Oil & Energy
‘Invisible Energy Highways Could Usher In New Era Of Shared Power’
The world is racing to reduce its reliance on fossil fuels, and as a result, demand for undersea electricity cables could soar.
The first of many new undersea cables is set to be built between the UK and Germany to help the two countries to ease bottlenecks in the renewable energy supply chain.
These new “invisible energy highways” have the potential to usher in a new era of power-sharing for some of the world’s biggest economies. Undersea electricity cables could become increasingly common as governments drive their energy strategies towards renewables.
As countries develop their wind and solar power industries, there will be a greater incentive to build undersea cables that can promote power-sharing across regions.
The first of many new major cables is set to be built between the U.K. and Germany at an anticipated cost of $1.95 billion. The NeuConnect project will allow for 1.4 GW of electricity to go to and from the two countries through subsea cables covering a distance of over 450 miles.
The project has been dubbed an “invisible energy highway”, allowing for power-sharing across the U.K. and Germany. The cable will run from the Isle of Grain in Kent in England with the German region of Wilhelmshaven, crossing British, Dutch, and German waters. Once constructed, it could provide power for up to 1.5 million homes.
The approved contracts include work on the cables and converter stations, with both Siemens and Prysmian winning contracts for work on the project.
Siemens will supply a high-voltage direct current (HVDC) transmission system, while Italian cable manufacturer, the Prysmian Group, will manage the design, manufacture, installation, testing, and commissioning of the NeuConnect Interconnector.
Construction is expected to start this year, allowing for the U.K. to “tap into the vast energy infrastructure in Germany, including its significant renewable energy sources.” In addition, “the new link with Britain will help ease current bottlenecks where wind turbines are frequently powered-down due to an excess of renewable energy being created.”
Tim Holt, from the Siemens Energy board, explains the project, “if we want to achieve the switch to renewable energy quickly, safely, and affordably, we can no longer afford to have to curtail wind energy due to grid bottlenecks and have to cover demand elsewhere with fossil-based power generation.”
Further, “The electricity connection between Germany and Great Britain represents the increasing integration of the European electricity market. Efficient and cross-border electricity connections unite the countries in their efforts to decarbonise. They are the perfect example that we can only achieve the energy transition together.”
The NeuConnect consortium, led by Meridiam, Kansai Electric Power, and Allianz Capital Partners, has been discussing the development for some time but sanctions on Russia have driven European governments to seek alternative energy sources much more rapidly.
As well as looking for alternative oil and gas supplies, several governments are strategising over how to accelerate their renewable energy projects, and are even discussing increasing nuclear capacity for the first time in years
However, this is not the first undersea cable to be approved in Europe, with operations beginning, last year, on a giant undersea cable expected to link the U.K. with Norway. Measuring 450 miles, the $1.86 billion North Sea Link (NSL) is a joint venture between Britain’s National Grid and Norway’s Statnett.
The two countries want to share Norway’s hydropower and the U.K.’s wind energy resources, allowing each of them to optimise output to meet demand. The National Gridexplained, “When demand is high in Britain and there is low wind generation, hydropower can be imported from Norway.”
Both the U.K. and Norway are big oil and gas players. But Norway says that its electricity is sourced from 98 percent renewable energy output, mainly hydropower. Meanwhile, in the U.K., Prime Minister Boris Johnson has stated the aim for 100 percent of Britain’s electricityto come from renewable sources by 2035.
And plans for subsea cables are not only being made in Europe but are extending across different continents. Last year, Greece and Egypt announced that they were in talks about a potential 2 GW submarine interconnector running across the Mediterranean Sea to link the countries’ grid systems.
This would be the first of its kind to link Europe with Africa, showing the huge potential for greater inter-regional connectivity. And Greece is also embracing plans for a EuroAsia Interconnector, which would run from Israel to the Greek mainland through Cyprus.
When completed, the cable will measure 1,500km and transport between 1 GW and 2 GW of electricity between the regions, connecting power grids across Israel, Cyprus, and Greece.
Although early predictions expected the cable to be completed by 2022, new estimates suggest it will be finished in 2024, at a cost of almost $823 million. Funding will come partially from the EU and will support ending Cyprus’ energy isolation.
While several of these projects are in their infancy, with an increased need for greater energy security across Europe and the rest of the world, we can expect to see the acceleration of renewable energy and related projects over the coming years.
Governments around the globe have quickly come to realise their dependency on Russia for oil and gas, leading them to seek out alternative sources as well as to invest more heavily and rapidly in establishing renewable energy projects.
By: Felicity Bradstock
Bradstock reports for Oilprice.com
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
