energyfocus
ISSUE 40 SUMMER 2020
F ROM T H E E N E RGY I N DUST R I E S COU NC I L OIL AND GAS Can Europe’s Groningen gas volumes be easily replaced?
POWER The energy system of the future: Behind Project LEO
NUCLEAR Russia moves ahead in the global tech race for SMRs
RENEWABLES UK opens the door to new opportunities in onshore wind
View from the top Talal Al-Marri on Aramco Overseas, COVID-19, CCUS and UK collaboration
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Contents ISSUE 40 SUMMER 2020
06
Talal Al-Marri
OIL AND GAS
NUCLEAR
14 The future of European gas
25 Managing nuclear new build risks
From the Chief Executive
Christian Beasley, Risk and Market Analyst, ZTP
6 View from the top
17 Reinventing refineries
Andrew McDougall QC, Daniel Garton, Richard Hill, Kirsten Odynski and Dipen Sabharwal QC, Partners, White & Case
FROM THE EIC 5 Foreword
Talal Al-Marri, President and CEO, Aramco Overseas
14
Tayo Idowu, Energy Analyst – Midstream/ Downstream, EIC
26 A new way forward for nuclear
Closing Europe’s biggest gas field
Evgeny Pakermanov, President, Rusatom Overseas
12 News and events Updates from the EIC
34 My business Simon Bell, Managing Director, iNPIPE PRODUCTS™
POWER
RENEWABLES
20 Project LEO: Redesigning the energy system at a local level
28 A brighter future for low-carbon heat?
22
Masao Ashtine, Postdoctoral Researcher, and David Wallom, Associate Professor, University of Oxford
Jess Ralston, Analyst, Energy and Climate Intelligence Unit
Uniper’s decarbonising plans
30 A change in the wind Sharanya Kumaramurthy, Energy Analyst, EIC
22 On the path to carbon neutrality
33 Unlocking the potential of the UK’s offshore wind industry
Andreas Schierenbeck, CEO, Uniper
28
UK’s new Clean Heat Grant
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
Rob Lilly, Procurement and Supply Chain Manager, Vattenfall
26
Rosatom: Leading the way in SMRs
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
For sales and advertising please contact Tim Cariss +44(0)7759 463456 tim.cariss@redactive.co.uk Energy Focus is online at energyfocus.the-eic.com ISSN 0957 4883 © 2020 The Energy Industries Council
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.
www.the-eic.com | energyfocus
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Foreword Stuart Broadley CEO
From the Chief Executive: In this issue of Energy Focus, Stuart Broadley outlines how the supply chain can strategise for the new normal
The rapid global spread of COVID-19 has eclipsed other recent epidemics and market crises in both size and scope. In addition to the deadly human toll and the disruption to millions of people’s lives, the economic damage is already significant and far-reaching. The bad news is that health professionals predict the disease will be around for a while. Business leaders face huge uncertainty about the future, including how to find their next new customers during lockdown while watching their backlog disappear. With social distancing and travel restrictions, the old business development culture – lots of international travel, face-to-face meetings, social time to build trust, and chance encounters at events – no longer applies. For many businesses, there is a sense of waiting for something to change, rather than making decisions on what to do next and how to invest the limited resources and money available. Why wait? It is time to adapt and stop waiting for a return to normal. The new normal may not be the same for everybody, but there are decisions that business leaders can make now. Take advantage of the uncertainty and unprecedented trading conditions and be a first mover by adopting innovative business models and safe ways of meeting people. Target key export markets and recruit local representatives, so your staff no longer need to travel. Not only will you cut travel costs but you’ll reduce emissions too, contributing to your net-zero carbon plans. Even with air bridges, some clients may still be nervous about meeting new people, especially if you are travelling in from a high-risk country. Don’t embarrass them into face-to-face meetings – instead, partner
with organisations such as EIC that have proven online matchmaking capabilities and platforms for such instances. If one-on-one sessions are essential, take the lead and find a safe, neutral place to meet. And make sure you don’t commit the COVID-19 cultural mistake of slipping into old habits and reaching out for a handshake, inadvertently damaging trust. Companies are increasingly diversifying beyond oil and gas into renewables, and interestingly into non-energy sectors much more. However, 90% of businesses are still reliant on oil and gas revenues, and they have to prepare for ‘lower for longer’ once again, with oil prices expected to stay in the +/- US$40 range for the foreseeable future. If prices creep up to US$50, US shale is expected to scale up quickly, leading to over-supply and oil price reduction again. It is important, therefore, that businesses in the CAPEX space focus on the projects and countries that have the lowest cost of production, in order to maximise profitability. If you are in the renewables market, for example, the impact of Brexit could be negative because the largest number of offshore wind projects are still projected to be in Europe. A no-deal or bad deal outcome will slow down transactions and make import and export with Europe more expensive. You should, therefore, refamiliarise yourself with Brexit and assess the risks to your business. For most office-based businesses, there has been a perspective shift in the effectiveness of working from home. A growing number of companies are closing their excess office space permanently and redirecting saved costs to business development and R&D. Provide safe meeting
and networking spaces for your staff, and where offices are needed, design them to be lower cost, flexible and above all, safe. External events will look drastically different. Limited numbers are to be expected, either by design or through a lack of people willing to attend large gatherings. Organisers should enable one-way routes, offer safe 1-2-1 meeting zones, employ hygienists rather than baristas, and embrace hybrid models combining virtual and smaller, lower-cost physical meeting spaces. If you have a digital product, adapt now to take advantage of the current pandemic. COVID-19 has shifted digitalisation from a ‘nice-to-have’ to a ‘must-have’ with the need for businesses to operate energy facilities remotely, and is now on the desks of CEOs and heads of health and safety. COP26 is now taking place in November 2021, when the UK government will host more than 100 heads of state in Glasgow. Policymakers, investors and business owners will face significant challenges during the coming months – how to balance the potentially conflicting requirements of developing a green economy, centred on new energy transition technologies, while funding the high costs of adapting to the new normal of life with COVID-19. These are strange times indeed, presenting unprecedented challenges for some and potentially huge opportunities for others.
Stuart Broadley Chief Executive Officer, Energy Industries Council stuart.broadley @the-eic.com
www.the-eic.com | energyfocus
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From the EIC Q&A Talal Al-Marri
View from the top Q&A: Talal Al-Marri President and CEO, Aramco Overseas
Our approach to the pandemic has been to focus on the safety of our people, industry and communities – this is simply our number one priority 6 energyfocus | www.the-eic.com
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Q&A Talal Al-Marri: From the EIC
Energy Focus meets Talal Al-Marri, President and CEO of Aramco’s subsidiary in Europe, Aramco Overseas How does Aramco Overseas proactively support the Aramco global enterprise to ensure it fulfils its mission to provide energy around the world? Our activities centre on the European market, but we also cover key locations for the company in other regions, such as central Asia and parts of the Far East including South Korea and Malaysia. Across them all, we look to provide best-in-class solutions to the global business, in particular our physical operations upstream and downstream – which focus on Saudi Arabia and its surrounding geographies. Aramco Overseas has increasingly become a financial hub for the enterprise, making strategic acquisitions on behalf of the global business. In recent years, we have diversified the portfolio, become the primary vehicle for managing the enterprise’s downstream investments, utilising synergies as we oversee, manage and finance key acquisitions. Our full acquisition of Arlanxeo in the Netherlands, a world leader in synthetic rubber, also takes us further towards downstream integration. In addition, our trading arm Aramco Trading now has a physical presence in Europe through its London operation. Trading focuses on the delivery of refined products, their blend, and managing associated risks. In support of our supply chain, sourcing of the very best parts and components is vital to our operations – Europe again emerges as a leader in meeting this need. Our endeavours have built up decades-long relationships in places such as Italy, Spain and the UK – all seasoned supplier bases for us – while new locations such as Romania and the Caspian Sea are also adding value. Taking the UK as an example, we have benefitted immensely through collaborations on the North Sea, where relationships exist with not only our supply chain, but also newer areas of our business. As an energy cluster, Aberdeen is where a number of companies operate and innovate, while also maintaining connections with other key locations in the region, such as Oslo and The Hague. Energy hotspots in Europe provide us with not only physical materials, but also intellectual gains, which is why we have three active research centres in Aberdeen, Paris and Delft, covering
upstream and downstream research. The emphasis is not only improving current techniques, but also suggesting novel concepts, with the potential to innovate on behalf of the industry. Our ‘octane-ondemand’ (OOD) fuel engine technology, worked on in Paris, is evidence of this innovation. The past decade has seen us active in the venture capital space, and through Aramco Energy Ventures we have invested in numerous technologies related to energy. It has been an area of healthy progress for us, as successful technologies have been acquired and undergone testing for suitability with our physical operations. Aberdeen is a key location for pursuing start-up investments as part of our venture capital strategy, and is home to three companies in our portfolio. Solutions also include on-boarding the right talent to take our enterprise forward, from experienced drillers working on our rigs, to data scientists and artificial intelligence (AI) specialists who explore the cutting edge of our industry. Europe is also a leader in terms of executive talent, so we are also actively pursuing leaders who can take the business forward – not just in our core business but also in newer areas such as our downstream expansion and integration, and investor relations following the recent flotation. Underlining the importance of future generations to our enterprise, we have around 400 Aramco-sponsored students, predominantly in the UK, earning qualifications that can place them across the company. The majority are undergraduates, studying at leading universities in relation to their field, while our postgraduates work on more specialised assignments – often forming part of faculty incubators, or working on specific solutions related to the energy industry at large. As the industry gears up for a new reality amid COVID-19, what strategy has Aramco put in place to help its employees support its supply chain and improve operational productivity? Our approach to the pandemic since its onset has been to focus on the safety of our people, industry and communities – this is simply our
About Talal Al-Marri Talal Al-Marri was appointed President and CEO of Aramco Overseas in 2017. During his tenure, he has been very active in attracting and localising various European manufacturers to increase investments and technology transfer to Saudi Arabia. He has more than 20 years of experience in executive management, operations and technical services with Aramco. Before heading up Aramco Overseas, Talal served at global headquarters as Public Relations Operations Manager, and Government Affairs Manager – both part of Corporate Affairs. Talal is also a Shareholder Committee Member of Arlanxeo, acquired by Aramco as part of its downstream expansion. He has a BSc degree in chemical engineering from King Fahd University of Petroleum & Minerals.
