Energy Focus- Winter 2019 by Redactive Media Group

energyfocus

ISSUE 38 WINTER 2019

F ROM T H E E N E RGY I N DUST R I E S COU NC I L ROAD TO RESILIENCE How the energy sector is responding to climate change

MEXICO ENERGY New challenges and new opportunities for oil and gas

POWER Making autonomous deep-ocean operations a reality

RENEWABLES Scotland continues to ramp up its dependency on renewable energy

View from the top

Mary Quaney on Mainstreamâ&#x20AC;&#x2122;s project pipeline, global growth and closing the renewable energy gender gap

Contents ISSUE 38 WINTER 2019

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FROM THE EIC

OIL AND GAS

24 Shaking up Europe’s energy map

5 Foreword

Randall Mohammed, Managing consultant, Global Energy 4.0

From the Chief Executive

6 View from the top Mary Quaney, Group CFO Mainstream Renewable Power

27 What lies ahead?

10 News and events Updates from the EIC

14 Special report: Paris Agreement

Lucy Woods on the importance of Article 6

18 Rising above the storm

Jeremy Bowden on adapting the energy sector to climate change

50 My business

Ian Sherrington, Commercial Director, Waves Group

Energy Focus looks at the role of oil and gas companies in the energy transition

POWER 35 Accelerating the energy transition

Q&A with Dr Shuli Goodman, Executive Director, LF Energy

Mary Quaney

38 What does it take to build a subsea power station?

Q&A with Svein Vatland, Vice President of Subsea Technology Programmes, ABB

Mexico oil and gas

28 EIC Connect Mexico Energy Forum 2020

NUCLEAR

Making your mark in Latin America

30 Mexico still holds promise

Amanda C. Duhon, Regional Director, EIC (North & Central America)

42 The future is fusion Professor Ian Chapman, CEO, UK Atomic Energy Authority

The power of open-source

RENEWABLES 47 The power of waste

Sharanya Kumaramurthy, Energy Analyst, EIC

48 Leading the clean energy revolution

Paul Wheelhouse MSP, Minister for Business, Innovation and Energy, Scottish Government

42 Protect the safety of your workforce

UK steps closer to fusion

All eyes on Scotland

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The Energy Industries Council 89 Albert Embankment, London SE1 7TP Tel +44 (0)20 7091 8600 Email info@the-eic.com Chief executive: Stuart Broadley Should you wish to send your views, please email: info@redactive.co.uk

Editors Sairah Fawcitt +44(0)20 7880 6200 sairah.fawcitt@redactive.co.uk Lucy Chakaodza +44(0)20 7091 8638 lucy.chakaodza@the-eic.com Account director Will Hurrell Production director Jane Easterman Senior designer Seija Tikkis Picture editor Akin Falope Content sub-editor Kate Bennett

Energy Focus is the official magazine of the Energy Industries Council (EIC). Views expressed by contributors or advertisers are not necessarily those of the EIC or the editorial team. The EIC will accept no responsibility for any loss occasioned to any person acting or refraining from action as a result of the material included in this publication.

Publisher Redactive Media Group, Level 5, 78 Chamber Street, London E1 8BL Tel: +44(0)20 7880 6200 www.redactive.co.uk

Recycle your magazine’s plastic wrap – check your local LDPE facilities to find out how.

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Foreword

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From the Chief Executive: This edition of Energy Focus starts the year by looking ahead to COP26 and how the industry is embracing the energy transition

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Stuart Broadley CEO

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Firstly, I would like to wish all our readers a happy New Year as we enter 2020. Last year was a very productive year for EIC; we organised 130 events globally, including 10 Connect events, in 90 countries, and for the first time had five pavilions at ADIPEC, including a new digitalisation pavilion. We also held our first ever Energy Exports Conference in Aberdeen, with 1,000 attendees, 100 speakers, 350 supply chain companies and nine inward delegations, discussing more than US$150bn of global project opportunities requiring UK products and services. Five years on from the oil price crash, one of the toughest periods for the global energy industry, companies have persevered and innovated to stay in the game. However, the competitive environment is still fierce, and the scale of the UK market is still not enough to feed the capability and capacity of our world-class supply chain, which arguably needs to focus more than ever on exporting and diversifying its way to growth. After a period of major downsizing, the industry has hotly debated many strategic growth opportunities. In 2017 the industry looked to oil and gas decommissioning as a viable new growth market, especially in the UK North Sea. However, projects proved to be costly, with operators choosing to extend life wherever feasible instead of rushing to decommission. In 2018, all eyes were on digital as the new trend. However, while the industry appeared to embrace the digital revolution, recognising its huge potential, it was also viewed as adding sometimes unnecessary risk. Industry appeared to take a ‘small bites of the elephant’ approach, as opposed to ‘boiling the ocean’. In 2019 we saw the challenge of the energy transition in the UK come to pass, initially

driven by activists but quickly adopted by government and industry, predominantly in North West Europe, Canada and Australia. However, only a small percentage of operators/developers – most notably Ørsted (previously DONG) – have successfully managed to witness a growth in revenues and margins as a result of aggressively diversifying into other sectors such as offshore wind. During the last year the energy transition has suddenly moved from ‘an issue to be aware of’ to ‘forcing action’. There is a strong possibility that this will also happen globally within the next one to three years. Although the energy transition currently has dominance of voice in the market in North West Europe, the opportunities and emerging technologies associated with it are being looked at all over the world. Looking ahead, what do the next few years hold? Is the energy transition here to stay? Or will it be seen as a big topic but with small revenue opportunity in the short term, as happened with decommissioning and digital? As we look ahead to COP26 in Glasgow at the end of 2020, the UK government has a unique, timely and powerful platform to make a pledge to honour its commitment to advance new technologies in order to meet the net-zero emissions challenge. The UK has less than a year to prepare for what is being described as the most important COP, which marks the deadline for countries to update their Paris commitments since COP21, when the Paris Agreement was ratified. Newly appointed Prime Minister Boris Johnson has a double challenge on his hands regarding clean growth – investing in sound policy, which will drive down emissions further, but also ensuring this new technology is homegrown and not simply imported from mainland Europe,

as happened with offshore wind. Various technologies associated with carbon capture utilisation and storage, which are somewhat established but not industrialised, are a natural fit to meet net-zero carbon targets, given the UK’s incredible oil and gas legacy infrastructure. Then there are other technologies around hydrogen, which would also go hand in hand to further reduce emissions. Several countries are looking at these two newer cleantech areas, as well as others such as floating offshore wind and nuclear advanced and small modular reactors. Imagine if companies in the UK were to make the right technology and investment decisions now, fully backed by consistent UK government policy, funding and legislation, to create a capability that other countries are truly envious of in five years’ time. What an amazing platform COP26 could be, bringing together industry leaders and government representatives who could, as part of their COP26 commitment, decide to pledge game-changing sums of money and resources in two to five of the chosen key new technologies. This would enable the UK to become a world-leading exporter of that technology in the future – not just a consumer of it.

Stuart Broadley EIC CEO stuart.broadley@the-eic.com

www.the-eic.com | energyfocus

From the EIC

Q&A Mary Quaney: From the EIC

Q&A Mary Quaney

View from the top Q&A: Mary Quaney Group Chief Financial Officer and Executive Director, Mainstream Renewable Power

I think this is going to be the decade that renewables truly come into their own 6 energyfocus | www.the-eic.com

Energy Focus meets Mary Quaney, the Chief Financial Officer of Mainstream Renewable Power, who leads the Group’s finance, corporate finance and commercial functions spanning four continents

Today, Mainstream’s main focus is in emerging markets. Can you tell us more about the drivers behind this strategy? We were established in 2008 with a clear mission to lead, and importantly, to accelerate the global transition from fossil fuels to renewable energy. As each year goes by, the drivers underpinning our mission have become more numerous and more pressing. Renewable energy brings four core deliverables that no other form of energy can match: low cost, scale, speed of deployment and zero emissions. And that’s why twice as much was invested in renewable generation in 2018 than was invested in coal, gas, oil and nuclear combined. What key factors contributed to the successful signing of power purchase agreements (PPAs) for renewable energy projects across Africa and Latin America? We’ve been very successful, particularly in Chile and South Africa, where we have secured 2.5GW of PPAs through competitive tenders. In Chile we outcompeted even existing fossil fuel plant, proving how competitive renewables are now. We have an extensive development pipeline of high quality projects in these markets. But the key success factor is our specialist know-how. We are the only pure-play renewable energy company with a global footprint – and that gives us a breadth and depth of knowledge that I believe is unique to Mainstream. Our team has more than 1,100 years of sector experience – no other company knows renewables like we do. This industry foresight means we’re always a step ahead. Can you tell us more about securing the US$580m wind and solar debt financing deal in Chile? The key thing about our recent US$580m funding in Chile is that it is very much part of the solution to help the government lower the cost of electricity generation in the country. Our 1.3GW wind and solar Andes Renovables platform is providing some of Chile’s cheapest power ever, directly benefitting the consumer. We closed this deal with a consortium of seven banks and we look forward to closing a second, bigger transaction in the coming months.

Having recently opened your APAC HQ in Singapore, can you talk about the pipeline of projects Mainstream has in Vietnam and the region? The APAC region is where we see the greatest growth and scale of opportunities for Mainstream during the coming two to three years. We have been there for about four years now – building a very experienced local team, expanding our development pipeline and gaining in-depth knowledge of the diverse markets in the region. Our 800MW Soc Trang offshore wind farm is set to become the largest in South East Asia and we are at the advanced development stage, gearing up for construction. We are developing some exciting projects in the Philippines and, having spent time analysing a number of markets in the region, we are set to explore new territories in 2020. What would you say were the major renewable energy bottlenecks right now, and how can they be overcome? The global transition to renewable energy has reached a number of major tipping points during the past few years. Renewable energy is now the clear winner globally, but the key bottleneck is political will. The world has been built on fossil fuels – but it has come at the expense of the environment. To accelerate the transition, we need to see a step change in political will; we need to see stronger policy, clearer renewable energy regulations and more long term clarity and consistency to attract investment and scale. How important has the rise of PPAs been in facilitating the global transition to clean energy? Private PPAs have an important role to play in the transition to renewables, and up until now they have mostly been popular in more mature markets. Moving forward, I expect we will see growth in emerging markets, where large manufacturers of global brands are demanding renewable energy in response to environmental, social and governance pressures on their supply chain. Current trends suggest that we will see more global framework PPAs with these big brands.

