Equinor Fueling Energy Transition With $23 Billion CAPEX, Project Opportunities

By ogrepublic Last updated Sep 10, 2022

Anders Opedal, Chief Executive Officer (CEO) and President of Equinor

By Ndubuisi Micheal Obineme

The Energy Transition agenda is building momentum in every part of the world, especially in the oil and gas industry. The global challenge posed by the energy transition is to reach Net-Zero emissions by 2050. It will require collective action from the energy industry, businesses, and government institutions. It will also require the development of new technologies, new value chains, and new ways of working, as well as strong leadership from policymakers. Companies, customers, governments, and society at large will all have to collaborate, innovate and adapt in new ways as the journey towards a net-zero energy system will create dilemmas and trade-offs.

Industry experts have said that the Energy Transition outlook may look differently in developing countries like Africa compared to other developed countries in Europe and the Americas. What this means is that there has to be a mixture of energy solutions to achieve this Net-Zero Emissions target by 2050. To reach Net-Zero emissions by 2050, annual clean energy investment worldwide will need more than triple by 2030 to around $4 trillion, according to the IEA report. The pathway to Net-Zero is narrow but brings huge benefits, including unlocking new opportunities in the energy value chain such as increasing investment in other energy sources such as Natural Gas, Hydrogen, Ammonia, Solar Energy, Wind Energy, Hydro Energy, Geothermal Energy, Biofuels and Biomass Energy, as well developing new technologies and infrastructures for these renewable energies.

This magazine was produced as a Special Edition for the Global Energy Transition Agenda, with a spotlight on Equinor’s Energy Transition Pathway and new investment focus on renewable energies, which are also aligned with the global pursuit for Net-Zero Emissions by 2050 – in line with the Paris Agreement 2015. This feature also provides more insight into the untapped opportunities and business outlook for renewable energy development.

Equinor’s Net-Zero Target
Given the current global energy mix, there are several energy companies from all parts of the world, including International Oil Companies (IOCs) announcing pledges to achieve net-zero emissions over the coming decades, and it continues to grow. One important initiative is The Oil and Gas Climate Initiative (OGCI), a CEO-led consortium that aims to accelerate the industry response to climate change. OGCI Climate Investments was formed by 12 oil & gas majors which Equinor, Saudi Aramco, BP, Chevron, CNPC, Eni, ExxonMobil, OXY, Petrobras, Repsol, Shell, and TotalEnergies are all member companies.

Interestingly, the OGCI is a Climate Investments of over $1 billion decarbonization package. All OGCI member companies have announced their ambition to achieve net-zero operations within the timeframe set by the Paris Agreement. All the OGCI member companies have implemented their company’s energy transition roadmaps, while OGCI is working to translate its strategic framework into a set of ambitious collective actions. These oil majors account for around 30% of global operated production and lead the oil and gas industry’s response to climate change through action and independently managed investments.

The Chair of, the OGCI Steering Committee, Bob Dudley said.“OGCI ambition shows the power of collaboration, bringing together companies from China, the Middle East, Europe, Latin America, and the United States to speed up decarbonization”.

For Equinor, the company has set an ambitious target, moving from oil and gas into renewable energies with a new investment focus on Offshore Wind, Solar Energy, Hydrogen, Carbon Capture and Storage (CCS), as well as Batteries storage. Equinor has integrated these energy resources as part of its energy transition plan and is committed to unlocking new opportunities in renewable energies as it moves to become a Net-Zero Company by 2050.

Anders Opedal, Chief Executive Officer (CEO) and President of Equinor stated, “Equinor’s purpose is turning natural resources into energy for people and progress for society. We aim to be a leading company in the energy transition and have set a clear ambition to reach net-zero by 2050. The journey has started. We have already pivoted to transform our upstream portfolio into one of the most resilient and carbon efficient in the industry. We have built a robust offshore wind portfolio and have the potential to be a world leader in floating wind. We are shaping the low carbon industry, leveraging our advantaged industrial starting point on the Norwegian continental shelf and proximity to the European market.

