After a trip to renewable energy fantasyland, the world’s NOCs and major oil companies are finally getting back to the business of drilling and completing oil and gas assets. Investments by the big players are surging, as companies shake off the notion that an energy transition can be achieved by quickly switching to green alternatives, while neglecting the entrenched role that oil and gas play in driving the world’s economies and perpetuating our way of life. However, it appears this is starting to change.
Shell turns its focus back to fossil fuels. Shell announced it is exploring options for its global renewable power operations, including a potential stake sale to outside investors. The company is collaborating with advisers to study a range of possibilities that include separating the business into an independent unit. Shell has approached several international investors to gauge their interest in buying a stake. The deliberations come as CEO Wael Sawan returns the company back to investments in fossil fuels, in a bid to increase shareholder returns and narrow the valuation gap with Shell’s U.S. peers.
If a buyer is found, it will be a significant shift in Shell’s green strategy. The oil major has spent more than two decades trying to figure out how big a player it wants to be in renewables. Over the years, some CEOs have set targets for low-carbon alternatives to oil and gas, only for their successors to change the focus to fuels that drive most of the company’s profits.
Shell’s approach in recent years was similar to other European oil majors’ efforts to position their businesses for a world that cuts carbon emissions and relies less on fossil fuels. It’s been a stark contrast to their U.S. peers, Exxon Mobil and Chevron, which have focused on their core businesses of oil and gas. To date, investors have rewarded the U.S. oil majors’ strategy, pushing their valuations far above their European competitors. However, Sawan said he will continue to invest in renewable power, but he will be more selective and only pursue projects that create sufficient value.
Natural gas: a sustainable solution to lower carbon emissions. Another indication that the majors are moving back into fossil fuels is the consensus, that to lower carbon emissions will require much more natural gas than previously stated. The U.S. is forging ahead with new projects that will make it one of the world’s top LNG exporters. This momentum marks a turning point for gas, which the environmentalists thought would serve as a short-term bridge while developing “cleaner” alternatives and would be phased out in the near future. But with the promise of renewables failing to materialize, the idea that natural gas demand will peak anytime soon has vanished.
“LNG sellers look around this market and feel pretty confident that gas demand will be with us for decades to come,” said Ben Cahill, senior fellow with the Center for Strategic and International Studies. Russia’s invasion of Ukraine, and the subsequent energy crisis and record-breaking price surge, has changed the long-term prospects for natural gas. Europe is rushing to replace Russian fuel while emerging nations are signing long-term deals to avoid future shortages. China signed a 27-year agreement with Qatar recently to safeguard its energy security, and a German importer inked a landmark contract to buy LNG from the U.S. through 2046, even though Germany aims to be carbon-neutral a year before that.
Renewables are a poor investment. Natural gas has been the main earnings driver for energy companies, including Shell and BP, over the past few years. Producers that had ventured into the lower-margin renewable power business are now rethinking those investments, due to lackluster returns. “Liquefied natural gas will play an even bigger role in the energy system of the future than it plays today,” said Shell’s Sawan. “LNG can be easily transported to places where it is needed most. And what’s more, on average, natural gas emits about 50% less carbon emissions than coal when used to produce electricity.” Shell plans to increase natural gas investments by about 25% this year, to a record $5 billion, and keep spending at that level through 2025.
Major investments in new LNG facilities. Negotiations for a new $42 billion onshore LNG plant in Tanzania are making progress, paving the way for agreements to be signed in July. The East African nation could confirm a host government agreement and an amended production-sharing deal with the project’s consortium that includes Equinor, Shell and ExxonMobil as early as next month, according to the Energy Ministry’s permanent secretary, Felchesmi Mramba. It also aims to pass a project law to expedite construction of the plant. “We want to have a special law for that project,” Mramba said at an energy conference in the Kenyan capital, Nairobi. “That should pave the way for the final investment decision. The earlier we accomplish these two, the earlier the foreign direct investment comes.”
Tanzania now expects its first LNG export within five years after construction of the facility. The LNG facility will be the second to export natural gas off the eastern African shoreline. Neighboring Mozambique sold its first shipments from a floating LNG terminal in November. The search for hydrocarbons in East Africa has grown steadily since a slump in 2020, as European nations seek to diversify their energy supplies and cut reliance on Russian gas.
More LNG activity imminent. In the U.S., the development of new LNG plants is being supported, as buyers in Germany and Japan sign long-term contracts with exporters. TotalEnergies agreed to buy stakes in a new U.S. export terminal. The French company is also in discussions with Saudi Arabia to invest in its massive natural gas project. Last year, Shell joined Exxon Mobil and ConocoPhillips to invest in Qatar’s $30 billion LNG expansion.
GOM set to boom. Woodside announced it will invest $7.2 billion to develop the Trion oil field offshore Mexico. Woodside will act as operator with 60% participating interest, and PEMEX holds the remaining 40%. First oil is targeted for 2028, and the project has an estimated ultimate recovery of 479 MMboe. The field will be developed through a floating production unit, with a capacity of 100,000 bopd. Woodside CEO Meg O’Neill said Trion will add significant reserves to the company’s total and will have carbon intensity of just 11.8 kg CO2-eboe over the life of the field, which is lower than the global deepwater oil average.
India joins the party. Reliance Industries and bp will commence production from their MJ field, offshore India, following testing and commissioning activities. MJ field is the last of three major, new deepwater developments that the RIL-bp consortium has brought into production in Block KG D6 off India’s east coast. MJ is a HPHT gas and condensate field that will produce from eight wells and reach peak gas production of 12 MMcmgd and 25,000 bcpd.
Production at MJ follows start-up of the R-Cluster field in December 2020 and the Satellite Cluster in April 2021. All three developments utilize the block’s existing hub infrastructure. Together, the three fields are expected to produce approximately 30 MMcmgd (1 Bcfd) when MJ field reaches peak output. This will account for 33% of India’s domestic natural gas production and meet approximately 15% of India’s total demand. Mukesh Ambani, Chairmanchairman and Managing Directormanaging director of Reliance Industries Limited, said, “Alongside the KG and D6 fields, the MJ development supports the ‘Make in India’ and ‘Energy vision’ laid out by the Government of India.”
Environmental extremism losing momentum. Despite opportunistic statements from environmental groups about a total green energy takeover, the unrealistic initiative is losing steam. The below statements made by two venerable institutions are irresponsible and have contributed to global energy instability and higher prices:
The IEA says natural gas demand needs to fall dramatically by the end of the decade to keep the world on track for net zero by 2050. In 2021, the agency calculated that all new developments of oil, gas and coal fields need to be stopped to meet that scenario.
United Nations Secretary-General Antonio Guterres seconded the notion by stating that “producers and financial institutions need to commit to end financing and investment in exploration for new oil and gas fields and expansion of oil and gas reserves. We are hurtling towards disaster, eyes wide open.”
These guys might want to reevaluate their position, because no one is listening anymore.
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