About Mary Quaney Mary joined Mainstream in 2009 and has held the role of Group Chief Financial Officer since 2017. Mary sits on Mainstream’s Board of Directors, as well as its Global Leadership Team, Risk & Investment and Corporate Social Responsibility Committees. Prior to joining Mainstream, Mary held senior-level positions in finance and corporate tax at Pricewaterhouse Coopers and Trinity Biotech Plc. Mary is a Fellow Chartered Accountant and Chartered Tax Adviser with graduate and postgraduate qualifications from University College Dublin.

www.the-eic.com | energyfocus

From the EIC: Q&A Mary Quaney

The APAC region is where we see the greatest growth and scale of opportunities for Mainstream in the coming two to three years Getting the financials right will be key to securing Europe’s 450GW target of offshore wind capacity by 2050. How will this be achieved? Offshore wind has a crucial role to play in the decarbonisation of Europe, and indeed the world. However, making the step from tens of GWs to hundreds of GWs is going to require a much more co-ordinated approach than has been the case up until now. Investment on this scale will require transparency and long term certainty. Investors will require certainty of revenue streams at a greater scale than what is available today, which in turn will facilitate the deployment of greater levels of project finance. Additionally, the planning systems will need to become much more efficient and transparent in order to reduce delays and ensure more projects can get through the system and into construction and operation. Which markets are you currently looking at, in terms of expansion? Offshore wind provides the scale that no other form of renewable energy can provide. That’s why it has such a critical role to play in the global transition, and why more and more countries are starting to see its importance. Mainstream is a global leader in the offshore wind sector, having developed 35% of the UK’s 2020 offshore wind generation capacity –including the Hornsea array, the world’s largest offshore wind farm, which is currently being built in UK waters. Offshore wind is now becoming a global

8 energyfocus | www.the-eic.com

Operating across numerous global markets, Mainstream Renewable Power has raised €2.1bn of project finance since its inception just over a decade ago, and now has almost 11GW of projects either in development or construction

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7GW consented onshore

3.45GW consented offshore

phenomenon, and that’s reflected in our geographical spread. We are at the advanced development stages for our 800MW Soc Trang offshore project in Vietnam. We signed an agreement last year with Eni and together are now preparing for UK Round 4 bidding. We are also preparing for Scotwind, and we’re looking at opportunities in markets such as North America and a number of Asian markets. What more can the wind industry do to attract more young people and women to help it develop in the future? Attracting young people into the industry isn’t a challenge for us; the younger generation is informed and passionate about sustainability, and is attracted to companies such as Mainstream that have a strong mission to lead the energy transition. Where the industry does need to improve is in the area of gender equality, and this is something I am personally involved in in my role as a Mentor on the GWEC Women in Wind programme. At Mainstream, we have just launched our Diversity and Inclusion programme, which is particularly focused on creating better gender balance. As an organisation we have targeted areas where there is room

€2.1bn project finance raised

3GW won in competitive auctions

for improvement, particularly at more senior levels. We need more female role models in our industry, more targeted programmes and initiatives to effect change. Every organisation in the sector has a responsibility to do its piece. Going forward, what role do you see Mainstream playing in the future development of wind and solar energy? Mainstream is entering a high growth phase globally, with 1.5GW currently in construction across Senegal, Egypt, Chile and South Africa – increasing to 2.2GW in the coming months. We are focused on rapidly expanding our 9GW development pipeline by moving into a number of new markets in 2020, and we expect to start delivering projects shortly in Australia and Colombia, where we set up development offices there in 2019. The fundamental drivers are becoming stronger, and the sense of urgency to decarbonise global electricity systems is becoming more pressing. As we enter this new decade, I think this is going to be the decade that renewables truly come into their own – and Mainstream is well on its way to becoming a leader in the new breed of renewable energy majors.

From the EIC News and events

U P DAT E S F RO M T H E E N E RGY I N D U S T R I E S C O U N C I L

news&events introduce members to regional energy markets and their major players.

Worldwide business support

10 energyfocus | www.the-eic.com

Helping members to track global energy projects and assets Our projects database, EICDataStream, provides extensive information on more than 8,750 active and future projects in all energy sectors. By tracking full project lifecycles from feasibility to construction and then completion, it helps members to identify opportunities and plan their business development strategies. Our operations and maintenance database, EICAssetMap, puts the details of more than 4,000 energy facilities across The Americas, Asia Pacific, Europe and the Middle East at your fingertips.

High-profile international events Connecting members with buyers and partners The EIC hosts flagship industry events that bring together supply chain companies with global energy contractors and operators, and bespoke events that keep members informed about projects, sector developments and markets. Our overseas trade delegations and EIC-run pavilions at international exhibitions

Business intelligence Keeping members informed and raising their profile

We help our members to stay connected with the world of energy through informative online news, e-bulletins, market reports and industry publications. Our comprehensive directory of member supplier services is also a useful resource for operators and contractors.

EIC Insight Report: Global Outlook for LNG Liquefaction and Regasification

Although carbon capture and storage remains firmly on the agenda for many countries globally, including Norway, the US and Canada, deployment of carbon capture utilisation and storage (CCUS) has emerged as a more viable concept offering a new approach to climate change mitigation. By purchasing the EIC Insight Report: Carbon Capture Utilisation and Storage, you will find a detailed overview of the technologies and processes across the CCS sector, evolution of hydrogen and how CCUS can unlock its potential, in addition to an in-depth look at the leading projects and developments within the sector.

It is estimated that more investment is needed in projects to fill the expected LNG supply gap in the mid-2020s when new capacity is under construction, making project success a priority in the industry. As countries worldwide strive to meet air quality and climate targets and seek a change in their energy mix, the International Energy Agency forecasts that gas will overtake coal as the second leading source of energy consumption by 2030. The EIC Insight Report: Global Outlook for LNG Liquefaction and Regasification provides a detailed overview of the role natural gas must play in overcoming the energy challenge of meeting consumer demand while minimising carbon emissions. It provides an outlook on activity in key markets, challenges and positives in the industry.

To buy or download your copy of the Carbon Capture Utilisation and Storage insight report, please visit: www.the-eic.com/Publications/ MarketIntelligenceReports

LAT E REP ORSTT O S NOUWT

The International Energy Agency forecasts that gas will overtake coal as the second leading source of energy consumption by 2030

To buy or download your copy of the Global Outlook for LNG Liquefaction and Regasification insight report, please visit: www.the-eic.com/Publications/ MarketIntelligenceReports

Industry courses

Enhancing members’ skills and knowledge Our quality courses, which can be delivered off-site or in-house, are led by highly experienced trainers with industry backgrounds. We tailor our training to suit a variety of levels and also work with member companies to run programmes, some of which include tours to manufacturing companies.

IMAGES: XXXXXXXX

Established in 1943, the EIC is the leading trade association for companies working in the global energy industries. Our member companies, who supply goods and services across the oil and gas, power, nuclear and renewables sectors, have the experience and expertise that operators and contractors require. As a not-for-profit organisation with offices in key international locations, the EIC’s role is to help members maximise commercial opportunities worldwide. We do this in a variety of ways:

Market insight

Member companies who want to do business outside the UK can rely on our global network of offices to provide regional market knowledge, one-to-one advice and practical support. We also provide virtual and rental offices, and facilities for hotdesking, meetings, conferences and corporate events. IMAGES: SHUTTERSTOCK

About the EIC

Enabling members to expand into markets across the globe

EIC Insight Report: Carbon Capture Utilisation and Storage

www.the-eic.com | energyfocus

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EIC Connect Energy Indonesia When? 26 March 2020 Where? The Dharmawangsa Jakarta, Jakarta

Offshore Wind Overseas Delegation to Vietnam

When? 27 April 2020 Why join the EIC delegation? Vietnam is seen as one of the most promising markets in the next wave of Asian offshore wind. Coastal areas off Vietnam feature some of the greatest potential for power production in the world, with average wind speeds of 7-11 metres per second. The Vietnamese government aims to produce 10.7% of electricity from renewable sources by 2030 and has set wind energy targets of 1,000 MW by 2020 and 6,200MW by 2030. The country currently has approximately 190MW of current installed capacity across four onshore and so-called nearshore wind farms. The development pipeline holds an additional 4,236MW in consented projects, 63MW under construction and 412MW in the process of appraisal approval. The UK’s industry experience and position as the world’s leader in offshore wind capacity means it can provide valuable support to the development of offshore wind power in Vietnam. The trade delegation aims to facilitate a dialogue between the Vietnamese supply chain, developers, local authorities and the UK’s offshore wind industry to exchange information on topics such as supply chain development, technology and project execution, as well as grid infrastructure and integration of renewable energy. It will enable companies to start building relations within the local industry and set the foundations for participation in forthcoming projects. To register your interest, please visit: www.the-eic.com/Events/

Why exhibit with EIC? The Indonesian government is actively revamping its geothermal feed-in-tariff structure to attract investors to develop geothermal projects in the country. Could this be the change needed to promote the nation’s largely untapped geothermal potential? Join us at EIC Connect Energy Indonesia for high-level networking and an opportunity to get insights to valuable project opportunities. The conference is built on the success of previous APAC regional Connect accomplishments (Korea, Vietnam, Malaysia and Thailand), reinforcing global connectivity

to international and Indonesian domestic oil and gas, power, nuclear and renewable energy value chains. We expect to attract a large number of companies, primarily representing UK-based businesses, all with the capacity, technology and innovation to contribute to large-scale projects and host one-to-one meetings with delegates to discuss their supplier requirements, procurement procedures and how they can work together on upcoming projects in the region. For more information and to register your interest visit: www.the-eic.com/Events/ EICConnect/EnergyIndonesia

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OverseasDelegations/Vietnam For more information please contact pamela.nicholson@the-eic.com

Offshore Technology Conference 2020

When? 4 May 2020 Where? NRG Park, Houston, Texas Why exhibit with EIC? The Offshore Technology Conference (OTC) is where energy professionals meet to exchange ideas and opinions to advance scientific and technical knowledge for offshore resources and environmental matters. EIC will be exhibiting at OTC once again this year. OTC gives exhibitors the chance to promote their products and services to operators and contractors in the local region.

Exhibitors will gain access to the latest industry news, a presence at one of the world’s largest oil and gas events, and access to networking opportunities with professional contacts from across the world. Exhibiting on the UK Pavilion at OTC can reap significant benefits and opportunities for exhibitors. With a team based in Houston, the EIC offers tailored regional and global advice and facilitates meetings and networking opportunities with key decisionmakers and industry players. UK Pavilion bookings are now open to all UK companies. To apply for a stand, please visit: www.the-eic.com/Events/Exhibitions/ OffshoreTechnologyConferenceOTC

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Special Report

Paris Agreement: Special Report

Paris Agreement

t the 2015 United Nations’ climate negotiations in Paris (COP21), countries across the globe pledged to keep global temperature rise below 1.5°C. But current policy is set to heat the planet by more than 3°C. To help close this gap between promises and reality, Article 6 of the Paris Agreement – the piece of legislation responsible for setting up the mechanisms for a worldwide carbon emissions trading system – was to be finalised at the end of last year in Madrid, at COP25. The aim of Article 6 is to create an emissions accounting system that is ‘so transparent that anyone can look at it and see what deals are being done,’ says Clare Shakya, Director of Climate Change Research at the International Institute for Environment and

Development (IIED). However, even after extra days of negotiations, COP25 finished with Article 6 unresolved.

Cost of indecision The negotiations ‘can get really complicated – there is a lot on the table, lots of issues and different opinions,’ says Stefano de Clara, Director of International Policy at the International Emissions Trading Association (IETA) and one of the authors of the carbon pricing report, The Economic Potential of Article 6 of the Paris Agreement and Implementation Challenges. The report found that international cooperation on decarbonisation could not only cut an additional 5bn tonnes of CO2 equivalent annually by 2030, but also deliver savings of US$250bn every year by 2030, increasing to almost a trillion in 2100. This

could be reinvested in additional climate action. Every year that an emissions trading system is undecided, billions of dollars are potentially lost.

What is Article 6?

Sticking points

The Paris Agreement offers three approaches to international cooperation mechanisms:

The negotiations on these savings came to a halt as influential nations such as China, the US, India, Brazil and Australia drew impassable red lines. The three major stumbling blocks in negotiations were ‘double counting’, the transition of ‘old’ carbon emission reductions, and the inclusion of a mechanism to create an international fund for climate change mitigation and adaption. ‘Double counting’ is when governments count reduced emissions, but any private companies or agencies that may have assisted the government can also lay claim

Article 6.2 lets countries strike bilateral and voluntary agreements to trade carbon units Article 6.4 creates a centralised UN governance system for countries and the private sector to trade emissions reductions anywhere in the world. This system, known as the Sustainable Development Mechanism, replaces the Clean Development Mechanism of the Kyoto Protocol Article 6.8 develops a framework for cooperation between countries to reduce emissions outside market mechanisms, such as aid

What is Article 6 and why is it important?

to these same reduced emissions. Most parties believe private sector emission reductions should be included in a country’s emission count. ‘It is a philosophical difference,’ says Shakya. ‘We knew it would be a big issue.’ The second issue is whether or not to include ‘old’ emissions that were reduced under the Kyoto Protocol. The counterargument is that global emissions increase every year, so counting past reductions would skewer the final count. The third debate, climate change mitigation and adaption funding, stalled as island nations, the EU and developing countries spoke with ‘one voice’ to include a funding mechanism, says Sandra Greiner, Lead Consultant at Climate Focus and one of the authors of the report Moving Towards Next Generation Carbon Markets, Observations from Article 6 Pilots. Opposing this are countries with regional programmes – such as the US and Canada – that are concerned it would ‘interfere’

with national tax regimes, explains Shakya. ‘It’s a major red line,’ adds Greiner.

