In focus: Are oil & gas plays truly becoming a thing of the past or are we not there yet?

Worldwide dependence on oil and gas has been in evidence ever since the Ukraine crisis started, casting doubt over the pace and the lengths the world is prepared to go to in order to embrace decarbonisation.

While the shift to green energy investments is undoubtedly both necessary and inevitable, the current global energy security concerns have – to an extent – pushed it aside as pure oil plays have dominated the energy market and trumped low-carbon diversification so far this year. Or have they?

Every week we look at how far the offshore industry has come in its quest to implement low-carbon strategies in pursuit of net-zero goals, faithfully keeping score of all developments and milestones as the sustainable energy future takes shape. However, as recently pointed out by Wood Mackenzie, an energy intelligence group, change takes time and the signposts of the business transformation journey the offshore industry has embarked on lie some distance in the future.

This is mostly due to elevated oil and gas prices, which have transformed the financial outlook for the sector with pure plays and oil and gas-focused players being a bonanza for investors as they are making big money now. Another important factor, according to the energy intelligence provider, are the modest returns from investment in low-carbon opportunities and the sustained cash burn as the new business is built out. In addition, the existing renewable projects take time to turn positive.

After reviewing the big players in the U.S and European markets, Wood Mackenzie comes to the conclusion that the main differentiator is the pace of decarbonisation since the U.S. majors are only at an early, “tentative” stage of committing to investing in decarbonisation, whereas their European counterparts are already well ahead in diversifying and accelerating green investments. 

However, the situation is not as bleak as it may seem at first glance since the industry has been burning the midnight oil to strike some balance between the need for energy security and the recent increase in fossil fuel demand with net-zero goals and the Paris Agreement.

This is also supported by the developments that have marked the week, which is now almost behind us. In line with this, Norway’s state-owned giant Equinor and SSE Thermal, a division of SSE, awarded a contract for the development of its new low-carbon power station – the “first of its kind in Scotland” – located in Peterhead to a consortium of Worley, Mitsubishi Heavy Industries Engineering, Mitsubishi Power and Técnicas Reunidas earlier this week.

This project is expected to contribute to meeting the UK’s decarbonisation targets by neutralising emissions from a combined cycle powered by natural gas, removing up to 1.5 million tonnes of CO2 emissions every year and storing the captured carbon in wells in the North Sea. An additional incentive for this project is the announcement that this power station will contribute £50 million to the UK economy annually and support 560 jobs while also adding a further £25 million to the local Aberdeen economy every year.

Another bold push to speed up the transformation of the energy system towards one fully based on renewables came from Europe this week, with the renewable energy sector calling on the EU Member States to support the creation of an installation target for innovative renewable energy in the  Renewable Energy Directive by the European Parliament’s Committee on Industry, Research and Energy (ITRE).

Commenting on this, Rémi Gruet, CEO of Ocean Energy Europe, underlined: “This innovation sub-target can be Europe’s bridge over the ‘Valley of Death’. It will allow new renewable energy technologies to scale up in the market and will ensure Europe remains at the frontier of renewable energy innovation.”

One of the important parts of the solution, seen as a godsend for hard-to-decarbonise sectors, such as aviation, maritime and certain industrial sectors is green hydrogen, which is expected to significantly contribute to a more diversified and resilient energy system, as it can provide a low-cost alternative that diversifies energy imports and improves energy security. Multiple offshore industry players around the world have recognised this and are looking into ways to put this into practice.

Lhyfe, a French green hydrogen technology developer, is one of these players. As revealed on Tuesday, the firm started working on the installation of an electrolyser on Geps Techno’s hybrid floating renewable energy platform – combining solar, wind and wave energy – which is expected to produce green hydrogen from marine renewable energy sources. Once deployed, the platform is anticipated to become “the world’s first offshore renewable hydrogen production demonstrator.”

