All posts tagged energy


The Vikings are coming…the Vikings are coming!

By Gerard Kreeft

The modern Viking—in this case Norway—in actual fact continues its warring ways like that of historic times. Not with the sword but with the strength of Norway’s abundant oil, natural gas, hydro-electrical power and offshore wind energy. The country’s bounteous natural resources coupled with a small population of only 5.5Million people has resulted in Norway being anointed with one of the highest per capita incomes in the world.

Norway is Europe’s second-largest oil and gas producer behind Russia.  It is playing a major role in helping the European Union shift away from reliance on Russian fuel after Moscow’s invasion of Ukraine.

The Norwegian sovereign wealth fund, built on the back of oil and gas profits, has over $1Trillion in assets, including 1.4% of global stocks and shares, making it the world’s largest sovereign wealth fund.

The Norwegian state’s participating interest is split in two parts. The first is linked to Equinor, the state hydrocarbon firm. The second is linked to the state’s direct financial interest (SDFI) in the petroleum industry. The SDFI system is a fund into which the surplus wealth produced by Norwegian petroleum income is deposited.

The purpose of the fund is to invest parts of the large surplus generated by the Norwegian petroleum sector, mainly from taxes of companies but also payment for licenses to explore for oil as well as the state’s direct financial interest and dividends from Equinor which is 67% owned by the state. The fund now has started dumping its shares in oil and gas companies and instead prescribing renewables to ensure it’s on the right side of history.

Yet the term ‘green’ has, since the Russian-Ukraine conflict, been given a serious re-think. Natural gas is now considered relatively green. Norway is, of course, more than happy to ensure that Norwegian natural gas can be substituted for Russian gas and thus ensure that Norway’s sovereign wealth fund continues to grow and Equinor in turn, has the funding required to ensure its future green growth.

The Greening of Natural Gas

While Norway can continue its green journey, the legitimacy of greening natural gas has ramifications far beyond the Norwegian Treasury. Christian Ng, Research & Stakeholder Engagement Leader, Debt Markets, described in a recent IEEFA (Institute for Energy Economics and Financial Analysis) how green has achieved a green status.

 The key question according to Ng is “how do we ensure that green-branded businesses and products are true to label and deserving of green energy finance?”[1] According to her, green taxonomies play an important role.

“A taxonomy is a system for categorizing things based on their scientific characteristics. A green taxonomy specifies business activities that are low-emitting and environmentally sustainable, and therefore eligible for green finance. In the energy space, this typically refers to renewables like solar, wind and geothermal. It also specifies the environmental criteria, such as emissions thresholds, that the activity must satisfy to qualify for the green label.”

For banks and investors, Ms. Ng continues, “a taxonomy provides the parameters for what they can and should invest in if they want to call it a green investment. Wanting certainty that they are investing in clean and sustainable technologies; they rely on taxonomies to guide them.

“Therefore, a key role of green taxonomies is to efficiently channel and unlock new pools of capital towards proven, environmentally clean and sustainable assets, to address the global climate crisis.”

Ng argues that both Europe and China have developed a common ground taxonomy: a comparison exercise of their respective taxonomies to identify commonalities and differences. The European and Chinese approach is a counter measure to taxonomies tailored to national or regional contexts which in terms of methodology, metrics and technical criteria can differ significantly from market to market, leading to comparability issues for capital providers.

Within this debate natural gas has become a key issue.   According to Ng in October 2021 the South Korean government added LNG to its near-final green taxonomy. Likewise, in November 2021 the European Commission signaled that the EU is considering a role for natural gas as part of its green taxonomy.  Other Asian markets have indicated similar intensions meaning gas or LNG would qualify for green bonds and loans under these taxonomies.

Yet China, according to Ng, has indicated that its long-term policies exclude fossil fuel electricity projects, sending the right signals to the market.  The precedent was set in 2015. Then China’s first green taxonomy categorized “clean coal” as a green project that qualified for the issuance of green bonds, drawing widespread criticism. No doubt the 2015 incident sent China a signal to take green more seriously.

In the short-term China has chosen natural gas as the fuel of choice. In 2020 China created PipeChina, an overarching national gas pipeline company to rationalize and distribute natural gas on a country-wide basis. PipeChina is the most visible sign that China sees natural gas in the short term as a fuel of choice if it is to achieve its goal of CO2 neutrality by 2060 or earlier. China has at present 22 LNG import terminals and plans to construct 24 more by 2025.

Another piece of the puzzle is international financial participation. Ng indicated that Yi Gang, the governor of the People’s Bank of China, …” stressed that government funding alone would not be sufficient for China to meet its net zero goals – forecast to require an estimated $22Trillion from 2021 to 2060 – and therefore, market participants must be encouraged to step in and fill the gap”.

In other words, multi-lateral funding will become a necessity. The Chinese approach is based on two premises:

1.) In the short-term natural gas as its fuel of choice; and

2.) In the long-term be prepared to move towards cleaner, low carbon fuels (wind and solar) in order to achieve green financing.

