OGV Energy's Europe Energy Review November 2021

Surging natural gas and power prices in Europe continued to be a hot topic in European energy this past month, along with new oil and developments offshore Norway, the UK net-zero strategy, and many company investments in low-carbon energy projects.

Energy prices set records

Natural gas and power prices continued to set records in early October, prompting the European Commission to present a toolbox of measures to tackle the exceptional situation and its impacts on consumers. The toolbox includes providing emergency income support for energy-poor consumers; temporary, targeted reductions in taxation rates for vulnerable households; aid to companies or industries in line with EU state aid rules; and investigating “possible anti-competitive behaviour in the energy market and ask the European Securities and Markets Authority (ESMA) to further enhance monitoring of developments in the carbon market.”

Norway continues oil & gas development under new government

The new government in Western Europe’s largest oil and gas producer, Norway, pledged to continue its support to the oil and gas industry. The new minority government will continue to grant permits for oil and gas exploration on the Norwegian shelf and will keep the current system of oil auctions. Over the next four years, most of the exploration activity will take place in mature areas of the shelf, the government says.

Meanwhile, Neptune Energy announced that drilling had commenced on the Dugong Tail exploration well in the Norwegian sector of the North Sea.

More oil developments come on stream

Lundin Energy AB said that first oil from the operated Solveig field was achieved on 30 September. Solveig is a subsea tie back development into the Edvard Grieg platform. Phase 1 has gross proved plus probable reserves of 57 million barrels of oil equivalent and with gross peak plateau production of 30,000 barrels of oil equivalent per day, it will be a significant contributor to the extension of the plateau production period at Edvard Grieg, which has already been extended by five years to the end of 2023, Lundin said.

Longboat Energy announced in early October a discovery at the Rødhette exploration well, the first well in its fully-funded, seven well exploration programme.

The Petroleum Safety Authority Norway gave Equinor consent for extended operation of the Sygna field in the northern North Sea, just northeast of the Statfjord Nord field. Consent for operation of Sygna expired on 9 March 2024, and the authority has now given consent for extended operation of the Sygna field until 10 August 2026.

Equinor said that due to the COVID crisis and related delays, cost estimates for the Njord Future and Johan Castberg developments have increased, with the start-up of Johan Castberg now scheduled for the fourth quarter of 2024. Despite cost increases and delays in timing, Johan Castberg still has a break-even price below $35 per barrel, Equinor said.

bp announced at end-September it had agreed to sell a 25-% participating interest in the Shallow Water Absheron Peninsula (SWAP) exploration project in the Azerbaijan sector of the Caspian Sea to LUKOIL. After the transaction bp will continue to hold 25% in the project.

UK net-zero strategy

The UK government unveiled on 19 October its net-zero Strategy, setting out how the UK would deliver on its commitment to reach net-zero emissions by 2050. The strategy outlines measures to transition to a green and sustainable future, helping businesses and consumers to move to clean power, supporting hundreds of thousands of well-paid jobs, and unlock up to £90 billion of private investment by 2030, the government said. Reducing reliance on imported fossil fuels will protect consumers from global price spikes by boosting clean energy, according to the strategy, which the government expects would create 440,000 well-paid jobs in green industries.

“By moving first and taking bold action, we will build a defining competitive edge in electric vehicles, offshore wind, carbon capture technology and more, whilst supporting people and businesses along the way,” Prime Minister Boris Johnson said.

The strategy also includes the commitment to decarbonise the UK’s electricity system by 2035 announced earlier in October. In this commitment, the UK will rely on home-grown, green technologies such as offshore wind and nuclear energy to support the transition away from reliance on fossil fuels.

Scotland’s energy transition

The industry also urged the government to set a target to double the UK’s onshore wind capacity to 30 gigawatts (GW) by 2030. This would reduce consumer bills by £16.3 billion over the course of this decade and also help achieve the pledge to decarbonise electricity completely by 2035, RenewableUK said.

Scotland’s First Minister Nicola Sturgeon said in a speech ahead of the COP26 climate summit that Scotland should transition away from dependence on oil and gas.

