European Energy Review - June 2020

The COVID-19 pandemic and its effect on the energy sector continued to be the main topic in Europe’s energy industry this month.

Europe’s major oil and gas firms reported lower profits for the first quarter, due to the crash in oil prices. Some supermajors even cut their dividends to protect their balance sheets and boost their resilience during these challenging times for the global oil and gas sector.

Despite significantly reduced profits and high uncertainty about the near-term prospects of the oil and gas business, Europe’s major oil firms reaffirmed their previous commitments to achieve net-zero carbon emissions by 2050 or sooner.

In renewable energy, major firms advanced and agreed many European projects in solar, wind, and wave power and green hydrogen applications, while the UK marked its longest run of coal-free power generation since before the start of the Industrial Revolution.

Oil & Gas

Western Europe’s largest oil producer, Norway, will cut its oil production under a government decision, “to contribute to a faster stabilisation of the oil market compared to letting the rebalancing take place only though the market mechanism.” Norway, which is not part of the OPEC+ group of producers, decided nevertheless to contribute to the global production cuts in order to help speed up the market rebalancing. Norwegian oil production will be cut by 250,000 barrels per day in June and by 134,000 barrels per day in the second half of 2020. This cut is based on a reference production of 1,859,000 barrels of oil per day. Norway will also delay the start-up of production of several fields until 2021. The total Norwegian production in December 2020 will be 300,000 bpd less than originally planned by the companies, while the regulation will cease by the end of this year, Minister of Petroleum and Energy, Tina Bru, said.

“The decision by the Norwegian Government to reduce Norwegian oil production has been made on an independent basis and with Norwegian interests at heart,” minister Bru noted.

The cuts apply for Norwegian oil production and some fields are exempt from the regulation, including gas and condensate fields, trans-boundary fields, and mature fields that are in a late tail phase, the Norwegian Petroleum Directorate (NPD) said in a statement.

Norway also announced a package of measures to support the oil and gas industry and the supply chain.

“We are proposing temporary targeted changes to the taxation system to make it possible to carry out planned projects. In addition, we are proposing a green restructuring package,” said Prime Minister Erna Solberg.

Again in Norway, the top oil-producing firm Equinor announced a cut in dividends, the first supermajor to do so after the price crash. Equinor is slashing its cash dividend for the first quarter of 2020 by 67%, to US$0.09 per share, compared to the fourth quarter of 2019. The Norwegian major also divested its entire minority stake in Lundin Petroleum.

“Although we are now no longer a shareholder in Lundin, we continue to consider the company a strong partner on the Norwegian Continental Shelf,” said Lars Christian Bacher, Chief Financial Officer of Equinor.

A couple of days later, Equinor reported a loss for the first quarter of 2020, due to the low commodity prices in the period. Due to market uncertainties, government-imposed production curtailments, and Equinor’s value over volume approach, Equinor suspended further production guidance for 2020.

“Our values and strategy remain firm, and we are committed to develop Equinor as a broad energy company. It is a sound business strategy to ensure competitiveness and drive change towards a low carbon future, based on a strong commitment to value creation for our shareholders,” Equinor’s President and CEO Eldar Sætre said.

Another European major, Shell, slashed its dividend by 66%, starting this quarter—the first dividend cut at Shell since World War II – due to “the continued deterioration in the macroeconomic outlook and the significant mid and long-term uncertainty,” CEO Ben van Beurden said.

Two weeks before that announcement, Shell had said that it would aim to be a net-zero emissions energy business by 2050 or sooner.

“Society, and our customers, expect nothing less,” van Beurden said.

BP, like other majors, also reported lower profits for Q1, but it didn’t cut its dividend, despite CEO Bernard Looney admitting that “Our industry has been hit by supply and demand shocks on a scale never seen before.”

“We are determined to perform with purpose and remain committed to delivering our net-zero ambition,” Looney said in the Q1 results release.

France’s Total SA, like BP, also kept its dividend untouched, and announced a new climate ambition, committing to become a net-zero emission company for all its European businesses by 2050—the latest European major to commit to net-zero.

Spain’s Repsol – the first company to announce a net-zero ambition in December 2019 – reaffirmed its commitment “to leading the energy transition that was made even before the current exceptional global context” when reporting Q1 results.