The green debate continues over two key issues:

1.) Whether natural gas should be seen as sustainable, and

2.) If gas has a role in decarbonizing the economy, should it be seen as a green investment?

Ng concludes: “If gas-fired power is recognized as green, Environmental, Social and Governance (ESG)-focused investors may find themselves inadvertently backing the high methane and carbon fuel and risk being accused of greenwashing. This in turn risks undermining investors’ trust and the purpose of green taxonomies.”

Two powerful groups have opposed the inclusion of natural gas in any taxonomy system:

1.) The UN-backed Net-zero Asset Owner Alliance, which represents about EUR 9Trillion of investment; and

2.) The European Sustainable Investment Forum (EUROSIF), a pan-European sustainable and responsible investment association.

The Chinese can take heart and be assured that in the short-term their natural gas and LNG imports will be given a green stamp. And be further assured that they have a favorite position staked out to develop a future low-carbon world.

The Norwegian Challenge

According to the Norwegian Petroleum Association (see below), Norway produced in 2020, 22% of Europe’s natural gas demands. Additionally, two-thirds of Norway’s total gas resources is still to be produced. No doubt in the short-term natural gas exports from Norway to Europe will be substantially raised.

A very recent example of Norway’s importance to the UK is that Equinor and UK-based Centrica agreed for Norway to provide an additional 1billion cubic metre (bcm)/year to the UK under Equinor’s existing contract with Centrica, lifting the total volume above 10bcm annually.  Typically, Equinor exports up to 22bcm /year of natural gas to the UK which covers more than 25% of the UK’s gas demand.  Helge Haugane, Equinor’s senior vice president, Gas & Power said that “In a period with a challenging political and macro-economic environment with strong demand for natural gas, we at Equinor are doing what we can to export as much gas as possible to the market”.

The greening of natural gas will help strengthen Equinor’s twin pillars of natural gas and its growing offshore wind portfolio. Will this provide Equinor the financial depth and ability to achieve maximum leverage for both pillars?

Equinor’s offshore wind portfolio is pledged to grow to 12–16 GW 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.

 

  • ENGIE based in France: In 2021 the company spent more than $11Billion 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 50 GW of global renewable installed capacity by 2025.
  • Enel based in Italy: The company’s strategic plan outlines total investments of $231Billion and tripling renewable capacity to 154 GW by 2030.
  • Ørsted based in Denmark: By 2030 the company will have an installed capacity of 50 GW of renewable power.
  • Iberdrola based in Spain: From 2020–2025, the company will be spending $165Billion on renewable energy and has a pending target of 95 GW of installed wind capacity.
  • RWE based in Germany: By 2030 RWE will have 50 GW of installed wind and solar capacity.
  • Vattenfall based in Sweden: In the Nordic countries, Vattenfall has low emissions, with practically 100% of the electricity produced based on renewable hydro power and low-emitting nuclear energy.

Equinor has chosen a series of joint ventures to develop its offshore wind portfolio. The first, Dogger Bank, heralded to become the world’s largest offshore wind farm, is being developed together with SSE Renewables based in the UK. Located in the North Sea, the project will produce some 3.6 GW of energy, enough to power 6Million households. More recently, Eni has purchased a 20% stake in the Dogger Bank A & B Project.

The second is Equinor’s Empire Wind and Beacon Wind assets off the USA’s 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.

Clarity of message

No doubt the Equinor share price is enjoying the message being sent out: that the company will be spending more than one-half of its capital spending on low carbon energy by 2030 to become a leader in offshore wind technology. While the investor community may see the low carbon strategy as a clear incentive, the obvious benefit is the simple clarity of the message.

Whether a company is an oil company or an energy company seems less important. That is why aside from Equinor, Chevron, which is on track to make 2022 the 35th consecutive year with an increase in annual dividend payout per share, has maintained its value. Of the oil majors—BP, ENI, ExxonMobil, Equinor, Shell, Repsol, and TOTALEnergies— have been industry laggards between 2018 and 2022 whereas Chevron and especially Equinor stand out very positively.

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

Year Repsol BP Shell ENI TOTAL Energies Chevron ExxonMobil Equinor
2018 $17 $43 $69 $35 $58 $128 $87 $23
2022 $15 $29 $53 $28 $49 $157 $85 $34

Note: Values based on January 5, 2018 and April 29, 2022

During these five years, Repsol’s stock is down 12%, BP’s stock is down 33%, Shell is down 23%, ENI down 20%, TOTALEnergies down by 16%, and ExxonMobil remained flat, whereas Chevron’s stock rose by 23%, and Equinor up 48%.

The question remains whether Equinor can continue to maintain its twin portfolio—offshore wind and natural gas—under one roof. For sure, Europe will require much more Norwegian natural gas in the near future. Will the additional funding from European gas revenues be enough to provide its offshore wind division the necessary economies-of-scale to compete with Europe’s new energy companies? Will Equinor’s offshore wind energy division be spun off to create yet more shareholder value? If so then our modern Vikings could open a second economic front in the ongoing battle of the energy transition.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and contributes to IEEFA (Institute for Energy Economics and Financial Analysis). His book The 10 Commandments of the Energy Transition is being published this June.

