, through wind and solar, in an integrated fashion: from manufacturing to home delivery.
In August 2020 Africa Oil + Gas Report reported its First Ranking of the Oil Majors: a summary of their energy transition strategy and vision. Fast forward to August 2021. The speed and changes taking place are breathtaking. Read on.
Two Contrasting Visions:
(1)An ‘Oil Sands‘ Moment
The Caspian Region and in particular Kazakhstan since the break-up of the Soviet Union has been a key frontier for the oil majors. Creating oil wealth and cashflow which has helped bankroll Tengiz, Kashagan, and Karachaganak. Major projects requiring great risks, and garnishing great financial wealth which in turn generated cash flow for the majors to develop projects around the globe, including Africa.
This is about to change. WoodMackenzie is predicting that by 2030, the Upstream Development Capex in the Caspian Region will drop 50% from an annual high of $20Billion in 2018.
WoodMac reports that most of the largest pre-FID (Final Investment Decisions), both brownfield and greenfield, do not generate an IRR(Internal Rate of Return) above 20%. Tax issues, cost overruns, and project delays are key constraints. Add carbon neutrality to the mix and you have the ingredients for a perfect storm.
When the Soviet Union broke up in the early 90s and Kazakhstan emerged as a new oil province, both Chevron and ExxonMobil, seen as ambassadors of US goodwill, gained access to the country’s black gold. Chevron’s prize was operatorship of the Tengiz field (50%) and ExxonMobil gained a 25% share. Chevron also has an 18% share in the large Karachaganak Gas Field. ExxonMobil has a 16.81% share of the troubled Kashagan Project.
What once was a sign of great wealth- Kazakhstan’s oil riches- could turn sour very quickly. Both Chevron and ExxonMobil, key developers of Kazakhstan’s prosperity, are also the two key oil majors lacking any serious decarbonization and energy transition plans. While this is most relevant for the Caspian, it is also a warning for Africa, where both companies have major projects.
The Tengiz Project deserves some attention given that it in a time of Chevron’s austerity it is swallowing up 70% of the international oil and gas budget. Tengiz is currently producing560,000 barrels per day (BPD) and is being expanded by some 260,000BPD. Total costing is estimated at $45Billion.
The expiry date for the Tengiz concession is 2033. What will happen then? Given the huge costs, high sulfur-based oil, and low chance of carbon neutrality, Tengiz could become a vast stranded asset. To date, Shell has abandoned two Kashagan projects in Kazakhstan because of high costs. Tengiz was, for most of its duration, Chevron’s crown jewel, providing cash to developing assets elsewhere including Africa. Given Chevron’s current strategy it can only hope that Tengiz can continue to squeeze out more oil.
TOTALEnergies faced a similar problem but choose an alternative strategy. In the summer of 2020, the company 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’. By declaring these proven reserves as null and void, TOTALEnergies, with one swoop of the pen, 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 substitute renewables as reserves that can be produced profitably.
TOTALEnergies strategy is based 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, TOTALEnergies has in essence taken on a new classification system. By embracing this strategy the company is the only major to have seen the direct benefit of using the Paris Climate Agreement to enhance its renewable energy base.
In essence, the oil majors have two contrasting visions: a continued embrace of only oil; or a vision of renewables- produced at an IRR rate- formerly only thought possible from fossil fuel production.
If, as WoodMac predicts, major oil and gas projects will face enormous economic and environmental hurdles in Kazakhstan, this could have a knock-on effect for Africa. Both Chevron and ExxonMobil have major assets in the Caspian region. The region’s predictable cash flow has provided the companies the necessary leverage for developing assets in other parts of the globe, including Africa. How will this play out in the coming 5-7 years? Will these two majors have an ‘oil sands‘ moment, much like TOTALEnergies had in 2020 in Canada, in 2020, when it wrote off two oil sands projects listed as ‘proven reserves’?
The current RRR(Reserves Replacement Ratio) of all the majors is at historic lows, well below the norm of 100%(see below) and their projected change in oil production to 2030 promises more of the same( also see below).
ExxonMobilis in a state of turbulence. Once seen as the oil and gas industry leader, ExxonMobil is in uncharted waters. Its biggest challenges are legal, not the search for oil and gas: ExxonMobil’s management has been forced to accept three new board members, nominated by Engine Number 1, a small, but very influential investor; and an environmental court challenge which potentially could derail its Deepwater Guyana projects. Surely the court decision in the Netherlands ordering Shell to cut by 2030 its CO2 emissions by 45% compared to 2019 levels, is a decision being followed closely by the courts in Guyana and the boardroom of ExxonMobil. After all ExxonMobil’s upstream activities in the Netherlands and the UK are joint-ventured with Shell.
