Europe Energy Review – December 2020

The completion of a major new natural gas corridor in southern Europe, plans for green recovery from the pandemic in the European Union and the UK, and net-zero pledges from the biggest European oil and gas firms from Norway to Spain topped the energy news flow in 2020—a year in which renewable energy projects and commitments continued while the oil and gas industry saw another downturn.

Trans Adriatic pipeline begins commercial Operations

Four and a half years after construction started, the Trans Adriatic Pipeline (TAP), a strategic piece and the last link in the Southern Gas Corridor (SGC) project, became operational in the middle of November, paving the way to diversification of gas supplies to southern Europe away from Russia. TAP is the European leg of the Southern Gas Corridor, a gateway project that will transport 10 billion cubic metres (bcm/a) of new gas supplies from Azerbaijan to multiple markets in Europe.

“As a new transmission system operator, developed and built in compliance with best industry practices and standards, TAP enables double diversification: a new, reliable and sustainable energy route and source of gas reaching millions of European end-users, for decades to come,” said Luca Schieppati, TAP’s Managing Director.

Commenting on the start of commercial operations, Murray Douglas, Wood Mackenzie Research Director, said:

“This is a long-awaited and impressive milestone for all stakeholders. It is the first delivery of contracted Azerbaijani gas beyond Turkey, provides a fourth gas import pipeline corridor for the EU, boosts diversification and energy security, and is an inflection point for import-reliant gas markets in Italy, Bulgaria and Greece.”

“All eyes will be on the binding phase of TAP’s market test in summer 2021. This could be a bellwether for the post-lockdown recovery of European gas fundamentals,” Douglas noted.

Major oil & gas firms commit to Net Zero emissions

Due to the crash in oil and gas prices and reduced demand for both oil and gas in the pandemic, the largest oil and gas companies in Europe reported losses or significantly lower earnings in their quarterly financial reports in 2020. But all of them, alongside the major UK offshore operators bp and Shell, announced plans to become net-zero energy businesses by 2050 or sooner and committed to gradually cut emissions not only from their operations but also from the products they sell.

Spain’s Repsol was the first major firm to announce such a target—back in December 2019 and before the COVID-19 pandemic slashed demand for oil and fuels in 2020, with an uncertain timeframe as to when global oil demand will return to pre-crisis levels.

Repsol set a target for net-zero emissions by 2050 both from its production and products, with interim targets in 2025, 2030, and 2040. Repsol is focused on expanding its renewables portfolio, boosting biofuel production, generating low-carbon electricity, and develop technologies to cut emissions from the entire value chain.

“We do it with the utmost confidence that we’re investing in the future, and addressing the significant challenges that lie ahead with strategic clarity is what will enable us to turn them into opportunities,” Repsol’s chief executive Josu Jon Imaz says.

Italy’s Eni announced in June a “new business structure to be a leader in the energy transition,” creating an Energy Evolution division in the company to accelerate its plans to significantly boost renewable power generation and biofuels production. 

“We want to be main actors in a Just Energy Transition, in which we believe, and is central to Eni’s transformation,” CEO Claudio Descalzi said.

France’s Total also confirmed its net zero ambition in September, aiming to become a broad energy company and grow its energy production by one third, with half the growth from LNG and half from electricity, mainly from renewables. Total’s chief executive Patrick Pouyanné told French newspaper Le Parisien in September that the firm aims to be among the world’s top five producers of renewable energy. The company’s operations mix today is 55% oil, 40% gas, and less than 5% electricity from renewables, Pouyanné said, noting that in 2050, Total’s operations will be divided into 20% oil, 40% gas, and 40% renewable energy.

Norway’s Equinor was the last of the big oil companies in Europe to announce a net-zero energy company ambition. The announcement came in early November, the day on which Anders Opedal took over as CEO and President of Equinor. The company’s ambition, which includes emissions from production and final consumption of energy, shows Equinor’s continued commitment to long-term value creation in support of the Paris Agreement, it said.

