Equinor Fueling Energy Transition With $23 Billion CAPEX, Project Opportunities
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 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.
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.
On the Norwegian continental shelf, Equinor is optimizing its operations to deliver strong value creation and an average annual free cash flow of around USD$4.5 billion in 2021 – 2030. Further improvements at the world-class Johan Sverdrup field reduce the break-even price for the full field by 25% to 15 USD/bbl.
“Today, Equinor is producing 2 million barrels of oil equivalent per day and in the third quarter of 2021, we had USD$10 billion in net operating income. I’m saying this because it’s like an industrial adventure. So, what about the next 50 years? What about the transition and what can we do to stay in business? Energy Transition is going on as we speak, and we have passed the stage of discussions about it. It’s just about when and how we can work together.
“Our Net-zero roadmap has identified our goals along the way towards net-zero and already in a few years by 2025, we will have 30% of investments within renewables and we will increase to 50% by 2030. We also have carbon intensity goals going down to reducing 20% in the first period and then towards also reducing 40% later in 2035.
“The point is really to have a measurable roadmap. Our roadmap also includes carbon storage capacity up to 30,000,000 million by 2035 and in 2040 70% reductions in emissions in Norway where we have the biggest operations in our portfolio.
“Equinor wants to be part of the solution. We want to be a leading company in energy transition and there are three areas we are focusing on, which include having very high growth in renewables. This is a new market with new opportunities and this is an area in that we want to have a strong footprint.
“We have done carbon capture and storage (CCS) for 20 years offshore Norway. So we have the experience but we want to do much more. We also have carbon-efficient oil and gas production that’s like the third one and we want to focus on specific parts of the world, the best scenarios, and the most competitive to reduce emissions within oil and gas production. So those are the three things and also find ways of contributing as a company with reduced emissions from our production.
“We will also work on developing new technology within the CO2 solutions. We want to invest in nature-based solutions like for instance, carbon sinks.
“We produce oil and gas in Angola. Our CEO has made it clear that we will continue to produce oil and gas for a long time. But, we need to do it competitively with the lowest carbon footprint.
“We will stay in oil and gas for quite a while because it’s necessary and part of the energy mix. And Angola is very much on our agenda being a core area with oil and gas and there’s also a potential for renewables. So again, Equinor wants to be part of the solution turning all the challenges into opportunities,” says Nina Birgitte Koch, Managing Director, Equinor Angola during a panel session at the Angola Oil and Gas Technology Conference (AOTC) 2021.
In 2019, Equionor renewed its licenses for two of its major partner-operated assets, blocks 15 and 17, until 2032 and 2045 in the Angolan oil and gas industry.
In an exclusive interview with The Business Year, Nina Koch commented, “In Block 17, the Dalia hub has reached 1 billion barrels of production last year without lost-time injuries, an outstanding achievement.
“Additionally, five high-value development projects have been executed in Block 17 since 2018, and we’ve had the first oil from three of those projects in 2021. All have been safely executed by the operator TotalEnergies and will also have a positive impact in reducing the accumulated carbon intensity from the fields, which is extremely important to Equinor.
“We also entered two exploration licenses, Block 1/14 and Block 29. Block 29 is operated by TotalEnergies, and 1/14 is operated by ENI. One of the advantages of the oil and gas industry in Angola is that it is very professional with long experience, and it is also a very good collaboration within the industry. I am proud of what we’ve been able to achieve in Angola over the last couple of years.
“Going forward, we will continue to maximize the value of our assets and find ways to lower CO2 emissions from our assets”.
Speaking at the virtual Africa Energy Series 2021 (online event) which was covered by The Energy Republic, and organized by Global Event Partners, Christel Kvalvik, Managing Director, Equinor Nigeria Limited said that Africa’s energy transition journey may look different compared to Europe and the United States.
Christel said Equinor believes that gas will play a significant role in Energy Transition in Africa. But, there are two concerns.
“Gas is more complicated than oil and it depends on the strong collaboration between the industry and the government.
“Gas is used in different parts of the world and not everyone sees gas as clean energy. There is a job to do in creating the understanding that the Energy Transition journey may look differently in Africa”.
“Equinor is currently building its business folio around renewable energy, adding that the company has launched a new structure for its international portfolio that includes an African cluster which will allow Equinor to build a more holistic and innovative strategy for the African region.
“As an energy company, Equinor wants to be at the forefront of taking on these challenges. We launched our ambition of becoming a net-zero company by 2050. This includes both emissions from production and energy use.
“We have developed three pillars to become a net-zero company by 2050. We will achieve it by upgrading our portfolios and focusing on abasement measures.