ExxonMobil has written down between $17-$20Billion in impairment charges and is capping capital spending at $25Billion a year through 2025, a $10Billion reduction from pre-pandemic levels. Its market capitalization now hovers at $250Billion; in October 2020 ExxonMobil’s market cap plunged to $140Billion.
To meet the green challenge ExxonMobil has unveiled a plan to build one of the world’s largest carbon capture and storage (CCS) projects along the Houston Ship Channel in Texas. The proposed project would cost $100billion and would capture and store 100 million metric tons of CO2 per year.
For the project to be economically viable, it would need major public funding and the introduction of a price on carbon in the US. ExxonMobil says the project could be fully operational by 2040.
Yet public reactions are at best muted and at worst cynical. Carbon Market Watch sees CCS “as a lengthy distraction from the debate about greenhouse gas pollution from fossil fuels and getting emissions down at source”.
In 2021 Chevron’s share has lost some of its glitters but has remained resilient over the last 5 years, continuing to hover in the $100 range. In October 2020 its market cap was $142Billion, surpassing ExxonMobil for the first time; its market cap is now $200Billion+.
Chevron management nonetheless suffered an important defeat at its 2021 Annual Shareholders’ Meeting, when 61% of shareholders voted for a proposal by FollowThis to encourage the US company to reduce its emissions.
Chevron’s financial situation is better than ExxonMobil: 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 70% will be dedicated to Tengiz in Kazakhstan and the remaining $1.5Billion elsewhere. What is surprising is how vulnerable Chevron has become: heavily financing its Tengiz asset which only represents less than 20% of its daily production of some 3 mboepd.
This is not promising for Africa where Chevron has major operations stretched across the continent: major projects in Angola, Equatorial Guinea, and Nigeria receiving very limited funding in order to bankroll Tengiz.
Post-Paris raises serious questions, the primary one being whether Chevron understands what the Energy Transition is about. Yes, Chevron has an environmental, social, and governance(ESG) policy managed and implemented at the highest levels in the company, including a new energy division. Key measures listed include:• Lowering greenhouse gases;• CCS (Carbon, Capture, and Storage) project at the Gorgon LNG project; and• Various health, educational, and community development projects.• Developing biofuels, wind, and solar projects in support of Chevron’s various business units.
Yet Chevron’s entire energy transition strategy is solely done within the confines of the fossil bubble.
Equinor continues defending its twin pillars of oil and gas and its growing offshore wind portfolio. Does the company have the financial depth and ability to achieve maximum leverage for both pillars?
Equinor’s offshore wind portfolio is pledged to grow to 12-16GW of installed capacity by 2030. Renewables will receive more than 50% of capital investments by 2030. Yet there is severe competition from a number of key European new energy players:• Enel in the next 10years will be spending €190Billion on renewables and by 2030 have 145GW installed capacity.• Ørsted will have an installed capacity of 50GW by 2030.• RWE will have 28.7GW of installed capacity by 2022.• Engie spent €7.4Billion on renewables and 33GW of installed capacity.• Iberdrola will spend €150Billion on renewables and target of 93GW installed capacity up to 2030
Equinor has chosen a series of joint ventures to develop its offshore wind portfolio:
Dogger Bank heralded to become the world’s largest offshore wind farm, is being developed together with SSE Renewables. Located in the North Sea, the project will produce some 3.6GW of energy, enough to light up 6Million households. More recently ENI has purchased a 20% stake in the Dogger Bank A & B Project.
Empire Wind and Beacon Wind assets off the US east coast. In September 2020, BPannounced it was buying a 50% non-operating share. A basis for furthering a strategic relationship. The two projects will generate 4.4GW of energy.
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.
According to Patrick Pouyanné, Chairman and CEO of TOTALEnergies, the company 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”.
This is the first time that a major operator has wittingly or unwittingly translated its renewables to BOE (barrels of oil equivalent). The golden rule was that RRR (Reserve Replacement Ratio) was always used to assess a company’s hydrocarbon reserves. 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 hydrocarbon assets.
By taking renewables on board the company has leapfrogged the competition.
TOTALEnergies has confirmed that it will have a 35GW capacity in renewables by 2025 and has the ambition of adding 10GW per year after 2025. Translated, that could mean creating an additional 250GW by 2050. The vision is there; now the implementation.