“We must accept - as our Co-operation Agreement already does - that continued unlimited recovery of hydrocarbons is not consistent with meeting the aims of the Paris Agreement,” Sturgeon said.

“Our focus will be on achieving the fastest possible just transition for the oil and gas sector - one that delivers jobs and economic benefit, ensures our energy security, and meets our climate obligations,” Scotland’s first minister said.

UK’s onshore and offshore wind opportunities

The total pipeline of onshore wind projects which are operating, under construction, consented, or being planned in the UK has grown to nearly 33 GW from 30 GW a year ago, new research by RenewableUK showed.

33 GW of onshore wind capacity would power more than 21 million homes all year round, playing a significant role in decarbonising the UK’s electricity system, RenewableUK said.

A new report has found that the future UK electricity system could handle up to 150 GW of offshore wind, as long as essential technical integration and market reforms were delivered, the Offshore Wind Industry Council (OWIC) said, commenting on an analysis by Energy Systems Catapult.

A diverse mixture of energy supply technologies with different operational profiles is preferable, the report said. Diversity would make it easier for the system to respond in periods of high stress.

Aberdeen City Council announced at the end of October bp as its preferred bidder for a commercial partnership which will accelerate the city’s ambitions to become a world-class hydrogen hub. Phase 1, which involves delivery of a green hydrogen facility, is targeting first operations from 2024. As the preferred bidder, bp will now work with Aberdeen City Council to conclude the contractual process which will lead to the set-up of the joint venture. Work will then commence on the required front end engineering design (FEED) work, with the aim of making a final investment decision on the selected development concept in 2023.

Norway has been ranked number one in KPMG’s first-ever net-zero Readiness Index (NZRI), followed by the UK and Sweden. Denmark, Germany, and France follow in the ranking, which compares the progress of selected countries in reducing greenhouse gas emissions and assesses their preparedness and ability to achieve net-zero by 2050.

Shell signed in early October a framework agreement with renewable energy developer Island Green Power to develop solar PV projects in the UK with co-located battery storage potential, with an initial collaboration on over 700 MW total generating capacity.

Offshore Wind Power Limited (OWPL) – a consortium formed by TotalEnergies, Macquarie’s Green Investment Group, and Scottish developer Renewable Infrastructure Development Group (RIDG) – has announced it is studying the use of offshore wind to power the production of green hydrogen on an industrial scale on the island of Flotta in Orkney, Scotland.

TotalEnergies opened a UK offshore wind hub in Aberdeen as it unveiled plans for a £140 million investment, together with its partners in the bid in the ScotWind leasing round, Macquarie’s Green Investment Group and RIDG, in its proposed 2-GW offshore wind project “West of Orkney Windfarm”.

INEOS announced in mid-October what it said would be Europe’s largest ever investment in electrolysis projects to make green hydrogen with the potential to transform zero carbon hydrogen production across Europe. The company will invest more than €2 billion into electrolysis projects to make zero carbon, green hydrogen across Europe. Its first plants will be built in Norway, Germany, and Belgium, with investment also planned in the UK and France.

Renewable energy firms Octopus Energy and RES have formed a new partnership, planning to invest £3 billion to build new green hydrogen plants across the UK by 2030.

“The supply of green hydrogen will be critical to the success of many industries in meeting the UK’s net-zero targets and with this partnership we are providing a solution for those businesses to help deliver on the government’s ambitions,” said Alex Brierly, Octopus Renewables Co-Head.

Spain’s Repsol raised its targets for renewable electricity generation by 60%, to reach an installed capacity of 20 GW by 2030, with a target of 6 GW by 2025.

Wintershall Dea has started working with the OTH Regensburg University of Applied Sciences to explore how existing natural gas pipelines in the southern North Sea can be used for future CO2 transport.

“Results obtained so far suggest that the offshore pipelines could be safely and efficiently repurposed for transport of liquid CO2,” Wintershall Dea said, adding that the study continues.

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