Taking the lead These three issues are tabled for COP26 negotiations. ‘No deal is better than a bad deal,’ says Shakya, adding that ‘the worst thing would be to give countries a “get out of jail free” card.’ But without agreed negotiations, ‘what happens in the meantime, in the absence of rules?’ asks de Clara. Some companies are making their own rules, ‘taking the lead in voluntary offsetting’, as Greiner says. One example is UK airline EasyJet, which has partnered with Climate Focus to become the first airline to announce that it is offsetting all its carbon emissions. ‘EasyJet did that without Article 6,’ says Grenier. ‘You don’t have to wait.’ There are also the 31 nations – led by Costa Rica, and including the UK – that agreed on ‘the San Jose Principles’. These exclude ‘double counting’ and ‘old’ emissions, and have no adaptation funding

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Article 6 offers a path to significantly raising climate ambition or lowering costs, while engaging the private sector and spreading finance, technology and expertise into new areas, writes Lucy Woods

14 energyfocus | www.the-eic.com

www.the-eic.com | energyfocus

Special Report: Paris Agreement

How do international carbon markets work?

mechanism. A lack of UN rules ‘does not prevent countries from improvising on their own,’ says de Clara. Nations can use the Principles and the Article 6 draft to trade until the COP26 meeting in Glasgow in December this year.

All eyes on the UK Carbon markets provide an

economic incentive

for countries to reduce their carbon footprint

A country that struggles to meet its emissions reduction targets under its climate action plans (nationally determined contributions) can purchase

carbon ‘credits’ from another nation that overachieved in reducing its own carbon footprint

As host of COP26, and with the general election over, it is hoped that the UK government will rectify policy to stay within – or even exceed – the targets of its Climate Change Act (2008), setting an example for the global conference. The Act’s target is for the UK to be carbon neutral by 2050, although current emissions projections show the UK falling short. Success ‘will require the government to apply more challenging measures’, according to the Committee on Climate Change. Ambitions must be improved for COP26, says Shakya, with the UK ‘at the front of the pack’.

Capturing opportunities Hosting COP26 and meeting national zero-carbon targets will bring new opportunities to the UK, says de Clara. Innovative countries, and industries with digital trading platforms, robust accounting legislation and emissions measuring technology, will be needed to meet the

carbon accounting needs of businesses. ‘If there is one thing that is wanted by all parties,’ says de Clara, ‘it’s integrity and good accounting.’ Technical issues in verification and tracking were a major reason parties could not agree on Article 6. Unfortunately, ‘some countries do not have the technology to provide the necessary data – data that is needed to improve carbon trading,’ says Shakya. This leaves many parties unsure of the numbers around key issues – ‘no one knows about carbon numbers or volumes,’ as de Clara says. Companies that can provide data from blockchain, artificial intelligence, GPS satellites, advanced data platforms and satellites to monitor and verify emissions can all help to give parties ‘full confidence’ in emissions accounting systems, and will ‘help make carbon trading understood,’ says Shakya. There is also demand for verification services to ensure that funding from countries such as the UK reaches local levels. In one of its studies, the IIED found that only US$1 in US$10 out of US$60bn in climate finance reaches those who need it. These gaps mean there is ‘huge potential in transparency and tracking,’ says Shakya – an ‘opportunity to innovate’ with ‘lots of potential for UK companies to step in.’

If the rules are structured appropriately,

both countries meet their climate commitments

Analysts say international emissions trading could

global emissions reductions between 2020 and 2035

16 energyfocus | www.the-eic.com

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Feature Adapting to climate change

Adapting to climate change: Feature

Rising

above the

he global energy sector faces a triple challenge during the next 20–40 years. Firstly, of course, it needs to switch to supplying low-carbon energy for society at large. However, more immediately, it must decarbonise its own systems and supply chains to achieve more sustainable operations. On top of that, companies need to be prepared for the impact of climate change on weather and sea levels, which could affect operating conditions – wind speeds may intensify and shift, affecting wind output, while low rivers can mean problems for nuclear and coal plants.

Sustainability is the new watchword as companies adapt to the threat posed by climate change, writes Jeremy Bowden

storm

Towards zero-carbon operations

Energy companies will need to build sustainable supply chains and adapt plans to take account of any environmental changes 18 energyfocus | www.the-eic.com

Sustainability is the new watchword – even in the upstream oil and gas sector, where companies are keen to cut the carbon emissions associated with extracting hydrocarbons. A great example is Equinor’s 440,000 bbl/d Johan Sverdrup development in the Norwegian sector of the North Sea, a close-to-zerocarbon operation; the hydrocarbon fuels traditionally used for power on the rigs have been replaced by green energy. All the power used at its four offshore platforms is supplied via an undersea cable from the Norwegian national grid, which relies largely on hydropower and other zero-carbon sources. The field will be a gateway for further connections from the grid to other fields in the area, including Edvard Grieg, Ivar Aasen and Gina Krog. The same approach would only garner a portion of zero-carbon power (nuclear and renewables) if using the UK grid, unless the power was bought directly from a green supplier. A reduction could also be achieved by installing solar panels and even wind turbines on the rigs themselves, with localised renewables generation offering a sustainable design option. Platforms in both the southern North Sea and Norwegian sectors have already introduced zero-carbon power sources with conventional backup for stand-alone facilities. Onshore energy companies are also opting for zerocarbon energy. Recent examples include Baker Hughes’ 10-year power purchase agreement with France’s EDF to power all its facilities in Texas from renewable sources such as wind and solar. The deal will allow Baker Hughes’ facilities in the state to obtain all their power from Apex Clean Energy’s White Mesa Wind Farm in west Texas and a solar farm owned by 7X Energy. Baker Hughes says the deal will reduce the equivalent of 1.2m metric tonnes of CO2 over the 10-year term and eliminate the equivalent of 12% of its global carbon emissions. One UK company heavily involved in the sustainability drive is Balfour Beatty, which could be making a similar investment. According to Sustainability Manager Katherine Rusak, the company is preparing for a major programme, which will be announced in the new year. www.the-eic.com | energyfocus

ENERGY EXPORTS CONFERENCE

Feature: Adapting to climate change

As well as switching to renewable energy, those companies that operate more efficiently also tend to have lower emissions. Consultants McKinsey measured the link between the two factors. Operations benchmarks show that raising operational performance has a large impact on emissions – on average, a 10% increase in production efficiency delivers a 4% reduction in emission intensity. And 90% of known technological solutions to decarbonisation are within the grasp of operators at a cost of no more than US$50 per metric tonne of carbon. McKinsey recommends three levers to reduce scope 1 (direct) and scope 2 (indirect) emissions from upstream oil and gas operations. As well as optimising operations (maximising stability and uptime reduces intermittent flaring and venting), sustainable design choices are now available for deployment and increasingly present a positive economic benefit. These include modular (often reusable) unmanned installations around a supporting hub, or linked to a remote operations centre, which cuts equipment and manning costs and emissions. Thirdly, McKinsey recommends that producers start to ‘balance their portfolios across resources with a spread of emission intensity in anticipation of the risks from future policy scenarios and investor choices’. The world’s largest oil company, Saudi Aramco, is concentrating on the first two, and prides itself on its lowcarbon intensity of oil production, which it hopes will stand it in good stead relative to others when investors, regulators and the public make decisions on energy that take account of climatic threats. The low intensity partly reflects the low-cost nature of Saudi production, as well as efficiently run operations. Adequate responses from the supply chain to the challenges of global warming will be crucial for a secure and reliable energy supply, including nuclear energy. All parts of the energy sector will need to change – heating, power and transport. Complete decarbonisation includes adoption of electric vehicle fleets, as well as solar panels, green power supply contracts, more efficient upstream operation, hydrogen and other decarbonised gases, and even LED lights.

20 energyfocus | www.the-eic.com

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Aberdeen / 17-18 JUNE

A 10% increase in production efficiency delivers a 4% reduction in emission intensity

Managing changing weather risks In November 2019, the International Atomic Energy Agency released a report, Adapting the Energy Sector to Climate Change, which says that the increase in extreme weather events and sea levels associated with climate change are expected to have a considerable impact on the downstream energy supply chain. For example, lower precipitation in some areas, and the resulting low water level in a river, may disrupt hydropower, or the operations of a coal plant if coal cannot be delivered by river. Drought may also affect water-cooled nuclear power plants, as it did in France in 2018, when several had to be shut down temporarily due to water shortages and overheating rivers. Case studies in the report identified hydro as an issue in Argentina, along with the location of transmission cables in Slovenia. In the UK, with its large onshore and rapidly growing offshore wind sectors, the primary concern is likely to be changing windspeeds. Average global onshore windspeeds had been falling up to 2010, possibly due to manmade factors such as windbreaks and high-rise buildings. Large numbers of big wind turbines could exacerbate this effect going forward: recently Denmark’s wind giant, Ørsted, announced findings that suggested that blockage (where wind slows down as it approaches turbines) and wake effect (where wind speeds drop between wind parks) were cutting average wind speeds.

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However, according to a new study, the world is getting windier. Having analysed decades of weather data, scientists from Princeton University and Cardiff University claim that onshore windspeeds are now rising much faster than the declines of earlier decades, probably due to global warming – although there may be a geographical switch in wind speed concentrations too, which complicates any upside power generation potential from higher average speeds. ‘Our findings show the decadal changes in wind speed and argue the importance of the changes of wind speed in wind energy production over land. However, we have not examined wind speed over oceans, and we are uncertain about its associations to climate change. More studies are required to address these questions,’ said lead author Dr Zhenzhong Zeng, a professor at Princeton University.

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Adjusting to the reality Over the years, energy companies have responded to market and technological disruptions with innovation and resilience. With an accelerated energy transition, they must do so again. As the imperative of a net-zero emission future becomes even clearer and the costs of decarbonisation fall, energy companies will need to build sustainable supply chains and adapt plans to take account of any environmental changes. On the operational side, carbon capture, alongside more renewables and possibly hydrogen, will add to the low-carbon expansion areas, providing energy companies with new growing low-carbon markets.

