Europe Energy Review – July 2022

Oil & Gas

Early in June, the EU managed to overcome the Hungarian resistance and announced a ban on seaborne Russian oil imports and a ban on maritime insurance for Russian oil going to third countries. The EU has to phase out imports of seaborne crude oil and petroleum products within eight months, with a special derogation until the end of 2024 for Bulgaria due to its specific geographical exposure. Member States highly dependent on Russian pipeline oil are also temporarily exempted until the Council decides otherwise, but they are not allowed to resell the oil they receive from Russia via pipeline. The ban covers 90% of the EU’s current oil imports from Russia.

Analysts believe that the insurance ban will hit Russian oil exports more than the EU ban for imports because most insurers are based either in the EU or the UK, which looks to join the insurance ban on maritime transportation of Russian oil.

Russia curbed in the middle of June natural gas deliveries to major EU customers, including the biggest buyers Germany and Italy. EU leaders rejected the Russian “technical reasons” for the lower gas volumes and said the move was politically motivated.

The Russian cuts to supply to Europe came just as the continent was sending gas into storage to have it at least 80% full by the start of the winter. EU members fear gas injection into storage would slow and Russia would use the regular two-week maintenance on the Nord Stream pipeline in July as an excuse to further slash supply. Reduced gas deliveries from Russia prompted Germany to trigger the second phase of a three-stage emergency gas plan and to appeal to consumers to conserve gas and energy. Many other countries in Europe have also asked people to conserve energy this summer.

The EU agreed increased supply from Norway, Western Europe’s top oil and gas producer, as it seeks to replace Russian gas and secure more supply.

“European Commission Executive Vice-President Frans Timmermans, Commissioner for Energy, Kadri Simson and Norwegian Minister of Petroleum and Energy Terje Aasland therefore agreed to step up cooperation in order to ensure additional short-term and long-term gas supplies from Norway, to address the issue of high energy prices, and to develop long-term cooperation on offshore renewable energy, hydrogen, carbon capture and storage, and energy research and development with a view to developing an even deeper long-term energy partnership,” Norway said.

Norway’s Equinor also agreed to deliver additional gas supplies to the UK by raising the annual supply to UK’s Centrica, the owner of British Gas. Equinor every year typically supplies 20-22 bcm of natural gas to the UK which covers over 25% of UK gas demand.

Equinor also resumed production at the Hammerfest LNG after a fire shut down the facility in September 2020. Hammerfest LNG accounts for more than 5% of Norwegian gas exports.

“With the start-up of Hammerfest LNG, we add further volume to the already substantial gas deliveries from Norway. This is of great significance in a period when predictable and reliable supplies are highly important to many countries and customers,” said Irene Rummelhoff, Equinor’s executive vice president, Marketing, Midstream and Processing. 

In exploration and production, Equinor has awarded Transocean Spitsbergen a firm drilling programme consisting of nine wells and options for another two. The rig is scheduled to start the drilling campaign in the autumn of 2023 for three production wells for the Haltenbanken West Unit, part of the Kristin South area in the Norwegian Sea. Subsequently, six production wells are planned for Halten East, which will be tied-in to the Åsgard field in the Norwegian Sea, before considering another two wells on Kristin South.

Equinor announced in early June it had made another oil and gas discovery in Skavl Stø near the Johan Castberg field in the Barents Sea. The size of the discovery is preliminarily estimated at between 5-10 million barrels of recoverable oil equivalent. Together with the other licensees, Vår Energi and Petoro, Equinor will consider tying the discovery into the Johan Castberg field.

Italian energy engineering firm Saipem signed a binding agreement with KCA Deutag to sell its Drilling Onshore operations in exchange for a cash consideration of $550 million plus a 10% stake in KCAD after its acquisition of the Saipem’s Drilling Onshore.

Low-Carbon Energy

In low-carbon energy news, UK Energy and Clean Growth Minister, Greg Hands, met representatives of the offshore wind industry on 16 June to discuss ways to accelerate UK offshore wind deployment.