 


Nigerian Firm, Greenage, Gets Half a Million Dollars to Expand Solar Component Manufacture

Shell-funded impact investment company, All On has announced a $500,000 investment in Greenage Technologies Power Systems Limited to fund the construction and expansion of its charge controllers and inverters manufacturing facility in Enugu State in South-Eastern Nigeria.

Ogechukwu Uchechukwu, Co-founder and Head of Business Development, Greenage Technologies, says the support will help the company reduce the cost of solar energy components through local manufacturing. “This investment will help Greenage realize its aim of becoming Africa’s largest solar electronics manufacturers by doubling its existing manufacturing capacity for inverters, charge controllers, and the possibility to assemble lithium-ion batteries,” he explains.

The funding is a mix of equity and convertible debt that should enable Greenage to expand its manufacturing business through the acquisition and development of a new factory and fund its working capital needs – enabling it to meet the increasing demand for locally manufactured solar systems components.

“We are proud to close another transaction to enhance the localization of the solar supply chain,” notes Wiebe Boer, CEO of All On. “Through this investment All On is lowering the proportion of solar components imported into Nigeria. This investment is at the core of our commitment to investing in youth-driven Nigerian companies like Greenage to accelerate the sector’s growth and contribute to closing the energy access gap.”

Greenage was a USADF/All On Off-Grid Energy Challenge winner in 2018, receiving $100,000 to fund the installation of solar systems in over 40 households and businesses.

All On concludes in the statement: “This additional funding is an indication of All On’s growing confidence in the company’s vision to play an increasingly important role within the Nigerian renewable energy value chain as a manufacturer of solar energy system components”.

 


European Commission May Classify Lithium as Toxic

By Victor Ponsford, Rystad Energy  (Victor.Ponsford@rystadenergy.com)

A potential European Commission (EC) act to classify lithium as a Category 1A reproductive toxin in the fourth quarter of 2022 could undermine the European Union (EU)’s attempt to create and support a domestic battery materials supply chain. The EU currently relies heavily on imports of lithium to supply its nascent electric vehicle (EV) production sector and the classification may increase its reliance on other regions, at a time when the union is focused on energy security and reducing emissions. Europe has announced plans to expand lithium battery-grade Li Carbonate production from nothing today to 8.3% of global production by 2025, according to Rystad Energy research. Europe has similar ambitions for lithium hydroxide, which is crucial for long-range EV batteries. Even without the potential decision by the EC, it will still fall well short of closing the estimated 218% deficit gap in lithium hydroxide processing that Europe is facing by the end of 2030, according to Rystad Energy research.

The European Chemicals Agency (ECHA)’s Risk Assessment Committee (RAC) at the end of 2021 published its opinion that it agreed with French proposals to classify three lithium salts as Category 1A reproductive toxicants. It determined that lithium carbonate, lithium hydroxide and lithium chloride should be classified under the Classification, Labelling & Packaging (CLP) Regulation as substances that may damage fertility and unborn children. It also agreed that the substances may harm breastfed children.

Initial proposals were presented to the EC on March 23 and 24, 2022 and are now under review and consultation, with the EC set to publish its first draft of the act between October and December. EU member states can still object to these proposals through the summer.

While the classification would not stop lithium usage, it is highly likely that it would have an impact on at least four stages in the EU lithium battery supply chain: lithium mining; processing; cathode production; and recycling. Several administrative issues, risk management and restrictions could hit each of these fledgling industries in Europe, which would drive up costs.

European LiOH Processing Demand and Supply Balance

“Should the European Commission take this decision, it may undermine the EU’s energy security and net zero goals, in addition to increasing costs for the domestic EV market. The EU is a global regulatory powerhouse, so any decision to classify lithium as Category 1A toxicant in the world’s largest single market will be keenly studied by regulators elsewhere. Industry hates regulatory uncertainty, so the longer it takes for a ruling, the more it will delay existing and significant investment decisions. This is more than a technicality; the impact could be far-ranging and wide,” says James Ley, Senior Vice President, Analysis.

Implications for EV production

A drawn-out permitting process for new mining operations in Europe has already been highlighted at recent industry events as one of the main barriers to new mining projects ramping up quickly. Both lithium carbonate and hydroxide are critical to the battery raw material supply chain, with the bulk of new EV battery chemistries containing lithium. This potential ruling comes at a time when the EU is itself scrambling to build and establish local lithium supply chains. The permitting issue has repeatedly been highlighted at recent industry events as one of the main barriers to new mining projects ramping up quickly in the EU.