“Our new, strengthened ambition to reduce net group-wide operated emissions by 50% by 2030, shows that we are focused on medium-term actions consistent with the goals of the Paris Agreement and a 1.5-degree pathway. Rapidly reducing our emissions is necessary but not sufficient. To be an effective agent of change in the energy transition, we must help society decarbonize by providing our customers and end-users with energy that has lower – and eventually net-zero – emissions. To achieve this, we have a clear plan to apply our experience and competence in oil and gas to new sectors of the energy system.

“We will generate strong cashflow from a highly focused, carbon-efficient oil and gas business to fund
our transformation. We will continue to scale up our investments in renewables to create value from our existing portfolio and a high-quality project pipeline. We are developing and deploying the industrial value chains of the future in hydrogen and carbon capture and storage (CCS) to enable other industries to decarbonize their activities. In parallel, we will continue to work with our suppliers and customers, host governments, and civil society to develop the business models, policies, and frameworks to enable the world to achieve net zero by 2050″.

Commenting on Equinor’s financial results for the second quarter in 2022, Anders said that Russia’s ongoing war in Ukraine calls for more investment in energy production and infrastructure to re-establish a better balance between cost, security of supply, and decarbonizing the sector.

According to him, “Equinor continues to ensure safe and stable energy production as a reliable supplier, but we know that the climate crisis demands action, and we continue to invest in the energy transition.

“With the ongoing energy crisis in Europe, Equinor’s main priority remains to secure safe and reliable deliveries. In second quarter, we delivered a strong operational performance and achieved good regularity resulting in high production levels, including volumes from Hammerfest LNG, now safely back in production. Whilst we would normally reduce gas production in 2Q, we deliberately maintained high production over the three months; indeed, we delivered 18% more gas from Norway in 2Q compared to the same quarter last year. This contributed to help fill European storages”.

Offshore Renewables
Offshore renewables are a rising force in the global energy sector. Renewables such as offshore wind energy are now widely recognized as a proven and reliable source of energy and it is forecasted to grow in the coming years.

Several countries have identified offshore renewables such as wind energy as a key component of their renewable energy policies, and a growing number of jurisdictions have announced capacity targets and supportive policies.

For instance, electricity generation in global economies and societies is growing rapidly. In a report published by International Energy Agency (IEA), global electricity demand doubled between 1990 and 2016, outpacing growth in consumption of fuels. For the moment, the vast majority of this electricity is generated onshore and the overwhelming share of offshore energy activities relates to hydrocarbons supply (more than one-quarter of global oil and gas production comes from offshore fields).

But the offshore generation of electricity from renewable sources has been gaining momentum, mainly from offshore wind and, to a lesser extent, from other marine technologies.

IEA report revealed that installed offshore wind capacity has risen from 3.2 GW in 2010 to 18.7 GW in 2017, by which time it contributed some 56 terawatt-hours (TWh) or 0.3% of global electricity generation. The key factor behind the rise of offshore wind has been a concerted series of public-private initiatives undertaken by countries bordering the North Sea in Europe. More than 80% of global offshore wind capacity is located in Europe, led by the United Kingdom with an installed capacity of 6.8 GW and Germany with 5.4 GW. Beyond Europe, only the People’s Republic of China has a large-scale offshore wind capacity, at 2.7 GW, while smaller offshore wind facilities are located in the United States, Korea, and Japan.

Among the G7 economies (and indeed among all countries worldwide), the most ambitious capacity targets for offshore wind are in the United Kingdom and Germany. The United Kingdom announced in July 2018 its intention to hold auctions every two years from 2019; depending on the auction prices, this could see 1-2 GW of new offshore wind installed every year. Germany is targeting 15 GW of offshore wind installation by 2030. France has a target of 3 GW by 2023 and an additional 6 GW by 2030. Italy has a strong overall goal for wind generation in its national energy strategy. Other countries with specific commitments to offshore wind in the European Union include the Netherlands, Denmark, and Sweden.

Furthermore, Global Offshore Wind Report 2022 published by the Global Wind Energy Council (GWEC) recently, disclosed that a total capacity of 21.1GW was connected to the grid in 2021, a new industry record and three times more than in 2020. This brought the cumulative global offshore capacity to 56GW by year’s end, equivalent to 7 percent of the total installed wind capacity.