In a bid to take a key role in the production, distribution, and use of green hydrogen, Port of Antwerp-Bruges disclosed earlier this week that it is now participating in the German H2Global Foundation with an endowment sum of $100,095. It is believed that this port has a vital role to play in the import and local production of green hydrogen. According to the Belgian port, the initial production will start in 2023 with a ramp-up through 2025-2027 for large volumes of green molecules coming in from overseas.

Europe is certainly relying heavily on green hydrogen to implement its REPowerEU Plan as a way forward to come to grips with a double urgency, seeking to reduce the EU’s dependency on Russian fossil fuels and fast forward the green transition. This was demonstrated this week as well after a project, entailing an electrolyser to demonstrate the technical and commercial feasibility of producing hydrogen at sea, was pre-selected for funding by the EU Innovation Fund.

This German offshore wind project, known as Nordsee Two – owned by RWE (51 per cent) and Northland Power (49 per cent) – has set out a plan to integrate an electrolyser into the 433 MW offshore wind farm, which will be built north of the island of Juist. Following electrolyser integration, green hydrogen would be used for vessel fueling and for supplying emergency power to the offshore substation or wind turbines. The offshore wind farm is planned to be put into commercial operation in 2026.

One of the European countries, which is investing heavily in hydrogen projects within the maritime sector is, without a doubt, Norway, as it sees hydrogen as a key climate solution of the future. To this end, Enova, a state enterprise owned by the Ministry of Climate and Environment supported the creation of five renewable hydrogen production plants – Glomfjord, Rørvik, Hitra, Florø and Kristiansand -along the Norwegian coast with around $65.5 million.

Espen Barth Eide, Norwegian Minister of Climate and Environment, remarked: “Hydrogen and the green maritime industry are two of seven priority areas in the roadmap for a green industrial boost that the government is launching… Enova’s support of more than one billion kroner for five hydrogen hubs and seven hydrogen-powered ships supports this green industrial promise.” 

To bring forth the green energy transition, these hubs will be able to supply fuel to seven hydrogen-powered vessels supported by Enova in June. In addition, the production plants will have the capacity to bunker up to 40 ships with green hydrogen.

Moreover, the relevance of hydrogen is further portrayed by Germany’s plans to collaborate closely with Norway to enable large-scale hydrogen imports as quickly as possible. The two are even looking into the construction of a hydrogen pipeline while the role of blue hydrogen is being explored during the transition period prior to ramping up the production of green hydrogen.

Meanwhile, tackling the double whammy of energy security and climate change crises is certainly no easy feat by any stretch of the imagination. However, the International Renewable Energy Agency (IRENA), an intergovernmental organisation, underlines that renewables are crucial to breaking away from volatile fossil fuel prices and getting to grips with this conundrum.

As explained by IRENA, solar and wind energy, with their relatively short project lead times, represent “vital planks in countries’ efforts to swiftly reduce, and eventually phase out, fossil fuels and limit the macroeconomic damages they cause” in pursuit of net-zero.

This organisation believes that high coal and fossil gas prices in 2021 and 2022 will “profoundly deteriorate the competitiveness of fossil fuels and make solar and wind even more attractive,” which would make new fossil gas generation in Europe increasingly uneconomic over its lifetime, bolstering the risk of stranded assets. 

IRENA backs this claim by elaborating that the generation of solar and wind power between January and May 2022 may have saved Europe from fossil fuel imports in the magnitude of no less than $50 billion, predominantly fossil gas. 

The road ahead is always enveloped in a veil of mystery, giving us glimpses of what the future may look like, be it sustainable or not, but never truly letting us grasp what will come to pass until its time comes. Although one thing is certain, the winds of change are already sweeping over the offshore energy sector and there is no turning back the clock.

The energy transition is gathering momentum day in, day out, bringing us a little closer with each new development to the green energy future and net-zero goals that have been set out, regardless of whether we live in Europe, the U.S. or anywhere else in the world.

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