www.the-eic.com | energyfocus
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From the EIC: Q&A Talal Al-Marri
number one priority. With safety in mind, we are still operating in a manner that ensures business continuity – and ultimately the reliability of our oil production. Our business infrastructure has meant that our employees continue to add value from remote locations, adapting to the current working reality we face. This is from the top down, also spreading out to our valued partners, who we are keen to support during this most challenging of periods. We have given support to locations in Europe significantly affected, including the UK, Spain, France, Italy and the Netherlands – all of which have been vital to our growth in the region. That assistance has also extended to our non-European offices, such as Malaysia. As in Europe, our support focuses on front line care, as this is where the greatest vulnerability is – particularly for those doing outstanding work in fighting this pandemic daily, at a time when services have come under strain. Across locations, this has included delivery of around 103,000 pieces of personal protective equipment and approximately 1.5m meals to workers and their families. We have been conscious of our partners, not just to ensure their safety but also out of concern for their own business continuity. Without them, we would not be the global enterprise we are today, and we want to support years of mutual success as best we can. In terms of our expenditure and productivity, our Global President and CEO Amin Nasser, speaking in May, reflected on the need to adapt to what is now a complex and rapidly changing environment. In previous economic cycles, Aramco has demonstrated resilience, with a strong balance sheet and low-cost structure. The global business has taken steps to optimise capital spending this year, as we expect the pandemic to weigh on earnings. By reducing CAPEX and driving operational excellence, we are confident that energy demand will rebound as economies recover. Aramco has ambitious growth plans as it transitions to become the world’s leading integrated energy and chemicals company. What do these plans involve? We will continue to make acquisitions that
By reducing CAPEX and driving operational excellence, we are confident that energy demand will rebound as economies recover enable greater integration across our value chain, recently demonstrated by our majority acquisition of SABIC, a major presence in petrochemicals. It allows Aramco to be a firm part of a sector expected to record a growth in oil demand. Furthermore, it is consistent with our long-term downstream strategy to grow our refining and chemicals capacity, and create value through integration. It expands our capabilities in procurement, manufacturing, marketing and sales, not to mention access to markets where SABIC is already established. It has transformed Aramco into one of the major petrochemical players.
Is the current approach to reducing greenhouse gas emissions producing acceptable results? Our enterprise has historic strength in relation to carbon intensity, ranking among the least carbon-intense sources of crude oil in the world. This is the result of multiple factors, including our implementation of conscious practices in reservoir management, flare minimisation, emissions management and methane leak detection. At Aramco, we appreciate that a transition to a low-carbon future is a complex process; alternatives take time and require investment in order to provide a meaningful share of the global energy mix. With this in mind, we employ an interdisciplinary approach to innovation in areas such as carbon management, focused on carbon capture and converting emissions to value. Net-zero emissions remains our goal. What is your view on energy transition technologies such as CCUS and energy storage, and their future role within the Middle East? We believe that capturing and storing CO2 could potentially contribute to reducing
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Q&A Talal Al-Marri: From the EIC
ARAMCO AT A GLANCE
1 Aramco is the world’s largest oil producer and biggest exporter
258.6 BBOE TOTAL HYDROCARBON RESERVES (2019)
emissions. Recently, we have been demonstrating our applications in this area, proving that it is possible to capture CO2 and inject it into our reservoirs to test if it can enhance the oil recovery process. Amin Nasser spoke earlier this year about the ‘4Rs’ – reduce, reuse, recycle and remove – which high impact solutions such as CCUS can bring about. Together with KAIST (Korean Advanced Institute for Science and Technology), we are working on carbon reclamation by developing novel technologies. Across locations, we have also been keen to work with industry, in this case automotive, on innovations that can reduce emissions. I mentioned our Paris office’s OOD technology earlier. The facility is mirrored by a similar operation in Detroit, at the heart of the US auto industry. OOD sits alongside other projects, such as gasoline compression ignition, opposed-piston engines and mobile carbon capture – the latter based around a redesigned exhaust system that captures CO2 and stores it onboard the vehicle. The Middle East is very much the focus given that it is home to our operations. We aim to lead the conversation in the region, which has to date included hosting dedicated
Includes 201.9Bbbl crude oil and condensate reserves 25.7Bbbl natural gas liquids 190.6Tscf natural gas 13.2MMboe/d hydrocarbon production
9.9 MMbbl/d crude oil production
12MMbbl/d maximum sustainable capacity 6.4MMbbl/d gross refining capacity 46.1MMtpa gross chemical production capacity 7.1MMbbl/d crude exports
79k EMPLOYEES
12 RESEARCH CENTRES
events on carbon capture, including the demonstrations already mentioned in places such as the Saudi capital Riyadh. Aramco’s corporate venture capital arm is launching a new US$500m fund to promote energy efficiency and renewable energy solutions. How will these technologies be selected? Aramco Energy Ventures invests in the most promising entrepreneurial-driven technologies that align with our strategic priorities, supporting energy innovation and sustainability. Our global investments generate greater value through innovative upstream and downstream technologies, driving renewable energy, water, and energy efficiency solutions.
These investments accelerate the development of new technologies, and ultimately contribute to economic development when applied to new commercial opportunities, cost reduction and performance improvement. Aramco Energy Ventures, whose mission is to source and develop relationships with strategically significant and innovative energy technology companies, invests globally in start-up and high-growth companies with technologies of potential strategic importance. Ultimately, we look to invest in companies whose technology is at prototype to early expansion stage, with potential to enhance energy production, improve operational efficiency and increase value in our downstream processing activities. www.the-eic.com | energyfocus
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From the EIC: Q&A Talal Al-Marri
In addition to the three investments in Aberdeen, we also have a further three across the UK, ensuring our search for innovation is not limited to recognised industry hubs. Do you see digital technology and data as an untapped opportunity for the energy industry? Very much so. The fourth industrial revolution – cloud computing, connectivity, AI and big data – have become a focus for the enterprise. For this to truly work, however, integration is required across the entire business in order to realise efficiencies and help minimise environmental impact. Big data can provide us with complex, real-time insights, and it is already part of our reservoir management and forecast production. The cloud, too, intrinsically complements this, providing a scalable, agile platform for our data. This platform will also serve our push into AI and robotics. Our research teams in Dhahran (global headquarters) have invented robots that are capable of shallow water inspection and monitoring. Pipeline inspections, usually carried out by trained divers, could then be transferred to robots – dramatically increasing the safety of such tasks, and reducing associated time and costs. Again, to touch upon our interdisciplinary approach, our recently opened 4IR Center in Dhahran is a hub accessible across our operations. A 2,500-square metre space dedicated to developing advanced analytics and machine learning solutions, the Center also hosts a virtual reality zone used to develop and train operators through
augmented reality, providing simulations of real world scenarios. Also worth mentioning is our involvement with the World Economic Forum (WEF); we are not only regular attendees through Davos, but are also a member of its fourth industrial revolution initiative. In terms of the here and now, regarding our day-to-day function, digital technology is part of our adaptation to the pandemic. We have brought online many in-house activities and our collaborative work. Just recently, we participated in a webinar on AI with experts from across industry. Typically this would have been face-to-face, which does have its advantages, but in the current climate we have to adapt, maintaining discussions and the ideas they bring through digital means. In my view, this is critical. It has been said that the level of collaboration between the UK and Aramco could be higher. How do you see this developing? The UK and its companies are strategically important to Aramco. In fact, we work with more than 3,000 companies, including 160 manufacturers that design, build and deliver key commodities to Aramco facilities. Aramco
I’d advise all companies to familiarise themselves with our pre-qualifications
has spent US$1.2bn in the UK in just the past five years, and we continue to explore new opportunities. In terms of lessons, the UK remains a knowledge economy for us, in terms of both improving on current techniques and introducing us to novel ideas. We have a research centre in Aberdeen for this reason, focusing on well completion and drilling techniques – because we know that there are valuable and insightful knowledge gains from those associated with the North Sea. Also worth noting is that the academic prowess here is also very high, with leading universities pioneering digitalisation methods while also developing bio-science and membrane technology – which could one day have applications for us at Aramco. What advice can you give to British suppliers interested in working with Aramco? I’d advise all companies to familiarise themselves with our pre-qualifications. We have a global procurement system that has different requirements for service providers and manufacturers. It is important that companies are aware of these, so they can navigate through the process with the help of our in-house procurement specialists. I would also add that companies should not be deterred by our size and scale; we are keen to hear from those who believe what they have to offer is value-adding. From our sourcing endeavours to our research and our venture capital investments, Aramco is keen to hear from the UK, as we are sure that it can meet our aim of on-boarding best-in-class.