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Traditional methods also require extensive equipment which must be manually adjusted to bent and broken tubes and do not provide the client with feedback reports. As well as this, the equipment is unable to penetrate between tube rows, resulting in only 5–30% of the surface area being cleaned. There are also significant safety issues involved as technicians are ‘bundle facing’ when carrying out the cleaning process. The Shell Side Jet™ solution: mobilisation Typically, Tube Tech International will deploy a team of highly trained technicians anywhere in the world within 72 hours. The Shell Side Jet system is deployed within two hours upon arrival and there is no need to use bundle rollers which are large, heavy and costly to transport. The system is controlled by two people and is smart enough to complete the cleaning on its own. The clean Shell Side Jet is the only system that penetrates between six-millimetre tube rows, offering a more precise and efficient clean. It is the only system available that guarantees to achieve 90% clean as standard. This precision enables a dramatic reduction of water usage compared to traditional shell side bundle blasters (from approximately one hundred gallons per minute, down to as little as two gallons per minute), meaning far less waste is created. Smart technology Tube Tech’s innovative lance technology moves with the shape of the tube and the system detects blockages, broken tubes and incorrectly positioned baffles, so

obstructions can be identified and dealt with without causing further damage. Feedback reports Detailed digital reports are provided to the client after the clean. Results can be determined by the client weighing the bundle before and after cleaning to ascertain the level of fouling removed. Other information provided in the report includes the distance of baffle plates, location of damaged or broken tubes, volume of fouling, photos of before, during and after the clean, and an intuitive heat map. Derek Sumsion, Research and Development Manager at Tube Tech International, said: ‘Tube Tech International aims to deliver globally patented, next-generation, highlevel cleaning robots to dramatically extend run times and improve safety and fuel efficiency to substantially reduce CO2 emissions within the industry. Shell Side Jet is a product of this commitment and has been made possible by significant R&D investment.’ Tube Tech was founded in 1988 by current CEO Mike Watson, with a mission to answer heavy industries’ challenges with innovative solutions. With offices in the UK, the US and a recently opened site in Malaysia, Tube Tech is able to offer its unique fouling removal solutions to clients anywhere in the world. Find out more about Shell Side Jet: https://www.tubetech.com/shell-side-jet/ www.the-eic.com | energyfocus

Oil and Gas

Eastern Mediterannean: Oil and Gas

Eastern Mediterranean

Discoveries Within the past decade there have been significant gas discoveries in the waters of the Eastern Mediterranean. Following 20 years of exploration off the coast of Israel, the Tamar and Leviathan fields were discovered with an estimated 600Bcm and 370Bcm respectively. In 2015 Eni led a discovery at the prolific Zohar field offshore Egypt, with an estimated 800Bcm. Again, in

Cyprus Eni discovered gas at the Calypso field, with an estimated 200Bcm. With Aphrodite already discovered by Noble Energy in 2011 at 130Bcm, and the 2019 ExxonMobil Glaucus discovery, this puts the tiny nation of 1.2 million people in a favourable position for gas exports.

European gas markets Europe’s changing energy mix is driven by its energy transition policies, which are aimed at decarbonisation – generating energy from cleaner sources such as natural gas, nuclear and renewables. The EU and its members are committed to the Paris Agreement, which seeks to contain rising temperatures within the 1.5 ºC degree limit. Natural gas and, by extension, LNG are set to play a more prominent role in the energy mix. According to the Oxford Institute for Energy Studies, the market share of natural gas increased from 10% in the 1970s to about 24% in 2012, with a 4% CAGR. The study showed that 35 European countries consumed 530Bcm, or 15.6% of world consumption. Germany led at 87.2Bcm, followed by the UK at 78.1Bcm and Italy at

24%

energy security. The Shell LNG Outlook 2019 reports that domestic production is on a downward path – moving from 200Bcma in 2010 to less than 100Bcma in 2025. The planned shut-down in 2022 of the Groningen gas field would further tighten domestic supplies and put more reliance on imports. Russia’s state energy giant Gazprom accounts for 40% of European gas supply, and this is set to increase when the Nord Stream 2 and Turkstream pipelines come online.

The market share of natural gas increased from 10% in the 1970s to about 24% in 2012 74.9Bcm. Consumption is largely concentrated in Northwest Europe, segmented by end use as follows: residential and commercial sector at 35.1%, power at 34.2% and industry at 20.3%. LNG is also playing a growing role in transport. According to the Shell LNG Outlook 2019, the number of LNG trucks grew from 1,532 in 2016 to 5,500 in 2018. It forecasts 250,000 trucks by 2030. The supply side is also undergoing changes. One third of supply comes from domestic sources and two thirds from imports (Russia, Qatar, Algeria and the US). Declining domestic production is putting more pressure on imports and

Challenges and opportunities

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he Mediterranean is very strategic in linking trading routes with West Asia, North Africa and South Europe. In the next few years the nature of trading will change as the battle for gas supremacy grows. Egypt and Israel are vying to be the regional gas hub competing for export markets. Cyprus is the smallest of the countries with three major discoveries. Could the Eastern Mediterranean play a role in Europe’s energy transition process? More importantly, could gas from Cyprus or Israel compete against Russian gas and strengthen Europe’s energy security?

The Chinese believe that in every crisis lies danger and opportunity. European gas demand is forecasted to grow during the coming decade, while domestic production is on the decline. Energy security remains a priority and this represents an opportunity for the Eastern Mediterranean to supply gas into Europe.

The challenge for Cyprus is two-fold: Managing geopolitical and competitive risks with Turkey Commercialisation of the gas. Despite objections from the EU and the international community, Turkey has sent a second drill ship into the waters off Cyprus. Nicosia, the capital of Cyprus, has called out Ankara’s tactics, saying it is a breach of Cyprus’s sovereign rights. Turkey also has aspirations to become a major gas hub in the region and the 930km Turkstream pipeline, with a capacity of 31.5Bcm of Russian gas, is a significant step towards achieving this goal. Turkstream would be in direct competition with the recently announced 2,000km EastMed pipeline, which is intended to carry 12Bcm of gas or 10% of the EU’s natural gas needs from Israel and Cyprus to Italy, via Crete. With regard to commercialisation, Cyprus has several options to consider: Utilise the gas to replace coal and diesel in power production. Combined cycle gas turbine power plants have become instrumental in reducing carbon emissions, boosting electrification and supporting renewables

Develop a downstream petrochemical sector – natural gas is a key input in methanol and ammonia production As mentioned above, export via pipeline Convert into LNG. LNG is the fastest-growing fuel in Asia and Europe. The Cypriot government plans to export gas to Egypt’s LNG plant and the forecast is that by 2025 gas will be flowing from the Aphrodite field to Egypt. By Randall Mohammed, Managing Consultant, Global Energy 4.0

Energy security remains a priority and this represents an opportunity for the Eastern Mediterranean to supply gas into Europe

Shaking up

Europe’s energy map Randall Mohammed at Global Energy 4.0 looks at how natural gas discoveries in the Mediterranean Sea are shaking up Europe’s energy politics 24 energyfocus | www.the-eic.com

www.the-eic.com | energyfocus

Oil and Gas

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Energy transition

he UK is moving towards a net-zero economy, but in the meantime, we depend on oil and gas for day-to-day essentials. According to OGUK (representatives for the UK offshore oil and gas industry), today, 75% of UK energy demand is met by oil and gas. Confronting this dual challenge of meeting demand while reducing emissions will require multi-billion-dollar investments.

Strategies to adapt PwC’s 2019 Oil and Gas Trends report advises smaller oil and gas companies to invest in digital innovation – to improve efficiency and increase the viability of carbon capture storage, including ‘drones, robotics, artificial intelligence and virtual reality’. Ole Cristian Røed, Head of Industry Solutions at data analyst Cognite, says that investment in automation, communication technology and energy efficiency will continue in oil and gas over the next five years. ‘It is all about efficiency. It is hard to find a CEO in oil and gas who is not discussing it.’ PwC advises small-to-midsize oil and gas companies to ‘free up cash for diversification’ and form ‘strategic alliances’ in preparation for the future. According to OGUK, new investors brought US$5.5bn to UK oil and gas with mergers and acquisitions in the first half of 2019 alone. When it comes to big companies, PwC advises them to look to diversify, or go all in on renewables (like Dong Energy/Ørsted and GDF Suez/Engie). Heeding this advice, Shell has stated in its current Energy Transition Report that it is

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What lies ahead? Energy Focus looks at the role of oil and gas companies in the energy transition preparing to diversify its portfolio. It plans to sell less oil and more natural gas, biofuels and electricity, as well as invest in carbon capture and storage, wind generation, retail power supply delivery, electric car charging and the restoration of forests and wetlands.

Decarbonising fossil fuels Shell is also a member of the Oil and Gas Climate Initiative (a coalition of oil and gas companies from 130 countries, including BP, Chevron, ExxonMobil, Total and Saudi Aramco). This US$100m investment fund is seeking to inject cash into reducing the carbon footprints of midstream and downstream oil and gas operations. It will invest in methane mitigation, low-carbon power, automation and digitisation, waste heat recovery and improving efficiency.

More investment will come from the European Investment Bank (EIB), which has invested €65bn into energy projects during the past five years. ‘These are big projects… €100m, €300m projects,’ EIB spokesperson Antonie Kerwien told Energy Focus.However, as of 2021, energy projects financed by EIB will need to meet its ambitious emissions standard of 250g of CO2 per kwh (instead of 550g per kWh), which is designed to phase out traditional fossil fuel projects, including standard gas-fired power stations. This standard is ‘indiscriminate’, says Kerwien, as some renewables projects will not be eligible, and gas projects can meet it, ‘but they really need to put in the effort’. Gas projects can meet EIB’s new criteria through either carbon capture and storage, low-carbon gas (such as biomass), or combining heat and power with state-ofthe-art efficiency, explains Kerwien. One such plant (which EIB helped finance via a €105m loan) is the 190MW electric power, 192MW thermal power KIEL Coastal Power plant in Germany, which replaced a 354MW coal plant with 20 high-efficiency General Electric gas engines.

Navigating the way forward KIEL is just one example of how oil and gas companies can embrace the energy transition and thrive. As the PwC report states, companies will ‘need to determine their role in the new environment: diversifying or doubling down on fossil fuels or renewables’. Lastly, the PwC report adds, ‘foresight may be the most important capability oil and gas companies need’.

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www.the-eic.com | energyfocus

Oil and Gas Latin America

EIC Connect

Make your mark in Latin America Looking to expand into Latin America? Maximise opportunities at EIC Connect Mexico Energy Forum

s we enter a new decade, Latin America’s oilproducing nations are increasing efforts to attract foreign investment amid an unprecedented wave of free-market energy reforms gaining traction across the region. Mexico’s populist president Andrés Manuel López Obrador is investing billions into the struggling state-owned Pemex. Argentina’s new Peronist government is hailing a new shale oil development in Patagonia as a lifeline and Brazil’s administration has touted multi-billiondollar oil rights auctions as transformative. Smaller South American economies have also caught on. This year Guyana will join crude-producing nations as new offshore fields come on stream, while Colombia is looking to boost declining output.

EIC goes to Mexico The US Gulf of Mexico now appears to be springing back to life after years in virtual hibernation, as the region’s production rises and oil companies prepare for future growth even amid uncertain oil prices. In December 2013, Mexico amended its constitution to allow both local and foreign private investment into the energy sector for the first time since its nationalisation in 1938. The reforms permitted international energy companies to operate in Mexico and included provisions for competitive production sharing contracts and licenses. In addition to increasing the demand for technology and technical expertise for the development of upstream deepwater and shale oil and gas fields, the energy reform also allowed for greater private investment in retail fuel distribution.

28 energyfocus | www.the-eic.com

Latin America: Oil and Gas

ACTIVITY TO WATCH ACROSS THE REGION

Seven years on, the López Obrador administration has indicated it will respect the current legal framework of the energy reform, which provides greater certainty to oil and gas contractors already in Mexico.

EIC Connect Mexico Energy Forum The EIC will be hosting its Connect Mexico Energy Forum 2020 on 27 February in Mexico City. The event will give contractors and suppliers in the oil and gas industry the opportunity to meet with leading operators, developers and OEMs, and explore growth prospects and upcoming projects to help expand their business within the region. Attendees will gain an insight into Mexico’s energy sector from business and political leaders, access to conference supply chain briefings, and one-to-one appointments with potential buyers, in addition to networking and sponsor opportunities. EIC Connect consistently attracts a high-profile audience from across the entire energy spectrum, all sharing a genuine desire to meet and do business with companies from the UK. Last year EIC’s inaugural forum in Mexico City received 130 attendees and 11 sponsors/partners. This year’s forum will be opened by Her Majesty’s Ambassador to Mexico, Corin Robertson. Speakers include Arendal, BHP Billiton, Brunel, DIT, Dragados Offshore, EIC, Grupo Mexico, iPS Powerful People, Kiewit, McDermott, Modec, Scottish Development International TransOcean, Turner & Townsend and UK Export Finance representatives. A trade delegation has been organised in partnership with the Department for International Trade and Scottish Development International to coincide with the event.