According to a recent report from Transition Pathway Initiative (TPI) – an investor initiative backed by over US$19 trillion of global capital – Shell and Eni are the leaders in the race of European oil majors to achieve net-zero emissions. Shell and Eni now have the most ambitious emissions-reduction plans among the companies Total, Shell, BP, Repsol, and Eni, TPI said in its analysis, but noted that “despite these commitments, none of the companies are aligned yet with ‘net-zero’ or 1.5° C pathways.”

Renewable energy and projects to cut carbon emissions

Oil and gas majors have also recently announced initiatives in alternative energies and projects for carbon dioxide capture and storage. Shell Nederland, Eneco, and the port of Rotterdam are working on a project to create a green hydrogen hub in the port of Rotterdam. Shell aims to produce green hydrogen using green electricity from wind power. Shell and Eneco, with their joint venture CrossWind, are participating in the tender for an offshore wind farm come from the Hollandse Kust (noord), Eneco said in early May.

“The energy transition calls for guts, boldness, and action,” says Marjan van Loon, President-Director of Shell Nederland.

Total is boosting research into Carbon Capture, Utilisation and Storage (CCUS) technologies, after signing a multi-year partnership deal with UK start-up Cambridge Quantum Computing (CQC) to explore quantum algorithms to improve CO2 capture. Total looks to be a major player in CCUS and it currently invests up to 10% of its annual research and development effort in this area.

Total, together with Equinor and Shell, decided in mid-May to invest in the Northern Lights project in Norway’s first exploitation licence for CO2 storage on the Norwegian Continental Shelf.

“Development of CCS projects will also represent new activities and industrial opportunities for Norwegian and European industries,” says Anders Opedal, executive vice president for Technology, Projects & Drilling at Equinor.

Neptune Energy said in April that Dutch energy infrastructure company Gasunie would join as a new partner on the PosHYdon pilot, the world’s first offshore green hydrogen project.

In the UK, the developers of the world’s largest offshore wind farm, Dogger Bank, plan to build a new Operations and Maintenance (O&M) Base at the Port of Tyne. Equinor and SSE Renewables, the two companies behind the Dogger Bank development, announced the new multi-million pound facility, which includes both office space and a warehouse and which will be the onshore base for Equinor’s teams ensuring the efficient operation of the wind farm. The Dogger Bank Wind Farm is estimated to trigger a total capital investment of around £9 billion between 2020 and 2026 and will be able to generate around 5% of the UK’s electricity needs, according to Equinor.

Also in the UK, record solar power generation with sunny weather in April helped the country to reach its longest coal-free period since pre-industrial times, the Solar Trade Association said at the end of April.

“Renewables will continue to grow rapidly to meet the UK’s target of net-zero emissions; offshore wind alone will generate over 30% of UK power by 2030,” RenewableUK's Deputy Chief Executive Melanie Onn said, commenting on the new record for the longest period of generating electricity without burning coal.

“Alongside other low-cost options like onshore wind, there are huge opportunities for innovative technologies like marine energy, floating wind, battery storage and renewable hydrogen to accelerate the UK’s transition to net-zero,” Onn added.

France has recently announced an ambition to raise power generation from renewables, and this new plan will make France Europe’s fourth-largest offshore wind producer in 2030, behind the UK, Germany, and the Netherlands, Rystad Energy said in an analysis in early May.

In wave and tidal energy, new pilot projects were announced in Scotland and Wales.

French companies SABELLA and HydroQuest, as well as Spanish developer Magallanes, said they aimed to deploy their devices on a commercial scale at the Morlais project in the Crown Estate-designated zone off the coast of Anglesey, north Wales.

The European Marine Energy Centre (EMEC), based in Orkney, Scotland, has signed an agreement with Marine Energy Wales to provide further support to the Marine Energy Test Area (META) in Pembrokeshire, Wales.

Wave energy developer Bombora has teamed up with the Offshore Renewable Energy (ORE) Catapult’s Marine Energy Engineering Centre of Excellence (MEECE) in Wales to launch a cutting-edge floating wave technology research project.

The Orkney Islands received an EU Prize for innovative renewable energy solutions. ‘Orkney – the Energy Islands’ plan received the 3rd prize in the 2019 RESponsible Island Prize for the share of renewable energy produced by innovative energy technologies, the environmental and socio-economic sustainability and impact, citizen and community involvement, and the replicability of the solution.

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