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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
About the EIC 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:
Enabling members to expand into markets across the globe
Market insight Helping members to track global energy projects and assets Our projects database, EICDataStream, provides extensive information on more than 8,800 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
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.
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.
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.
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From the EIC News and events
Events coming up
New reports out now by businesses before COVID-19 struck, the research does highlight several key post-COVID-19 lessons for industry. The strategies put in place in this edition of Survive and Thrive have generated a massive £2.4bn, up on the £1.8bn in savings and new orders in 2019.
EIC Insight Report: Decommissioning Energy Exports Conference When? 28 September – 1 October 2020 Why attend? The Energy Exports Conference (EEC) 2020 is now fully virtual and free to attend! After the success of the inaugural EEC in 2019, this year’s event will run online across five days, offering export support and showcasing a whopping total of more than US$500bn in project opportunities. Organised by EIC and partners, the Virtual Energy Exports Conference (vEEC) will feature more than 20 international delegations alongside operator, developer and contractor updates – companies include ADNOC, Petrofac, Aramco, Total, BP, Equinor, Shell, Bechtel and Wood. More than 1,000 attendees and 100 speakers will convene online over the course of the conference. A preview schedule of presentations will run in the three months preceding ‘vEEC Week’, allowing early access to key project information and one-to-one meetings while the week of the event will include thought leadership sessions, C-level panel discussions, Q&As with our speakers, plenaries and workshops. More than 50 companies within the UK supply chain will virtually exhibit this year. If you are looking to enter or expand into global markets, vEEC 2020 is the perfect platform to raise brand awareness, showcase new products or services and meet buyers. For more information, visit: exportsconference.energy
EIC Insight Reports: Survive and Thrive Volume IV The fourth edition of the EIC Survive and Thrive Insight report is now out. Based on interviews with 40 EIC member companies, the report charts the course they have taken to grow against a backdrop of continued market uncertainty, UK-China trade tensions, OPEC disagreements, low oil and gas prices and COVID-19, compounded by very tight margins, fierce competition, and Brexit. The strategies more commonly employed by the 40 companies were: diversification, the most popular strategy this year at 49%, followed by: service and solutions (44%), innovation (41%), collaboration (39%), optimisation (39%), culture (33%) and technology (28%). Other strategies were less well adopted: digital surprisingly is down at 26%, while transformation (28%) and energy transition (18%) are low. Once again, export is the least used growth strategy at 15%. As well as detailing these individual growth strategies and lessons for industry, the report provides invaluable first-hand information from the UK supply chain about what it needs from government to thrive. The interviews for this research were largely carried out during the COVID-19 lockdown, and although the focus is mostly on growth strategies employed
EIC’s latest Insight Report for energy professionals showcases the capability and capacity of the UK decommissioning industry and reveals the scale of opportunities in the shifting decommissioning landscape. Drawing on data from EIC market intelligence tools – DataStream and AssetMap – the report explores market growth potential and tracks UK and international developments. An estimated US$200bn will be spent on decommissioning globally over the next two decades – with around 49% spent on well plug and abandonment alone. The report examines the UK, Europe’s largest decommissioning market, and identifies emerging hotspots in the Middle East, Asia-Pacific and Latin American regions, as well as their unique challenges. As one of the most mature markets, the UK is well-positioned to help set the decommissioning agenda for countries with preparations still at an early stage and export its worldleading expertise. For companies wanting more information on these reports, please visit: www.the-eic-.com/ Publications/MarketIntelligenceReports
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Oil and gas Europe
The future of The giant Groningen gas field has been fuelling Europe’s energy needs for decades. As the Dutch wind down production, Christian Beasley at ZTP says Groningen’s volumes can be easily replaced
T
he significant 1959 discovery of the Groningen gas field – the tenthlargest in the world – had global ramifications: firing the starting gun for North Sea exploration, the UK’s Continental Shelf Act 1964, the formation of the Brent benchmark, and the economic phenomenon the ‘Dutch Disease’. Production started in 1963 and increased to a peak of 87.7BCM in 1976. It supplied Benelux, France, Germany and the UK. Unlike other natural gas high calorific grades, it had a relatively high nitrogen content, resulting in lower calorific value. In March 2018, after several small but damaging earthquakes, Dutch Prime Minister Mark Rutte announced that production would be phased out by 2030, later revised to 2022. What is the outlook for European gas post-Groningen?
Stepping out from big brother’s shadow Natural gas is the low-carbon fuel of choice for reaching net zero. It is poised to plug power generation gap left by coal, as the non-weatherdependent choice. The necessity to transition away from coal-fired generation to meet climate goals is felt acutely in Germany. The total gas demand in the EU was around 459BCM in 2019. The source of EU gas is shifting: EU production was down 12% YoY, with Groningen production decreasing to 23% YoY, whereas LNG imports increased by 42% YoY. There is a strong correlation between GDP and gas demand. The IMF forecasts EU GDP to fall 7.1% in 2020, impacting demand for gas, while LNG demand is down 2.3% in the Northern hemisphere.
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Europe: Oil and gas
There is no clear single solution for plugging the gap in European supply demand. Instead there are multiple alternatives, including new gas infrastructure, such as Nord Stream, LNG cargoes and, in the longer term, hydrogen blending.
The beast from the East The obvious alternative to Groningen would be Gazprom’s Nord Stream II and its 55BCM per year capacity, which roughly equates to Groningen’s production in 2011, or approximately double 2019 production. However, the Russian state-owned Nord Stream does not come without controversies. The US worries over NATO nations’ reliance on Russian energy exports. Nord Stream II negates the need to transport natural gas through troubled Ukraine; in the event of a potential conflict, Russia could turn off the tap to NATO nations, similar to the strategy deployed against the Ukrainian Power Grid in 2015. During the past year, Nord Stream has been hit by multiple US sanctions, and there has been no offshore work since December 2019. However, Putin remains resolute that the pipeline will be operational from Q4 2020/Q1 2021.
Unattractive investments Nord Stream is likely to be the last Northern European major hydrocarbon infrastructure investment we will witness. Given the EU’s push for hydrogen to be a central element in energy system integration, the existence of robust North Sea pipelines and Nord Stream II in the offing, there is likely to be no additional demand for further infrastructure. Besides, major international financiers such as Blackrock, BNP Paribas and state sovereign funds have signalled an end to investments in the carbon economy. Risking the billions required to develop new submarine pipelines is unlikely to be an attractive prospect for reputation-conscious and profit-hungry investment firms.
The discovery of another field the size of Groningen is highly unlikely, but does Europe need one?
LNG imports? In 2019 Europe imported 108 MCM of LNG, much of which was American and Qatari. Natural gas is a by-product of crude production. By 2019, the shale revolution enabled the US to become the world’s top crude producer and a significant LNG exporter. However, by the end of Q1 2020 OPEC+ had failed to agree product cuts, flooding global markets with cheap product and causing the WTI crude price to turn negative. As a result, the US rig count has dropped significantly since April, along with the source of cheap LNG. Looking to the medium and long term, Europe cannot rely on the cheap US and Qatari LNG cargoes to feed demand when supply and pricing fundamentals remain so changeable.