MEXICO

Mexico is expected to have an eventful year as international companies have lined up to fulfil the pending well commitments on the offshore acreages that they acquired in rounds 1 and 2. Approximately 20 offshore explorations were expected to be completed in 2019, and a similar well count is predicted in 2020. A series of 20 oil and gas discoveries, onshore and offshore, have been selected by Pemex under its New Fields Development Plan to be fast-tracked to first hydrocarbon. The results of the 2019 wells will be watched closely by the industry and will play a large role in shaping the industry’s perception of Mexico’s deepwater exploration potential, determining growth in activity in the near term.

COLOMBIA

This year Colombia’s oil and gas industry is set to take off as efforts to increase exploration and production move ahead amid problems with community relations and security. Colombia has around 2Bbbl of oil reserves and produces about 880,000bbl/d of crude, half of which are exported. Energy giant Noble is set to drill its first Colombian well this year in the Caribbean and is qualified to bid in the current oil round, which includes five offshore blocks. Elsewhere in the offshore, in 2020, Petrobras and Ecopetrol are looking to drill a well in the offshore Tayrona Block.

ECUADOR

Ecuador aims to increase its current oil production from around 550,000bbl of crude oil to nearly 600,000 this year, when its departure from the Organization of the Petroleum Exporting Countries (OPEC), announced in October 2019, becomes effective. On average, the country is expected to produce between 543,000bbl and 550,000bbl, a figure above the OPEC limit of 528,000bbl. The goal, according to former Minister of Energy Carlos Perez, is to begin drilling and production in the Ishpingo field, on platforms A and B, which are outside the so-called ‘buffer zone’ of Yasuni, within six to eight months.

PERU

The oil and gas industry has an enormous potential in the country with national oil and gas licensing agency, Perupetro, forecasting that Peru has the potential and reserves to produce more than 100,000bbl/d of oil across the country, including both onshore and offshore blocks to the year 2023. Irish oil company Tullow oil was expected to spud the Marina prospect offshore Peru, in Block Z-38, at the end of January, taking around 60 days to complete. The prospect sits adjacent to the prolific Talara basin on the northwest section of the Peruvian coastline.

Looking to expand into Latin America? The EIC can help For those of you thinking about doing business in Mexico, please get in touch with the EIC Houston team (houston@the-eic.com). If you have plans for developing your business in the Latin American region, please get in touch with the EIC Rio de Janeiro team (clarisse.rocha@the-eic.com). Both teams will be happy to talk with you about EICLaunchPad services, which provide a low-cost, low-risk entry into the region. At EIC, we can provide you with serviced office facilities, meeting rooms and hot desks, as well as a virtual office service: everything you need to start building your business in the Latin American region.

ARGENTINA

The Vaca Muerta shale formation in Patagonia has some of the largest unconventional oil and gas deposits in the world. The government has forecast that Vaca Muerta will double the country’s overall oil production to 1.1MMbbl/d in 2030, making 500,000bbl/d available for export. Over the same period, gas production could double to 260MMcm/d in 2030, allowing Argentina to ramp up exports from less than 10MMcm/d this year to more than 60MMcm/d by that time, with further growth expected in subsequent years.

BRAZIL

The importance of oil and gas is growing in Brazil as it seeks to diversify its energy mix. Oil and gas currently represent 14.74% of energy usage – still relatively low when compared with hydropower which provides 60.97% of total energy demand. At the end of 2019 Petrobras announced its 2020–24 investment plan, with a new budget of approximately US$75.7bn. Petrobras’ decision to encourage the divestment of certain upstream, midstream and downstream assets has opened new opportunities for foreign investment. Drilling of 26 new production and injection wells has commenced at the Barracuda and Caratinga oil fields in the Campos basin offshore. The project includes 14 new wells at Barracuda and 12 new wells at Caratinga.

Doing business in Latin America With more organisations looking to expand internationally and enter new markets, Latin America is becoming an increasingly popular choice, with an overall GDP expected to grow by 2.6% in 2020. With strong trade links, a lucrative geographic position and a growing middle-class market, the territory offers significant business opportunities to businesses with the right value proposition. Perhaps one of the biggest challenges and barriers to entry facing entrepreneurs and foreign investors is the ease of doing business in Latin America. When doing business abroad, it is unlikely that no legal complications will occur. Labour agreements, commercial contracts, and corporate obligations are day-to-day issues when operating in Latin America. Without a deep understanding of the local business environment, legal issues may arise. Business in Latin America is personal, and relationships matter. It is important to cultivate strong relationships with Latin American counterparts. When doing business, whether it is outsourcing or working with a local business partner, you may need to adjust communication methods to explain a coherent vision and strategy. Latin America includes 20 different countries with nearly 20 different currencies, customs areas, legal frameworks, political developments and economies. It is important to treat each market individually. Doing business in Colombia is not the same as doing business in Mexico, and doing business in Venezuela is not the same as doing business in Uruguay. Thinking of growing your business in Latin America? Then take advantage of the EIC’s LaunchPad services in Rio de Janeiro and Houston and let the EIC help you grow your knowledge and understanding of key issues in the exporting process. With expert analysts on hand and access to contacts in key energy hubs, as well as a range of training courses, we will help you expand your business across the entire region.

www. the-eic.com | energyfocus

Oil and Gas

Mexico: Oil and Gas

Mexico

Contracts awarded during the Energy Reform are moving forward, providing opportunities across the upstream onshore and offshore value chain

MEXICO still holds promise

n an effort to address its declining oil production, Mexico’s previous administration, under President Enrique Peña Nieto, enacted Reforma Energética (Energy Reform) in 2013 – putting an end to the national oil company (NOC) Petróleos Mexicanos’ (Pemex’s) monopoly and opening the market to private and international investment, while diversifying the Mexican economy.

Reforms bear fruit Round Zero kicked off the

Energy Reform by providing Pemex first right of refusal on developing assets. Pemex could thereafter farmout these assets into contracts and/or enter joint ventures with private international players to develop the asset. The private sector was then also able to enter the Mexican oil and gas market by bidding directly to the National Hydrocarbon Commission (CNH) for rights to develop assets not assigned to Pemex. Mexico saw some real success between 2015–2018 through its three licensing rounds. Fourteen auctions resulted in

30 energyfocus | www.the-eic.com

110 contracts being awarded across deepwater, shallow and onshore fields, and a total of US$148bn being committed, including three farmout awards. As of August 2019, the Mexican government had approved 642 wells worth more than US$36.4bn. The country now has over 70 international companies operating in-market across the oil and gas value chain.

Rollback to nationalisation Mexico’s new energy market provided for market

competition, investment, and improved efficiencies and operations. However, when the new president Andrés Manuel López Obrador (AMLO) – a staunch opponent of the Energy Reform – took office in December 2018, he was committed to returning more control of the energy sector to Pemex. He cancelled Round 3.2 and 3.3 auctions and farmouts and delivered the Pemex 2019–2024 business plan to a lukewarm reception. In short, AMLO has promised that the renationalisation of Mexico’s oil and gas market will increase net oil production to 2.697MMbbl/d by the end of 2024, thereby reducing the country’s reliability on imports.

Under the business plan, rather than opening additional upstream auctions to foreign investors, AMLO insists Pemex go alone, with the option to take forward a new service contract scheme around production and profit-sharing called Integrated Exploration and Extraction Service Contracts (CSIEE). This scheme puts the risk onto contractors, who will be required to finance all work upfront and only reimbursed once they meet a contracted minimum production target for wells or once the platforms and topsides are installed, with a term of 15 to 25 years. According to the Pemex business plan, this framework will allow it to develop 20 new oil fields in order to reclassify probable and possible reserves

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Despite Mexico’s rollback of energy reforms, projects already agreed are moving forward. Opportunities abound but companies need to be ready now, writes EIC’s Amanda C Duhon

New revival plans

to proven reserves and increase production. AMLO’s argument in support of the CSIEE is that the Energy Reform did not bring with it the expected drilling returns. However, not all contractors find the CSIEE scheme attractive.

Pressure on Pemex Under the new scheme, Pemex offered service contracts for 20 new ‘priority’ oil and natural gas fields in May 2019. Through a private bidding process, the contracts awarded so far have mostly been to small and local service providers. These providers won the work by bidding low, but lacked the expertise or access to required equipment, compared to larger international service providers. According to CNH, only two of the 20 fields were producing as of November 2019. Furthermore, Pemex is now forced to re-bid some of the work, moving forward. The NOC’s troubles continue as challenges faced during 2019 have added further debt to one of the most indebted oil companies in the world. It lost significant know-how and expertise due to capping of public servant salaries, continued non-payment of bills and payments to its clients, and was subject to further corruption probes, as well as a cyber-attack. And after more than a decade of decline in its oil output, Pemex’s crude oil production was at 1.7MMbbl/d in November 2019 – about 1m barrels short of AMLO’s 2024 output target.

US$35.5bn The total anticipated CAPEX of EIC-tracked projects is US$35.5bn

New players on the block The Energy Reform allowed international oil companies (IOCs) such as BHP Billiton, Chevron, COOC, ENI, Equinor, Energy, Shell, Talos and Total to enter the market through the various licensing rounds. However, while Pemex is no longer the only client, it retains the majority share in anticipated CAPEX spend in Mexico and remains the market’s main buyer. In the event that AMLO’s administration resumes farmouts, CAPEX would be dispersed among the IOCs developing those assets. Furthermore, future bidding rounds around deepwater developments are almost guaranteed, as Pemex does not possess the same capability or know-how as international players to take these forward. While opening Mexico’s oil and gas sector to IOCs has brought further opportunities for international contractors, it is important to note that with Mexico’s oil and gas legacy, it already has a significant indigenous supply chain. From a contractor standpoint, however, some are not working to the international standards expected of international players – although they are quickly adapting.

project. Along with figures from EICDataStream, CNH and Pemex, we expect the total anticipated production capacity to be 280,000bbl/d from Pemex’s 20 new field projects by 2024, and an equal amount of production by the private sector the same year.