A key to TOTALEnergies’ 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 Limited, India;
• 51% Seagreen Offshore Wind project in the United Kingdom;
• Major positions in floating wind projects in South Korea and France.
In terms of deepwater, TOTALEnergies will be focused on its two South African 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.
In May 2021 a court decision in the Netherlands ordered Shell to cut by 2030 its CO2 emissions by 45% compared to 2019 levels. While this decision may be appealed, the repercussions are far-reaching for Shell and the rest of the industry.
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.
Between 2016-2019, Shell spent $89Billion in total investments, of which only $2.3Billion was devoted to green energy. In 2019, Shell’s overall operating costs came to $38Billion and capital spending totaled $24Billion.
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 the focus will be reduced to 9 core hubs such as Gulf of Mexico, Nigeria, and the North Sea. In Nigeria, Shell has announced plans for disbanding its onshore assets which will certainly spawn growth among Nigeria’s independents. • 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.
Prior to the court decision, Shell was taking an incremental, testing-the-waters approach. Fiscal discipline was the order of the day so as to be able to continue paying its somewhat reduced, but still royal dividend of 4%.
Shell, undoubtedly in the coming months, will fast-track its new energy strategy. Two projects, which will probably be showcased, to serve as examples of what we can anticipate in the future:
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 3-4GW energy and possibly 10GW by 2040, becoming one of Europe’s largest hydrogen projects.
Refhyne Project, Rhineland Refinery. Shell is completing the largest PEM electrolyzer in the world at the Rheinland refinery in Germany (10MW). The company aims to become the leading supplier of green hydrogen, where hydrogen production is powered by renewable energy for industrial and transport customers.
Will the BP-ENI merger of activities in Angola become a model for other African countries? An Algerian variant is perhaps already in the making. Reuters reported thata potential deal would allow ENI to acquire BP’s 45.89% stake in the Amenas natural gas plant and a 33% stake in the Salah gas plant. ENIexpects to transform Algeria into a hub with the acquisition of BP’s assets.
ENI is Africa’s biggest oil and gas producer with a production of 900,000(BOEPD).
The precedent for the BP and Eni merger talks in Angola finds its roots in Norway. In 2018 Vår Energi was created through a merger between HitecVision’s Point Resources and Eni Norge.
Egypt could prove to be more challenging for both companies to find a lasting solution either to work together or a possible takeover of assets. 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.
Nonetheless, ENI claims to be Egypt’s largest oil and gas producer and its huge Zohr gas field is viewed as an example of the company’s extensive assets in the country. Most recently ENI, together with EEHC (Egyptian Electricity Holding Company) and EGAS (Egyptian Natural Gas Holding Company) has signed an agreement to assess the technical and commercial feasibility of producing hydrogen.
Could the BP-Eni joint venture also be extended to assets in Russia and Kazakhstan? BP’s 20% share of Rosneft and Eni’s two large assets in Kazakhstan-co-operatorship of the large Karachaganak Project, and its 16.81% share of the Kashagan Project-could provide food for thought.
Will BP become the first super-major to become an investment vehicle that is both green and can guarantee shareholders a handsome return on investment?
BP’s goal is to become greener, but in the process building an investment structure, which requires only a few skilled accountants. The company has either sacked employees or will be delegating BP’s headcount to its joint ventures. The goal is becoming lean and mean, reducing costs and hopefully increasing margins. In short, an investment vehicle.
BP is promising returns in the range of 12% -14% in 2025 – up from around 9% today, financed by a $25Billion divestment fund and a pipeline of 25 oil and gas projects. Oil production will also be reduced to 40% by 2030.
To date the company has initiated a series of joint ventures in order to speed up its transition:
• 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 50MW 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.
• BP and Equinor revealed that BP would 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 lease located offshore in 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) license area.
The speed with which BP unveiled its strategy to spend $5Billion per year to green itself so that it could have 50GW net regenerating capacity by 2030, .indicatesthat it wants a seat at the green table occupied by the new energy elite-Engie, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall- who have pole positions in determining the direction of the global renewables market.
The question is: is that an ambitious enough target to hand BP a place at the green poker table? Perhaps a starting position, but hardly enough to be classified as a heavy-weight, green poker player!
1. The court decision in the Netherlands demanding Shell lower its CO2 footprint, together with the IEA’s insistence that the world does not require more oil and gas projects beyond 2050, are the two drivers that will determine the future of the oil and gas industry.