There is also further risk of potential projects losing local community support for building lithium mines and processing operations. Additional concerns could arise if the pending decision ends up slowing down the injection of further and much-needed new investment into the EU lithium mining and processing industries. Rystad Energy is aware of at least one new proposed lithium hydroxide processing operation that is now withholding its investment decision pending the outcome of the EC’s final resolution.

Industry seeks clarity

The lithium industry is urging the EC to reassess the RAC’s initial opinion. They also argue that the three lithium salts cannot be considered in the same light and that there is significant doubt as to the applicability of the read-across to lithium hydroxide due to its corrosive properties. An inappropriate classification of lithium salts would create business uncertainty, which would have numerous implications for future investment.

Other countries outside the EU may reach a different conclusion on the classification, gaining a competitive advantage. The UK, for example, will propose its own classification by 30 June – meaning processing investments proposed for an EU member could instead be shifted to the UK, depending on the ruling taken in London.

 

 


In S.A’s Latest, Scatec Leads the Pack of Renewable Energy Builders

By Sully Manope, in Windhoek

Norway’s Scatec, the most aggressive renewable energy developer in Africa, has just taken on more.

It has signed power purchase agreements (PPAs) for three solar projects with storage in the Northern Cape Province of South Africa. The deal is part of the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).

The solar power plants, to be built in a town called Kenhardt, will provide 150 MW of dispatchable renewable energy from 5am to 9.30pm, based on a hybrid installation of 540 MWp of solar PV capacity and 1.1 GWh of battery storage.

These are the first projects developed under the country’s RMIPPPP, which is different from the Renewable Energy Independent Power Producer Procurement Programme (REIPPP).

The objective of the RMIPPPP, launched by the Department of Mineral Resources and Energy (DMRE) on the 23rd of August 2020, was to fill South Africa’s current short-term supply gap, alleviate the electricity supply constraints and reduce the extensive utilisation of diesel-based peaking electrical generators. The Determination for the RMIPPPP was gazetted on the 7th of July 2020.

The agreements Scatec signed call for financial close to be achieved by July 30, 2022, which is 60 days from the signature date. “Once financial close has been reached, Scatec will start construction of the projects”, the company says in a statement. “This unique solar and storage project signifies change within Africa’s renewable energy landscape and will be one of the largest renewable energy and storage projects in the world,” explains Scatec CEO Terje Pilskog.

Scatec will own 51% of the equity in the project with H1 Holdings, our local Black Economic Empowerment partner owning 49%. Scatec will be the Engineering, Procurement and Construction provider and provide Operation & Maintenance as well as Asset Management services to the power plants. The Standard Bank Group is acting as lead arranger and debt provider alongside a lender group including British International Investment and they will provide non-recourse project financing to the projects.

How the contract came about

“Due to the emergency nature of the RMIPPPP, the objective is to procure energy from projects that are near ready”, the DMRE says in a statement. “The timelines from the release of the Request For Proposals (RFP) in the market to bid submission and then again from preferred bidder stage to financial close was designed to be short to ensure that electricity could be connected to the grid as soon as possible. The RMIPPPP will allow for a phased grid connection, incentivising early power”.

DMRE says that “the connection timelines will not allow for any deep strengthening of the grid and the qualification criteria will therefore facilitate projects where grid capacity is available and do not require any deep grid works. The RMIPPPP will provide for long term power purchase agreements up to 20 years.

 

 

 

 


The African Tango: the case of Tullow and Capricorn

By Gerard Kreeft

2050—the date that the IEA(International Energy Agency) deemed that oil and gas projects would no longer be feasible—continues to take its toll. The latest example is the proposed merger of Tullow and Capricorn. Is this a case of asking  one of the last available girls, who has not yet found a dance partner, to tango with you?  Or a final bad choice–remaining on the sidelines and listening to the music as people continue to tango towards a 2050 deadline.

The Tullow-Capricorn merger has promised to become a prime mover in the African oil and gas landscape. Is this the case? In the past a key role of oil and gas independents was predictable: allowing the majors to farm-in to their projects and then be rewarded handsomely. Or in some cases independents carrying out the exploration for the oil majors  Now this has changed. The oil majors are instead re-calibrating their project strategies–re-aligning, consolidating and merging  their Africa assets reflecting a checkered landscape. Some examples:

  • In Angola BP has merged its upstream activities with Eni to form Azule Energy, which could become a model for other African countries.
  • Much of TotalEnergies’ hydrocarbon budget will be devoted to low-cost, high-value projects are the goal. Squeezing more value out of  various African assets to ensure a prolonged life cycle. A prime example is TotalEnergies’ Mozambique LNG project, which is expected to cost $20Billion and produce up to 43 million tons per annum.
  • Shell indicated that it will reduce its upstream division to nine core hubs—Permian, the Gulf of Mexico, United Kingdom, Kazakhstan, Nigeria, Oman, Malaysia, Brunei and Brazil.

