OGV Energy's Europe Energy Review - September 2020

In recent weeks, the biggest European oil and gas companies have reported their second-quarter results, while governments, associations, and analysts have published reports on how clean energy solutions could accelerate the economic recovery in the UK and Europe after the coronavirus crisis.

Oil & Gas

Norway’s Equinor reported significantly lower adjusted earnings for the second quarter, compared to the same period of 2019, due to very low realised oil and gas prices due to the Covid-19 pandemic. The company, however, noted that its trading business performed very well in the volatile markets.

“We expect market volatility to continue going forward. The long-term market implications from Covid-19, with possible lower demand and reduced investments in the industry, remain uncertain,” Eldar Sætre, President and CEO of Equinor, said in a statement.

In early August, Equinor said that Sætre would be retiring at the end of this year and Anders Opedal would take over as president and CEO from 2 November 2020.

“The board’s mandate is for Anders to accelerate our development as a broad energy company and to increase value creation for our shareholders through the energy transition," Jon Erik Reinhardsen, Chair of Equinor’s Board of Directors, said.  

Like Equinor, France’s Total also reported strong trading performance for the second quarter, which helped it book an adjusted net income, although it slumped by 96% year on year. The group, however, booked impairment charges of US$8.1 billion, including US$7 billion impairments in Canada’s oil sands, as it readjusted the value of its oil and gas reserves. Total qualified the Canadian oil sands projects Fort Hills and Surmont as “stranded” oil assets. Still, Total kept its interim dividend intact, becoming the only European oil and gas major that has not resorted to cutting dividends so far this year.      

Italy’s Eni tied its dividend to the Brent oil price going forward, as it reported a net loss for the second quarter and the first half of the year. The company cut its capital expenditure (capex) plans, mostly in its upstream business which was affected the worst by the crisis. Following the revisions of its capex for the medium term, Eni’s “green” investments will be 17% of the overall four-year period to 2023, reaching 26% of all investments in 2023.

Norwegian oil and gas operator DNO said it was working with partners to accelerate infill drilling at the Ula, Tambar, and Brage producing fields, revisit development options for the Brasse field, and actively evaluate the Iris/Hades, Fogelberg, and Trym South discoveries, thanks to the tax changes in Norway. 

“In the North Sea segment, DNO projects receipt of USD 215 million in tax refunds in the second half of the year, including USD 70 million from the recently announced temporary changes to petroleum taxation in Norway,” the company said.

Austria-based OMV announced new and more ambitious climate targets, aiming to reach net-zero greenhouse gas (GHG) emissions of its operations (scope 1 and 2) by 2050 or sooner. The net-zero operations will be achieved through energy efficiency measures, new technologies such as carbon capture, carbon storage/utilisation and hydrogen, as well as renewable electricity (like the photovoltaic plant in Austria), and portfolio optimisation measures.   

“In our sustainability strategy, we are now stating a long-term ambition of net-zero emissions for the first time,” OMV’s chief executive Rainer Seele said.

Maersk Drilling said it would invest in new technology to facilitate carbon-neutral drilling. The company has entered an agreement to invest US$1 million in California-based company Clean Energy Systems to help develop a new technology called Carbon-Negative Energy. This would be one of several opportunities Maersk Drilling is pursuing to help its customers move towards carbon-neutral drilling.

Renewables

In renewable energy, governments and analysts issued additional analyses about the role of clean energy in the economies, while major companies boosted their clean energy portfolios.

In the UK, the Hydrogen Taskforce said in a report in August that investment in hydrogen offers a sustainable economic growth opportunity that would kick-start the green recovery.

Investing in hydrogen could unlock as much as £18 billion in gross value added (GVA) by 2035 and support 75,000 additional jobs in the UK, with many of these jobs expected to be concentrated in the  north-west and north-east, according to the report.

“Scaling up hydrogen solutions will allow the UK to build on existing areas of expertise and global leadership. With a value chain that spans production, storage, transmission and distribution, and downstream appliances, this growing global market could support thousands of jobs in the UK for decades to come,” the Hydrogen Taskforce said.

At the end of June, the UK’s Prime Minister Boris Johnson announced £350 million funding which would be made available to UK industry to cut emissions in heavy industry and drive economic recovery from the coronavirus. Of the committed funding, £139 million is going to cut emissions in heavy industry by supporting the transition from natural gas to clean hydrogen power, and scaling up carbon capture and storage (CCS) technology, the UK government said.

A new report for ScottishPower Renewables by BVG Associates, published at the end of July, assessed the economic benefits created by eight onshore wind farms in south west Scotland commissioned between 2016 and 2017.

The report found that the projects will provide over their 25-year lifetimes a total of £1.6 billion in investment, 51% Scottish content, and £297 million local value-added. 

“Approval ratings for renewable energy deployment continue to rise, and there is a pressing need to build more generation capacity both to tackle the climate emergency and secure a green economic recovery from the coronavirus pandemic,” said Nick Sharpe, Director of Communications and Strategy at Scottish Renewables.

In offshore wind, the most recently approved offshore wind projects in the UK will most likely operate with ‘negative subsidies’ – paying money back to the government, according to a new analysis by an international team led by Imperial College London researchers.

“Offshore wind power will soon be so cheap to produce that it will undercut fossil-fuelled power stations and may be the cheapest form of energy for the UK. Energy subsidies used to push up energy bills, but within a few years cheap renewable energy will see them brought down for the first time. This is an astonishing development,” said lead researcher Dr Malte Jansen from the Centre for Environmental Policy at Imperial.

In the European Union, the new EU Strategy on Offshore Renewable Energy must include a target of 100 MW of ocean energy installed in Europe by 2025, Ocean Energy Europe (OEE) said in early August.

“There is a strong pipeline of projects lined up along Europe’s coasts – all that’s needed now is the right policy and market environment to deliver them. The new EU Strategy on Offshore Renewable Energy is a huge opportunity for Europe to achieve a recovery that is both green and just,” Remi Gruet, CEO of Ocean Energy Europe, said.

In company news, France-based power utility ENGIE is accelerating growth in renewables and infrastructure assets by increasing the target for renewables capacity commissioned 3 GW per year currently to 4 GW per year on average over the medium-term, while increasing the number of renewables projects retained on its balance sheet.

“The Board intends to strengthen ENGIE’s capacity to play a key role in the energy transition,” said ENGIE Chairman Jean-Pierre Clamadieu. 

Germany’s RWE successfully concluded in August a share capital increase of around €2 billion to accelerate and expand growth in renewables.

Iberdrola and Fertiberia launched at the end of July the construction of the largest plant producing green hydrogen for industrial use in Europe, in Puertollano, Spain. Iberdrola will construct a 100 MW photovoltaic plant, a battery installation, and a system for producing green hydrogen by electrolysis from 100% renewable sources, the company said, noting that the plant would be operational next year.

The CrossWind consortium, a joint venture between Shell and Eneco, said it was awarded the tender for the subsidy-free offshore wind farm Hollandse Kust (noord). The wind farm will help to meet the objectives of the Dutch Climate Accord and the EU’s Green Deal.

Both companies have already taken their final investment decisions on the project, which is expected to become operational in 2023 with an installed capacity of 759 MW, generating enough renewable power to supply more than 1 million Dutch households with green electricity.

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