OGV Energy's Europe Energy Review April 2022

The Russian invasion of Ukraine and its consequences on the energy markets with skyrocketing prices, supply deficit, and international majors announcing they would pull out of Russia was the biggest theme in the European energy market in the past month. The war also threw the progress to net-zero emissions and ways to reduce Europe’s dependence on Russian oil and gas into sharp relief.  

Oil & Gas

Days after Russia invaded Ukraine, the top European oil and gas firms raced to announce they are withdrawing from joint ventures and assets in Russia.

UK supermajor bp was the first to announce it would divest from Russia. In just a few days, many other Western oil majors followed suit.

bp said it would divest its 20% stake in Russian giant Rosneft. bp chief executive Bernard Looney resigned from the board of Rosneft with immediate effect. The other Rosneft director nominated by bp, former bp CEO Bob Dudley, also resigned from the board. As a result of the exit from Rosneft, bp expects to report a material non-cash charge with its first quarter 2022 results, probably around $25 billion.

The war in Ukraine “has caused us to fundamentally rethink bp’s position with Rosneft. I am convinced that the decisions we have taken as a board are not only the right thing to do, but are also in the long-term interests of bp,” CEO Looney added. Shell also said it would exit its equity partnerships with Gazprom entities, including the Nord Stream 2 gas pipeline project, its 27.5% stake in the Sakhalin-II LNG facility, its 50% stake in the Salym Petroleum Development and the Gydan energy venture.  

“We cannot – and we will not – stand by,” Shell’s CEO Ben van Beurden said, referring to Russia’s invasion of Ukraine as “a senseless act of military aggression which threatens European security.”

A few days later, Shell apologised for buying Russian oil after the war broke out and said it intended to withdraw from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and liquefied natural gas (LNG) in a phased manner, aligned with new government guidance. As an immediate first step, the company will stop all spot purchases of Russian crude oil. It will also shut its service stations, aviation fuels and lubricants operations in Russia.

Norway’s Equinor also decided to stop new investments into Russia, and to start the process of exiting its Russian joint ventures. Equinor will not enter any new trades or engage in transport of oil and oil products from Russia, the company said, noting that it would complete the delivery of four cargoes in March, contracts for which it had signed in January.

TotalEnergies of France also condemned the Russian invasion but stopped short of announcing a withdrawal. TotalEnergies will no longer enter into or renew contracts to purchase Russian oil and petroleum products, in order to halt all its purchases of Russian oil and petroleum products as soon as possible and by the end of 2022 at the latest. The company, which does not operate any oil and gas fields or any LNG plants in Russia, said it would provide no further capital for the development of projects in Russia.

TotalEnergies, however, will not be trying to divest its minority stakes in Russian assets because “The current environment of European sanctions and Russian laws controlling foreign investments in Russia would prevent TotalEnergies to find a non-Russian buyer for its minority interests in Russia. Abandoning these interests without consideration would enrich Russian investors, in contradiction with the sanctions' purpose.”

Wintershall Dea wrote off financing of Nord Stream 2 and will not advance or pursue additional projects in Russia. OMV of Austria said it would no longer pursue investments in Russia, and will undertake a strategic review of its 24.99% interest in the Yuzhno Russkoye field. This review comprises all options including possibilities to divest or exit.

Supply concerns and Vladimir Putin’s idea that “hostile” countries – including all of the EU and the UK – should pay in Russian roubles for gas sent European gas prices to record highs, while the UK and the EU were drafting strategies to reduce and eventually eliminate dependence on Russian energy supply.

The European Commission proposed a plan to make Europe independent from Russian fossil fuels well before 2030, starting with gas. The plan, REPowerEU, will seek to diversify gas supplies, speed up the roll-out of renewable gases, and replace gas in heating and power generation. This can reduce EU demand for Russian gas by two thirds before the end of the year, the EC said in early March.
 
Norway allowed Equinor and its partners to increase gas production from the Troll, Oseberg, and Heidrun fields, with high output maintained through the summer months. Equinor has also decided to postpone turnarounds on the Oseberg field from May to September this year in order to accelerate production.

"In this highly challenging situation we do our utmost to deliver as much as possible to our customers, enabling them provide homes and companies with gas. We are pleased that we, together with the authorities, our partners and Gassco, now ensure that we can export more gas this summer, while increasing the robustness of gas exports,” said Irene Rummelhoff, executive vice president, Marketing, Midstream & Processing.
 