“In our new climate roadmap, we have also introduced the ambition to have a carbon-neutral global operation by 2030.
“This means by that time, the remaining emissions from our oil and gas operations will be compensated by nature-based solutions.
“We are working very closely with the Norwegian government, suppliers, and with various industry stakeholders. There are a lot of things going on to reduce our carbon footprint in our operations,” she added.
In addition, Equinor is leveraging new technologies and building new capacities to support its energy transition plan. The energy transition plan integrates key elements of Equinor’s decarbonization strategy with existing actions and ambitions. It includes information on capital allocation, policy engagement, risk and performance frameworks, and other enablers to deliver on the company’s ambitions.
Equinor’s international portfolio is set to deliver strong cash flow, become more robust towards lower prices, and show a significant upside at higher prices.
At the PETAN’s Sub-Saharan Africa International Petroleum Exhibition and Conference (SAIPEC) 2021, Christel Kvalvik, Managing Director, Equinor Nigeria Energy Company Ltd, provided more insight on the company’s business model during her presentation in a panel session titled “IOCs perspective on Dynamics’s of Sub- Saharan Africa’s Energy, Oil and Gas as we Strive to a Low Carbon Future.”
She said Equinor has added hydrogen, ammonia, and biofuels in its energy transition plan, noting that the company has set a clear ambitious target to use ammonia on its offshore vessels by 2024 as part of the company’s strategy to explore opportunities in offshore renewable energy resources.
“We have developed a new international business portfolio that includes onshore and offshore renewables which make the company take a more holistic approach to work closely with government and industry stakeholders to share experience, technology, and resources.
“We have assets and partner-operated assets in more than 20 countries. Equinor’s objectives are to turn natural resources into energy for people and progress for society.
“We are looking at electrifying some of our offshore assets with power cables from land, and offshore wind turbines.
“We are also doing integrated onshore base ports which guide the totality of our portfolio on the Norwegian Continental Shelf on both production and emissions.
“In our new climate roadmap, we have introduced the ambition to have a carbon-neutral global operation by 2030. We are also looking at various range of digital tools to reduce emissions from our current operations. This means by that time, the remaining emissions from our oil and gas operations will be compensated by nature-based solutions.
“We are adopting hydrogen, ammonia, and biofuels. By 2024, we will have some of our vessels running 300 hours with ammonia.
“We have a very close collaboration with the maritime industry on green shipping. We are working together to improve selling patterns, reduce consumption, and develop new fuels. We are also working very closely with the Norwegian government, suppliers, and with various industries,” she added.
According to Christel, “Equinor has powered more than one million homes with renewables, including offshore wind from UK and Germany.
“Our pillar in our strategy also includes decarbonization. We will look at this from different angles. There is also a very important building block for our net-zero ambition which is Capturing & Storing C02 underground.
“Equinor has a long history of storing C02 in the North Sea. We will build on this experience when we are part of developing a full-scale value chain for carbon-capturing storage,” she concluded.
By 2035, Equinor’s ambition is to develop the capacity to store 15 -30 million tonnes of CO2 per year and to provide clean hydrogen in 3-5 industrial clusters.
Unlocking new opportunities in low carbon solutions
The energy transition represents an opportunity for energy companies to leverage their innovations to develop and grow new energy resources. However, an enabling environment with policy development will facilitate a just energy transition for the oil and gas industry.
Equinor supports a transition that is just and inclusive, enabling long-term social, economic, and human rights benefits for workforces and communities.
“Our just transition approach will build on our heritage, purpose, and values and include clear priorities and measurable actions towards the three stakeholder groups mostly affected by our transition: our workforce, our suppliers and their workforce, and our host communities. It will consider how we use local content in our projects; how we can help host communities build resilience to climate change impacts; and how Equinor can be a driver for regional decarbonization strategies”.
In addition to increased national climate ambitions and meaningful carbon pricing, Equinor supports
policies that target the most significant greenhouse gas sources; Transparent and internationally aligned, to trigger investments and innovation; Phasing out subsidies on fossil fuels that exacerbate climate change and undermine the effects of climate-related policy measures’ Promote research and development through public measures that stimulate investments in low carbon solutions.
“To ensure we continue to retain a competitive advantage in low carbon technologies and business models, 40% of our Research and Development (R&D) budget will be allocated to these areas by 2025.
“To fund the transition of the company toward net zero and to ensure strong capital distribution through the journey, the optimized oil and gas portfolio will continue to be invested in to deliver cash-flow and value.
“Oil and gas projects coming on stream by 2030 will have a volume-weighted average breakeven under 35 USD per barrel”.