The legacy of the oil majors in Africa is not pleasant reading. According to Toyin Akinosho, publisher of the Africa Oil + Gas Report, African oil and gas revenues have financed the energy transition in the rest of the world, but not in Africa: “. . . the oil majors are funding clean energy from the balance sheet of dirty oil.”[1]

In the meantime, there is sufficient evidence to suggest that new entrants are filling the void. Seplat Energy PLC is, in Nigeria now about to take over the assets of Mobil Producing Nigeria Unlimited(MPNU), a subsidiary of ExxonMobil, for a purchase price of $1.2Billion. Prior to the Seplat Energy deal  already twenty-five private companies in Nigeria were producing nearly 400,000BOPD (barrels oil per day).

What has previously happened in the North Sea  is now occurring in Sub-Sahara Africa.  Jason Bordoff, Co-Founding Dean of the Columbia Climate School, Founding Director of the Center on Global Energy Policy, and Professor of Professional Practice in International and Public Relations at Columbia University SIPA, recently indicated  that private equity companies are turning their attention to assets being aborted by the oil majors. Private equity now accounts for 10% of all North Sea production, up from virtually 0% in 2014. Bordoff concludes that Chinese banks have also shown an ability to fill these investment slots.[2]

The Case of the Newlyweds

Tullow Oil

Tullow Oil, long seen as a pioneer African oil and gas explorer, has in the last 3-5 years been forced to focus only on reducing its huge debt load. In December 2019 CEO Paul McDade stepped down because the company had to write off $1.2Billion, resulting in a halving of its share price, and a cancellation of any possible dividend. The company share price was 220 pence on 5 January 2018 and on 1 June  2022 it had been reduced to only 55 pence per share price. A four-fold reduction!

The debt also was accumulated because of missed production predictions from its flagship operations in Ghana. The company also suffered setbacks in Uganda, Kenya and Guyana. In 2020, in order to raise cash, Tullow sold all of its Uganda assets to TOTALEnergies for $575Million.

In 2021 the company produced 59,000BOPD: 42,000BOPD from its Jubilee and Ten fields in Ghana and an additional 16,000BOPD from non-operating assets in Gabon and Ivory Coast.

Capricorn Energy

In spite of the deal being dubbed as the merging of two equals, Capricorn is being taken over by Tullow. Capricorn, in spite of its various concessions, has a very tenuous existence. Capricorn Energy’s sole production of some 36,500BOEPD is coming from its Western Desert asset which it bought from Shell.

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

Cairn Energy sought to raise capital for its India subsidiary Cairn India in order to further develop the Rajasthan block. Subsequently Vedanta Resources purchased a majority stake of  Cairn India. The Indian government demanded a retrospective tax demand,  a tax dispute that lasted seven years and was finally settled by arbitration. The Government of India  was required to pay Cairn/Capricorn a final payment of $1.06Billion. This payment has helped keep Capricorn afloat. What is puzzling is why did Cairn Energy sell its stake in India? True the company received $8.48Billion for its majority stake in Cairn India. That money became the basis for new exploration adventures. Would it not have been more profitable to grow Cairn India as a  business?

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

Finally, the Capricorn share price om 5 January 2018 was 266 pence, and on 1 June 2022 was 202 pence.

Some Final Considerations

Tullow Oil’s CEO Rahul Dhir is presiding over an unlikely collection of exploration commitments and rights. True the new company has promised production of some 125,000BOEPD by 2025 which it will certainly need in order to  further reduce debt and develop its exploration assets. Will the new company have the fiscal muscle to further develop these assets? Whether the oil majors will want to farm-in is questionable. Certainly, they will unlikely pay the super prices of the past.

On a short-term basis it is imperative that the Tullow-Capricorn company unveil its future development strategy.  How will it, for example, finance the Billions that are required for the ‘Value Maximization Plan’ to develop the Tano Basin in Ghana? Similar questions can also be raised about other potential development projects.

There is the matter of the sharp decline of the Tullow share price which is now only one-quarter of its 2018 value; the Capricorn share price, although depressed compared to 2018, still demonstrates  a stronger valuation than that of Tullow. This could prove to be a bad omen for the two partners.

Finally,  can CEO Rahul Dhir put together a plan so that the new entity can grow its business. Perhaps Dhir may realize that he still has unfinished business from his tenure at Cairn India. After all he was Cairn India’s Managing Director from its IPO(Initial Public Offering)in 2006 until 2012. Surely, he has an extensive track record of lessons learned which could prove to be invaluable in the months ahead.

Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and contributes to IEEFA(Institute for Energy Economics and Financial Analysis). His book ‘The 10 Commandments of the Energy Transition ‘is being published this June.


Savannah Inks Agreement for 500MW Solar Energy in Chad

By McCullum Juba, our Central Africa Solar Energy Correspondent, in Ndjamena

Two projects involved: first sanction expected in 2023

British independent, Savannah Energy has signed an agreement with the Ministry of Petroleum and Energy of the Republic of Chad for the development of up to 500 megawatts of renewable energy projects supplying electricity to the Doba Oil Project and the towns of Moundou and Doba in Southern Chad, and the capital city, N’Djamena.