GWEC Market Intelligence expects over 315GW of new offshore capacity to be added by 2031. The cumulative global will then be 370GW. 29per cent of the new volume is expected to be operational by 2026. As for floating project development activities, the GWEC report now believes an installed capacity of 18.9GW will likely be operating by 2030, with 11GW in European waters, 5.5GW in Asia, and the remainder in North America.

However, GWEC’s 10-year overall forecast might well need revising upward significantly in the near future after Russia’s invasion of Ukraine has kickstarted comprehensive energy system reform packages in Europe and beyond. The EU plans to achieve full independence from Russian oil and gas imports, with a major part of the resulting energy gap to be filled by accelerating the build-up of new offshore wind capacity. Wind energy would then generate a much higher portion of clean electricity, which would be partially fed into the grid and partially used to produce hydrogen via Power-to-X. In an additional process, green hydrogen could then be converted to e-ammonia and e-methanol as ship fuels.

Tackling these challenges quickly and decisively requires governments and the industry to make a massive effort. Doing so will open up many opportunities for a wide variety of energy companies to showcase suitable products and services in the years to come.

Investments in Renewables
Based on our findings, the offshore energy sector, encompassing oil and gas production as well as electricity generation from wind energy and other marine technologies, requires a major investment of about $5.9 trillion in capital spending (CAPEX) to further unlock the potentials. The question is how can offshore renewables transform the oil and gas industry?

In Equinor’s Energy Transition Plan, the company’s strategy is centralized on three pillars, which are carbon-efficient oil and gas production with accelerated, value-driven expansion in
renewables and leadership in building out new low-carbon technologies and becoming a leader in carbon management and hydrogen. Each of these pillars will contribute individually and collectively as Equinor transitions into a broad energy company and achieve its net-zero target by 2050. The Energy transition plan integrates key elements of Equinor’s decarbonization strategy with existing actions and ambitions. It also includes information on capital allocation, policy engagement, risk and performance frameworks, and other enablers to deliver on the company’s ambitions.

Equinor’s energy transition plan involves the company’s commitment to allocate more than half of its annual gross capital expenditure to renewables or low carbon solutions by 2030. Despite the shift toward renewables, Equinor has confirmed that it will continue to produce oil and gas for the foreseeable future to excel in operational emissions management, maximize the efficiency of infrastructure in Norway, and optimize its international business portfolio.

The energy transition requires significant investments at all levels both in the short-term, medium-term, and long-term scenarios. In another report published by IEA titled “World Energy Investment 2021”, global energy investment is set to rise to USD 1.9 trillion, while global power sector investment only is set to increase by around 5% from 2021 to more than USD$820 billion going forward. However, renewables dominate investment in new power generation and are expected to account for 70% of 2021’s total of USD 530 billion spent on all new generation capacity.

Furthermore, the Net-Zero pledges and sustainable financial instruments are building momentum to support stimulus spending on clean energy technologies and projects. Many developed countries have rallied around sustainable finance, launching funds and initiatives to channel the growing appetite from capital markets and to comply with Paris Agreement.

IEA revealed that about USD$750 billion was expected to be spent on clean energy technologies and efficiency worldwide in 2021 which is below what is required in climate-driven scenarios. “Clean energy investment would need to double to maintain temperatures well below a 2°C rise and more than triple to keep the door open for a 1.5°C stabilization,” IEA said. To accelerate to a climate-aligned energy pathway requires a broad range of government actions, including attention to the financial architecture that can accelerate direct investments in market-ready solutions and promote innovation in early-stage technologies.

Oil and gas companies are adopting new investment focus on renewables to meet the needs of the global energy transition agenda. Although, it will take different forms, including commitments to reduce emissions resulting from oil and gas supply or to invest in new areas such as offshore renewables.

In a statement made known to The Energy Republic, Equinor is investing about $23 billion in capital expenditure (CAPEX) for offshore wind projects over the next five years (2021 – 2026). This investment has automatically increased Equinor’s share of gross CAPEX for renewables and low carbon solutions from around 4% in 2020 to more than 50% by 2030. As part of the company’s strategy to become a leading global energy player, Equinor has also set a target to install a total of 12-16 GW of renewable energy capacity by 2030 – which is more than twice the total global offshore wind capacity installed in 2020.