Meeting 2024 ambitions Neither projected production by the IOCs alone, nor by Pemex alone, is enough to meet AMLO’s targets. In fact, assuming Mexico maintains its current production rate during the next four years, production from all entities is expected to reach 2.26MMbbl/d of oil, under AMLO’s target of 2.7MMbbl/d. Will AMLO turn back to international players for investment in Mexico? Investors need guarantees, and as of now, Mexico has none. Or, will the licensing round winners, with positive results in the evaluation periods and new developments in the fields, lead Mexico towards meeting AMLO’s 2024 ambitions? AMLO has stated that any additional upstream auctions will not take place unless the oil majors increase output. Perhaps this is an invitation that will

EIC on track EICDataStream is currently tracking 34 upstream onshore and offshore projects, with total reserves estimated at 8.4Bbbl (excluding deepwater development and integrated exploration and production contracts). The total anticipated CAPEX of these projects is US$35.5bn. The majority of these are expected online by 2025, buoyed by the completion of the Nobilis Offshore Oil Discovery (Peridido Fold Belt)

Top 10 upstream operators by CAPEX 1 Pemex US$62.48bn 2 BHP Billiton US$11bn 3 Fieldwood Energy US$7.5bn 4 CNOOC US$4.57bn 5 Hokchi Energy US$2.2bn 6 Eni US$2bn 7 Talos Energy Inc US$1.8bn 8 Lewis Energy US$0.62bn 9 Equinor US$0.5bn 10 Schlumberger US$0.5bn

www.the-eic.com | energyfocus

Oil and Gas: Mexico

At a glance The US$2.2bn Hokchi offshore shallow water project is being developed by Hokchi Energy, a JV comprising E&P Hidrocarburos y Servicios SA de CV and Pan American Energy. Estimated reserves for the field include 148MMbbl of oil and 46Bcf of gas. The project includes the construction of two platforms with up to seven production wells and seven injector wells across the development. Sapura Energy Berhard is executing the EPC and installation of a central wellhead platform and a satellite platform, with TechnipFMC acting as owner’s engineer. The field is expected to start up in May 2020. BHP Billiton, with Pemex, is developing the Trion Offshore Oil Discovery in the Perdido Fold Belt, about 322km off the Texas coast. The deepwater field has a reserve estimate of up to 13Bboe. Development plans for the US$11bn project include an FPSO vessel and the drilling of 16 wells over four years. BHP has invited companies to participate in a pre-FEED design contest for a semi-submersible platform for the development and an award is expected to be issued by February 2020. BHP plans to issue FID for the project in 2022, with first oil targeted in 2025. The US$1.8bn Zama Field development offshore the state of Tabasco is being developed by Talos Energy, alongside Premier Oil and Sierra Oil & Gas. It has a high estimate of approximately 1,010MMboe of 3C gross recoverable resources, and a best estimate of 670MMboe of 2C gross recoverable resources. The field will be developed via three dry-tree fixed platforms and an FPSO vessel. Pre-FEED works have been completed, with FEED work underway. The discovery is beneath both the consortium’s Block 7 area and Pemex’s block – rendering it subject to unitisation. The project is on pace for FID in 2020, with first oil targeted in 2023.

Nobilis Offshore Oil Discovery (Perdido Fold Belt) Operator: Pemex Project Stage: Exploration Value: US$1bn Startup Year: 2023

Perdido Deepwater – Block 1 Operator: CNOOC Project Stage: Exploration Value: US$4.4bn Startup Year: 2022

Trion Offshore Oil Discovery (Perdido Fold Belt) Operator: BHP Billiton Project Stage: Pre-FEED Value: US$11bn Startup Year: 2025

Block 4 PSC: Ichalkil and Pokoch Offshore Oil and Gas Fields Operator: Fieldwood Energy Project Stage: EPC Value: US$7.5bn Startup Year: 2020

Maloob Offshore Oil Field Operator: Pemex Project Stage: EPC Value: US$7bn Startup Year: 2021 Ixachi Field Development (20 New Fields Development Project) Operator: Pemex Project Stage: Exploration Value: US$5.57bn Startup Year: 2022

KEY PROJECTS TO WATCH IN 2020

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Lakach Offshore Gas Field Operator: Pemex Project Stage: EPC Value: US$3bn Startup Year: 2022

allow AMLO to move forward with the Energy Reform without blowback from his voters? While the private sector lobbies the president’s administration to progress with the contracting schemes of the Energy Reform, the administration recently announced that farmouts to materialise ‘strategic partnerships’ for exploration and production of oil fields would not move forward indefinitely. Indeed, the Mexican political situation provides for instability and uncertainty. However, what is

Area 1 PSC: Amoca, Mizton & Tecoalli (AMT) Offshore Oil Fields Operator: Eni Project Stage: EPC Value: US$2bn Startup Year: 2024

Block 2 PSC: Hokchi Offshore Oil and Gas Field Operator: Hokchi Energy Project Stage: EPC Value: US$2.2bn Startup Year: 2020

certain is that the leases and contracts taken forward through the licensing rounds of the Energy Reform are going ahead, and it is these projects that provide for opportunities across the upstream onshore and offshore value chain. And if companies want to play in the arena, they need to position themselves now. By Amanda C Duhon, Regional Director, with contribution from Monique Aceves, Regional Analyst, EIC (North & Central America)

BUTTERFLY VALVES Zama Oil Discovery Operator: Talos Energy Inc Project Stage: FEED Value: US$1.8bn Startup Year: 2022

Top 3 upstream contract award winners (2014-19) 1 McDermott: 4 projects 2= Permaducto: 3 projects 2= Dragados: 3 projects 3= Bosnor: 2 projects 3= Industrial Perforadora de Campeche: 2 projects 3= Saipem: 2 projects 3= Sapura Energy Berhad: 2 projects

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Power Open-source

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What infrastructure will be needed to accelerate the shift to clean energy? To accelerate the shift to clean energy, we

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The energy transition calls for radical changes. How is the industry responding? The energy industryâ&#x20AC;&#x2122;s response has been dependent on geography. What is happening in the US is different to what is happening in Europe, Asia, Africa or South America. Energy and electricity are hyper-local issues and the energy transition is driving a distributed energy resource â&#x20AC;&#x201C; a â&#x20AC;&#x2DC;generate local and consume localâ&#x20AC;&#x2122; model, moving away from a 150-year-old centralised power plant model, which is organised around fossil fuel and nuclear and then transporting energy hundreds of miles. As a whole, the global energy industry is not innovating quickly enough. Many utility companies feel they need to go and do it on their own, but going it alone is impossible â&#x20AC;&#x201C; all solutions associated with climate change fundamentally have to be collective. We canâ&#x20AC;&#x2122;t transform the energy sector with the same brain we used to create the energy sector. Transformation is key, and open-source is here to help.

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Q&A: Energy Focus talks to Dr Shuli Goodman, Executive Director of LF Energy â&#x20AC;&#x201C; an open-source initiative bringing together the energy and tech industries to expedite the grid of the future

need power grids that can support a major increase in energy demands. This is because electric vehicles are critical to decarbonisation as well as the transition from fossil fuels, since automobiles will not only be a load, but also an energy-generating resource to the grid. To the degree that we shift transport and distribution demands, we can begin building micro-grids, or smaller fractal, self-similar grids that are composed into a larger grid infrastructure in economic industrial centres. In more remote areas, the smaller grids can operate autonomously. But developing this infrastructure quickly is a major challenge because none of our current electricity infrastructure was built with the future climate in mind. When it was first put in place, engineers took shortcuts to save money and time. These trade-offs guaranteed that future generations would have to come back and fix the systems later, at a high cost. No one took on the challenge, and now we are in need of a significant update. Modernising our current infrastructure while also building new sustainable infrastructure is an extremely slow and expensive process. We have a lot to do to rid ourselves of several generationsâ&#x20AC;&#x2122; worth of technical debt while managing the well-being of our planet and future generations.

Accelerating the energy transition

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www.the-eic.com | energyfocus

Power: Open-source

How does LF Energy plan to open-source energy? LF Energy’s mission is to accelerate the energy and electricity sector’s worldwide decarbonisation goals through an open-source-based ecosystem. LF Energy takes the problem of solving climate change and provides a technological plan of action through open frameworks, reference architectures and support ecosystems that bring complementary projects to one collaborative home. We are using a permissive IT licence to enable and facilitate multi-actors to invest in enterprise utility-scale software. The world needs clear, demonstrative actions that indicate forward movement. No single actor can succeed alone. This is why we made the tagline for LF Energy ‘The Power of Together’. LF Energy offers the ability, in a pre-competitive environment, for collaboration in the open. There are no other institutions on the planet that have the track record and experience of the Linux Foundation. Our governance and templates for cooperative

36 energyfocus | www.the-eic.com

sector so that we can bring electrification at scale to reach the global goal of 100% decarbonisation. What lessons have been learnt from the collapse of The Faraday Grid? Being an entrepreneur is a risky business. I am not sure there is anything unique about The Faraday Grid’s collapse; it has all the same intrigues that one can find in Shakespeare, or the Bible for that matter. What I am struck with is the phenomena of what happens when we go fast and overshoot the capacity of humans to integrate.

We can’t transform the energy sector with the same brain we used to create the energy sector – transformation is key, and open-source is here to help engagement, together with a support staff of more than 250 people and over 200 projects, can offer that and more. We are committed to training and knowledge transfer. The great part about LF Energy is that we are part of a larger ecosystem, the Linux Foundation. The benefits include a stellar events team, an online training group and content experts to help train our members about enterprise opensource best practices. Cloud Native Computing Foundation, Automotive Grade Linux, LF AI, Hyperledger and LF Networking are all essential to the grid of the future. LF Energy has the ability to bring these projects together with the energy

Looking ahead, what’s next for LF Energy? 2020 promises to be a bellwether year for LF Energy. We are expecting significant code contributions to start coming into the foundation, starting with an announcement in early February for GXF – the Grid eXchange Fabric. This is industrial-strength, testedin-the-field middleware that facilitates interoperability for system operators. We have a digital substation working group that is up and running. I am planning for that to become a project. Then there is numerous other software that is in process. We only formally started in May of 2019, so we are right at the beginning stages. I believe that in 10 years we will look back and be amazed at the distance we travelled. LF Energy may become one of the largest projects at the Linux Foundation as the full urgency of decarbonisation requires that we work in entirely new ways for the energy sector. The sheer scale of what we will need to accomplish as a planet is staggering. I think about ice hockey player Wayne Gretzky’s strategy that we ‘skate to where the puck is going to be’. LF Energy is inevitable. We are keeping our heads down, staying focused, and will be there when the world wakes up and realises that enterprise open-source and the Linux Foundation are one of the great leverage points for flipping the global energy systems.

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Power

Subsea power: Power

Subsea power

testing structure was required and devised to learn the behaviours and limits of different designs. This helped mitigate the risk of failure before prequalifying for full-scale prototypes. Starting with simulation and laboratory tests, materials, components, subassemblies and assemblies were all subjected to realistic stress levels in accordance with lifecycle profiles before the final full-system shallow water test. All tests were carried out in adherence to API17F Standard for Subsea Production Control Systems. Tests included temperature, vibration, pressure and accelerated lifetime. In 2019, the subsea power distribution system was brought together for the final 3,000-hour shallow seawater test in a sheltered harbour. At the time of writing, the full power cell has been operating over more than 5,000 hours under pressure. All components, including the optical fibres and their connectors, have performed flawlessly.

What does it take to build a

How did the Subsea Power Joint Industry Project start? In 2011, ABB was awarded a contract from Equinor to provide power for the world’s first subsea compression system to Asgard gas field. In the absence of any power distribution on the seabed, each compressor initially had a cable tied back to the floating facility. This issue was subsequently addressed and all process equipment is now located on the seabed, powered by a singular cable with modular power distribution. In 2013, ABB, Equinor, Chevron and Total formed a JIP to develop this concept further, with a power solution for transmission and distribution of electrical power up to 100MW, over a distance up to 600km and to depths of up to 3,000m for 30 years. It targets greater recovery rates, reduced production costs and further development of deep-water production. Power will be supplied with a single cable, instead of one for each load. All equipment for medium voltage distribution, power conversion, automation and auxiliary power will be fitted in subsea enclosures. A modular power distribution system on the seafloor will drive pumps, compressors and other process plants.

38 energyfocus | www.the-eic.com

subsea power station? How does the technology work? Subsea power technology and rocket science share similarities – both work in conditions for which fixing anything is very difficult once the technology is installed. While satellites can get the small amounts of power they need from attached solar panels, the pumps and compressors located on the seafloor require vast amounts of power and have to be plugged into a source of electricity. The technology works the same way, in principle, as similar equipment on a topside or onshore. The difference is the harsh working conditions that the equipment is exposed to. The equipment is filled with oil and pressurised on the

inside to compensate for the outside pressure from the water. Further, there is a lot of built-in redundancy to make the equipment extremely reliable. You would not do this to equipment situated in a location that is easily accessible. While the control system is based on existing products, the technology had to be significantly upgraded and modified. The system also needed a completely new enclosure design. Though there are already subsea electronic modules for well-control applications, the control system designed will offer more advanced functionality, compared to existing solutions. The system is much more powerful than any state-of-the-art system used for subsea today.

