Berlin The record prices for electricity and gas have given many energy companies billions in profits. In particular, companies like BP and Equinor, which do their business with fossil fuels such as oil and natural gas, will benefit. “We are putting today’s profits into huge investments for the transformation,” said BP Europe boss Patrick Wendeler on Monday at the Handelsblatt energy summit in Berlin.
The British energy group achieved the second-best result in its history in the third quarter of the past financial year. According to Wendeler, BP wants to increasingly combine different forms of energy in the future – from the previous focus areas of oil and gas to hydrogen, to renewable energies and the expansion of charging networks for electric cars.
As a result of the war in Ukraine, the past year was dominated by fossil fuels. But the pressure is increasing, especially on European corporations to develop more sustainable business models in the long term.
The European Union has massively increased its climate targets. By 2050 at the latest, the member states should be climate-neutral as a whole. The general conditions are set by a rising CO2 price, subsidies for alternative energies and the so-called taxonomy, which makes it difficult for companies to find financiers if they do not operate sustainably.
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Last year, due to the energy crisis, the focus was on security of supply. It became clear how urgently a fossil substitute is needed, especially for Russian oil and gas. Energy companies that are active in Europe are feeling the tension like never before.
Anna Borg, head of the Swedish energy company Vattenfall, said at the energy summit: “We have to solve short-term and long-term problems at the same time.” Vattenfall wants to act in line with the goal of limiting global warming to 1.5 degrees. Vattenfall is one of the largest electricity producers in Europe. The company plans to phase out electricity production using fossil fuels and sold its lignite activities back in 2016.
But Borg also said that in order to achieve the climate goals, “all non-fossil energy sources would be needed”. For the Swedes, this means, above all, promoting the expansion of wind and hydropower, but also biomass. Nuclear power is also an important pillar for the group.
“2022 is seen as a lost year in the fight against climate change,” said Andreas Schell, the new boss of the energy group EnBW. From a German perspective, the negative review of the past year is perhaps justified. Globally, however, that is not the case.
Inflation Reduction Act as a model for Europe
Schell referred to the Inflation Reduction Act, through which the US is currently investing billions in the sustainable transformation of industries. “It is very worthwhile to take a closer look at the law,” said the EnBW boss. An adequate response from Europe is needed. At the same time, the manager warned against too much regulation and excessive state intervention, against an “energy transition as a state project”.
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In particular, according to Schell, a clear end date is needed for any market intervention. So far, the planned skimming off of proceeds from energy companies has not yet been limited to a specific date by law. This excess profit tax is initially limited to the end of June 2023, but can be extended under EU law until the end of 2024 at the latest.
The federal government has introduced legislation to siphon off high profits from the energy industry in the wake of the energy crisis. This applies both to electricity producers such as EnBW and to oil and gas companies such as BP.
In the electricity sector there is a so-called random profit skimming: Anyone who earns an unusually large amount from the high electricity prices has to give up part of it. Similarly, companies in the oil and gas industry in Europe are to pay a solidarity levy in the future. The energy company Exxon Mobil has already announced a lawsuit against the EU because of the new tax.
Similar to BP Europe boss Wendeler, Schell also promises to invest the currently higher profits in sustainable future business: “Due to skimming off the proceeds, the utility companies are missing important investment funds.” There is a considerable risk of permanently damaging the market, with consequences far beyond the current crisis management out. Similar reminders had already been issued by Eon and RWE in the past few months.
Managers from EnBW and Orsted call for more pragmatism
More pragmatism is needed for the energy transition, according to EnBW boss Schell. The planning and implementation time for a wind farm is currently 70 months. This means that a wind farm planned today will not be ready until 2029.
Rasmus Errboe, European head of the Danish company Orsted, also referred to this problem. The former oil and gas company is now the world market leader in offshore wind energy. By 2025, Orsted wants to be climate-neutral in terms of energy generation and the operation of its plants.
In order to achieve the targets for capacity expansion for offshore wind power, the supply industry would have to more than double its capacity. That is a worldwide problem. Offshore wind farms are essential to produce green hydrogen for sectors that are difficult to electrify.
When it comes to hydrogen, numerous companies are also focusing on the future strategy of storing climate-damaging CO2. For the foreseeable future, a significant part of the demand is likely to be covered by so-called blue hydrogen, which is produced using natural gas.
The managers of the energy companies therefore clearly welcome the announcement by Economics Minister Robert Habeck (Greens) at the energy summit that he does not rule out underground storage of the resulting CO2, the so-called CCS technology, in Germany either. Klaus Langemann, responsible for carbon management and hydrogen at Wintershall Dea, said: “We want to contribute to a significant reduction in CO2. We want to do that via CCS technology and we want to make natural gas based blue hydrogen available.”
Withdrawal from Russia poses problems for Wintershall Dea
The BASF subsidiary Wintershall Dea is the only German company that produces oil and gas itself. The Kassel-based company is subject to massive criticism because, despite the Ukraine war, it is still active in Russia and operates oil and gas fields there through joint ventures with Gazprom.
Wintershall is now trying to legally separate the Russian business from the other international businesses – probably also because no more dividends are paid to Germany from the Russian subsidiaries due to the sanctions. Because Wintershall will also be dependent on new business in the fossil oil and gas sector in the future, the Group is increasingly involved in Norway on the topics of blue hydrogen and CCS.
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“Our strategy is based on bringing together the largest emitter in Europe – Germany – with the largest provider of storage capacity – Norway.” said Langeman.
The company Sefe, formerly Gazprom Germania, is going in a similar direction. In the course of the Ukraine war, the federal government took over trusteeship of the gas importer last June and has since nationalized it. Sefe is also cooperating with Norway on the subject of hydrogen.
Sefe Managing Director Egbert Laege said: “The idea is to produce green hydrogen in Norway, pack it in containers and bring it to Europe.”
This is news that is well received by the Norwegian oil and gas company Equinor. “What we heard today from the Minister for Economic Affairs makes me very happy,” said Grete Tveit, manager responsible for low-carbon solutions, at the energy summit. In Norway, the underground storage of carbon dioxide has been operated successfully for almost 30 years.
However, in order for the country to be allowed to import CO2, legislative changes are needed at European level. If the framework conditions are right, CO2 storage could already be a business model by 2030 that is also economically viable.
However, climate protectionists keep pointing out that this technology should only be used for really unavoidable emissions and should not be used as an excuse to keep pumping oil and gas.
Equinor manager Tveit is relaxed. She cannot yet say when the Norwegian company will stop producing fossil fuels. It is important that by 2030 half of all investments should go into renewable energies. “I can’t yet say whether we will no longer be producing oil and gas in 2050,” Tveit explained.
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