A signing ceremony was held on May 30, 2022 in N’Djamena, attended by the Chadian Minister of Petroleum and Energy Djerassem le Bemadjiel, Mark Matthews, the UK Ambassador to the Republic of Chad, Sarah Wilson, Deputy Head of Mission at the British Embassy N’Djamena, Chad, and Andrew Knott, Chief Executive Officer of Savannah.

Centrale Solaire de Komé

The first Project Savannah has agreed to develop comprises an up to 300 MW photovoltaic solar farm and battery energy storage system (“BESS”) located in Komé, Southern Chad (the “Centrale Solaire de Komé”). This Project is being developed to provide clean, reliable power generation for the Doba Oil Project and the surrounding towns of Moundou and Doba. In doing so, it will displace existing hydrocarbon power supply resulting in a significant reduction in CO2 emissions and provide a supply of clean, reliable electricity on a potential 24/7 basis to the surrounding towns of Moundou and Doba (which currently only have intermittent power access). The expected tariff for the electricity generated from this Project is expected to be significantly less than that being paid for the current hydrocarbon-based power generation in the region. At 300 MW, the Centrale Solaire de Komé would be the largest solar project in sub-Saharan Africa (excluding South Africa) as well as constituting the largest battery storage project in Africa. Project sanction for the Centrale Solaire de Komé is expected in 2023 with first power in 2025.

Centrales d’Energie Renouvelable de N’Djamena

The second project covered by the Agreement involves the development of solar and wind projects of up to 100 MW each to supply power to the country’s capital city, N’Djamena (the “Centrales d’Energie Renouvelable de N’Djamena”). A significant portion of this project is anticipated to benefit from the installation of a BESS, potentially enabling the provision of 24/7 power supply. At up to 200 MW, the Centrales d’Energie Renouvelable de N’Djamena would more than double the existing installed generation capacity supplying the city and increase total installed grid-connected power generation capacity in Chad by an estimated 63%. Savannah expects the cost of power from the Centrales d’Energie Renouvelable de N’Djamena to be lower than existing competing power projects, which are currently primarily hydrocarbon-based. Project sanction for the Centrales d’Energie Renouvelable de N’Djamena is expected in 2023/24 with first power in 2025/26.

Savannah expects to fund the Projects from a combination of its own internally generated cashflows and project specific debt.

 


Kibo Hopes to Deploy Long Duration Energy Storage in Southern Africa

PARTNER CONTENT

Kibo Energy has signed a rolling Five-year Framework Agreement (FA) with Enerox GmbH (CellCube), to develop and deploy CellCube based Long Duration Energy Storage (LDES) solutions in selected target sectors in Southern Africa.

Under the Agreement Kibo holds conditional exclusive rights, subject to successful Proof of Concepts (PoC), to the marketing, sales, configuration and delivery of CellCube’s vanadium redox flow batteries (VRFB) in the development of its LDES solutions in microgrid applications behind the meter. For any utility scale projects the parties will work on a non-exclusive basis.

The FA will be rolled out within an operational concept and aim, consisting of an initial stage focused at planning, preparation and the delivery of at least two POC Projects and a continuous production stage, focused on the delivery of a commonly agreed project pipeline which is expected to exceed at least 1,000MW over the course of the Five-year term.

  • Kibo intend to develop an order pipeline with firm annual commitments from its already existing project pipeline of up to 21,200 installations, ranging from small scale 40kWh to larger 2,000kWh systems per installation, in target sectors consisting of ICT towers, gated communities, shopping centres and commercial parks. In addition, the parties will also review an already identified bespoke renewable energy microgrid project pipeline.
  • Specified POC projects in relation to the agreed target sectors and areas are to be ordered by June 30, 2022.
  • Kibo will establish and maintain the capability and capacity to act as a project developer and an integrator of the CellCube solutions, subject to audit and certification by CellCube.
  • At any future time that CellCube may establish a local assembly line, Kibo has been granted a first right of refusal to any production output delivering CellCube core components or CellCube technology within the target region as long as firm order commitments are made by Kibo.

Louis Coetzee, CEO of Kibo Energy, commented: “As Kibo is aggressively rolling out its Sustainable and Renewable Energy Strategy, we are delighted to announce this dynamic arrangement with a leading flow battery producer. The development of a large project pipeline ready for immediate execution is the main pivot on which the FA hinges.

Alexander Schoenfeldt, CEO of CellCube, commented: “We are executing on our strategic view with a value proposition aligned to identified partners in our core regions of activity, for which South Africa is key.  It is exciting to see that the time has come that Vanadium Redox Flow Batteries are able to address a Gigawatt-sized pipeline. Kibo has shown that it understands the LDES space and the activity that is needed to unlock value in the nascent Long-duration vanadium redox-flow application. CellCube offers a bankable product and we are well-positioned and look forward to building on these initial steps with Kibo, to realizing a Vanadium based energy storage vision for the region”


TOTALEnergies: The Day After the Night Before

By Gerard Kreeft

How is it possible that TOTALEnergies, which has explained to shareholders that it has shifted its strategy from being an oil company to becoming an energy company, has profited so little from this move?  In the four and half-year period January 5, 2018 to April  29, 2022, the share price has decreased 16%: from $58 to $49. Yet the TOTALEnergies strategy was, it seemed at the time, unique and compelling. Where did it go wrong? My argument for shareholders is simple: break up the company so that new energy and its deepwater-hydrocarbons units become independent entities ensuring more shareholder value.

