Equinor: Oil majors have ‘muscle’ to join renewables race

“If international oil companies don’t take part in the global renewables revolution, who else can?” asks Eirik Wærness. [Equinor media center]

International oil companies have “the financial muscle, the experience, the technical skills, and the supply chain” necessary to take part in the global renewable energy revolution, argues Eirik Waerness of Equinor.

Eirik Wærness is Chief Economist at Equinor, the Norwegian energy company. He spoke to EURACTIV’s energy and environment editor, Frédéric Simon.

INTERVIEW HIGHLIGHTS:

  • Achieving the 2°C global warming objective would require “a massive energy efficiency improvement in all sectors of energy use”
  • “A gradual decline in demand for fossil fuels is possible” but also “extremely challenging”
  • Transition will require “roughly a 35-40% reduction in oil demand” and “about a 10% reduction in gas demand.”
  • Fossil fuel demand will eventually have to “go down to zero” and be “completely eliminated” from the global energy mix
  • “If international oil companies don’t take part in the global renewables revolution, who else can?”

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Equinor’s latest Energy Perspectives report 2018 calls for action to meet the 2°C global warming target of the Paris Agreement. So what actions are needed to achieve that goal?

All our reports have documented clearly that it’s going to be extremely difficult to reduce CO2 emissions to levels that are sustainable. And the longer we wait, the more difficult it will be.

CO2 emissions have started increasing again and it is becoming even more urgent to put measures in place.

Let’s look at technology first: what is required from a technology perspective to achieve the 2°C objective?

It would require a massive energy efficiency improvement in all sectors of energy use. In the transport sector, it would require a transition from internal combustion engines to electrification – which by itself would greatly improve efficiency.

But the costs levels, the competitiveness of electric vehicles is not yet at the level of the internal combustion engine. And in order to have consumers massively adopting them, you need to improve the technology. So that’s one part.

On renewable electricity, technology developments there will have to continue. And we will also need technological solutions to make that as efficient as possible on a system basis. Today, all new renewable electricity is piggy-backing on a market which is driven by coal-fired or gas-fired power stations. And we need technology development to ensure that we can operate a system with a lot more renewables – with smart grids, for example.

But we also need to see continuous, massive improvements in the efficiency of the remaining combustion engines, gas turbines in electricity plants, and jet engines.

We will also probably have to see technologies allowing to burn different types of gas in the same burner – going from methane to hydrogen – which would allow us in the transition to use different fuels. These are some examples on the technology side.

But the point is that, although technology developments will go on, they won’t go fast enough unless we also stimulate the transition with much clearer policies and incentives on the consumer and producer side.

The report says electrification is key to achieve a successful transition. But Equinor does oil and gas. So, are you playing in the wrong league?

No, definitely not. First of all, even in a world where we transform rapidly and reduce energy-related CO2 by 60%, we will need massive investments in new supplies of oil and gas. Because existing supplies will decline much faster than any demand change. And we believe that those investments should be as energy efficient as possible to deliver oil and gas with the lowest possible emissions in the production chain. For instance, our CO2 emissions are roughly half of the global average on the supply side of the industry, which is significant.

Then, we also think that we can utilise our competence in the oil and gas business to grow as well in the renewables space. And our ambition is to invest up to 10 billion euros between now and 2030.

If international oil companies don’t take part in the global renewables revolution, who else can? When you think of the need for growth in different parts of the world which don’t have access to electricity, who else has the financial muscle, the experience, the technical skills, the supply chain that is already set up to develop that part of the energy spectrum?

There is a consensus nowadays that fossil fuels – coal, oil and gas – need to be phased out in order to achieve a 2°C world, it’s only a matter of how fast it can be done. So what’s your take? How fast can it be done?

In our renewal scenario, we think a gradual decline in demand for fossil fuels is possible. But it is also extremely challenging. And neither oil nor gas will be phased out by 2050, not at all!

If we want to be consistent with a 2°C target, then we’re talking about a 75% reduction in coal demand by 2050, globally. But we will still have some coal left.  For instance, we need a lot of coal to produce the steel for the windmills, the railroad tracks, and the carbon capture and storage equipment needed for the remaining coal use.

We will also need roughly a 35-40% reduction in oil demand. And about a 10% reduction in gas demand. That’s where we go in our renewal scenario by 2050.

That still leaves a lot of oil, gas and even coal…

Exactly, and that’s an important point. But if we set ourselves on that path, fossil fuel demand will continue to decline.

And unless we develop significant sources of natural carbon sinks or negative emission technologies, then at some point we’ll have to go down to zero and completely eliminate fossil fuels from the global energy mix.

What you describe in the “renewal” scenario – with continued investments in oil, gas and coal – is that consistent with the 2°C global warming objective of the Paris Agreement?

It’s a scenario where we use 820 billion tonnes of the carbon budget from now until 2050. So that leaves us with a few hundred billion tonnes to stay consistent with a 2°C scenario.

By then, we will have cracked the code for carbon capture and storage (CCS) because our scenario implies that 1.5 billion tonnes of CO2 will have been taken out from energy production activities. If that proves to be the most cost-effective way of removing CO2 emissions, then you can have oil and gas longer – and coal too. But then you need more CCS to bring emissions further down in the long run.

Going back to electrification, which is one of your key “calls to action” in this year’s Energy Perspectives report: what is needed in your view to make this big push for electrification happen?

First of all, fuel efficiency improvements in the automotive sector will have to continue. And they will have to deliver on what they promised, which is to offer a range of new electric car models. That will also push fuel efficiency standards higher. Then we need a supply chain to massively increase the amount of batteries available to consumers. The resources are already there but the supply chain to deliver them is not there.

In our Renewal scenario, 65% of all new cars sold globally by 2030 are electric, which is a massive increase. This means we’ll also have to think through how the consumer is going to buy these cars, which has to do with price but also practicalities, such as making sure that consumers are able to charge their car when they need to.

And that is relatively slow. The one country in the world that has shown how this can be done sufficiently fast is Norway. But we have measures available that no other country has: drivers get a massive subsidy when they buy an electric vehicle, they don’t pay congestion charges, they get to drive on the bus lane, etc.

 …and not every county has the kind of financial power that Norway has.

Even in Norway, we’re now seeing a big hole in the public budget by 2025 and we’re discussing how to get those tax revenues back.

Cars are just one part of the energy system. But how far can you actually go with electrification? Is full electrification of the economy palatable or even desirable in any of your scenarios?

No. First of all, it’s probably not possible because we need other sources of energy. For instance we need molecules in some processes that require heat which electricity cannot deliver.

For instance, if you were to decarbonise the heating system through electrification, you would need such amounts of wind mills that the investment challenge would become much bigger.

Then in a fully decarbonised system, we might need hydrogen.

So you’re saying full electrification of the economy is not desirable, even in the distant future?

We should hope for much more electricity. Electricity is a fantastic product – it’s quiet, it doesn’t create any local pollution, and so on. But it’s only 20% of the global energy mix today in terms of total final energy consumption and that total goes to around 35% by 2050 in our Renewal scenario.

So we would still need molecules in different countries or sectors. And if we were to produce these necessary molecules – hydrogen – with electricity, that would be highly inefficient. We would have wasted a lot of energy in the process. Which would be ok if renewable electricity was free at the margin, but that doesn’t provide a sensible return for investors.

So probably, we’ll need a combination of renewable electricity and gas with carbon capture and storage to meet the demand for molecules. And that would possibly be cheaper than electrolysis to produce the necessary hydrogen.

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