Daily Update: Billowing Energy Transition Churns the North Sea
Today is?Tuesday, January 30, 2024, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global.?Subscribe?to be notified of each new?Daily?Update.?
The North Sea is undergoing a significant energy transition as producers seek to reduce greenhouse gas emissions. One symbolic example was the renaming of the UK Oil and Gas Authority as the North Sea Transition Authority in March 2022.?
North Sea crude production is changing as the basin ages, with medium sour crude expected to account for a third of the region's volumes by 2040. Oil output overall is in sharp decline, falling 12% year over year in the first nine months of 2023 to 720,000 b/d. The industry has struggled to cope with a 35% increase in taxation under the UK’s 2022 Energy Profits Levy.
In March 2021, the UK government announced a North Sea Transition Deal aimed at rapid decarbonization. The strategy introduced targets to halve GHG emissions from upstream oil and gas activities by 2030 and cut net carbon emissions to zero by 2050.?
One example of how this is working in practice is London-listed Orcadian Energy’s September 2023 agreement for an ultraheavy oil project in the North Sea called Pilot, estimated to produce more than 79 million barrels of oil. Orcadian intends to run its project using abundant North Sea wind power to meet UK requirements for minimizing emissions.?
Despite these efforts, S&P Global Commodity Insights’ analysis shows that Norway is the clear leader in terms of reducing North Sea GHG intensity. On average, UK production was about 2.5 times the GHG intensity of Norway. Norwegian production averaged about 8 kilograms of CO2 equivalent per barrel of oil equivalent in 2021, compared with the UK’s 23 kg CO2e/boe.?
Since the first turbines were installed in 1991, the North Sea has grown to represent about a third of all installed offshore wind power generation, with about 25 GW of capacity. Fixed-bottom installations are possible, even far offshore, with a shallow average depth of about 90 meters. And with plentiful wind gusts, power can be more consistently generated than solar for nearby energy markets in the UK, France, Germany, Belgium, Netherlands and Denmark.?
At the same time, enthusiasm for expanding offshore wind energy is being tested by changing economic conditions, rising interest rates, escalating construction costs, supply chain challenges and fluctuating government subsidies. In September 2023, Swedish utility Vattenfall decided to shelve its 1.8-GW Norfolk Boreas offshore wind project, citing cost increases of 40%.
The North Sea is at the forefront of the global energy transition, balancing its traditional role as a major producer of crude oil with its growing significance in the renewable energy sector. The region's ability to navigate these changes will have significant implications for global energy markets and the broader economy.
Today is Tuesday, January 30, 2024, and here is today's essential intelligence.
Written by Ken Fredman.
Economy
Economic Research: China Deflation Risks Hinge On Growth Mix
China met its 2023 growth target — just. Momentum is slow and problems remain. Property woes, weak sentiment and few measures to support household spending all point to moderate consumption growth. S&P Global Ratings believes "unrebalanced" growth — with an emphasis on investment rather than consumption — would raise the risk of deflation.
—Read the report from S&P Global Ratings
Capital Markets
This Week In Credit: Fed Focus This Week
Nonfinancial global corporate issuance is expected to grow by 5.5% according to our latest issuance forecast, supported by a healthy refinancing pipeline and expectations for lower rates, but tempered by slower global economic growth. The main focus this week is likely to be the tone of Chairman Powell’s comments following the US Federal Reserve’s meeting (Wednesday), as markets remain bullish on the speed and quantum of 2024 US rate cuts. The Bank of England’s monetary policy meeting (Thursday) will also be watched closely. Key economic data releases this week include the Euro Area fourth-quarter GDP flash estimate (Tuesday) and flash consumer price index for January (Thursday), and US payroll data (Friday) — amid a number of fourth-quarter earnings reports.
—Read the report from S&P Global Ratings
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Global Trade
Russian Fuels Exports Under Fire As Drone Attacks Escalate
Rosneft's export-oriented Tuapse refinery on the Black Sea was damaged by a major fire early Jan. 25, marking the latest in a spate of suspected drone attacks by Ukraine designed to damage Russia's ability to fund its war in Ukraine from oil exports. Although Ukraine has targeted Russia's fuel production and distribution networks previously, the scale and distance of the attacks inside Russian territory have raised the risk profile for Moscow's key crude and product exports flows.
—Read the article from S&P Global Commodity Insights
Sustainability
Listen: Ethanol Industry Wants More Options To Be Part Of US Climate Solution: ACE CEO
The ethanol industry is angling to be a bigger part of the US decarbonization strategy, but so far, the Biden administration has sent some mixed signals on the issue. For instance, the Treasury Department has made some policy decisions that could provide some big opportunities for ethanol, but the Environmental Protection Agency is slow walking other policies the industry has called for.
—Listen and subscribe to Capitol Crude, a podcast from S&P Global Commodity Insights
Energy & Commodities
Crude Oil Selling Price From Iraq's Kurdish Region In Focus
The Kurdistan Regional Government and federal Iraqi authorities are discussing a deal to reimburse the semi-autonomous region with a fixed amount selling price for all crude oil produced there, moving closer to resolving a political dispute that has stalled some 450,000 b/d of exports for almost a year, sources told S&P Global Commodity Insights.
—Read the article from S&P Global Commodity Insights
Technology & Media
Top Ten Cleantech Trends in 2024
Clean energy technology investments in 2024 will rise by 10%-20% compared with 2023, S&P Global Commodity Insights forecasts. This report identifies the top trends to watch in the sector — from competition among solar and storage manufacturers to record offshore wind capacity auctions and growing interest in low-carbon hydrogen as a feedstock.
—Read the report from S&P Global Commodity Insights