Plugging the Groningen gap European natural gas storage inventories were
73% full at the end of May 2020
A cleaner future The rise of the corporate green agenda has seen increased demand for clean energy by industrial and domestic users alike. There is an extreme price premium placed on green gas, making it, for now, non-viable to plug a Groningen-sized hole. However, with technological advances, hydrogen blending may be a feasible option. Keele University is currently, and successfully, conducting a six-month trial blending 20% hydrogen into the gas supply to feed 100 homes and 30 academic faculty buildings. The 20% blend is one of the highest concentrations in Europe and, if rolled out, could save 6m tonnes of CO2 – the equivalent of taking 2.5m cars off the road. Northern Gas Network and H21 have proven that the current gas network can transport 100% hydrogen. H21 aims to deliver 100% hydrogen (85TWh of energy) to an eighth of the’s UK gas users.
The future is bright but different
55BCM/ year Nord Stream II will be able to cover 45% of the new gas imports required in the EU in the next two decades
By 2035, global gas and LNG supply is set to rise to
635BCM
The future looks different. The discovery of another field the size of Groningen is highly unlikely, but does Europe need one? In the short term, European gas storage is relatively full, affording a buffer and enough time for the Nord Stream II project to be completed this winter. In the medium term, supply from LNG and Nord Stream pipelines and North Sea fields should alleviate any supply strains. Longer-term, there will be some degree of hydrogen blending, most likely to start at a 20% blend and then increasing over time to 100% as part of a wider move to decarbonise heating, the economy and our lives.
– 50% of which will be driven by the US
Hydrogen could provide up to
24%
By Christian Beasley, Risk and Market Analyst, ZTP
of total energy demand in the EU by 2050
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16-19 OG Downstream Tech_EF Summer 2020_Energy Focus 16
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Oil and gas Downstream
Reinventing
refineries
The transition to a low-carbon economy will require downstream organisations to invest in low-carbon technologies. EIC analyst Tayo Idowu looks at the disruptive technologies transforming the downstream industry
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oday, refining companies face a more challenging and convoluted market. The growth of electric vehicles, more efficient internal combustion engines, and the world’s transition to a low-carbon economy are driving down demand for oil products and ramping up carbon emissions cuts. The ongoing digital transformation being led by automation, analytics and artificial intelligence is also having a profound impact on downstream operations. In order to stay competitive against this backdrop, companies must adopt lowcarbon strategies that account for demand trends and fundamental shifts in regulation, as well as leveraging digital innovation. Using more sustainable feedstocks and looking to disruptive decarbonising technologies will be essential to long-term profitability, but companies will need to consider when to more fully embrace these opportunities while managing the changing risks.
The industry has a clear role in the energy transition. While decarbonisation can seem complex, several solutions are evolving – biofuels from waste, carbon capture, utilisation and storage (CCUS), crude oil-to-chemicals (COTC) and hydrogen.
a higher price from buyers outside the aviation sector. Having secured planning permission recently, the UK’s first green jet fuel refinery looks set for take-off in 2024.
Biofuels from waste
Carbon Capture, Utilisation and Storage
Biofuels are liquid or gaseous fuels derived from waste biomass rather than from fossil fuels. With their renewable nature, advanced biofuels have an important role in reducing greenhouse gas emissions from the transport sector. They also provide a practical alternative to fossil fuels for aviation, shipping and heavy freight trucks. Aviation represents an emerging market. While sustainable aviation fuel is not a new concept, it has seen new urgency following the increasing efforts to tackle climate change. The most likely conversion technology for these advancedbio-jet pathways will be thermochemical, instead of biochemical. This is because intermediate products derived from biochemical routes will probably fetch
CCUS is a critical emissions reduction technology that is capable of reducing carbon emissions along the life cycle of fossil fuels. Although it is not a new technology, large-scale investments are on the rise as ambition increases in the pursuit of net-zero energy system emissions. There are three main approaches to carbon capture: pre-combustion capture, post-combustion capture and oxy-fuel combustion. The chosen technology depends on whether the facility is a new or retrofit plant. Other considerations include capital and operating costs. In pre-combustion capture, steam reforming of the primary fuel produces a mixture of carbon monoxide and hydrogen. A shift reactor produces CO2 and additional www.the-eic.com | energyfocus
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Oil and gas: Downstream
hydrogen by reacting the synthetic gas with steam. This mixture of hydrogen and CO2 is then separated into their independent streams – the CO2 is sent to storage and hydrogen used for power generation. Post-combustion capture involves the separation of CO2 from flue gas produced by the combustion of the primary fuel in air. It can be added to existing plants as a retrofit, which is one of the advantages. Oxy-fuel combustion involves separating oxygen from the air and using it as an oxidant for fossil fuel combustion, which is the main difference from standard combustion. The fuel combusted in oxygen diluted with recycled flue gas rather than air produces final flue gases consisting mainly of CO2 and water – producing a more concentrated CO2 stream and making it easier for purification.
The total number of CCUS projects in industry and fuel transformation rose to 19 in 2020.
Crude oil-to-chemicals As petrochemical demand is expected to increase, refiners and downstream players are looking to prioritise chemicals over fuel production. By targeting the integration of petrochemical production capability in one facility, COTC complexes can increase the scale of petrochemical production by five–10 times. Although COTC will affect the global supply and demand for chemicals, it has the potential to improve margins. Today, there are only a few operating COTC plants in the world. A number of projects are in the pipeline, located in Asia and the Middle East.
Hydrogen
The UK’s first green jet fuel refinery looks set for take-off in 2024
Hydrogen is a non-toxic colourless gas obtained through a carbon-intensive or low-carbon route. Depending on the production process, hydrogen is classified as either grey, blue or green. Grey hydrogen is produced via the steam reforming of natural gas or coal gasification.
During steam reforming, the methane from natural gas reacts with high-temperature steam in the presence of a catalyst. A water gas shift reaction follows, producing CO2 and hydrogen. One drawback of this production route is the release of CO2 into the atmosphere. This is where hydrogen production combined with CCUS provides an advantage. Blue hydrogen is produced similarly to grey hydrogen, with the addition of carbon capture and storage. This form of production has the benefit of industrialscale volumes of carbon-neutral hydrogen. Green hydrogen is produced through electrolysis and involves the splitting of water. The electrolyser consists of a direct current (DC) source and two noble metal-coated electrodes, separated by an electrolyte. The current is applied to the cathode where the hydrogen is made and the electrons produced by the electrochemical reaction return to the positive terminal of the DC source to release oxygen. It can only be classified as green hydrogen if the electricity source comes from renewable forms of energy, such as wind and solar. The blending of hydrogen into the existing natural gas pipeline network has the potential to help with the variable output from renewables. If implemented under appropriate conditions and at relatively low hydrogen concentrations (less than 5–15%), this strategy of storing and delivering energy may require only minor modifications to the operation and maintenance of the pipeline network. Ammonia is another alternative, where its cracking can reproduce hydrogen closer to the end-user. Governments, including those of Germany, the UK, Australia and Japan, are working on or have announced hydrogen strategies.
OUT S O EIC D ON INSIGOWNST : R
HT R E EPO AM RT
These technologies feature in greater detail in the latest EIC Downstream Insight Report. For more information, please email: tayo.idowu@the-eic.com By Tayo Idowu, Energy Analyst – Midstream/ Downstream, EIC
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Power Community energy
P
roject LEO is a £40m+ multi-stakeholder consortium making Oxfordshire one of the UK’s largest testbeds for local energy systems. Announced in April 2019, it is funded by the Industrial Strategy Challenge fund (£13.8m) which is managed by Innovate UK, and private funding from project partners (£26m+). To achieve net-zero goals by 2050, networks and operators must foster holistic and equitable approaches to tackling power, heat and transport systems. Operating locally, LEO will sync operations of the distribution network operator (DNO) Scottish and Southern Electricity Networks (SSEN) with industry partners such as EDF, Origami and Piclo, and local energy initiatives through the Low Carbon Hub. This partnership aims to extract value from innovative market platforms and flexibility services.