IMAGES: ISTOCK

Q&A: Svein Vatland Energy Focus talks with Svein Vatland, Vice President of Subsea Technology Programmes at ABB

How challenging was it to produce and maintain transmission and distribution of electrical power subsea? This has been a very challenging project – operational conditions are extremely harsh and reliability requirements are precise for pressure. The equipment needs to be able to operate at 3,000m water depth, which imposes a pressure on the equipment of 300 bar. Therefore, all the developed units are pressure compensated. As already mentioned, the units are oil-filled and pressurised from the inside to compensate for the pressure from the surrounding water– so all the electronics that go into the units must be able to operate in oil under extremely high pressures.

The equipment is designed for a 30-year lifetime. All the components need to be extremely reliable. A significant challenge has been to capture the precise conditions that would lead to a test deviation, a change in device behaviour or component value, particularly when these deviations were intermittent and only apparent under the harshest of test conditions. This work was often carried out in specialist test facilities. What role has rigorous testing played during the past few years? With several hundred unique critical components and various stress conditions, a clear but pragmatic

Are autonomous subsea facilities powered by lower-carbon energy more likely to become a reality? Absolutely. Today, power supply and oil and gas processing power are based on installations on fixed platforms or floaters. This topside set-up impacts the environment. The solution we have developed will enable more energy efficient oil and gas production with fewer emissions. Our power distribution and conversion system are purely electrical, so there are lower overall CO2 emissions. Electrification helps to increase system availability and control, and reduces component size and cost and environmental footprints, especially in deeper waters. As it is unmanned and remotely operated, humans are removed from a high-risk environment. The potential savings are considerable. For example, with eight different loads, such as pumps or compressors, CAPEX savings could be about US$500m. Efficiency will be significantly improved, as the loads are closer to the well. How will distributing electricity underwater revolutionise the way we live and work? The vision is for a subsea facility: using www.the-eic.com | energyfocus

Continuing to invest in EIC members

Power: Subsea power

digital solutions to enable intelligent remote and unmanned operations. This would further reduce CAPEX and OPEX, while increasing recovery rates, improving safety, enhancing reliability, raising productivity and minimising environmental impact. Using this concept, practically all the world’s known oil and gas resources can be reached. However, this is only the beginning. With 75% of the world’s surface under water, we believe not only in the power that electrification can bring to the offshore industry, but also in the potential it could offer far beyond oil and gas. How possible is it for the technology to synchronise with renewable energy resources? Connecting hydro, wind or solar power to maintenance-free subsea transformer stations both on and offshore is very much the plan and increases project viability. Studies with our partners show this approach could reduce costs by 30–40% in water depths deeper than 60–70m, and even more in water depths beyond 100m. Less steel is needed, and subsea cooling is provided for free by the surrounding seawater. We have a track record of delivering offshore substations to offshore wind farms. Now, with our subsea power distribution technology, we can deliver a visionary

step-change with seabed-based substations for floating offshore wind farms. These new wind parks could also support next-generation, entirely unmanned, entirely subsea offshore oil and gas production facilities with 80–110MW of power, via a single cable, using ABB’s modular and scalable subsea power distribution solutions. Any excess power can still be exported to market, using the same system, and any future new power sources can easily be added and used by offshore power users. Operators would be able to reduce cable requirements, especially dynamic export cable requirements, which are a costly element. They would also reduce their maintenance needs and environmental footprint, waste less energy in transmission, reduce human exposure to risk, and reduce emissions. Today, equipment ranging from multi-megawatt seafloor compressors to subsea resident vehicles or offshore fish farm operations can tap into this new power source. How critical was the collaborative effort of the joint project between ABB and its partners? It has been a great asset to have continuous close collaboration with our partners. This means that we have had access to a vast base

Our subsea power distribution system can and will have a major impact on how oil and gas production will be done in the future

MARKET RESEARCH TEAM ...LOCATED IN EIC’SWORLDWIDE OFFICES

DATABASES

2014

2020

INSIGHT REPORTS

ANALYSTS

2014 of domain expertise and experience, where new ideas quickly can get a reality check. To develop the technology in close collaboration with leading energy companies such as Equinor, Total and Chevron has been pivotal for a successful outcome, to ensure that the technology is fit for purpose. We have also maximised our expertise and knowledge in-house, with colleagues across ABB collaborating across teams and countries to innovate and advance our research and development efforts. More than 200 expert ABB engineers, physicists and chemists in test facilities and research centres around the world have been involved in developing this next-generation technology for subsea power.

1X CAPEX - EICDATASTREAM

What’s the ultimate goal? The ultimate goal is to do as much subsea oil and gas production and power generation as possible. This can lead to unmanned production facilities operated from shore and avoid transporting people and goods (by helicopter and boat), keeping people safe on shore. The potential reach of ABB’s subsea power technology is vast, across regions and countries covering anywhere with extreme long step out distance and subsea tiebacks for existing facilities. Our subsea power distribution system can and will have a major impact on how oil and gas production will be done in the future. Subsea power is a key enabler for the ultimate vision of a subsea facility. As a digital technology leader, we are excited and honored to be contributing to today’s energy transition for tomorrow’s world.

2014

2020

2020 3X CAPEX, OPEX AND SUPPLY CHAIN EICDATASTREAM, EICASSETMAP AND EICSUPPLYMAP EICSupplyMapisourbrandnew,members only,databasethattracksUKsupplychain companies and their capabilities

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Nuclear Fusion

Fusion: Nuclear

magine a source of electricity where the fuel comes from water, fuel supplies will last for many thousands of years, the whole process is inherently safe and, most importantly of all, no carbon is produced. That is the promise of nuclear fusion – and it is turning from science fiction to science fact.

Harnessing the power of the Sun The fusion of hydrogen to make helium is what makes the Sun shine – and it has long been mankind’s dream to harness this powder directly here on Earth. So why is fusion electricity not on the grid? The simple answer is that it is very hard to do. The optimum fusion reaction fuses two isotopes of hydrogen (deuterium and tritium) to produce helium, a neutron and excess energy – but it requires the hot gas or ‘plasma’ of fuels to be heated to temperatures of around 150,000,000ºC. The most advanced approach is a device called a tokamak (first developed in Russia in the 1960s), in which a powerful magnetic field is used to hold the plasma inside a ring-shaped vessel. In future power plants, the fusion neutrons (which contain most of the excess energy) will be slowed down in so-called ‘blanket modules’ positioned around the vessel walls. These get very hot and can produce steam to drive turbines that make electricity.

Making fusion work The UK leads the world in developing this transformative technology, with the UK Atomic Energy Authority’s (UKAEA) work at Culham Science Centre in Oxfordshire at the forefront. For example, UKAEA operates the world’s largest and most advanced tokamak – JET – on behalf of European fusion researchers. JET is the only tokamak in the

The future is fusion As the quest for clean, limitless energy heats up, nuclear fusion is a question of ‘when, not if’, says Professor Ian Chapman at the UK Atomic Energy Authority

The STEP programme is a staged programme to design and build the world’s first compact fusion reactor by 2040 42 energyfocus | www.the-eic.com

www.the-eic.com | energyfocus

Nuclear: Fusion

world that can use both deuterium and tritium, boasting an advanced remote handling maintenance system. It holds the world record for fusion power of 16MW. Recent JET experiments are all focused on preparing operations for ITER – a €20bn international tokamak, under construction in Cadarache, France. After it is switched on in 2025, ITER will aim to produce 500MW of fusion power, and answer key plasma physics and technology questions for the first fleets of commercially viable power stations. Indeed, most of the ITER partners (Europe, the US, Japan, South Korea, China, Russia and India) have ambitious demonstration power plant design programmes.

An upgrade to MAST has just been completed, funded by EPSRC. When the new MAST Upgrade device starts up during 2020, it will test a new exhaust system that is expected to reduce power loading by a factor of 10-20 – potentially solving one of the big challenges for future fusion power stations.

UK steps closer to fusion on the grid

British innovation In hosting and operating JET together with a network of academic and industrial partners, UKAEA has acquired unique knowledge, experience and capability. In a conscious drive to build on this leading position, the UK government has funded a thriving UKAEA technology programme in areas that are crucial for economically viable future fusion power stations. Key areas include: remote and robotic maintenance; resilient nuclear materials that can withstand the energetic and damaging fusion neutrons; systems to breed, store and recover radioactive tritium fuel; and fusion reactor component testing and validation facilities. With support – including from the UK Engineering and Physical Sciences Research Council (EPSRC) – this programme now comprises a range of new UKAEA facilities that underpin the commercialisation of fusion energy. These include: The Remote Applications in Challenging Environments (RACE) facility, opened three years ago at Culham and successfully working with UK industry to design and test systems for ITER and beyond to the first power plant. The Materials Research Facility has also been open for three years, and tests fusion candidate material strength at microscope scale, including after irradiation. A new fuel research centre, H3AT, will open in 2021, to study the breeding, storage and recovery of fusion fuels Additional new Fusion Technology Facilities will also open at Culham and a new site in Rotherham, Yorkshire. These will work with industry to test, validate and

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qualify components and equipment in fusion-relevant conditions. In addition to this activity, UKAEA also has its own tokamak for studying the viability of fusion at a reduced scale and cost – the Mega Amp Spherical Tokamak, or MAST. Through confining the plasma in a much tighter, more spherical shape, MAST has shown a potential route to smaller, cheaper and more efficient power plant designs. There is a major obstacle to this approach, however: plasma exhaust. Sitting at 150,000,000ºC, a fusion plasma is one of the most intense heat sources on Earth. Finding a way to exhaust the byproducts (such as the helium) and excess heat is essential.

An ambitious new programme will give the UK an opportunity to build on all of its knowledge and capability, to design and build a compact prototype fusion power station called Spherical Tokamak for Energy Production (STEP). Following construction by 2040, STEP aims to produce net electricity in the region of 100MW. It is a programme that is packed with adventure, drawing on the combined expertise of UKAEA, the wider fusion industry and academia. UKAEA has been awarded £222m to work with partners to undertake an initial, conceptual STEP design by 2024, finally affording scientists and engineers the chance to deliver their ultimate goal – to build an electricityproducing fusion power station. One of fusion’s forefathers – the Russian physicist Lev Artsimovich – once famously said that fusion would be ready ‘when society needs it’. Society needs fusion as soon as possible – and STEP aims to deliver.

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STEP STEP is not only about designing and building an electricity-producing fusion reactor – it is also focused on making sure there are the skills and supply chain required to deliver the reactor to market. To enable this to happen, the STEP team is a growing partnership that involves national laboratories, institutes, industry and universities, all harnessing their combined capabilities and creating growth opportunities that further strengthen national capability. The development of our supply chain will be increasingly important as we design for manufacture and look to roll out the first fleet of commercial power stations.

STEP needs further skills development across both science and engineering during the next five-10 years. There are solid foundations in place via, for example, the EPSRC’s facilitation of co-ordinated training programmes through its Centres for Doctoral Training. These need to be enhanced, and apprenticeship schemes in the nuclear industry expanded, to create a strong fusion education programme that will provide the skills necessary to meet the needs of the STEP programme. For more details on STEP, including procurement opportunities, please visit ccfe.ukaea.uk/research/step

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Renewables Energy from waste

he UK and Europe’s Energy from Waste (EfW) sector is gaining momentum and demonstrating its importance in decarbonising the energy landscape. EfW facilities are increasingly being seen as a paradigm to tackle landfill emissions and capacity predicaments. The Confederation of European Waste-to-Energy Plants calculated that if the EU28 countries (including the UK) adopted its set recycling and landfill targets, there will be a capacity gap of around 41m tonnes of residual waste left untreated by 2035. Closing the waste management loop through EfW plants provides a place for unrecyclable waste while optimising its worth through energy recovery. As such, exploring the role of EfW plants in the region’s future energy mix is crucial.