2. The proposed BP-ENI joint venture, which will combine their Angolan assets, will likely be modeled across Africa, and possibly other oil and gas provinces. Excluding ENI for the first time, as an independent member of the big oil fraternity.
3. Look for more co-operation between Chevron and ExxonMobil, most dependent on oil and gas assets, to ensure they can maintain an image of economies of scale.
4. Shell and TOTALEnergies will have to make strategic decisions regarding their deepwater activities, renewables, and LNG & natural gas. Are the three divisions of each company large enough, focused enough, have sufficient budget, and a proper strategy in place to ensure that a reduced carbon footprint is achieved and at the same guaranteeing green shareholders a golden dividend which they anticipate?
5. Look for more extended co-operation between Shell and TOTALEnergies in deepwater, renewables, and LNG and natural gas. They may possibly hive off whole sectors and create new joint ventures to maintain market share.
6. Equinor will seek more extended co-operation with BP and the new energy elite-Engie, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall-to ensure a place at the green poker table.
7. BP’s strategy to turn itself into an ‘Investment Vehicle’; setting up a series of joint ventures to implement its new renewable strategy, will be closely monitored by the rest of the sector and shareholders.
8. Europe’s new energy elite-Engie, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall-will determine the speed and strategy of the Energy Transition. Will Africa be part of this strategy?
9. The Oil Majors’ energy transition strategy for Africa has been one of ‘beads and trinkets’. Their African balance sheets have financed their renewables strategy elsewhere around the globe. This is unlikely to change.
Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was the founder and owner of EnergyWise. He has managed and implemented energy conferences, seminars, and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia, and throughout Europe. Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.He writes on a regular basis for Africa Oil + Gas Report and contributes to the Institute Energy Economics and Financial Analysis (IEEFA).
Lekela Power has started connecting the first phase of the 250MW West Bakr wind farm to Egypt’s national grid.
20 wind turbines will be connected in this phase of the project, a joint venture between the British investment fund Actis and Mainstream Renewable Power, located 30 km from the town of Ras Ghareb in the Gulf of Suez.
The remaining 76 turbines will be delivered before the end of 2021 by Siemens Gamesa Renewable Energy, which has secured the contract to build the farm from its owner Lekela,
West Bakr Wind Farm is a Build, Own and Operate (BOO) concession, one of the first projects entirely funded by the private sector in Egypt’s Renewable Energy plan, which seeks to reach around 4,500MW capacity by 2023.
The facility’s output will be fed into the Egyptian Electricity Transmission Company (EETC) grid under a power purchase agreement (PPA), over a 20-year period. “West Bakr will be able to power 350,000 Egyptian homes while avoiding the emission of 550,000 tonnes of CO2 equivalent per year”. according to Lekela.
“The West Bakr wind farm will increase Egypt’s wind power capacity by 18%”, the company claims.
Lekela, based in Amsterdam, is owned by Acts and it is one of the busiest Independent Power Producers operating in Africa. It developed Taiba N’Diaye, the 158MW Wind Farm in Senegal; delivered the 140MW Loeriesfontein 2 in the Hantam Municipality in South Africa’s Northern Cape and commissioned the 80MW Noupoort Wind Farm as well as the Khobab Wind Farm in the same country.
Italian independent power producer (IPP) ENEL Green Power, has started commercial operation of a 140MW (at peak) wind energy farm in Kouga, in South Africa’s Eastern Cape province.
Christened ‘The Oyster Bay wind farm’, it was awarded as a concession under the 4th phase of tenders of the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPP).
ENEL Green Power, a subsidiary of the ENEL group, launched construction work on the facility in 2019, after the signing of a 20-year power purchase agreement (PPA) with state-owned Eskom.
ENEL Green Power says it has invested €180Million in the construction of the facility, capable of producing 568 GWh of electricity per year “while avoiding emissions into the atmosphere of 590,000 tons of CO2 equivalent over the same period”. William Price, the company’s CEO in Soth Arica, says it is “ the ninth such clean energy facility commissioned by Enel in South Africa.
“The other facilities are located in Nojoli (88 MW), Gibson Bay (111 MW) and Nxuba (140 MW) in the Eastern Cape, Upington (10 MW) and Adams (82.5 MW) in the Western Cape, Paleisheuwel (82.5 MW) in the Western Cape, Pulida (82.5 MW) in the Free State, and Tom Burke (66 MW) in Limpopo. These solar and wind power plants inject 800 MW into the Eskom grid”.