A new report published by the Offshore Wind Industry Council forecasts that by 2030, the industry will employ over 97,000 people in the UK, including 61,000 direct jobs and 36,000 indirect jobs. According to the report, between 2022 and 2030, the industry will see £155 billion of private investment in new offshore wind projects, taking the average annual spend to over £17 billion a year. This is significantly higher than the level of private investment reported last year, which showed an average annual spend of just over £10 billion. The UK’s total pipeline of offshore wind projects at all stages of development has surged over the past 12 months, and now stands at 86 GW. The 60% increase has been driven mainly by major leasing round announcements by The Crown Estate (8 GW) and Crown Estate Scotland (25 GW of ScotWind), the report noted.

“This report shows that we’re making rapid progress in seizing the economic benefits of the Green Industrial Revolution, and that we’ll need to continue to grow fast to ensure that we meet the Government’s target of 50 gigawatts of offshore wind by 2030 - a fivefold increase in our current capacity. That’s why it’s important for industry and Government to work together to address skills shortages in areas like electrical engineering and data analysis, so we can boost the number of high-quality green jobs in offshore wind throughout this decade,” said OWIC’s People & Skills workstream head and RenewableUK’s Deputy Chief Executive Melanie Onn.

In early June, The Crown Estate committed £50 million to accelerate the UK’s offshore energy ambitions and protect the marine environment. The Offshore Wind Evidence and Change Programme is gathering and harnessing the necessary data and evidence to propel forward the growth of UK offshore wind at pace, while maintaining clean, healthy, productive, and biologically diverse seas, The Crown Estate said.

The North Sea Transition Authority (NSTA) launched on 14 June the UK’s first-ever carbon storage licensing round with 13 areas available. The new carbon storage areas are off the coast of Aberdeen, Teesside, Liverpool and Lincolnshire in the Southern North Sea, Central North Sea, Northern North Sea, and East Irish Sea. This round will be the first of many as it is estimated that as many as 100 CO2 stores could be required in order to meet the net zero by 2050 target, the NSTA said.  

Offshore Energies UK strongly endorsed the carbon storage licensing round, noting that the UK’s offshore operators and their supply chain companies have five decades of experience in the kind of engineering needed to make such technologies work.

In North Lincolnshire, a consortium of Aker Solutions, Siemens Energy, and Doosan Babcock has been awarded the front-end engineering and design (FEED) contract for SSE Thermal and Equinor’s proposed Keadby 3 Carbon Capture Power Station, which could become the UK’s first power station with carbon capture and storage.

Equinor and SSE Thermal also bought power company Triton Power and are starting preparations to use hydrogen in the Saltend Power Station.

RWE and gas distribution company SGN are partnering to supply Scottish towns and rural communities with sustainable hydrogen gas. The two companies will explore the development of electrolysers, powered by RWE’s 10 onshore wind farms in Scotland to supply homes and businesses with hydrogen gas via Scotland’s gas network. 

RWE’s largest battery storage project went live in Monaghan, Ireland, in June. The 60-MW facility at Lisdrumdoagh near Monaghan town is capable of providing the rapid delivery of electricity into the power grid to help balance intermittency in electricity generation. 

Green Investment Group and Bluestone Energy set up a joint development agreement to develop up to 2 GW of UK battery storage projects. This partnership will play an important role in enabling more renewable energy capacity to connect to the UK’s electricity grid, the companies said on 14 June. 

Offshore Norway, Equinor and its partners in the Troll and Oseberg fields are looking into the possibility of building a 1-GW floating offshore wind farm in the Troll area. The potential Trollvind floating offshore wind facility, some 65 kilometres west of Bergen, could provide much of the electricity needed to run the offshore fields Troll and Oseberg through an onshore connection point. 

Air Liquide and Siemens Energy created a joint venture for the series production of industrial-scale renewable hydrogen electrolysers in Europe. Production is expected to begin in the second half of 2023 and ramp up to an annual production capacity of 3 GW by 2025.

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