Energy Transition has a template of 10 commandments which must be followed in the transition.
Gerard Kreeft, Energy Transition Advisor, the Netherlands made this known at the Webinar organised by AOGS Energy Resources Limited held last week with the theme: Energy Transition & its implications on the Nigerian Economy: A critical Assessment.
He listed the summary of the 10 Commandments of the Energy Transition to include: Massive write-downs by oil majors-even though listed as probable reserves – Petroleum Classification System is in ruins; new norm is simply determining which type of fuel—in the most cases renewables, and less and less hydrocarbons—can be produced at a profit; the market place is already determining that renewables with their reduced technology cost create more profit than oil and gas and shareholders/ Pension funds are waiting for answers and will ditch their oil and gas shares if answers are not forthcoming.
Others are severe competition from new energy companies-such as Orsted(Denmark) and RWE(Germany), for greater green market share…can the oil majors compete with this competition?
More specialization…upstream companies clustering together, downstream the same…to maintain economies of scale…an energy tsunami, are major service providers from oil and gas industry capable of providing services for the Green Sector? Or will we see new companies on the horizon? , he asked.
The Energy Transition Advisor maintained that National Oil Companies ,NOCs, will also have to justify their investments, so also that Energy Roadmap must be created and stairwell to sustainable development must be followed.
He further listed HSE Dept. develops environmental & safety standards, corporate social responsibility, sustainable development objectives, CO2 emission standards/CO2 trading and Natural gas as very important to the transition.
Looking at Commandment 1: Petroleum Classification in Ruins, he said, In the summer of 2020 Total wrote off $7 billion of its oil sands in Canada which was listed as “Probable Reserves”.
The under-lying message according to him was if probable reserves can be written off how safe were the estimates of oil reserves that had depended on this SPE Classification?
“Which were also approved by the US Securities and Exchange Commission. Reserves were classified as RRR, Reserve Replacement Ratio, the norm being 100% on an annual basis,” he said.
In Commandment 2: The New Norm, he said Total was the first major to classify other fuels, wind and solar, as part of its RRR count.
“How was this done? Simply put which fuels provided a better rate of return for the company and its shareholders but being green has a better return on investment!”
Commandment 4: Maintaining huge dividends(? He noted that Shell’s share price 23 Feb 2021 was euro 17; five years earlier on 9 June 2017 it was euro 23.
“Orsted’s share price 23 Feb 2022 was euro 127, five years earlier on 10 June 2016 it was euro 34
Shell’s dividend yield is higher 3.53% in 2021; Orsted 1.4% dividend yield(2020). The return on investment is not based on dividend but increased price of share: in the case of Orsted a four-fold increase.
Looking at the Commandment 5: Shareholders are waiting, he said, the contradiction is shareholders wanting high dividends but also demanding green solutions.
“Oil companies-BP, ExxonMobil, Shell have paid huge dividends +5% historically…but this cannot continue. Yet green companies are paying comparable dividends: Iberdrola return on investment 5%, 2021. Enel return on investment 5.15%, 2020 and Engie return on investment 4.77%, 2019.
In Commandment 6: he asked can majors compete with Green players? BP & Equinor partnering in the USA: Offshore Empire and Beacon Wind. NortH2 Vision in which Shell and Gasunie have combined forces to create a mega-hydrogen facility, fed by offshore wind farms, which by 2030 could produce 3-4 GW energy and possibly 10GW by 2040 and BP & Orsted developing green hydrogen at BP’s Lingen refinery,” he noted.
Speaking further, he said, “BP will spend US$ 5billion per year to green itself; by 2030 will have 50GW of net regenerating capacity, and planned pipeline of 20GW of green generating capacity. Equinor’s Dogger Bank, North Sea, will produce some 3.6 GW of energy, enough to light up 6 million households, is the company’s showcase project. Total will have 35 gigawatt (GW) capacity by 2025, and hopes to add 10GW per year after 2025. That could mean an additional 250GW by 2050”.
Still on green competition, he said, Enel in next 10yrs will be spending euro 190 billion on renewables and by 2030 have 145 GW installed capacity. Orsted has an installed capacity of 10GW and build out to 15 GW. RWE by 2022 will have 28.7 GW of installed capacity. Engie spent euro 7.4 on renewables and 33GW of installed capacity and Iberdrola u to 2030 will spend euro 150 billion on renewables and target of 93GW installed capacity.
Kreeft listed More specialization as Commandment 7. He said, “Upstream Shell has announced reducing exploration to 9 key hubs. BP reducing production to 40% of current total. Downstream: BP sale of petrochemical division to Ineos. Expect more sales to ensure scales of economy and shoring up balance sheets. Crossovers between Oil majors and New Energy players”.
Talking about Service Providers(2)Baker Hughes/Halliburton/Schlumberger, he noted that their stock prices have tanked: “in December 2016 Baker Hughes’s share price was $65, December 2020 $21; Schlumberger in December 2016 $85, December 2020 $21; Halliburton December 2016 $55, December 2020 $19”.
Halliburton on its website accolrding to him talks about further digalization of its services, lower capital intensity and being committed to provide technologies that reduce emissions/environmental footprint.
“Olivier Le Peuch, CEO Schlumberger, recently announced a major strategic restructuring creating four new divisions- Digital & Integration, Production Systems, Well Construction, Reservoir Performance,” revealed the Energy Transition Advisor.
Speaking further, he said within the confines of the E+P bubble both major service companies continue on with what they anticipate what the IOCs are dictating: belt tightening, a reduced head count, with the hope for a better tomorrow which according to him is simply re-shuffling the deck chairs on the Titanic.
“The one exception is Baker Hughes who have recently unveiled a forward looking strategy focused on CCS(Carbon Capture Storage), Hydrogen, and Energy Storage. Key themes for the Energy Transition,” the Energy expert stated.
He however noted that Marine Contractors such as Heerema is becoming focused on offshore wind projects. While Technip Energies- entailing LNG, sustainable chemistry and decarbonization- has been spun off creating new innovative options.
On New Energy Service Providers, he said Siemens Energy has operations in 90 countries offering a full project cycle of services: generation, transmission and storage from conventional to renewable energy.
Cummins operates in 51 countries in Africa and market leader in fuel cell and hydrogen production technologies. Cummins began developing its fuel cell capabilities more than 20 years ago.
Gerard Kreeft maintained that National Oil companies must justify their investments. “If national oil companies follow their current course, they will invest more than $400 billion in costly oil and gas projects that will only break even if humanity exceeds its emissions targets and allows the global temperature to rise more than 2o C. Either the world does what’s necessary to limit global warming, or national oil companies can profit from these investments. Both are not possible.
State oil companies’ investments could pay off, or they could pave the way for economic crises across the emerging and developing world, and necessitate future bailouts that cost the public. Some oil-dependent governments in Africa, Latin America and Eurasia are making particularly risky bets with public money. Many national oil companies have incentives to continue spending big on new oil and gas projects. As a result, company officials might not, on their own, change course to account for the energy transition away from fossil fuels toward green energy, nor make investment decisions that serve the interests of citizens”. He quoted Risky Bet National Oil Companies in the Energy Transition, David Manley and Patrick R.P. Heller. Natural Resource Governance Institute.
The Commandment 10 according to him is putting together an Energy Roadmap