Black Sea Oil & Gas Conference, 22-23 June 2022

170 delegates attended the 9th annual Black Sea Oil & Gas conference in Bucharest, 22-23 June 2022, after the long period of “Zoom and Gloom”. The headline topics were the Ukraine war, Energy Security, and the Energy Transition. The Russian war with Ukraine has caused global energy prices to spiral and prompted the accelerated energy transition strategies in the public and private sector. The current high levels of turbulence are unbalancing growth in the global economy, with conference speakers arguing that the paradigm of globalisation is shifting towards regional blocks, also partly including oil. The Black Sea Oil & Gas conference came at a time of great social and economic disruption in eastern Europe and this article summarises the topics of prime interest to the energy industry, with focus on the Energy Transition.

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Not all gas is the same

The EU has reacted to the crisis in Ukraine by creating the REPowerEU package, which aims to help rebuild the Ukraine energy sector after the war. The EU decision to phase out Russian gas and implement this package means that gas is viewed more as a transition fuel, renewables projects will be accelerated, and alternative LNG supply will be needed from North America, Africa, Middle East, and SE Asia. The view of McKinsey is that the peak of global gas consumption would come sooner than in previous forecasts, flatten off, and then decline past 2050, with the share of electricity and hydrogen increasing strongly past 2030. However, gas will still be around for a long time in the energy mix. Important offshore discoveries of lean biogenic methane gas have been made in Romania and Turkey over the past 10 years and these assets are viewed as critical in supporting energy security and at the same time driving the front end of the energy transition in the Black Sea region. It is important to understand that not all gas is the same. The biogenic methane gas from these deep-water fields is advantaged because it has low levels of contaminants and, when burnt, will emit less CO2 compared with heavier thermogenic gas. The future revenue from these projects can provide the means to invest in a range of future green renewable energies. After all, the cash for investments needs to be generated from somewhere, and fast. However, in terms of supporting the energy industry to make these big investments for the energy transition, the public sector still struggles to act in countries such as Romania, although some vision appears to be there.

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Fiscal policy is a critical success factor

In a focused session on Romania a distinguished international panel highlighted and debated the key topics of the Offshore Law and the balance of incentives to support both onshore deep and offshore gas projects. Although the law has now been partially modified in a positive way, it is still viewed as unfriendly to investors and its stability is not guaranteed. The windfall tax effect on the onshore, as regulated through other normative acts in force since 2013, appears to discourage re-investment, especially by smaller players, and since the ‘windfall’ element is anyhow coming in from day 1, it seems not just for extraordinary events. Therefore, the industry is requesting from government further incentives and real underlying support for onshore and offshore energy projects. It was clear from the discussion that there is a frustration at the lack of urgency from government on these key topics. In spite of this backdrop, good news was shared in the conference that Black Sea Oil & Gas SA had started first production from their offshore Midia Gas Development on 15 June 2022, a very significant milestone.

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Time is running out to explore for new resources

A special session debated whether it is too late to execute new exploration and production in the Black Sea. The view is that is not too late to explore for new fossil resources, most importantly gas, so long as projects fit within the Net Zero timeline – but time is running out fast. Gas is very much needed in Europe as a transition fuel at the front end of the energy transition and the Ukraine war has increased the urgency to secure alternative supply. With security of supply and cost of living crisis biting hard, new exploration and production must be supported, facilitated, and carried out in the next few years, certainly before the end of the decade, or it will be too late. The role of government and public sector is critical to give strategic support and expedite regulatory processes. With every month and year of delay the more likely it is that the gas resources will remain in the ground, forever. However, presentations by OMV Petrom, TotalEnergies, Georgia Oil & Gas, and Petform showed that very significant investments in exploration and production are indeed actively ongoing, with a focus on deep water biogenic gas. Deep water drilling is happening in Turkey to appraise the Sakarya discovery, evaluation of 3D seismic data for a new deep water play is happening in Bulgaria, final preparations for deep water gas development are being made in Romania, and a 3D seismic survey is planned in deep water Block II in Georgia.

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Regional energy markets and gas infrastructure

Government intervention in the workings and diversity of energy markets has overall not been positive, according to delegates. For example, the Romania 2018 Offshore Law at that time halted investment and hence alternative local supply such as Neptun was not accessed. The EU still imports 58% of its energy and stalled gas projects don’t help. Once developed, the Neptun gas can provide new liquidity in the market. However, increased cooperation between the countries in central and eastern Europe is needed to create the connectivity and increased diversity of supply. A presentation by Energy Community Secretariat highlighted the SEEGAS initiative between Ukraine, Moldova, Romania, Bulgaria, Georgia, Greece, Hungary, Austria, and Poland to provide improved gas exchange. Gas Infrastructure Europe emphasised the importance of gas storage in the context of very low levels recorded in November 2021. Reliance on LNG imports will increase and by 2030 is expected to be 70% higher than import levels today. The implementation of gas interconnectors is critical as in the case of the Interconnector Greece-Bulgaria (ICGB), which would give access to the southern gas corridor (TANAP-TAP). This project alone needs EUR 250 million, assisted by EU structural and Bulgaria sovereign funds.

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Energy transition and Renewables

Black Sea Oil & Gas SA showcased development options for offshore wind and green hydrogen production in their Midia block, a proposed innovation being the re-purposing of gas facilities for green hydrogen electrolysis once the gas resource has been depleted. The European Commission highlighted new policy to support building new and repurposed infrastructure for hydrogen and low-carbon gases such as bio-methane. They have evaluated disruption scenarios and stressed the urgency to support critical infrastructure for energy security.

From the services sector, Schlumberger emphasised transition technologies and the need for the industry to collaborate in a world where rapid diversification of energy sources is happening. A key to implementation of the Net Zero ambition is the understanding of stakeholders, especially the public, about adoption of the new technologies, such as carbon capture and storage (CCS), hydrogen generation and geothermal energy. