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SEK268.4 -2.6  -1.0%

Last Trade - 30/07/21

Sector
Energy
Size
Large Cap
Market Cap £6.47bn
Enterprise Value £8.76bn
Revenue £2.76bn
Position in Universe 120th / 1858

ANALYSIS-Greener oil or green industry? Gridlock puts Norway in a bind

Wed 23rd June, 2021 7:00am
* Powering oil platforms from shore reduces Norwegian
emissions
    * Competition for onshore grid connection is strong
    * Critics say power for oil industry is greenwashing 

    By Nora Buli and Nerijus Adomaitis
    OSLO, June 23 (Reuters) - Norway's oil and gas industry is
counting on renewable power from hydro plants to cut emissions
from its offshore platforms but rival demand from the green
economy is putting a spanner in the works.
    The decision to keep investing in new oil and gas projects
flies in the face of growing global pressure to shift away from
fossil fuels and Norway's own reputation as a pro-green economy
with more electric cars per capita than any other country and a
reliance on renewable hydropower for virtually all of its
electricity.
    But Oslo is loath to relinquish Norway's lucrative position
as one of the world's top oil and gas producers, accounting for 
over 40% of its exports, and instead wants to make the industry
greener.
    "The Norwegian parliament has set a target of 50% reduction
in emissions on the Norwegian continental shelf by 2030. Power
from shore is the only technology that can deliver
cost-efficient cuts that can get the industry close to this
target," Deputy Oil and Energy Minister Tony C. Tiller told
Reuters.
    There's a practical problem with the plan. Norway's
electricity grid is constrained at some junctures and the needs
of other industries, particularly green economy players such as
battery factories and hydrogen plants, have to be factored in.
    Earlier this year, the national grid operator Statnett told
Norway’s state-owned oil firm Equinor and partner Aker BP
 AKERBP.OL  to look elsewhere for power capacity, something that
could add "nine zeros" to a current 50 billion crown ($6
billion) project cost estimate for electrifying some of their
platforms, according to Aker BP CEO Karl Johnny Hersvik.
    Statnett's recommendation was a rude awakening for the oil
industry, which has made Norway one of the richest countries in
the world. Without access to cheap, renewable energy some of its
oil fields might have to be shut prematurely due to rising
emissions costs, analysts say.
    Environmentalists say that is what should happen, and that
renewable energy should not be used to extend the life of the
fossil fuel industry.
    "We call it greenwashing because we believe that the oil and
gas industry should be phased out, not expanded, and since it
should be phased out, it doesn't make sense to invest in
marginal improvement," Truls Gulowsen, the head of Friends of
the Earth Norway, told Reuters.
    The measure would only address a fraction of total oil and
gas emissions, while sucking power from shore that is essential
to develop new, green industries, he added.
    Norway's oil and energy ministry told Reuters it
"categorically" rejected accusations of "greenwashing", because
electrification would address a significant part of the
country's total emissions.
    The industry's greenhouse gas emissions stood at 13.3
million tonnes of CO2 equivalent in 2020, or 27% of the
country's total, according to the statistics office.
    Electrification could potentially reduce the industry's
emissions to around 11.5 million tonnes in 2025, and just under
9 million tonnes by 2030, the government has said.
    Norway's largest oilfield, Johan Sverdrup, produces oil with
0.45 kg of CO2 per barrel, 40 times less than the global
average, thanks to electrification, Sweden's Lundin Energy
 LUNE.ST , one of the partners, has said. urn:newsml:reuters.com:*:nL5N2NY14G
    
    GREENER OIL
    Tapping renewable sources of energy to make heavy-polluting
industries greener is one of the more controversial aspects of
the transition to a lower-carbon world.
    Norway, along with many other oil-producing nations,
shrugged off an appeal by the International Energy Agency this
year to stop investing in new fossil fuel projects.
    Oslo has pledged to reduce its national emissions by 50-55%
by 2030, in line with European Union targets but not as
ambitious as the UK, which is second to Norway as the largest
oil and gas producer in western Europe.
    Like other oil-producing countries, Norway's targets do not
take account of emissions from the oil and gas that it sells to
other nations.
    The government anticipates oil and gas extraction will
naturally decline by 65% by 2050.
    In the meantime, producing petroleum with the lowest
possible carbon footprint could help the country market its
products as cleaner than competitors and cut the industry's
exposure to expected sharp increases in carbon taxes in coming
years.
    On Norway's west coast, Equinor and its partner Aker BP are
waiting to hear whether the power regulator NVE will back their
proposal to connect drilling platforms at the so-called NOAKA
area, the largest oil and gas project in the North Sea after
Sverdrup. A decision is not expected before the end of 2022.
    “We still believe that is the best and most cost-efficient
solution," Aker BP's Hersvik told Reuters.
    If it doesn't go their way, and the companies need to choose
another connection further inland, they might still be able to
start the production by 2026, but the costs will rise, he added.
    NVE is a government agency subject to the ministry of oil
and energy. Its licensing decisions can be appealed with the
ministry having the final say.
    Statnett says to connect NOAKA at the preferred grid point
would take 8-10 years because a new transmission line would have
to be built.
    Renewable power demand in Norway is set to increase from an
average 135 terrawatt-hours (TWh) during the last five years to
between 170 and 190 TWh by 2030, a recent report by Norwegian
industry lobby group NHO and the country's biggest labour union
LO showed. The country had a surplus of around 20.5 TWh in 2020.
    The government is currently looking for ways to speed up
much-needed grid fortifications, but for the time being, the
conundrum of conflicting interests remains a headache.
    "The electrification of the shelf provides major cuts in
greenhouse gas emissions, but it is important that it does not
come at the expense of restructuring and business development on
land," BKK, Statnett’s regional partner on the west coast, said
in a statement.

 (Editing by Carmel Crimmins)
 ((nerijus.adomaitis@thomsonreuters.com; +47 9027 6699; Reuters
Messaging: nerijus.adomaitis.thomsonreuters@reuters.net))
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