Also in Norway, Neptune Energy and partners announced at the end of February drilling had commenced on the Hamlet exploration well in the Norwegian sector of the North Sea.

Low-Carbon Energy

The number of green jobs in Scotland has fallen in recent years, according to data from the Office of National Statistics (ONS) through 2020.

In low-carbon energy, Crown Estate Scotland said regarding the ScotWind leasing process that it is committed to taking all appropriate action not to support trade and investment activity with Russia.

“Crown Estate Scotland has carried out an initial check of applicants for Russian ownership and/or registration. This initial check did not uncover any Russian ownership or registration,” it said.

In the UK, the Industry and Regulators Committee said in a report in early March that the Government is likely to miss its target for reducing emissions to net-zero by 2050 unless it puts in place credible plans which are needed to encourage essential investment by consumers and businesses.

“The Government must act urgently to explain how the transition to net-zero will be funded,” said the report and added: “Ensuring security of energy supply alongside responding to climate change must remain a key priority for the Government.”  

The Crown Estate completed at the beginning of March phase two of its ongoing engagement with the market and stakeholders, seeking input to plans for up to 4 GW of floating wind leasing in the Celtic Sea. The stakeholders shared views on preferred floating wind technology types, how to deliver a coordinated grid solution, and the need for investment in both UK supply chain and port infrastructure to help realise the scale of the ambition of the programme.

A UK net-zero power system by 2035 is achievable, National Grid said in a report, presenting an analysis that suggests that even on a winter’s day with low winds and very little sunshine such a power system is achievable, albeit with some legacy fossil fuel generation as a reserve. The technology needed is available today or will be attainable with continued innovation, National Grid said, but noted that “it is a massive endeavour and success is uncertain.”

The UK’s total pipeline of offshore wind projects now stands at 86 GW – more than eight times the current operational capacity, new research published by RenewableUK showed at the end of March.

In UK onshore wind, RenewableUK called for the UK and devolved Governments to boost the UK’s onshore wind capacity as a key part of the nation’s strategy to cut dependence on gas and move to low-cost, home-grown energy sources. The UK can more than double its total onshore wind capacity from 14 GW now to 30 GW by 2030 and this would add £45 billion to the economy and support 27,000 jobs.

Ørsted has signed an agreement to sell for £3 billion a 50% ownership stake in its 1.3 GW Hornsea 2 Offshore Wind Farm to a consortium comprising AXA IM Alts, acting on behalf of clients, and Crédit Agricole Assurances. Hornsea 2 off the Yorkshire coast is currently under construction and will become the world’s largest offshore wind farm once commissioned later in 2022.   
 
Successful ScotWind partners, ScottishPower and Shell, said they are set to invest a total of £75 million to help the supply chain and businesses support the growth of the offshore wind industry in Scotland.

Aberdeen City Council and bp signed a joint venture agreement to develop the city’s hydrogen hub. Aberdeen City Council and bp have committed £3 million for initial design work with a final investment decision for the phase one facility build expected in early 2023, with first production targeted for 2024.

bp will also invest £1 billion in UK EV charging infrastructure over 10 years in its the largest-ever EV charging expansion.

Centrica Business Solutions has secured the development rights for a fully consented 30-MW 2hr battery storage plant in Aberdeenshire that will help maximise the use of renewable energy in the Scottish North Sea. The site in Dyce is located near a connection for North Sea offshore wind farms and will contribute towards managing network constraints.
 
Copenhagen Infrastructure Partners (CIP) and Alcemi announced a partnership for the development, construction, and operation of a 4 GW portfolio of energy storage assets across the UK, supporting the integration of renewable energy capacity and the transition to net-zero by 2050.

Italy’s energy and telecom cable systems provider Prysmian Group has been awarded a contract worth around €1.2 billion by NeuConnect Britain Limited and NeuConnect Deutschland GmbH for the turn-key design, manufacturing, installation, testing and commissioning of a 725 kilometre submarine interconnector that will directly link the German and UK electricity grids for the first time.

German LNG Terminal and Shell signed on 23 March a Memorandum of Understanding on the import of LNG through the planned terminal in Brunsbüttel. Under the agreement, the companies agreed that Shell would make a long-term booking of a substantial part of the Brunsbüttel terminal’s capacity for the import of LNG.  

Read the latest issue of the OGV Energy magazine HERE