OGV Energy's Europe Energy Review – December 2022

Oil and gas field developments offshore Norway, the UK windfall tax on low-carbon electricity generators, and many low-carbon energy deals marked the last month in Europe’s energy sector.

Oil & Gas

Norway’s Equinor and its partners in the Wisting prospect in the Barents Sea have decided to postpone the investment decision scheduled for December 2022. The maturation of the project continues, aiming for an investment decision by end of 2026. 

“Many people have been working hard to realise Wisting, and the decision is demanding. However, in the current supplier market postponing the investment decision to ensure an economically sound development and robustness in the execution phase of the project is the right decision. When the pressure in the supplier market subsides, the Wisting project will be possible to execute in a good way,” said Geir Tungesvik, Equinor’s executive vice president, Projects, Drilling & Procurement.

Equinor and partners will now further mature the development concept, the power-from-shore solution, and consider new supplier models for Wisting.

The Norwegian company, however, has decided to develop the Irpa gas discovery, formerly known as Asterix, in the Norwegian Sea north of the Arctic circle. Equinor and partners Wintershall DEA, Petoro, and Shell will invest $1.5 billion (14.8 billion Norwegian crowns) to develop the discovery, the plan for which was submitted to Norwegian authorities at the end of November.

The Irpa discovery has expected recoverable gas resources equivalent to 124 million barrels of oil equivalent or the consumption of nearly 2.4 million British households over a period of seven years, Equinor said. The gas field is scheduled to come on stream in the fourth quarter of 2026. There will be joint production from Irpa and Aasta Hansteen through 2031 and then Irpa will continue to produce until 2039.

The gas will be phased into existing infrastructure over Aasta Hansteen and transported to the Nyhamna gas processing plant via Polarled. From there, gas will be transported via the Langeled pipeline system to customers in the UK and continental Europe.

“This is a good day—the development of Irpa will contribute to predictable and long-term deliveries of gas to customers in the EU and the UK,” Equinor’s Tungesvik said. 

OKEA became operator of the Brage field with effect from 1 November 2022 after completing a sale and purchase agreement with Wintershall Dea. Through the acquisition, OKEA adds a new operatorship to its portfolio and increases production and reserves by 30-40%.

US firm Excelerate Energy signed at the end of October an agreement with Germany’s Government to charter the floating storage and regasification unit (FSRU) Excelsior to help provide energy security and supply diversification to Germany while supporting the country’s transition to renewable energy.

“The deployment of the FSRU Excelsior to Germany demonstrates our commitment to strengthening energy security at a time when traditional energy sources have proven unreliable,” said Steven Kobos, President and CEO of Excelerate.

Neptune Energy and its licence partners announced in mid-November that hydrocarbons had been encountered in the Calypso exploration well in the Norwegian Sea. The operations in the reservoir section remain at an early stage and it has yet to be confirmed if commercial volumes are present, said Neptune Energy which views Calypso as an exciting prospect that could be tied-back to existing infrastructure in case of a commercial discovery.

Low Carbon Energy

The UK government introduced a 45-percent temporary tax on the extraordinary returns of low-carbon electricity generators, the Chancellor of the Exchequer Jeremy Hunt said in the Autumn Statement. 

“The structure of our energy market means high oil and gas prices are driving up the cost of otherwise cheap low-carbon electricity in the UK. The government will introduce a new, temporary 45% Electricity Generator Levy on these extraordinary returns from 1 January 2023. This will help fund government support for energy bills and vital public services,” the UK government said.

For the purposes of the tax, extraordinary returns will be defined as the aggregate revenue that generators make in a period from in-scope generation at an average output price above £75/MWh. The tax will be limited to generators whose in-scope generation output exceeds 100 GWh across a period and will only then apply to extraordinary returns exceeding £10 million. The tax will apply to extraordinary returns arising from 1 January 2023 and will be legislated for in Spring Finance Bill 2023. 

The windfall tax on low-carbon electricity generators risks severely damaging investment in vital renewable energy projects, RenewableUK warned after the new tax was announced.

“This windfall tax on low carbon power risks deterring investment, at a time when the Chancellor should be incentivising clean energy. Unlike in oil and gas, under this levy companies which are making significant investments in renewables will get no tax relief and will be hit by a higher windfall rate,” RenewableUK's CEO Dan McGrail said.

