Statoil has made a slight but incredibly significant change to its brand.
It starts the year as a “energy company” leaving its “oil company” persona behind.
Energy Voice exclusively sat down with chief executive Eldar Sætre to discuss the shift in strategy.
“The future is going to be low carbon. It has to be,” he said.
“Our industry must be involved in this. The sector is an important part of the problem and the solution, when it comes to a low carbon future, so we have to take responsibility. But we also have to translate this into what are the implications and opportunities from a business perspective. This is something that is happening and the industry must be part of this. I’ve made a choice – we don’t see this as a problem.”
Rate of Return
For Statoil, the opportunity reflects a double-digit rate of return for investors.
“Our renewables business has been even more integrated into our existing business, so we define ourselves firmly as an energy company,” Sætre said.
“We do oil and gas, but we are an energy company. Renewables is not something we do on the side.
“We have indicated we might spend between 15% to 20% of our capital expenditure by 2030 for renewables and we also indicated the type of returns we expect, because that’s important for our shareholders. They need to see returns. We’re talking about a 9% to 11% rate of return on these types of investments.
“This is the scale we’re talking about and it’s quite significant. We are building a business that plays to our competencies, so offshore wind has been a very natural starting point for us, where we can leverage all of our offshore skills.
“We have an edge. Utilities have tried to take this space, but we have an industrial competitive edge.”
Statoil was behind world-first Hywind – the offshore floating windfarm located off the coast of Peterhead, in north-east Scotland.
“Hywind gives us more flexible usage in higher water depth and that opens up higher acreage that otherwise wouldn’t be available to us,” Sætre added.
It will see the Norwegian operator serve close to 650,000 UK households.
Carbon Capture
But new energy cannot be limited to wind and hydro. Carbon capture needs fervent attention, according to the industry doyen.
“We are operating a project in Norway, where we capture from the different industry sites and actually gather it and store it offshore,” he said.
“We are very focused on Carbon Capture Storage (CCS) and also use of carbon. That’s one of the key priorities when it comes to the Oil and Gas Climate Initiative (OGCI). The OGCI is 10 companies. Statoil is one of them. We have a $1billion investment fund and approximately half of that will be allocated to CCS. We are advising governments to put CCS back on the agenda and start to support CCS. I think there’s more to be done in technology and usage of CO2, so it’s really something that we believe has to be part of the solution going forward. For some time now, we have seen too little activity, too little effort and too little support when it comes to CCS.
“One thing we are looking into is hydrogen, because if we have a value chain that can store CO2, then we also have an opportunity to extract CO2 from natural gas and store the CO2 and then you are left with hydrogen.
“That’s something we are now exploring from this Norwegian project, how we can potentially use hydrogen for power generation for instance.”
Carbon Pricing
Carbon capture isn’t the only campaign Statoil has aligned itself with competitors in order to affect change. Putting a price on carbon is also on a joined-up agenda.
“We have joined forces and said we need a price on carbon. We need a global approach. We have advocated for that quite strongly and consistently,” Sætre said.
“It’s a very complex issue. I think there’s 40 jurisdictions globally embarking on different schemes for putting a cost on carbon. The problem is these are different schemes and there’s no overarching structure or principles.
“What should be addressed is to at least create some principles so these schemes can be connected and exchange quotas, so they can gradually evolve into a more global system for carbon pricing.
“If you want to address something, you can try to regulate it, but typically there will be big costs attached to that, because regulations will never be as efficient as a market based system can be.
“To attach a cost is more effective and it creates more consistent economic behaviour. Industries respond better to it and you get the solution that is the most cost effective solution for the future. I think that’s a really fundamental principle.”
Carbon Conscious Business
But a lack of a global carbon market isn’t delaying Statoil’s bid to strip costs out of its bottom line by concentrating on its own emissions. The operator is targeting a two kilo decrease, down to eight kilos per barrel.
The initiative is influencing where and how it produces.
“This is going to have an impact on which hydrocarbons we produce. We stepped out of Oil Sands,” Sætre said.
“It was a commercial decision, but also took down our emissions. I think there will be barrels out there which we’re not going to produce, first and foremost coal, but I think there’s oil and gas barrels, which might not be produced from a carbon perspective and will have to be left in the ground.
“That makes it even more important that we address the right barrels and that we do it in a good way.Energy efficiency is a very important driver for reducing costs in the industry.
“Most measures for low carbon are actually cost efficient, so they are value-creating.
“Sometimes people think they go against each other, but that’s not what we see.”
North Sea
As Statoil looks to broaden the scope behind what it means to be an energy company, there remains an all-important linchpin – the North Sea.
“We know this industry is cyclical, but we want to act counter cyclically – to have the capacity to action projects even in a downturn. We have done that.
“To have a balance sheet that takes care of these cycles is really important to us. The same goes for exploration. I have been through downturns before where we basically stopped exploring and we saw negative impacts of that many years later, because we lacked the acreage.
“We are drilling the same amount of wells now as we did three or four years ago – at approximately half the price because of cost efficiencies.
“However, the industry has invested less and there has been fewer FIDs and much less exploration, particularly in the UK, during this downturn. It’s not the first time and it won’t be the last time.
“For me, what is important is as we head out this downturn that we’re not starting to climb the cost curve again, so we don’t support the next downturn.
“We want to continue to work the UK North Sea. It’s a very prolific basin. We know the system works, so we think there is more to be done. It’s about using the existing infrastructure, picking up on the pockets and combining resources that might be on both sides of the border.”
He added: “There’s nothing more fascinating than energy. It is tied into everything else that is going on in terms of geopolitics. Energy is such an important part of people’s lives. It’s food, security and then energy.”
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