Renewables, especially offshore wind, carbon capture and storage (CCS) and natural sinks, as well as the development of competitive technologies for hydrogen, will be the pillars of Equinor’s strategy to become a broad energy company.

“Equinor is committed to being a leader in the energy transition. It is a sound business strategy to ensure long-term competitiveness during a period of profound changes in the energy systems as society moves towards net zero,” Opedal said in a statement.

UK and EU support green recovery and renewables

The United Kingdom will aim to become a global leader in offshore wind energy, powering every home in the country with wind by 2030, Prime Minister Boris Johnson said in October.

The plan is part of the UK’s ambition to become a net-zero economy by 2050 and pave the way to a green recovery from the pandemic. The government will make available £160 million to upgrade ports and infrastructure across communities like in Teesside and Humber in Northern England, as well as Scotland and Wales, to boost offshore wind capacity.

The investment is expected to create 2,000 construction jobs and help the sector support up to 60,000 jobs directly and indirectly by 2030 in ports, factories, and the supply chains, manufacturing offshore wind turbines and delivering clean energy to the UK.

“Powering every home in the country through offshore wind is hugely ambitious, but it’s exactly this kind of ambition which will mean we can build back greener and reach net zero emissions by 2050,” UK Business and Energy Secretary Alok Sharma said.

The UK’s ambitious goal to double its renewable energy capacity by 2030 will be achieved as early as by 2026, thanks to wind power investments, Rystad Energy said in an analysis in October. Total installed solar and wind power capacity is set to jump to 64 gigawatt (GW) in 2026 from nearly 33 GW today, with offshore wind taking over the throne as the country’s biggest green energy source. Offshore wind capacity will continue to rise after 2026 and reach nearly 40 GW by the end of the decade, Rystad Energy said.

“The expected rapid deployment of offshore wind will require a substantial increase in the size of turbines, which implies a need for major expansion of UK manufacturing capacity. The government’s recent launch of a new scheme to bolster large-scale portside manufacturing hubs, involving financial support to also strengthen offshore wind manufacturing capability, will assist this transition,” said Gero Farruggio, Head of Renewables at Rystad Energy.

In November, the UK government launched a taskforce to support the creation of 2 million skilled jobs by 2030 to build back greener and reach net zero emissions by 2050. The taskforce will focus, among other areas, on supporting workers in high carbon transitioning sectors, like oil and gas, to retrain in new green technologies.

Scotland raised in October its estimate for offshore wind capacity by 2030. Scotland’s Energy and Climate Change Directorate now believes that the initially set target of 8 GW represents the lower end of a range that might be achieved by 2030, and that as much as 11 GW of installed offshore capacity is possible.

Maximising the opportunities to innovate across the renewable and fossil fuel sectors could create more than 200,000 new jobs across the UK and contribute more than £2.5 trillion to the nation’s economy by 2050, Wood Mackenzie said in a report for the OGTC in September. Delivering a tech-enabled integrated net zero energy future will cost £430 billion but generate more than £2.5 trillion in economic impact to the economy, according to WoodMac.

Innovation in the renewable and oil and gas sectors could also create a diversified energy sector, support a new generation of highly-skilled jobs, and open up the UK export potential, the report found.

“Just as the UK was a world-leader in the development of offshore oil and gas, it now has the unique opportunity to spearhead the offshore sector’s transition to a net zero energy system,” Malcolm Forbes-Cable, vice president, upstream consulting at Wood Mackenzie, said.

The European Union is also looking at renewables to help ‘build back greener’ and to achieve its carbon neutrality target for 2050.

The European Commission has proposed a major recovery plan for the EU after the coronavirus crisis. The plan will support the green transition to a climate-neutral economy via funds from Next Generation EU, a new recovery instrument.

“The recovery plan turns the immense challenge we face into an opportunity, not only by supporting the recovery but also by investing in our future: the European Green Deal and digitalisation will boost jobs and growth, the resilience of our societies and the health of our environment,” European Commission President Ursula von der Leyen said.

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