“We need to attract more than £175bn in new wind farms and our supply chain over the course of this decade, so we need to make the UK one of the most attractive destinations for private investment in renewables. Ministers now need to work with the industry to ensure that the implementation of these plans ensures a level playing-field, rather than imposing unfair burdens on renewables,” McGrail added.

Scottish Renewables also criticised the tax on low-carbon electricity generators, with Chief Executive Claire Mack saying, “Today’s announcement by the Chancellor damages this country’s reputation as a leader in renewable energy, chiefly by continuing to offer investment allowances to oil and gas extraction while failing to do the same for this industry.”

“Additionally, many renewable energy generators on older contracts have sold their power far in advance, so are not benefitting from excess profits from wholesale price rises caused by the cost of gas,” Mack added.

“The UK needs £1.4 trillion to fund its transition to net-zero by 2050. To raise that money, international investors look to the UK Government to provide a stable policy environment which incentivises investment in clean power.”

The Association for Renewable Energy and Clean Technology (REA) also criticised the new tax, saying the Government had sent wrong signals to investors with renewable energy taxes which compare unfavourably with the oil and gas sector.

“While the REA and its members recognise the immense economic challenges facing this country, we would question the wisdom of subjecting the cheaper, greener renewable power sector to a more punishing tax system than its oil and gas counterparts,” said Frank Gordon, Director of Policy at REA.

“We note the exemption for smaller sites, but I would strongly urge the Government to fix this disparity as there is a strong need for tax relief for low carbon investments to help stabilise energy prices and offer long-term energy security. This is crucial for getting investments in renewables moving again following the pause that resulted from the last few months of political and policy uncertainty,” Gordon added.

In projects and deals, Crown Estate Scotland confirmed in early November that all three successful ScotWind Clearing applicants now have seabed option agreements in place meaning that their projects can move into the development stage. Full seabed leases are granted at a later stage once applicants have the necessary consents from regulators, such as Marine Scotland, and have secured grid connections and financing. 

ENGIE and Google signed at the end of November a 12-year corporate power purchase agreement (PPA) supporting Moray West offshore wind development. ENGIE will provide Google with more than 5 TWh of green power from the Moray West project, a nearly 900 MW offshore wind farm set to begin generating power from 2025, the project’s developer Ocean Winds said.

The developers of the Ossian Wind Farm off the East Coast of Scotland have identified a potential increase in the overall project capacity, from 2.6 GW to up to 3.6 GW, SSE Renewables said. SSE Renewables as well as Japanese conglomerate Marubeni Corporation and Danish fund management company Copenhagen Infrastructure Partners (CIP) are the developers of the project.

“If realised, this change would position the project among the top five largest floating projects in the world, demonstrating its epic scale,” said David Willson, Senior Project Manager for Ossian.

Solent Local Enterprise Partnership, ExxonMobil, and the University of Southampton announced on 1 November The Solent Cluster, the first major decarbonisation initiative that would substantially reduce CO2 emissions from industry, transport, and households across the Solent and Southern England. 

Eni UK announced the launch of the Bacton Thames Net Zero (BTNZ) Cooperation Agreement, which is aimed at decarbonising industrial processes in the South-East of England and the Thames Estuary area, near London, by means of capturing and storing CO2.

Equinor said that power production from the first turbine in the floating wind farm Hywind Tampen in the North Sea started on 13 November. The power was delivered to the Gullfaks A platform in the North Sea.  

In the UK, Equinor and Centrica signed a cooperation agreement to explore developing a low-carbon hydrogen production hub at Easington in East Yorkshire. Under the plan, the Centrica-operated area at Easington could transition to a low carbon hydrogen production hub over the coming decade. 

Equinor also announced its interest in developing gigawatt scale floating offshore wind in the Celtic Sea, with the upcoming Celtic Sea floating wind seabed leasing round in view. As the developer and soon to be operator of two of the world’s first floating offshore wind farms, Equinor views new floating opportunities in the Celtic Sea with great interest. The Crown Estate is planning a seabed leasing round in the Celtic Sea in 2023. 

“We are committed to industrialising floating offshore wind and the Celtic Sea is an optimal region for further development of this important technology,” said Catherine Maloney, Head of Business Development, UK Offshore Wind, at Equinor. 

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