WoodMac: low-carbon power central to energy transition, but replacing oil & gas will be a ‘gargantuan’ task

Energy intelligence group Wood Mackenzie has published a report listing several key trends shaping the future of the energy sector, including three that are relevant to the offshore industry – the fast pace of China’s energy transition, a comparison of liquefied natural gas (LNG) and carbon capture and storage (CCS) capacity, and the potential of offshore wind compared to oil and gas in the North Sea.

As the new year rolls in, people tend to make plans and to-do lists and visualize their goals to see what the future might hold. The energy arena is no different – it is a time to take stock of the situation and assess options to secure an optimal future for our planet and its people with fresh eyes, taking in the lessons learned over the past year and major global events such as the 29th Conference of the Parties (COP29) held in November.

Since the energy landscape is rapidly transforming due to decarbonization, electrification, and geopolitical shifts, Wood Mackenzie has provided some insight into the complex dynamics of energy markets. The charts in the report titled ‘Conversation Starters: Five Energy Charts to Get You Talking’ offer a visual representation of what the future of several aspects of the energy transition might bring.

The report focuses on matters such as the electrification of the automotive sector in China, where a decline in the internal combustion engine (ICE) and the rise in electric vehicle (EV) sales has been registered over the past years, and power demand growth in the United States – which the author Malcolm Forbes-Cable sees as a manifestation of the Fourth Industrial Revolution.

Additionally, the report highlights three notions relevant to the offshore energy sector, relating to CCS, the North Sea’s future, and the energy transition in China.

Wood Mackenzie wanted to shed some light on the scale of the global CCS industry ambition by using what the author says is a “strange” juxtaposition between LNG and CCS capacity, even though one is in the business of energy provision and the other of waste disposal.

LNG and CCS have some similarities – both entail delivering gas in a cooled liquid state from production to end market and require a large global infrastructure network for collection, processing, and transportation. The main differences are that one starts at the reservoir and delivers to the customer, the other the reverse, and that the former can be profitable, while the latter is dependent on material subsidies. Tthe author says this is unsustainable in the long run, or at least until the carbon price supports a commercial market.

When it comes to CCS, the UK government recently disclosed its plans to spend £21.7 billion on establishing two major carbon capture and storage (CCUS) clusters over the next 25 years, alongside hydrogen production facilities, in Teesside and Merseyside. 

As stated in the report, LNG capacity is expected to see more than 200 million metric tonnes per annum (mmtpa) brought to market this decade at an annual growth rate of 5%. In the CCS base case between 2030 and 2050, once the industry has established itself more firmly, the annual growth rate is anticipated to reach 13% – a rate that the author says LNG has rarely matched.

“Even in the delayed energy transition scenario, CCS capacity is expected to be three times greater than LNG supply volumes by 2050, while in the base case, it will be four times greater. This will require impressive growth rates!” noted Forbes-Cable.

When discussing CCS’ potential during this year’s Offshore Energy Exhibition and Conference, industry stakeholders pointed out that regulations, licensing, a supply chain, as well as trust from society are required for the technology to happen on a large scale.

The final investment decision (FID) was recently reached for what will be the first full-scale carbon storage facility in the EU, the Greensand Future Project, which is the first commercial phase of the Greensand project that will establish Denmark’s first CO2 storage site at the Nini field in the Danish North Sea. Partners plan to invest $150 million in commercial agreements across the entire value chain, from CO2 emitters to logistics, storage, and shipping.

One of the world’s most prominent oil and gas arenas – the North Sea – has been producing hydrocarbons since the 1970s, when it brought energy security and jobs for many. Now that the world is turning away from fossils, its role in energy security has changed, but its oil and gas potential is still being explored. In recent weeks, Aker BP and Equinor came out dry, but Harbour Energy had better luck.

Additionally, Equinor and Shell decided to combine their offshore oil and gas businesses on the UK Continental Shelf (UKCS) to form an incorporated joint venture (IJV). They believe the new company will be the UK North Sea’s “biggest independent producer,” helping sustain domestic oil and gas production and the security of energy supply in Britain.

Following the energy insecurity created by Russia’s aggression against Ukraine, the North Sea has become the location of offshore wind projects. The area is home to the world’s largest offshore wind farm under construction – Dogger Bank, and the largest one in operation, Hornsea 2. It is said to be at the vanguard of the offshore wind sector, boasting a capacity of 36 gigawatts (GW), which the author expects to exceed 240 GW by 2050.

Forbes-Cable believes that offshore wind is a world-class resource, much like the oil and gas reserves used to be. As one form of energy increases and the other decreases, he wonders how these two energy sources compare. Alongside their comparison, some have expressed concerns about their co-location since many oil and gas, CCS, and offshore wind licenses in the North Sea overlap.

However, Wood Mackenzie’s report notes the idea that clean renewables might replace dirty hydrocarbons is a simplification that does not take into account the complexities of energy supply and the use of oil and gas that goes far beyond power generation.

The chart quantifies the cumulative final energy output of oil and gas versus offshore wind, taking into account thermal efficiencies. For example, when oil is refined into a transport fuel, the final output at the wheel is 25% of the original energy content. On the other hand, offshore wind’s power output has an efficiency of 92%.

Still, the offshore wind’s cumulative energy output is not expected to surpass oil and gas until the end of this century, with the author pointing out the “extraordinary” contribution that oil and gas made to the energy supply. Finally, Forbes–Cable concludes that building a new low-carbon system in its place will be a “gargantuan” task.

Based on the report, the world has never seen an energy system transform at the pace of growth or transformation that China is currently experiencing. The chart shows the power generation mix simplified into hydrocarbon (coal and gas) and low-carbon (hydro, solar, wind, nuclear power, and storage) sources.

When it comes to hydrocarbons, China’s state-owned CNOOC recently brought several oil projects online. Some of the more prominent ones are Jinzhou 23-2 – said to be the country’s first offshore multi-layer heavy oil thermal recovery project, Huizhou 26-6, Bozhong 19-2, and Liuhua 11-1/4-1. The latter encompasses a cylindrical floating production storage and offloading (FPSO) unit called Haikui-1. 

In September, CNOOC started production from the Shenhai-1 Phase II natural gas development project in the South China Sea, where the total gas in place had previously been proven to exceed one trillion cubic meters. The project is located in the Qiongdongnan Basin, northern South China Sea, within an average water depth of approximately 900 meters. 

China is not lagging behind in the low-carbon arena either. According to the report, its installed solar and wind capacity are set to exceed that of Europe and North America by 2025, with low-carbon sources delivering 50% of power generation by 2029. Additionally, solar power and wind are slated to surpass coal-fired power by 2037.

The author believes this rapid change is being driven by the country’s long-term strategy of energy security and decarbonization, which is supporting the rapid expansion of the power market. In the last five years, the annual power demand growth has been 6% and, by 2030, it is expected to reach 5%.