 Serving Two Masters: The Quandary

In summer 2020, TOTALEnergies took the unusual step of writing off $7Billion in impairment charges for two oil sands projects in Canada. Both projects were listed as proven reserves. By declaring these proven reserves as null and void, with one swoop of a pen, TOTALEnergies cast aside the petroleum classification system, which was the gold standard for measuring oil company reserves.

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

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

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

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

Patrick Pouyanné, TOTALEnergies’ chairman and CEO, now says that by 2030 the company “will grow by one third, roughly from 3Million BOEPD (Barrels of Oil Equivalent per Day) to 4Million BOEPD, half from LNG, half from electricity, mainly from renewables.”[1] This was the first time that any major energy company translated its renewable energy portfolio into barrels of oil equivalent. So, at the same time that the company has slashed proven oil and gas from its books, it has added renewable power as a new form of reserves.

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

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

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

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

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

While the strategy may have been sound, the implementation has been found wanting. The dual strategy of being an oil company together with being an energy company has found little acceptance by the investor community. The straddling of both hydrocarbons and low carbon solutions has cast a shadow over the TOTALEnergies strategy.

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

Of the oil majors—BP, Chevron, ENI, ExxonMobil, Equinor, Shell, Repsol,  and TOTALEnergies—TOTALEnergies, has been one of the industry laggards between 2018 and 2022.

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

 

Year Repsol       BP       Shell ENI TOTALEnergies Chevron ExxonMobil Equinor
2018 $17 $43 $69 $35 $58 $128 $87 $23
2022 $15 $29 $53 $28 $49 $157 $85 $34

Note: Values based on 5 January 2018 and 29 April 2022

 During these five years, Repsol’s stock has been down 12%,  BP’s stock is down 33%, Shell is down 23%, ENI down 20%, TOTALEnergies down by 16%, and ExxonMobil remained flat,  whereas Chevron’s stock rose by 23%, and Equinor up 48%.

 TOTALEnergies’ New Energy Strategy

On the renewables front, TOTALEnergies has confirmed it will have a 35 GW capacity by 2025, and it plans to add 10 GW per year after 2025. This could mean creating an additional 250 GW by 2050.

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

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

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

TotalEren: an IPP(Independent Power Producer) developer involved in all phases of project development and implementation with a generating capacity of 5 GW.  According to Africa Oil + Gas Report, the company could become a candidate for a top-ten list of Africa’s leading  renewable developers.

Sunpower: has 6 GW of photovoltaic power installed globally.

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

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

There is further evidence to illustrate that renewables  are only a second-tier after-thought.TOTALEnergies’ capital expenditures for the period 2022-2025 is anticipated to be between $13Billion-$16Billion per year: 50%  ($6.5Billion-$8Billion) on hydrocarbons and only 25% ($3.25Billion-$4Billion) on renewables[2]. This is in sharp contrast to Equinor. Equinor expects gross investments in renewables of approximately $23Billion from 2021 to 2026, and to increase the share of gross capex for renewables and low carbon solutions from around 4% in 2020 to more than 50%  by 2030.

TOTALEnergies’ African Oil and Gas Play

Much of TOTALEnergies’ hydrocarbon budget will be devoted to Africa in which  low-cost, high-value projects are the goal. The plan is to squeeze more value out of  various African assets to ensure a prolonged life cycle.

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

In Angola the company produces more than 200,000BOEPD from its Block 17 and Block 32, and non-operated assets including AngolaLNG.

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

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

The New Energy Players

Consider the competition that TOTALEnergies is facing. The  new energy companies—ENGIE, Enel, E-on, Iberdrola, Ørsted, RWE, and Vattenfall—have pole position in determining the direction of the global renewables market.

  • ENGIE: In 2021 the company spent more than $11Billion on investments across a broad swath of sectors, including solar, wind (on and offshore), hydro plants, biogas, and developing gas and power lines, and it will have 50 GW of global renewable capacity installed by 2025.
  • Enel: The company’s strategic plan outlines total investments of $231Billion by 2030 and tripling renewable capacity to 154 GW.
  • Ørsted: By 2030, the company will have an installed capacity of 50 GW.
  • Iberdrola: From 2020–2025, the company will be spending $165Billion on renewable energy and has a pending target of 95 GW of installed wind capacity.
  • RWE: By 2030, RWE will have 50 GW of installed wind and solar capacity.
  • Vattenfall: In the Nordic countries, Vattenfall has low emissions, with practically 100% of the electricity produced by renewable hydroelectric power and low-emitting nuclear energy.

