How Ørsted’s energy transition led the way for oil and gas companies

Matthew Farmer 7 May 2020 (Last Updated May 6th, 2020 11:54)

Oil and gas companies are slowly but surely moving toward the renewable market. While some are taking baby steps, the energy transitions has worked out well for some early adopters. We look at some of the big moves.

How Ørsted’s energy transition led the way for oil and gas companies
Ørsted’s net profit leapt from $150m to more than $1.76bn following the switch to renewable energy. Credit: Ørsted

For Danish Oil and Natural Gas (DONG) Energy, everything flipped once it made the switch. In 2015, DONG Energy made the largest loss of any company in Denmark’s history, the equivalent of $1.78bn today. It had been a bad year for the company’s oil and gas investments, resulting in a $1.4bn cost to disposing of assets in the North Sea.

At that point, oil and gas was a small part of the company’s business, as it had steadily moved toward wind energy over years. The next year, the firm decided to finally part with the last of its oil and gas business, which made up only 4% of its capital in 2016. That year, DONG’s net profit leapt from $150m (DKK1bn) to more than $1.76bn (DKK12bn), as contracts paid off and the company sold its remaining oil and gas assets.

Since then, the company has kept its momentum going under the new name of Ørsted, named after the Danish scientist who made wind power possible.

How did the company do after oil?

In 2017 and 2018, its continuing operations made net profits of $1.79bn and 1.95bn, respectively. Most recently, a 2019 net profit of $880m (DKK6bn) was less impressive, but still growth when excluding revenue from recent partnerships.

The company is a much bigger player in wind development than it ever was in oil and gas. This year will see the full completion of Hornsea 1, the world’s largest offshore wind development, as operated by Ørsted.

Over the next ten years, Ørsted plans to more than double its wind generating capacity in Europe to over 100GW. The targets include 10GW in Poland, where the company currently has nothing, and doubling its existing 20GW of generation in the UK.

It now has operations in the US, where it has begun work on wind farms off the coast of New Jersey. Construction recently started on the company’s first solar and storage projects in Texas, which is itself quickly becoming a growth area for solar. Ørsted also dabbles in bioenergy, and it completed a coal-to-biomass conversion on a Danish power plant in late 2019. However, it is offshore wind where the company shines, and where three-quarters of its capital is spent.

The company is still transitioning, and it planned to sell its liquefied natural gas business before July this year. This sale will be made along with its power distribution business because, in its own words: “Ørsted is no longer the best owner of these businesses.”

However, Ørsted’s early transition may be one of its best moves. Where it has led, others follow.

Equinor’s Hywind floating wind farm

Statoil, now Equinor ASA, was often considered to be one of the more environmental oil players, and in 2017, it began operations on the world’s first floating wind farm, offshore Scotland.

Floating wind farms open up vast deepwater areas to power development, and companies with offshore infrastructure like Equinor are best placed to take advantage of them. The turbines used on the Hywind Scotland development can be deployed to depths of 800m, well beyond that of conventional turbines.

However, the existing technology is limited. Hywind Scotland consists of five turbines generating 30MW, and is now one of only two operational floating wind farms. In 2019, Equinor was awarded $220m (NOK2.3bn) by Norwegian authorities to construct a new floating wind farm, but this is, ironically, intended to reduce the cost of powering oil and gas platforms.

BP’s Brazilian biofuel endeavours

BP has returned to renewables in recent years, having previously  closed its solar business in 2011. Late last year, the company created a joint venture with US agricultural company Bunge to focus on bioethanol production. More than half of Brazil’s motor fuel input is ethanol; BP’s existing oil ventures in the country put BP Bunge Bioenergia in a good place to take on the market.

The joint venture has walked straight into becoming the country’s second largest biofuel sugarcane crusher. More than 10,000 staff will crush 32 million tons of sugarcane per year, producing 1.5 billion litres of ethanol. The company’s formation was completed in December 2019, and it is currently diverting some production to ethanol for cleaning fluids, so it will be some time before anyone can tell if the investment paid off.

Pale Blue Dot’s Acorn CCS project, with Chrysaor, Shell and Total

In St Fergus, UK, several companies are collaborating on the Acorn CCS project, which will generate hydrogen from natural gas. Carbon capture and storage has enabled gas producers to move into hydrogen production, a move which many have eyed for years. The process produces large amounts of carbon dioxide, but is considered “green” because doing so consumes methane, a much more harmful greenhouse gas.

This is one of several projects in the UK aiming to use methane to create hydrogen, but Acorn CCS aims to be the first up and running. The project has received UK and EU funding and is moving ahead with engineering work.

Shell’s PEM Hydrolysis plant

Hydrogen can also be produced by electrolysing water, and in 2017 Shell announced it would develop the largest PEM hydrolysis plant in the world. It worked with hydrogen project design and manufacturing firm ITM Power on the German plant, which would produce the fuel with no direct emissions.

The new hydrogen plant is adjacent to a refinery which currently consumes 180,000 tonnes of hydrogen per year. As such, the company said the plant will be an experiment with cost synergies, and using the hydrogen technology on a large scale. It will also investigate if it can use hydrogen to regulate the electricity grid, used on demand to regulate the production of other renewables.

Total’s French energy storage hub

As renewable generation increases, so does the need for battery farms. French oil giant Total is developing the largest lithium-ion energy storage system in France, with the ability to discharge quickly.

Announced in March 2020, $16.3m (€15m) will go toward the project in Mardyck, Dunkirk. In the announcement, Total CEO Patrick Pouyanné said this facility was a mark of Total’s move into electricity generation. The company took 40% of the most recent round of tenders issued by the French power grid operator.

The facility will be able to store 25MWh of power, and have the capacity to discharge it within one hour. When it was announced, the project was due to be commissioned in late 2020.

Saft, the battery and storage company, will design and manufacture the 11 storage units on site.