21 January 2019

Big Oil abandons oil sands – Canadian companies step in

By |2019-01-31T14:57:12+02:00Monday, 21 January 2019|Categories: oil industry, oil sands|Tags: , |0 Comments

With the notable exception of ExxonMobil, oil majors are leaving the Canadian oil sands sector. They are replaced by Canadian oil companies. 

Imperial Oil, majority owned by ExxonMobil, recently declared it would continue its US$2 billion Aspen project in Alberta. In contrast, Shell and ConocoPhillips are selling their oil-sands assets. Other majors may follow. The reasons are manifold:

  • An increasing number of important institutional investors shareholders shun carbon-intensive oil sands exposure as much as coal. 
  • Moreover, multi-decade oil sands projects are in contrast to a more flexible and more diversified investment approach which is the “strategy du jour” in board rooms these days. Short-term shale projects, diversification into gas, or even offshore wind, meet off-risk demands in a better way.
  • The main problem, however, for all oil sands operators is logistics. The existing pipeline capacity to consumer areas is exhausted. Rail, barge and even truck transport are used but at a considerable cost and with limited capacity. 

When transport bottlenecks pressed most Canadian crude prices to just 13 $/b politics stepped in. Large Producers such as Canadian Natural Resources, Nexen Energy and Cenovus Energy, who lack access to own refineries, demanded from government a temporary cut in production. The push met opposition by Suncor Energy, Imperial Oil and Husky Energy. Their refineries generate enormous wind-fall profits thanks to low input prices. Now, a kind of “Mini Opec” forces Canadian operators to cut their production since the beginning of this year. Spreads have almost normalized.

Canadian oil sands producers are counting on three proposals for new takeaway capacity to defuse transport problems: the 830,000 b/d Keystone XL pipeline, the 590,000 b/d Trans Mountain pipeline expansion to British Columbia, and a 370,000 b/d expansion of Enbridge’s Line 3 into the US Midwest. But there are major legal and political obstables for all three projects.

The last major oil sand project was (Canadian) Suncor Energy´s Fort Hills project in 2013, which is now ramping up to full output. Independent Suncor Energy holds the top position in Canadian oil sands. In fact, it is already a “mini major”. It currently has about 940,000 barrels a day of oil production capacity and a large refining business. Enterprise value is about US$80 billion.

Canadian companies bet on an increase in efficiency, innovation and benign climate policies. Oil sand is still a very young industry. Operating costs at Suncor fell from over 30 US-Dollar per barrel in 2012 down to below 20 US-Dollar in 2017. They expect to get even below 15 US-Dollar per barrel oil in a few years time, thanks to autonomous oil sands trucks and digitalization of operations.

Read more on strategies of large energy companies in the next edition of our Global Energy Briefing (German and English version available)

Images: Courtesy Suncor Energy; Wikipedia Commons (N.Einstein) 

15 January 2019

Oil majors in transition: Shell to bid for Dutch Utility Eneco

By |2019-01-15T19:02:58+02:00Tuesday, 15 January 2019|Categories: Netherlands, oil industry, utilities|Tags: , , |0 Comments

Oil & Gas Major Royal Dutch Shell and Dutch pension fund PGGM formed a consortium to take over Dutch utility Eneco.

Eneco

Eneco is owned by 53 Dutch municipalities. In a turbulent political process they have decided to sell the company a few months ago. The company value is estimated in the region of €3bn. 

Total turnover in 2017 was €3.4bn. Although more known for its renewable investments, Eneco still generates half of its power (10.3 TWh p.a. in 2017) by fossil fuels, mainly gas. 

Eneco also has a large trading division focused on gas trading (45.3 TWh) and power trading (21.5 TWh).

Shell

The Dutch/British gas and oil giant recently declared to invest $1-2bn per year in its New Energies division, established in 2016. This corresponds to 4-8% of its total investment of around $25bn. 

Its European peers (in contrast to its US peers) pursue similar strategies: BP, Total, ENI and Equinor have pledged around $0.5 bn per year for renewables. ENI plans to increase renewable investments from 0.5 to 1.2bn over the next years. And Equinor even announced a 15-20 per cent share of renewables in its investment portfolio by 2030.

Eneco and Shell have partnered in several wind projects over the past years. The Dutch would fit into Shell´s strategy to invest in the power supply chain, similar to its First Utility akquisition in the UK. 

This would, if on a much smaller scale, mirror its oil and supply chain which starts at the oil field and ends at the gas station or at the industrial client. 

Direct access to power plants, networks or power markets would create: 

(1) an outlet for its large gas upstream division and (2) its increasing portfolio of wind and solar projects. This, in turn, may develop into a 

(3) “Plan B” strategy if stricter climate policies or faster electrification of transport require a quick downscaling of its oil business.

Shell is not a newcomer to the power sector. They are the second-largest power trader in the US and are heavily investing in downstream gas/power activities in Asia.

Shell´s and PGGM´s planned bid may not be the last word. Counter offers by other European oil or gas companies are quite possible. Total or Engie would be candidates, also given Eneco´s activities in France (ex ENI assets).

Read more on oil company strategies in the fossil and renewable world  in the next edition of our Global Energy Briefing (German and English version available for subscribers)

Image shows ENECO headquarters (courtesy Eneco)

23 November 2018

Global Energy Briefing No.169: Big Oil in Transition? The Path to Decarbonization (English Edition)

By |2018-11-23T15:47:35+02:00Friday, 23 November 2018|Categories: company strategies, decarbonization, investment strategies, oil industry|0 Comments

Oil and gas account for more than half of global energy-related greenhouse gas emissions. International oil companies are now under pressure to demonstrate the sustainability of their portfolio and adapt their business models to the global transformation of energy systems. Investors, NGOs and the media are questioning them critically.

In this issue of our newsletter you will find 37 pages of background information on the discussion about Big Oil and company-specific strategies. How high are the emissions caused directly and indirectly by Shell, Respol or BP? What options does the industry have to move quickly to a sustainable 2°C path? Which companies are changing in the direction of “Energy Company”; which companies are sticking with their traditional business model?