Day 0 Recap
Not sure what you missed during Day 0 at USF VERFTET?
Read the full recap here.
UTC Day 0: Green Shift Complexities
UTC2022 is officially now underway. Over at USF Verftet, we followed GCE Ocean’s Marine Minerals seminar last morning, we’ve had a strong focus on the green shift.
We heard that “Business as usual is no longer an option. We can’t continue to burn fossil fuels as we have done.” We also heard that drillers should expect not to be drilling many more exploration wells, but there will still be many production wells to drill and that the ingredients are there, potentially, to see another downturn in 2023. And we heard how we would need 11 million battery parks similar to Elon Musk’s one in Australia to solve energy demand swings in Europe. Read on to find out more.
DNV’s ETO
First, opening the UTC Day 0 Market Insight session was DNV’s Rachel Spiegel, segment lead, Floating Wind Northern Europe, who talked through key energy transition metrics from their Energy Transition Outlook.
Coal peaked in 2013, oil has likely peaked in 2019, but is still likely to be 16% of global energy use in 2050, she says. Gas could peak in 2030 and will have a slow decline, as it plays a role in the transition.
Hydrogen will be important and dominated by electrolysis, by the mid 2040s, she says, but only to be projected to be 5%. To meet Paris goals, we need it to get to 15%, she says. Similarly, 1 TW of wind is expected by 2050, but we actually need double that. For floating wind, DNV projects the equivalent of 3000 Hywind Tampens by 2050, with China leading this area in the 2030s, and then North America becoming a key player in the 2040s.
As we include floating wind, there will be a race for space in the ocean. Floating wind requires a lot of space to reduce wake effects. As we see its development, we will see resource scarcity in the ocean similar to what we see for onshore wind and that could lead to access issues that we’ve seen in onshore wind and solar. Early engagement with fisheries, shipping and other interests is key.
But, again, she says, “To get to Paris we have to transition faster together. Europe has been mentioned as a leader in this transition. It has to go further, faster. Not just hydrogen, it’s energy efficiency and CCS.”
Transformation, change and focus
Next up, in the Transformation, change and focus session, Lars Eirik Nicolaisen, senior partner and deputy CEO, Rystad, walked us through the energy trilemma and themes that have and could dominant the energy scene.
Sustainability was a key theme since 2015, he says, but then affordability became important in 2021 and now Ukraine has now reminded us of the safety and security of energy supplies, building in more nuance.
This has been a journey in sentiment, he says, one which he’s hopeful could make what has been a polarised debate into a more nuanced discussion. “But, for drillers, the interpretation is they can drill more. For renewables it’s yes, we need to reduce reliance on petrostates and build more renewables.”
“The current situation we are in now, it will probably unfold over two phases,” he says. “We’re in Phase 1 now. It’s what I call the scramble. It’s about getting our hands on as much hydrocarbons as we can outside of Russia. This is characterised by inflationary pressures. We’re also seeing acceleration in investment in renewables. This will probably release a second phase; another down cycle.
“If prices continue to rise, we’ll see demand destruction. Short cycle production will come after a lag. And these two things might coincide in 2023. This is my warning, it’s not our base case. But this, in our books, is causing an acceleration of the energy transition.”
This is seen in the EU’s RePower proposal. They have a 2022 goal, then 2030 goals. These include various measures. Short-term is hydrocarbon diversification to replace Russian imports. But then also by 2030 they have increased an already ambitious target for renewables, partly from energy efficiency, but also from renewables.
“As a driller you’re not going to do that much exploration drilling any more. But you are going to do a lot of production drilling. There is still a healthy pipeline. There’s a portfolio of quite a few material projects that have to be sanctioned and quite a few of these sit in western Europe and of those quite a few are in Norway.
“In addition, Brazil and Guyana and the two offshore plays people should be in. In addition, in the Middle East, shallow water, is on fire right now.”
Jeanett Bergan, chief sustainability officer at Aker ASA, told our Day 0 Market Insight that “Business as usual is no longer an option. We can’t continue to burn fossil fuels as we have done.”
Aker ASA’s investment focus is around four mega trends; energy security; the green transition, nutrition and health and lastly digitalisation. “We are building our portfolio of companies around these trends,” says Bergan. “Sustainability is an important part of this. Health and digitalisation is an important part of this.”
Aker ASA has set its own sustainability targets, but Bergan says this is a wider trend for all business, if companies want to attract investment. Indeed, metrics and reporting on ESG will become more important, with those better able to demonstrate sustainable investment getting more attention and funds from investors, she says. These funds, in turn, are growing, as more want to invest, and have also proven to achieve higher returns than non-ESG focused funds.
Steinar Eikaas, VP Marketing Midstream Processing, at Equinor, outlined some of the ways the energy company is hoping to become net zero by 2050. Some of that is by accepting that renewables will take time and need backup solutions to meet energy demand. That’s why Equinor is investing in carbon capture and storage and blue and green hydrogen, he says.
We can replace coal with gas and reduce emissions 50%. To remove gas we can produce blue hydrogen and store the CO2. It’s much harder with oil, but in future more of the automotive will be electric.
There are some big challenges. “The heat sector is the most difficult,” he says. “It’s not difficult in Norway, but in Europe they use gas and that’s characterised by huge swings in demand. If this was managed with batteries, you would need 11 million (battery) parks similar to Elon Musk’s in Australia to solve such swings. Hydrogen is the solution here.”
Similarly, to manage intermittency, he says hydrogen is needed. Ten Tesla batteries would only provide 10 seconds back up power for our Dudgeon offshore wind farm, he says. We need better backup solutions than that.
So Equinor is leading the Zero Carbon Humber cluster, where a 600 MW hydrogen reformer will be built, with two more coming after that. It’s also working with thyssenkrupp, to decarbonise steel production. In Norway, the Barents Blue project will convert gas to ammonia for export, creating more value in Norway. But this is expensive, at Euro 250/tonne abatement cost, compared with the Euro 50/tonne (at sanction) that it costs to emit CO2. “That gap is too big,” he says. “That’s why we have funding from state to match the emission tax. We think by 2030 we can bring cost to Euro 100/tonne, by scaling up, at the same time we believe the cost of emitting will go up and we expect that will happen before 2030.”
In CCS, Equinor is also investing in Northern Lights, which is now more than 50% complete, he says. Through this project, Equinor is “splitting up the value chain”, using ships to carry CO2 from any harbour in Europe to Norway for storage. That creates a market that doesn’t exist today, he says.
But Northern Lights can only store 5 million tonnes per year, just 10% of emissions in Norway and also just 10% of what Equinor has been approached by third parties to store. There’s a huge potential market, he says. “We have said we can do this for Euro 50-60/tonne. For that total amount we’ve been asked for, that’s NOK25 billion; 25% of Norwegian seafood export, per year.”