Locally driven Trialling local energy systems is a core element of LEO, with its partners developing complex stakeholder engagements to provide smart and fair solutions to network constraints and grid decarbonisation. Findings will inform policy at a national scale, with the replicability of activities being embedded into the project’s framework. SSEN leads the project via monitoring of local primary and secondary substations in Oxfordshire. The University of Oxford and Oxford Brookes University, the local county and city councils, and the Low Carbon Hub are also major partners. The Low Carbon Hub, a social enterprise supporting community energy projects, has a diverse portfolio of generation and renewable energy assets in Oxfordshire. This allows LEO to engage with local communities
and test the impact of local flexibility services on reducing grid constraints. Initial findings have already helped SSEN to better understand its transition from DNO to distribution system operator (DSO), where networks work to enable the provision of flexible services to connected communities. As it evolves to being a DSO in the wider energy network, SSEN has incorporated its TRANSITION project into LEO for the facilitation of new energy markets such as peer-to-peer trading and demand-side response services. LEO and TRANSITION will thus catalyse local energy transitions through a neutral market platform to provide enhanced and flexible network services to communities and commercial assets.
Agile ecosystems The UK’s energy transition will gain empty outcomes without the strategic
Redesigning the energy system at a local level The UK needs energy systems that are cheaper, cleaner and consumerfriendly. Project LEO (Local Energy Oxfordshire) has the potential to show just how innovation can deliver this energy ambition for the future, say Masao Ashtine and David Wallom at the University of Oxford
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Community energy: Power
and well-coordinated planning of multiple stakeholders, each with their own goals for net-zero targets. LEO encourages a multi-perspective approach to strengthening local energy systems, recognising the diverse needs and cultures of various ‘energy agents’. The participants, interconnecting processes and monetary flows are evolving towards a systemwide optimum that maximises social value; the term ‘ecosystem’ is thus used. Project LEO has adopted a lean-ecosystems methodology that allows for fast-iterative feedback loops. This optimises knowledge and outcomes, enhancing processes and stakeholder engagement – a model that is often lacking in energy system design. Progress is tested through a series of minimum viable systems (MVSs) – quick, low-risk, iterative trials that feed findings back to participants in an agile manner. This, in turn, influences future MVS trials and is hardcoded into LEO to accelerate system learning and the evolution of the ecosystem. LEO’s MVS structure has so far aimed to actively iterate findings through five sub-categories of energy services: prosumer, generation, smart neighbourhoods, aggregation, and portfolios. Trials in ‘future system planning’ and ‘informing policy’ will be brought on in later phases of the project.
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Year 1 findings Flexibility service coordination has already been trialled in LEO, uncovering many useful findings for the next phase of trials in Year 2 and beyond. Market trials done with Piclo, partner universities, the Low Carbon Hub and other key LEO stakeholders have shed light on the market forces at play and the underpinning system requirements for fair and accessible local energy flexibility markets.
LEO is ushering in a new model of energy trials and system development Data are instrumental in driving the MVS process, both for market operation and as learning metrics. DSOs and affiliated partners need open lines of communications and data in order to validate flexibility services and fully extract value from these new models. LEO is also drafting the data infrastructure needed to engage with local energy and communities for other energy system projects. Lessons have come from both success and failure to deliver flexibility. Inaccessible data streams, asset specifications and unexpected environmental conditions have unearthed the operational and organisational minutiae involved in trialling flexibility services. Project LEO has engaged energy stakeholders in new ways, enabling participants to better understand the nuanced constraints in local systems. These findings are then distilled and disseminated to a wider audience.
Looking ahead The first year for Project LEO has revealed many underlying processes that constrain networks, and those that are needed for more flexible energy markets. LEO is ushering in a new model of energy trials and system development. Transitions must germinate
from local systems that will further inform broader system and national policy. With an increasing portfolio of assets and plug-in projects, the second year of LEO’s activities will bring new challenges and greater lessons for stakeholders and affiliated communities. MVS trials will move into new territory in which ‘aggregation’ and ‘portfolio’ asset services will be tested, bringing further insight as energy system trials are broadened under SSEN’s operations. Mapping these findings and associated data through spatial tools are also core dissemination tools. Future work will see increased publication, community engagement and innovative data analysis, pushing the boundaries of conventional markets and network services. MVS trials will explore new categories of flexibility services (smart neighbourhoods, EV integration and V2G modelling, aggregator services, etc), and the further development of spatial mapping tools for local energy systems within connected Oxfordshire regions. Innovative MVS trials around the category of ‘informing policy’ will also ensure the dissemination of key lessons to better inform policymakers, local communities and councils within the final project stages. Continuity, replicability and active engagement have driven and will drive progress in building resilient local energy systems. Post-LEO, our consortium has a strong vision for sustained learning after the project’s lifetime. Data will be seated within the county council’s resources, and within the Data and Analytics Facility for National Infrastructure energy data repository for long-term open access, to accelerate the UK’s energy transition towards net-zero. By Masao Ashtine, Postdoctoral Researcher, and David Wallom, Associate Professor, University of Oxford
www.the-eic.com | energyfocus
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Power Decarbonising energy
On the path to
carbon neutrality Uniper CEO Andreas Schierenbeck sets out the company’s decarbonisation strategy and how other fossil fuel generators can reduce global emissions
D
uring the past couple of years, activists have spurred a vigorous and muchneeded debate over the future of energy and the planet. The focus has been on a shift to renewables, and the voices of legacy fossil fuel producers have largely been overlooked. These companies, though, are best-placed to make the most significant impact in the reduction of global emissions. In March 2020, Uniper set out a bold decarbonisation strategy to achieve carbon-neutrality by 2035 – something that may once have seemed an unlikely step for a company with a history as a conventional generator. However, there is a clear path for energy generators to play a vital role in the future energy mix. It is incumbent upon them not only to take the necessary steps, but also to share knowledge and bring all stakeholders together for maximum impact.
emissions by up to 65% during the next two decades. While renewables now make up 20% of Europe’s energy output, demand continues to outpace uptake, so gas will be vital in making emissions cuts quicker and in complementing wind and solar. Where possible, Uniper is also repurposing existing coal plants such as our site in Scholven for gas generation, making use of existing infrastructure.
Innovation in hydrogen
Energy companies need to increase the carbon-efficiency of gas further by investing in green hydrogen
Energy companies need to increase the carbon efficiency of gas further by investing in blue hydrogen, and in the great potential of green hydrogen. Hydrogen can be produced using renewables-powered electrolysis, only giving off water in the process and thus making it
Converting coal to gas Completing the coal exit is the crucial first step towards decarbonisation, and this is therefore the cornerstone of Uniper’s strategy. By 2025, we plan to close 2.9GW of coal-fired capacity in Germany. By the end of 2025, we will have reduced our German carbon emissions by 40%, and we intend to submit a further 1.4GW to the federal government’s shutdown scheme by 2026. Including previous closures, this will yield total carbon savings of up to 18m metric tonnes per year. Converting to gas sits alongside Uniper’s coal exit. With around half the emissions intensity of coal, conversion to gas as a fuel is the fastest way for Europe to reduce carbon
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Decarbonising energy: Power
possible to avoid 90% of the greenhouse gases emitted by the conventional hydrogen production. Power-to-gas (P2G) hydrogen can then be refined into renewable liquid fuels such as synthetic diesel and aircraft fuel, providing a clean energy source for the vast areas of the economy in which renewables are not viable power sources. Uniper is, therefore, reinforcing its early investment in green hydrogen, having opened the first P2G plant in Falkenhagen, Germany in 2013. We already have a second plant that runs on wind power, but soon we will start building an industrial-scale green-hydrogen plant and underground storage facility.
Coronavirus and beyond Decarbonisation is a meta trend that shows no signs of abating amid the economic fallout of COVID-19. Indeed, investment in decarbonisation initiatives is a vital part of the EU’s €1.85trn (£1.67trn) recovery
package. Uniper itself is continuing to press on with its decarbonisation strategy, while also keeping the lights on in the current crisis. Our recent partnership with Siemens is just one example of this; the partnership will deliver many decarbonisation and green hydrogen projects during the next few years. Uniper is also making €1.2bn (£1.08bn) available during the next three years to invest in low-emissions new growth. This involves expanding and maintaining our hydropower plants, as well as introducing new CO2-efficient revenue streams. This includes green hydrogen, but also renewables, by investing significantly in power purchase agreements. Uniper is looking for ways to share its engineering expertise in order to be a catalyst, helping other companies drive their own decarbonisation efforts. We will continue to help power generators and industrial enterprises achieve greater energy efficiency, and to share experience on the effective operation and maintenance of power plants. Furthermore, we are calling on governments to put in place a robust framework to support the growth of the hydrogen economy. Conventional generators face a crucial moment and will be trying to determine their future direction. But they must recognise the vital role they can play in reducing emissions. It is important to look back at the business and see where their expertise lies – and where they can add the most value in the urgently needed energy transition. By Andreas Schierenbeck, CEO, Uniper
Completing the coal exit is the crucial first step towards decarbonisation Uniper’s net-zero future Carbon neutral by 2035
2.9GW of coal capacity closed by 2025
German carbon emissions reduced by 40% by end 2035
Invest £1.08bn over next three years in low-emissions new growth
Plans for a 35MW-capacity electrolysis facility
World’s first 59MMCM green hydrogen storage facility = 150m KWh to heat 20,000 households
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SAVE THE DATES
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Nuclear Risk management
Managing nuclear new build risks When building a nuclear power plant, it is almost a case of when – not if – a dispute will arise. Understanding the risks is key to mitigating them, say partners at White & Case
T
he nuclear industry has proven fertile ground for commercial disputes. Few industry sectors face sterner regulatory oversight or greater technical complexity. Nuclear power is a highly sophisticated industry in which projects are prone to cost overruns and delays. Of the 441 reactors in operation around the world, only two were completed on budget and on time. Understanding dispute risks inherent in new nuclear power plant (NPP) projects goes a long way in helping all involved to manage these disputes when they arise.
