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BP, Shell and Equinor exit Russian energy, cleantech deals

01 March 2022 Cristina Brooks

European energy companies BP, Shell, and Equinor each said this week that they plan to divest from Russian joint ventures, a blow to not only Russian oil production but also early-stage cleantech plans.

Equinor and BP planned to work with Russian state-owned energy company Rosneft to produce oil and gas while slashing carbon at projects, alongside exploring renewable energy, capture, utilization, and storage (CCUS), and hydrogen potential, but both companies said they would sell their shares in joint ventures with Rosneft at the start of the week.

Rosneft said in a statement that BP's move "destroys the successful 30-year cooperation" between the two companies.

Norway's state-owned energy company Equinor announced 28 February it would "start the process of exiting its Russian joint ventures." The company's move aligns with the intentions of the Norwegian government, which announced plans to send military equipment and up to NOK 2 billion ($220 million) in aid to Ukraine on 27 February.

Meanwhile, Shell on 28 February announced it will divest from the Nord Stream 2 pipeline development company controlled by Russia's Gazprom, the state-owned natural gas producer which has had legal disputes with Ukraine regarding its pipelines.

Finally, France's TotalEnergies, which jointly with Gazprom develops oil and gas projects in Russia and around the world, said on 1 March it will not finance new Russian projects, and Danish renewables developer Ørsted is cutting Russian companies from supply deals.

Equinor ends carbon management deal

Rosneft and Equinor, which collaborate on two Russian oil-producing joint ventures, have been strategic partners since 2012.

The companies set up a joint venture to produce oil in the Severo-Komsomolskoe field in 2017, producing its first million tons of oil and condensate last year, and another to hold the wider Danilovsky region production license in 2020.

The pair targeted emissions reductions at their joint production projects under a cooperation agreement on carbon management last year.

Through that deal, Equinor and Rosneft agreed to cooperate on emissions management, possibly by deploying methane emissions detection equipment and avoiding routine flaring by 2030, at the projects.

The companies were in the early stages of the agreement on limiting methane. They also planned to develop low-carbon design standards for their upstream projects, but these greening projects will not go ahead for now.

"The cooperation was initiated, but as we have indicated our exit in Russia, everything will be dissolved in that sense over this process," Ola Morten Aanestad, press spokesperson for Equinor's international upstream business, told Net-Zero Business Daily by S&P Global Commodities Insights

As part of the agreement, the companies had planned to investigate cooperation on wind power, CCUS, and green and blue hydrogen businesses.

BP-Rosneft progressed on sustainability

Similarly motivated by Russian "aggression," BP intends to exit its businesses with Rosneft within Russia, sell its 19.75% stake in Rosneft acquired in 2013, and two BP directors have left Rosneft's board.

BP and Rosneft launched a joint carbon management agreement in 2021 at Rosneft's Russian oil and gas projects.

Through the deal, they "agreed to ‎cooperate in identifying and developing new low carbon solutions and programs that will support ‎their shared sustainability goals." They also had intended to develop methane reduction initiatives. That year, Rosneft said it became the first Russian oil and gas company to present a comprehensive carbon management plan with clear targets to cut GHG emissions.

BP's recent results presentation outlined how Rosneft had "made significant progress" towards sustainability by including interim targets on absolute emissions, methane, and flaring. For example, Rosneft's board, which included BP's CEO Bernard Looney and former CEO Bob Dudley until this week, had approved a new 2030 strategy with a target to be net-zero by 2050 for Scope 1 and 2 operational emissions.

Although Rosneft had published a plan to reduce the emissions intensity of its upstream operations by 30%, the page with the plan appears to have been removed from its website.

BP and Rosneft's three Russian joint ventures are worth around $1.4 billion, including the 2016 Yermak Neftegaz joint venture exploring hydrocarbon resources in West Siberia, the 2016 Taas-Yuryakh joint venture in Eastern Siberia and a new joint venture in the Kharampur project.

Outside of Russia, the two companies both entered into the Shourouk concession that operates the Egyptian Zohr gas field in 2017.

Ørsted divests from Russian renewables, biomass, coal

In turn, Danish offshore wind power giant and utility Ørsted rapped Russian renewable energy sector suppliers.

The company, widely known for offshore wind development, operates biomass power stations across Northern Europe, but it announced it was withdrawing Russian biomass and coal from its supply contracts.

It also pledged not to use "direct" Russian suppliers for renewable energy construction and to pause entering into new contracts with Russian companies.

Ørsted had vowed to decarbonize by replacing coal with biomass in its power plants by 2023. Accordingly, it has increased its bioenergy production 55% between 2020 and 2021.

While Ørsted had not been sourcing biomass directly from Russia to fuel this growth, some of its suppliers provide it with Russian wood pellets, making up about 5% of all the wood pellets the company buys.

Ørsted confirmed that ending its Russian-origin supply deals is not expected to impact the timeline for switching all of coal power to biomass.

This year, it will complete its pre-existing phase-out of coal that will divest not just from Russian coal, but all coal. "As we have decided not to buy coal from Russia anymore, the next supplies will be from South Africa," Carsten Birkeland Kjær, group communication manager at Ørsted told Net-Zero Business Daily.

Potential shortages of natural gas from Russia are nonetheless a concern for Ørsted's CEO Mads Nipper, seeing as prices have risen since the start of the invasion. "Shortfalls in gas supplies will, as opposed to stopping the supply of other types of products, have severe human and societal consequences and therefore need to be coordinated at EU and national levels rather than decided by individual companies," said Nipper in a statement.

Ørsted uses natural gas to power some of its combined heat and power plants in Denmark.

Shell to split from Gazprom's Nord Stream 2

Shell plans to "exit" joint ventures with Gazprom in which the company had invested about $3 billion.

"We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security," said Shell CEO Ben van Beurden.

In particular, Shell is selling its 27.5% stake in LNG liquefaction terminal Sakhalin-II, which started operations in 2009, as well as its 50% stake in the Salym Petroleum company, which has a license to produce hydrocarbons in Siberia.

Shell also pledged to sell its stake in the joint project company that owns German-Russian Nord Stream 2 gas pipeline, in which Gazprom owns a controlling 51% stake. Nord Stream 2 has been a focal point for Ukraine-Russia disputes, partly because Russia may choose to use the pipeline to export more of its gas via Germany, depriving Ukraine of its transit fee income.

Other European companies with an interest in the pipeline include two large European power and natural gas utilities, Engie and E.ON, German chemical company BASF, and Austrian oil and gas company OMV.

Posted 01 March 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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