Equinor’s net carbon intensity and net-zero ambitions organic capital expenditures of 10 billion USD for 2022-2023 and 12 billion USD for 2023-2024 will result from an increasing share of renewable investments, which are expected to total 23 billion USD in the period 2021-2026. Our capital allocation to renewables and low carbon solutions will accelerate towards 2030. From the company’s share of 4% of annual gross CAPEX in 2020, renewables and low carbon investments are expected to grow to above 30% of annual gross CAPEX by 2025 and over 50% of annual gross CAPEX by 2030 – which is aligned with the goals of the Paris Agreement and the Norwegian state’s ambition for emission reductions from the
oil and gas industry.

The company disclosed that in 2021, it developed a separate reporting segment for its renewables unit to recognize its strategic importance and materiality. In 2021, capital gains from renewables were 1.4 billion USD, a more than seven-fold increase from 2020, resulting primarily from profitable asset farm-downs.

Speaking on this development, Equinor’s CEO, Anders Opedal explained: “We are accelerating the transition and setting an ambition to reach a 40% reduction in net carbon intensity by 2035, on the way towards net zero by 2050.

“We are stepping up investments in renewables and low carbon solutions to more than 50% of gross annual(1) investments by 2030; Growing cash flow and returns, expecting a free cash flow(2) of around USD 35 billion(3) before capital distribution in 2021 – 2026 and around 12%(3) return on average capital employed(2) in 2021 – 2030; Increasing the quarterly cash dividend to 18 cents per share and introducing new share buy-back programme.

“Our strategy is backed up by clear actions to accelerate our transition while growing cash flow and returns. We are optimizing our oil and gas portfolio to deliver even stronger cash flow and returns with reduced emissions from production, and we expect significant profitable growth within renewables and low carbon solutions. This is a strategy to create value as a leader in the energy transition.

“This is a business strategy to ensure long-term competitiveness during a period with profound changes in the energy systems, as society moves towards net zero. We are building on our position as a global leader in carbon-efficient production of oil and gas. We will continue to cut emissions, and in the longer term, Equinor expects to produce less oil and gas than today recognizing reducing demand. Significant growth within renewables and low carbon solutions will increase the pace of change towards 2030 and 2035.”

Equinor has divested assets worth USD$2.3 billion, booked a capital gain of USD 1.7 billion, and expects to deliver nominal equity returns in the range of 12% – 16% from the offshore wind projects with offtake contracts in the UK and US.

Project Opportunities
The project opportunities listed in Equinor’s energy transition plan include Empire Wind and Beacon Wind in the United States, Doggerbank in the UK, and its projects offshore Poland, which contribute two-thirds to the company’s goal of 12 to 16 GW by 2030, with real returns of 4% to 8%.

Optimized oil and gas portfolio
Despite investing in renewable energies, Equinor has stated clearly that it will continue to produce oil and gas for the foreseeable future and will continuously improve its infrastructure on the Norwegian Continental Shelf (NCS) and international business portfolio.

Equinor projected that its capital expenditure in oil and gas in 2022-2023 will reach around USD$8 billion and is expected to remain at the same level towards the middle of the decade. This investment will result in the production of oil and gas for both traditional end-use applications and as inputs into decarbonized energy sources via hydrogen and ammonia and power generation and industrial processes with CCS.

“Since 2015, we have reduced our upstream carbon intensity by around 30%, bringing it below half of the current industry average. We have set a target to keep our upstream carbon intensity under 8 kg CO₂/boe by 2025 and around 6 kg CO₂/boe by 2030.

“In 2021, Equinor’s corporate methane emissions intensity was 0.02% which is around one-tenth the average of Oil and Gas Climate Initiative (OGCI) member companies. We will continue to develop and implement technologies and procedures to detect and reduce methane emissions, support industry efforts to reduce methane emissions across the oil and gas value chain, increase the quality and transparency of reported data, and support the development of sound methane policies and regulations,” the company said in a statement.

Currently, Equinor’s oil and gas business portfolio delivers a free cash flow after tax and investments of USD$45 billion between 2021 to 2026. New projects coming on stream by 2030 have an average break-even below 35 USD/bbl and a short payback time of less than 2.5 years.