Where do the opportunities lie?

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In recent years, the UK’s EfW market has shown a rapid surge of activity. The EICDataStream database is currently tracking more than 100 upcoming projects with at least 5MW capacity. The UK’s economic advantage and initiative in improving its waste management has helped increase its conceivability of the technology and has also aided the promotion of EfWs in governmental waste targets and legislations. The UK, like Europe, follows the EU’s Industrial Emissions Directive to help maintain tight control of the pollutants emitted from EfWs, making its particulate matter limit among the lowest applied to any industry. New proposals continue to emerge, including Agile Energy’s 20MW Inverurie EfW plant, providing anticipation for the market to flourish in the future. On the other hand, Europe’s EfW sector is largely acclaimed for its extensive portfolio of operational developments. This is more prevalent in the Northern and Western regions, where finances and innovative research into the technology favours the

sector’s operations. Consequently, plans to upgrade, expand or replace existing plants are starting to emerge. A notable example is EEW Energy from Waste’s proposal to expand its existing Premnitz EfW plant in Germany. Despite holding a smaller volume of upcoming large-scale EfW facilities (of at least 20MW) in comparison to the UK, the region’s existing stance on the technology provides anticipation for a future boom of activity. Industry experts also have their eyes on Eastern Europe, where there has been an increase in policies and legislation encouraging EfW due to the impact of China’s 2018 import ban, which has directed more waste to these countries. Poland in particular is already showing signs of considerable advancement; contractor Dobra Energia SA is to construct a plant in Olsztyn for Miejskie Przedsiebiorstwo Energetyki Cieplnej. At present, the majority of planned projects are thermochemical facilities, with a significant proportion featuring combustion technology. As such, supply chain opportunities are available for conventional power companies wanting to diversify into the market, due to the similarities between EfW facilities and thermal power stations such as coal and combined heat and power plants.

A slow burn Despite the favourable prospects for the sector, projects in both regions face a range of setbacks that continue to hinder market growth. The planning stages often have lengthy permitting processes, with further obstacles from opposing local communities and environmental groups. Interferences also occur through the construction phase, where delays are often encountered by misjudgements about the technology’s overall complexity.

Regardless, due to the evident need for the technology in managing waste, proposed developments in these regions are still on the rise. Developers are starting to anticipate in advance where setbacks are likely to occur and refine the relevant processes as needed.

A glowing future The unprecedented drive against climate change has also brought the EfW sector into the limelight. These pressures are expected to be a topical concern in the future, providing a space for research into new EfW technologies with fewer pollutant emissions. This is already appearing in upcoming projects through the implementation of more advanced conversion technologies, such as CoGen’s Hay Hall gasification development in England, as well as the involvement of the carbon capture market, where Aker Solutions is delivering carbon capture systems to Twence’s Hengelo plant in the Netherlands. Policies are also expected to help strengthen the sector, allowing for the continuation of its growth for the future while offering a hub of supply chain opportunities for companies to explore. By Sharanya Kumaramurthy, Energy Analyst, EIC

The power of waste Energy-from-waste is one technology that can help mitigate climate change and be expanded further to address our growing energy needs, writes EIC’s Sharanya Kumaramurthy

Palmers Scaffolding UK Ltd. // 331 Charles Street, Glasgow, G21 2QA, UK // P +44 141 553 4040 // F +44 141 552 6463 // info@palmersgroup.co.uk // palmersgroup.co.uk www.the-eic.com | energyfocus

Renewables

Scotland: Renewables

Scotland

his November the eyes of the world will be on Glasgow as the city plays host to the 2020 United Nations Conference on Climate Change, known as ‘COP26’, with world leaders joined by more than 30,000 delegates to discuss how to tackle the climate emergency on a global level. The footage of bush fires in Australia and floods in Indonesia show just how serious the impacts of future, increased climate chaos could be.

From strength to strength

Turning the tide Marine energy, for example, has an important role to play in the energy transition and we are doing everything we can to support it. In February 2019, we launched a £10m Saltire Tidal Energy Challenge Fund to bolster commercial deployment of tidal energy generation and help overcome the UK Government’s failure to provide a route to market for the technology. In the first award, we provided £3.4m to help Orbital Marine construct the world’s most powerful tidal turbine, capable of powering more than 1,700 homes per year, and that funding is supporting a high level of Scottish supply chain content. We also provided £10m to the Wave Energy Scotland programme, taking our total funding support for the wave energy sector to nearly £40m since 2014.

Green gas In March 2019, we published our plan for

48 energyfocus | www.the-eic.com

Leading the

clean energy revolution

In 2018 a record 76.2% of Scotland’s electricity demand was supplied from renewable sources

Scotland is leading the charge when it comes to renewable energy, writes Paul Wheelhouse MSP, Scotland’s Minister for Business, Innovation and Energy Scotland’s gas and electricity networks up to 2030. The ‘Networks Vision Statement’ explores further opportunities for the generation of low-carbon hydrogen, and the use of gas networks for its distribution and storage – allowing government to determine whether low-carbon gases like hydrogen via our gas networks, for example, could be a deliverable option for some of our heat and transport fuel needs. Our Hydrogen Assessment Project will examine the potential for hydrogen in our economy and energy system and will report by this summer.

Getting net-zero done The generation of electricity from renewable sources is very important for Scotland’s future.

Statistics from the Department for Business, Energy and Industrial Strategy show that in 2018 a record 76.2% of Scotland’s electricity demand was supplied from renewable sources, and the installed renewable electricity generation capacity grew by 8.5% in the year to September 2019 to reach a new record of 11.7GW in total. That is something that we are very proud of, but we need to push on, because electricity demand will continue to grow as we decarbonise Scotland’s heating and transport systems, too. We are leading by example by accelerating efforts to use 100% renewable electricity on the Scottish public estate. Our next Energy Statement will set out the extent to which renewable and low-carbon energy generation

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Scotland was chosen as host nation thanks to our leadership on climate action: we were one of the first countries in the world to acknowledge the global climate emergency, with the Scottish Government introducing the most ambitious emissions reductions targets in the UK, and the world, to ensure our aspiration and action reflect the scale of the task the global community requires of us. Our high level of ambition and commitment to action now underpins everything we do – including our approach to energy. We know that our energy system will require major changes to the way we do things currently, but Scotland is second to none for supporting innovation, and our natural assets leave us well placed to seize the opportunities that the energy transition presents – creating jobs and attracting investment in the process.

will need to combine in order to meet netzero targets. Over the past five years we have funded the development of one of the most comprehensive electric charge point networks in Europe, and we formed a strategic partnership with electricity network companies to improve the delivery and integration of that infrastructure in Scotland. Last year we also awarded £13.4m to low-carbon projects as part of a larger £60m Low Carbon Infrastructure Transition Programme, set up to support low-carbon heating solutions, integrated energy systems and ultra-low emission vehicle infrastructure schemes. Oil and gas decommissioning is an integral part of our just transition plans, and the Scottish Government recognises that there are significant economic opportunities that the process can provide for the industry’s supply chain. That is why, in July 2019, we awarded £4m to help maximise those

opportunities, on top of £10m of investment previously committed. Looking ahead, I am optimistic that carbon capture usage and storage (CCUS) could provide a key diversification opportunity for the oil and gas supply chain, and CCUS is the only option for deep emissions reductions for many energyintensive and process industries. When used with sustainable biomass, it can provide ‘negative emissions’ and has a role in producing ‘clean hydrogen’, alongside ‘green hydrogen’ – the latter derived from electrolysis of water using renewable energy.

Policies for growth Research shows that emissions from buildings account for around 20% of Scotland’s greenhouse gas emissions, so that is an area that we are tackling head-on. We recently announced £30m to support projects to create low-carbon heating solutions, and this spring we are introducing a Heat

Networks Bill that we are confident will help to attract investment in heat networks, tackle fuel poverty and ultimately lower greenhouse gas emissions. The publication of the Scottish Government’s new draft Sectoral Marine Plan will inform the Crown Estate Scotland’s forthcoming ScotWind leasing round for offshore wind sites, alongside our own draft Offshore Wind Policy Statement. Together, these outline our high ambition for offshore wind, both fixed foundation and floating, and the steps we plan to take to secure maximum development and economic benefit from that sector. The Scottish Government recently signed a charter with North East Carbon Capture, Usage and Storage, an alliance of industry, academia and government that is committed to the deployment of carbon capture in Scotland and delivering the Acorn CCUS project located at St Fergus Gas Terminal, near Peterhead. All of this forms part of a wider review of targets and policies across each of the key sectors of the economy to inform our updated Climate Change Plan, to be published by the end of April. By 2021 we will have updated our Energy Strategy to reflect the greater scale of ambition set out in the Plan, outlining how, by evolving how we generate and use energy, we can boost Scotland’s economy and create a range of new models for developing local and community energy, while also tackling fuel poverty.

Towards a clean energy future We all face a climate emergency. It is here already, unfolding before our eyes, and we must work together to end Scotland’s contribution to emissions while encouraging all nations to do likewise. On an individual level, that means changes to the way all of us live, work and travel – the earlier we start, the easier our transition will be. As Scotland’s government, it is up to us to try to build or enable the necessary infrastructure to do that, while supporting industry, creating a fertile environment for innovation, and by creating and exploiting the many opportunities that this transition presents. By Paul Wheelhouse MSP, Minister for Business, Innovation and Energy, Scottish Government www.the-eic.com | energyfocus

EIC Member Focus Waves Group

MY BUSINESS

Ian Sherrington, Waves Group

Tell us a bit about Waves Group Waves Group is a marine consultancy originally known as Mwaves and Cwaves, which formed in 2005; we are celebrating our 15th anniversary this year. In the offshore energy sector, we provide marine warranty services and engineering services for offshore renewables and oil and gas platform decommissioning. In the shipping sector, we provide services for casualty investigation and management, legal disputes and ports. We have an extremely professional and experienced team of maritime civil engineers, master mariners, naval architects and structural engineers. What would our readers be surprised to know about Waves? We are not just a consultancy service company. We have developed some unique capabilities for the use of digital data that are already helping our clients reduce and manage risks and increase certainty for marine and offshore projects. This includes the use of 3D imagery of subsea assets including power cables, moorings, risers, subsea architecture, fixed platforms and monopiles. We are also working with wind farm developers on pre-lease approvals, to reduce risk in their planned transport and installation operations. What has been Waves’ biggest achievement in the last three years? There are many achievements that would fall into this category, so I must mention a few; among the most notable are approving the

50 energyfocus | www.the-eic.com

Director and Structural Engineer Ian Sherrington takes Energy Focus behind the scenes at Waves Group construction of the entire Beatrice offshore wind farm, which involved a solid three-year period of intense activity. Next, I would mention our 3D mapping of the wreck of the World War II tanker War Mehtar, and the assessment of pollution threat using state-ofthe-art technology. Finally, approving the removal of the largest offshore oil and gas platform in the North Sea. Your operations in the offshore wind market has boomed. Tell us a bit more about that. Yes, we have benefited from involvement in a significant number of

offshore wind projects around the UK and offshore Belgium, Netherlands, Germany, Denmark and the South of France. It’s an exciting industry and our involvement with stakeholders throughout the life cycle of a windfarm project gives us a keen insight into most aspects of the windfarm industry. We have been involved in this market since some of the earliest offshore wind farms were constructed and we continue to build on our experience. 2019 saw your organisation extend your global reach in Asia; what does 2020 hold for Waves? In 2019 we worked as marine warranty surveyors on Taiwan’s Formosa 1, phase 2 project, which involved the installation of 20 wind turbines in a typhoon and seismically active region. This was a fantastic experience and we continue to offer our services in Taiwan. We have also opened an office in Singapore, which is proving to be very successful, but we do have eyes on Australia, Japan and further north.

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