On a similar note, there is good news and bad news for Europe’s new energy companies. Engie, the large French energy giant, has seen its share price  decrease by 20%. Enel, the Italian power company, has seen its share price increase 20%. Iberdrola, the Spanish power company, has had an increase of 71%. The two big winners are Ørsted, the Danish power company which has seen its stock soar by 131% and RWE, the German utility giant, has seen a stock price increase of 121%. Ørsted’s constant low carbon energy news has resonated with investors. Again, like the oil majors, the messaging is key.

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

Year Enel Engie Iberdrola Ørsted RWE  
2018 $5 $16 $7 $49 $19
2022 $6 $12 $12 $113 $42

        Note: Values based on 5 January 2018 and 29 April 2022

The Inevitable Dilemma

How long will the TOTALEnergies’shareholders tolerate a share price that is going no-where quickly? Is it not time that the company be split up so that new energy can be consolidated into a company which can compete with other new energy companies who have a clear mandate? The same can be said about TOTALEnergies’ deepwater hydrocarbon division. No doubt the company’s deepwater knowledge and pioneering spirit has made it an industry leader which could create more shareholder value in a new entity.

New energy has received a poor hearing from TOTALEnergies. The message that new energy somehow has less shareholder value continues to resonate from TOTALEnergies’ management. And this continues to defy evidence to the contrary.

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

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

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

Speaking to Forbes.com, Donovan said “The conventional wisdom says that investing in fossil fuels is more profitable than investing in renewable power. The conventional wisdom is wrong.”[3]

There is no straight forward answer how soon TOTALEnergies and the other oil majors and new energy companies will start a new round of mergers, joint ventures and consolidation. The energy transition has its own speed and takes no prisoners. But this we do know: 2022 started with an energy crisis involving Russia and the Ukraine, and the last apple has not fallen from the TOTALEnergies’ tree.

 Gerard Kreeft, BA (Calvin University, Grand Rapids, USA) and MA (Carleton University, Ottawa, Canada), Energy Transition Adviser, was founder and owner of EnergyWise.  He has managed and implemented energy conferences, seminars and university master classes in Alaska, Angola, Brazil, Canada, India, Libya, Kazakhstan, Russia and throughout Europe.  Kreeft has Dutch and Canadian citizenship and resides in the Netherlands.  He writes on a regular basis for Africa Oil + Gas Report, and contributes to IEEFA(Institute for Energy Economics and Financial Analysis).


TOTALEren Looks for Green Hydrogen in the Gulf of Suez

TOTALEren has joined the growing queue of energy companies looking to play in the green hydrogen market in Egypt.

The French firm, a subsidiary of TOTALEnergies, has teamed up with portfolio manager Enara Capital to ink agreements with the General Authority of the Suez Canal Economic Zone (SCZone), the Sovereign Wealth Fund of Egypt (TSFE), the Egyptian Electricity Transmission Company (EETC) and the New and Renewable Energy Authority (NREA).

The partners will conduct preliminary studies for a green hydrogen project in the Gulf of Suez, capable of producing 30,000Tonnes of green hydrogen per year. The capacity is much lower than those negotiated by other companies, especially EDF Renouvelables, another French energy company, aiming to produce 350,000Tonnes per year; the UAE based Masdar is looking to deliver 480,000Tonnes per year by 2030 and Amea Power, another UAE firm, wants to install a green hydrogen project with capacity of 240,000 tonnes per year by 2026 and ramp it up to 390,000Tonnes per year in the second phase, all in the Suez Canal economic zone.

In any case, TOTALEren hopes to grow its capacity to 1.5Million tonnes per year according to SCZone. “The Egyptian state is working diligently to support the transformation to a green economy based on clean energy, especially by providing facilities and incentives to attract green investments and exploit green financing opportunities,” according to a statement by the authorities.

The long list of companies who have signaled an interest in producing green hydrogen in Egypt includes Scatec, the Norwegian firm which is also Africa’s biggest renewable energy developer. Scatec is working in concert with h Orascom Construction and Fertiglobe.


Egypt’s Nat Gas/Gasoline Dual Fueled Vehicles to Cost More

Companies participating in the Egyptian Government’s natural gas vehicle swap programme will increase their prices by up to 45% in response to rising inflation.

A price list published by the influential daily Al Masry Al Youm indicates that sticker prices on all participating brands will now rise 19-45% from where they were when the scheme launched in March 2021.

Participating brands include Nissan’s Sentra and Sunny, Chevrolet’s Optra, Hyundai’s Accent and Elantra, among a few others, including brands from Lada. Depending on the model, applicants will be paying up to $4,000 (or EGP 75,000) more for their vehicles.

Applications submitted after April 24, 2022 will incur these new prices.

The clearest interpretation is that the government has caved in to pressure  and permitted companies to raise prices far above the 10% it previously allowed, year on year, under the rules of the scheme.

 

 

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