Why disputes occur There is intense scrutiny of all aspects of nuclear plant construction from both safety and security perspectives. Reactor suppliers, contractors and day-to-day operations are watched by the nuclear regulator in a fashion that is unrivalled in other construction projects, and tension between regulator, owner and supplier is ever-present. But even projects that face no obstacles can take the best part of a decade to get from conception to operation, historically averaging at least eight years to complete. Overruns are the norm, and with this comes disputes about who is responsible and for how much. Given the nature of the industry and the costs involved, these disputes – costly affairs themselves – tend to be played out in a very public way and often take a very long time to resolve.
Lost expertise and knowledge gap During the nuclear industry’s heyday, from the 1960s to the 1980s, countries such as the US, France and the UK developed deep and institutional expertise in nuclear planning and construction. Much of that skill base has since been lost, with many equipment and service suppliers exiting the industry. By the early 2000s, only a relatively limited supply chain to support renewed interest in NPP construction remained, with many leading experts long past retirement age. This left many countries with established expertise in operating and decommissioning nuclear plants, but a shortage of know-how in the planning and construction phase – adding significant risk. This skills gap extends to the wider support industries, including legal and financing expertise.
Designs on nuclear One of the most important stages of any NNP project is the design and planning phase. The more detailed and prescriptive the documentation is at this stage, and the more precise the wording in the contract, the greater the chance of avoiding delays and disruptions throughout the entire project. Some designers believe that small modular reactors (SMRs), made using standardised factory-manufactured parts delivered ready for assembly, may offer lower investment risk and
costs. With a simpler design than larger reactors, and a shorter construction phase of 19–24 months, SMRs have become increasingly popular globally. The construction of SMR first-of-a-kind designs presents both technological and licensing risks, but once units are built using proven designs, these risks will be reduced. Further, although the risk is arguably lower than for larger reactors with longer construction times, SMRs remain complex and costly projects, susceptible to delays and cost overruns.
Nuclear power is here to stay Despite the numerous challenges the industry faces, nuclear power will remain a key source of energy for decades to come. Given the significant risks inherent in any new nuclear project, mitigating these risk factors from the outset should be a key consideration for all involved. The greater the understanding of the issues that could arise, and the earlier these issues are understood, the less likely they are to evolve into disputes – or at least the better prepared those involved will be to manage those disputes. This foresight could go a long way to reducing the significant cost increases and extended construction schedules that currently challenge the industry. By Andrew McDougall QC, Daniel Garton, Richard Hill, Kirsten Odynski and Dipen Sabharwal QC, Partners, White & Case
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Licensing risks Licensing risk is one of the critical areas for new nuclear projects and this often generates headlines due to their politically sensitive nature. An initial license to develop a new plant may be required, followed by a construction license, followed by licenses to permit the transportation of nuclear fuel, and finally an operational license to run the plant. Every one of these steps creates an environment for delays and cost overruns. www.the-eic.com | energyfocus
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Nuclear Rosatom
A new way forward for
nuclear
Russia is getting closer to a small modular reactor reality, writes Rusatom Overseas President Evgeny Pakermanov
T
is powered by two 35MW KLT-40S small modular reactors (SMRs), meeting the energy demands of 50,000 homes. The unique FNPP is moored in the port town of Pevek, and will replace the ageing Chaunsk coal-fired power plant – saving about 50,000 tonnes of CO2 emissions per year, compared to current levels. The floating power unit (FPU) is designed for an operational life cycle of 40 years (with a possible extension). After decommissioning, the FPU will be towed to a special deconstruction and recycling facility.
Market demand SMRs offer an excellent option for countries looking for flexible and safe reactors while maintaining the high level of electricity production generated by large nuclear power plants (NPPs). Equipped with pioneering post-Fukushima safety technology, offering flexibility in both installation and construction, and capable of producing electricity up to 300MWe per module, SMRs are gathering global interest. Beyond energy, SMRs can be used in a variety of applications, including hydrogen production, desalination and heating. If developed, these projects will provide not only energy but also heat at a favourable price compared to other sources. This is already the case with the FNPP in Pevek.
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he world’s only floating nuclear power plant (FNPP), Akademik Lomonosov, commenced commercial operation on 22 May 2020. Thirty nine days later, on 30 June, the FNPP started providing heat in addition to electricity to remote Russian communities in the Chukotka region on the East Siberian Sea. Built by state atomic energy corporation Rosatom through its electric power division Rosenergoatom, Russia’s 11th nuclear plant
This achievement builds on our rich history of researching and testing small reactors on nuclear icebreakers. Since 1954, Rosatom has designed small reactors for civil marine applications, accumulating more than 400 years of small reactor experience. To date, 26 small reactors for civil marine applications have been manufactured, including six RITM-series SMRs for multi-purpose icebreakers. In November 2019, two reactors onboard the Arktika icebreaker reached first criticality.
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Rosatom: Nuclear
The nascent technology, however, means that – as with any first-of-a-kind project – costs may be higher in both licensing and construction. In licensing, appropriating regulations (historically designed for large NPPs) for the new SMR designs takes significant time and money. As for construction, large-scale production is necessary to see a cost benefit – but it will take some years for the industry to run a series of reactors in a ‘fleet’ approach. The first player to harness and successfully operate an SMR-type design will, therefore, have a huge advantage over other competitors in the market. The International Atomic Energy Agency reports that, globally, there are about 50 SMR designs at different stages of development. The first of these to succeed in SMR series construction could be the first to meet the demands in remote and isolated locations such as islands or offshore territories where a conventional reactor is
not feasible, as well as large operating and under-construction facilities – especially within the mining industry. In this regard, FNPP Akademik Lomonosov marks a significant milestone for Rosatom.
Out in front
RITM-series The RITM-series is a light water nuclear reactor. It has a dual circuit with four steam generators integrated into the body. These are housed separately and connected to the reactor by primary coolant pipelines. The layout reduces the installation’s material consumption and size, reduces the risk of leaks from the primary reactor loop, and facilitates installation and dismantling. Four main circulation pumps are located around the vessel. The reactor will have a thermal capacity of 175MW and an electrical output of 50MWe. It uses uranium fuel enriched to 20%, with a fuel load every 10 years. The design makes it two times lighter, more compact and has 30% more electrical capacity than the KLT-type reactors used on the Akademik Lomonosov floating NPP.
Rosatom’s latest SMR technology is the RITM-series . The advanced pressurisedwater reactor incorporates all the best features from its ship reactor predecessor, the KLT-40S. With an electrical capacity of 50MW, a fuel cycle of up to 10 years and a design life of 60 years, the reactor can be installed in both floating and land-based facilities, giving Russia’s hardest-to-reach landlocked industries and communities access to secure sustainable energy. Rosatom is now considering several locations to deploy land-based RITMseries SMR NPPs from Ural to the Chukotka region, in order to safely provide electricity to large mining and processing facilities, as well as the local population. The RITM-series SMRs will have three key applications: land-based NPPs, floating NPPs and new universal icebreakers. Through this, Rosatom will secure enough demand to manufacture SMRs in series, which will drive down costs and lead times and make the technology more attractive to foreign markets.
Looking forward Both SMR construction and operations bring a multitude of socio-economic benefits: earthwork construction increases GDP; supply of construction personnel increases the revenue of local suppliers;
SMRs offer an excellent option for countries looking for flexible and safe reactors supply of raw materials increases inbudget revenue and R&D investments; NPP operation personnel and services during operation creates jobs and enhances training. Our findings conclude that on average in Russia, around 400 jobs per unit can be created per year during the whole construction period. This peaks at more than 800 jobs per unit. Maintaining a steady hiring flow during operation will create 60 jobs per unit. Based on our implemented large-scale NPP projects, localisation levels can reach 20% and beyond, depending on the specifics of each market. As SMR development gains momentum globally, we look forward to cooperating with many international companies. We will keep an open mind throughout this process, with the view to finding the best partner for us in the market – for which the UK may be a great candidate. By Evgeny Pakermanov, President, Rusatom Overseas, a subsidiary of Russian state nuclear corporation Rosatom www.the-eic.com | energyfocus
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Renewables Decarbonising heat
A brighter future for
low-carbon heat? The UK government’s new Clean Heat Grant shows tentative lessons have been taken from the failed Renewable Heat Incentive, writes Jess Ralston at the Energy and Climate Intelligence Unit
Flagship policy falls short One scheme that targeted carbon emissions reductions from heating was the Renewable Heat Incentive (RHI). The domestic RHI was launched in 2014 as the flagship policy for supporting low-carbon heat in the UK. It paid households incremental sums over seven years to help cover the costs of renewable heating systems such as electric heat pumps and biomass boilers. However, many experts consider the domestic RHI to be a failure. It is easy to see why: with only two years to go, just one-fifth of the installations expected have been delivered. It seems unlikely that even half of the estimate will be achieved. The National Audit Office concluded that the scheme has “not achieved value for money” and that overpayments may be a problem, resulting in taxpayers’ money being wasted. Some might say that this is due to the format of the scheme. While there are savings and earnings to be made in the long-term when it comes to technologies with a high upfront cost, such as air and
Start: ground source heat pumps, the initial capital outlay can be prohibitive.
April 2022
Back on track but shaky start The new Clean Heat Grant, proposed by the government in April 2020, is a welcome step for many. Not only does it help to address the upfront cost barrier, but it also includes incentives that encourage households to plan changes to their heating systems
Close:
More ambition needed to decarbonise heat
Upfront funding:
11k
< £4,000 for low-carbon technologies
Clean Heat Grant to support the installation of around 11,000 heat pumps per year, for 2 years
19m To meet net-zero emissions goal, the CCC says the UK needs nearly 19m heat pump installations by 2050
March 2024 Budget:
£100m
Air, ground and watersource heat pumps, biomass boilers up to
45kW capacity cap
in households and small non-domestic buildings
IMAGES: GETTY
H
eat decarbonisation in the residential sector – which is responsible for about a fifth of the UK’s greenhouse gas emissions – has been recognised by the Committee on Climate Change (CCC) as one of ‘the toughest challenges facing climate policy’. While the UK is doing well on decarbonising power and industry, challenges remain for energy efficiency and heating in housing.
Proposed Clean Heat Grant
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Decarbonising heat: Renewables
instead of purchasing like-for-like systems when they break. An upfront cash grant is understandably more attractive to families than smaller sums paid back over time. This is a process known as hyperbolic discounting, where cash in hand now is viewed as more certain than an equal or larger sum of money at a later date. The new Clean Heat Grant is more aligned with these sorts of behaviours, and it could spell the difference between low or high uptake of the heating systems that are needed put us on track to reach net zero. A £4,000 lump sum towards a low-carbon heating system is more in tune with consumer preferences, and suggests that lessons have been learned from poor RHI uptake. The low levels of projected heat pump installations as part of the new grant ( just over 21,000 per year) – only slightly more than the number under the RHI – are therefore surprising. This level of uptake does not fit with the CCC’s view that more than one million
annual installations will be needed by the mid-2030s. According to the Heat Pump Association, this trajectory will require at least 300,000 heat pumps to be installed per year by 2025. Perhaps the low estimates reflect the government’s ‘once bitten, twice shy’ approach to heat decarbonisation in the residential sector.
All eyes on government The modelling of limited installations during the first few years could pave the way for an increased budget – currently set out at £100m over two years – and a stronger push for low-carbon heating, if the scheme is proven successful and renewed. One thing is certain: more ambition will be needed if we are to ensure heating decarbonisation. All eyes are on the government’s upcoming and long-awaited Energy White Paper and Heat in Buildings Strategy. When 2022 rolls around and the new scheme is introduced, we will gain an indication of how many people are willing to
Big industry loses out For small non-domestic buildings, the same Clean Heat Grant is available; on a larger scale, the non-domestic renewable heat incentive (NDRHI) will be closed to new applicants on 31 March 2021. Viewed as a greater success than its domestic sister, the NDRHI has produced more than 5,000MW of capacity and pays users back over 20 years. However, come April 2021, those wishing to install renewable heat in industry may face a higher cost, and the current lack of a replacement risks losing the goodwill of businesses hoping to decarbonise heat.
move to low-carbon systems. By then, we will be well on our way to a ‘green recovery’ from coronavirus. If we are to reduce residential emissions, there is no doubt that £9bn spending on energy efficiency that was promised in the Conservative manifesto will be just as important as removing gas-guzzling boilers through schemes such as the Clean Heat Grant.
Towards net zero Energy efficiency and low-carbon heat could boost jobs in construction – a sector that has been hit hard by the pandemic – all over the country. The new support mechanisms for low-carbon heating, and pledges on energy efficiency, will equally help deliver much-needed economic stimulus and set homes on the right path for net zero. As boilers break and need replacing, there might as well be a policy that incentivises households to choose a low-carbon alternative, thus creating a natural move away from fossil fuels. Let us hope that the future for heat is much brighter in a post-coronavirus world than the dark and dingy RHI past. By Jess Ralston, Analyst, Energy and Climate Intelligence Unit
www.the-eic.com | energyfocus
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Renewables Onshore wind
A
change in the Having been held back artificially for the past five years, the cheapest form of new power in the UK – onshore wind – is set to make a comeback, writes EIC analyst Sharanya Kumaramurthy
O
nshore wind is a mature and proven technology, playing a vital part in the UK’s energy mix. Surging renewable energy demand during the past decade, and the sector’s subsequent growth, has created a favourable space for onshore wind’s development. Currently, the UK has around 13.6GW of installed onshore wind. At the end of 2018, onshore wind generated the largest capacity of renewable energy, amounting to 30%, and its generation rose by 6.6% in 2019 to 32.2TWh.
scheme in 2015 caused installation rates to plummet. With no way of entering power generation auctions, no subsidy support, and a hostile planning environment, there was no clear route to market for developers. In 2017, developers built record amounts of onshore wind power as they raced to complete their projects in time to qualify for government support – 343 projects added more than 2.6GW of capacity combined. In 2018, the number of projects fell to 91 totalling 651MW, dropping to 623MW across 23 projects in 2019.
to bid for subsidy support. Buoyed by the news in March, an increasingly optimistic industry now looks set for a boost in activity in its existing portfolio. A significant amount of new capacity is expected to come online as early as 2025, allowing the backlog of consented shovel-ready projects to progress. EICDataStream project tracking database currently shows that 64 projects (5MW or more capacity) have secured consent and are yet to commence construction. Reports say that more than 4GW of onshore wind could bid at the next CfD auction in 2021.
Powering ahead Investment choked by policy Despite the need and capability for the market to be pushed forward at full speed, the government’s lack of financial support in recent years has stifled UK onshore wind. The exclusion of onshore wind from the Contracts for Difference (CfD) subsidy
This year sees onshore wind back on the agenda. With an unprecedented rise in climate change activism and the government under pressure to deliver on its legally binding promise to reach net-zero emissions by 2050, onshore wind has been reinstated in the CfD regime – allowing it
Reforms needed While the announcement supports the technology, permitting bottlenecks must be addressed if the sector’s full potential is to be unlocked. To speed up the approval process and make investments happen, there must be reforms to the current complex and
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Onshore wind: Renewables
lengthy permitting rules and procedures. EICDataStream is currently tracking 152 proposals (5MW or more capacity) in the planning pipeline, of which 16 are facing appeals – prolonging timeframes even more. In 2019, local authorities only granted consent for two projects in England (three turbines totalling 1.9MW), and there was only one planning application for a 5MW project put forward. In Wales, no new proposal was consented or lodged. Although the UK’s National Planning Policy Framework advocates a presumption in favour of sustainable development, Local Development Plans continue to deter onshore wind investment, with weaker policies and indistinct site identifications for the technology. For many years, onshore wind has also faced a backlash from local residents resisting proposals for new turbines in proximity to their surroundings. EDF Renewable’s 110MW Garn Fach project, for example, has faced opposition since the project’s announcement at the start of 2020. To help address these issues, the government has set out a requirement for all local authorities to renew Local Development Plans by December 2023. Public support for onshore wind has also risen to 77%, according to the Department for Business, Energy and Industrial Strategy.
IMAGES: GETTY
Scotland leads the way Onshore wind developers continue to be attracted to the UK regardless, enticed by the success rates in Scotland. With a favourable wind resource and a renewables-positive government, the devolved nation has a dynamic portfolio of projects – holding around 60% of the UK’s capacity. Scotland is expected to have more than 20GW installed by 2050. In 2019, the nation’s planning-friendly legislation saw 556MW of capacity across 26 proposals secure consent, and 35 new proposals totalling 1,969MW submitted. Four schemes in Scotland’s remote islands were awarded CfD deals in the last auction that range between £39.65 and £41.61 per MWh, further demonstrating onshore wind’s vital role in the energy system. These schemes are Uisenis Power’s 189MW Muaitheabhal, BayWa’s 49.5MW Druim Leathann, and Hoolan Energy’s 20.4MW Hesta Head and 16.32MW Costa Head. Despite the lack of financial support,
2020 sees onshore wind back on the agenda
EICDataStream is tracking 10 proposed schemes in the UK, including the repowering of SSE Renewable’s Tangy IV. The original 18.7MW development has consent to increase its capacity to 80MW by replacing its 22 existing 0.85MW turbines with 16 more efficient 5MW turbines.
Real opportunities Scotland’s onshore wind market has seen steady growth – due in large part to the rise in subsidy-free projects. Now the CfD mechanism has been restored, the UK wind powerhouse will become the likely location for the majority of future onshore development, as investors capitalise on Scotland’s abundance of new opportunities.
Repowering With more than 8GW of the UK’s capacity set to retire during the next 10 years, the repowering of ageing plant is gaining traction. The UK saw its first wind farms installed in the 1990s, and with wind turbines having an average lifespan of 20 to 25 years, the first generation of projects have started coming to the end of their lives. The chief drivers for repowering are the vast improvements in turbine technology, lower costs and meeting climate targets.
As one of the cheapest sources of power in the UK, onshore wind has shown its potential in the nation’s energy mix during the transition from fossil fuels. The push from climate change bodies has heightened discussions around the sector and abetted its re-entry into the region’s subsidy support scheme. With financial aid now accessible and non-subsidy developments on the rise, it is impossible to ignore the overall anticipation for the industry and the expected surge in opportunities for supply chain companies in the near future. For more information on current and future onshore wind projects in the UK, please email sharanya.kumaramurthy@the-eic.com By Sharanya Kumaramurthy, Energy Analyst, EIC
SCOTLAND: UK WIND POWERHOUSE Scotland holds nearly
In 2019
35 60% 1,969
new projects totalling
of UK onshore wind capacity In 2019 clear and positive planning policy consented
MW
submitted for planning application More than
2050
556MW 20GW across 26 projects
to be installed by 2050
www.the-eic.com | energyfocus
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EIC Survive &
VOLUME IV
Thanks to our EIC member companies
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Renewables Offshore wind
Unlocking the potential of the UK’s offshore wind industry More British businesses can supply offshore wind projects but developers need to engage better with a more joined-up supply chain, writes Rob Lilly at Vattenfall
T
he UK’s offshore wind industry could sit front and centre in the UK’s post-COVID-19 economic rescue plan, and in the longer term be a guiding light in the transition to net zero. If we are to power the UK’s green recovery, key stakeholders – including government, developers, operators and the supply chain – must collaboratively take decisive action.
Building on firm foundations The UK offshore wind industry has 9.8GW of installed offshore wind capacity – more than anywhere else in the world. This is due in part to encouragement from successive governments. Capacity is expected to rise to 19.5GW by the mid-2020s. In March 2019, the UK government and the offshore wind industry published the Offshore Wind Sector Deal to accelerate this growth. The aim is to deploy at least 30GW of offshore wind generation capacity by 2030. A key objective is to achieve 60% UK content during the life of the projects, supported by a £250m industry fund to increase productivity and innovation. RenewableUK says the UK’s offshore wind sector could power a £17.5bn investment in the UK economy by 2021 and 27,000 direct UK jobs by 2030. Spurred by the UK’s advantages – strong wind resources, favourable sea-bed conditions, offshore energy experience and intellectual property – the UK government has now raised the target to 40GW. This means increasing the pace of commissioning through the 2020s, and more activity – particularly high-tech and innovative products and operations – should become UK based. The plan can add value to the UK knowledge economy, including exports, as well as helping secure our pipeline in a competitive global market, and ensuring that decarbonisation continues.
Top-down, bottom-up action Developers increasingly rely on economies of scale, efficiency and project longevity, alongside the Contracts for Difference (CfD) regime, to enable innovation and recoup returns on huge infrastructure investments in the UK. The scale of projects and access to global markets also favour international Tier One (T1) companies. Smaller supply chain companies currently fare less favourably – hence the Offshore Wind Sector Deal 60% UK content target. Vattenfall’s Norfolk Vanguard and Norfolk Boreas offshore wind farm projects, if consented to and built, will contribute 3.6GW of power to the grid from the mid-2020s. Vattenfall has experience in aligning with sustainable procurement policies and working with the UK supply chain. The key is early engagement. Since 2018, Vattenfall has conducted more than 60 supply chain meetings, reaching over 600 local and UK companies and stakeholders interested in the Norfolk projects and the wider UK pipeline. Vattenfall offers small-medium enterprises support and additional time to qualify and enter the sector, and introduces them to potential partners, including T1 companies. A recent meeting resulted in the publication of the Offshore Wind Supply Chain: Opportunities and Expectations Workshop Report. It identifies key actions from the sector as a whole for government, developers and the supply chain. Vattenfall is carrying out things that have been asked of it – though without consent yet for the Norfolk projects, this means accepting some risk to maintain the partnership approach.
The next generation of offshore wind projects will count on smarter operations
green hydrogen, interconnectors, intelligent networks, and storage solutions. Developers need multi-disciplinary teams across engineering, design, informatics, manufacturing, grid, finance, consenting and regulation to enable and encourage appropriate progress. With major projects awaiting consent decisions, upcoming project leasing rounds in 2020 and the fourth round of the CfD scheme due in 2021, government decisions made during the next few months will indicate whether renewables will drive the UK’s green recovery.
Driving the green economy
To learn more and register your interest with Vattenfall, please visit group.vattenfall.com/uk/what-we-do/ our-projects/supply-chain
The next generation of offshore wind projects will count on larger rotors, smarter operations, coupled systems generating
By Rob Lilly, Procurement and Supply Chain Manager, Vattenfall www.the-eic.com | energyfocus
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EIC Member Focus iNPIPE PRODUCTS™
MY BUSINESS
Simon Bell, iNPIPE PRODUCTS™
What is a typical day like? Operating globally, the phones ring and email notifications ‘ping’ constantly. On-time deliveries are critical in our industry. Customers always require products quickly, so a day in the shipping department involves arranging transport all over the world and providing the right documentation to clear customs efficiently. Our industry is a fast-track, demanding one, which means that no day is dull. What achievements are you most proud of? I am most proud of our flexible, dedicated, workforce and staff who always rise to the challenge. Moving our complete factory to a new site while keeping our customers happy was a great challenge, and could not have been successfully achieved without everyone working as a team. The launch of our world-first 90” pipeline cleaning system was a special moment.
Managing Director Simon Bell takes Energy Focus behind the scenes at iNPIPE PRODUCTS™ What is your most successful product, and why? A difficult question to answer, as innovation is probably our most successful asset. But if pushed, I would have to say that our intrusive pig signaller is one of our most innovative products. As the signaller operates through 360º, it is impossible to install it incorrectly on a pipeline. Before our omnidirectional design, most intrusive signallers were bi-directional – giving rise to installation errors when the boss was welded on in the wrong direction.
needed urgently. Our staff have a very flexible attitude to the business and always go that extra mile. We are Achilles FPAL Verify registered, and we find this system a great way to track how satisfied our customers are with our products and services. Our rating indicates that customers value what we do for them. This customer feedback is vital in ensuring our innovation and customer service continue to adapt and improve in a fast-changing marketplace. If you were not working in this industry, what would you be doing instead? When I was at school I loved history, and considered archaeology at one point. A little different to pigging and pipe isolation, although some of the pipelines we have worked on were quite old! Any interesting upcoming projects? Every day we work on innovative solutions for clients around the world. We are never short of customers bringing their problems to us. As a business, we love problems as much as finding solutions, and long may that continue.
IMAGES: ISTOCK / SHUTTERSTOCK
Can you tell us about iNPIPE PRODUCTS™? We supply pipeline cleaning and isolation products worldwide; the company is prequalified with most international contractors and operators. All our products are designed, manufactured, and tested in our factory and testing facility in North Yorkshire. In 2013, we moved to a six-acre site with a 60,000-square foot manufacturing facility. With onsite machine, fabrication and moulding shops, we deliver products right on time and right first time. Last year we celebrated our 35th anniversary.
Tell us a bit more about your organisation? We work in a highly pressured industry. Customers require quotations within 24 hours, and orders are always
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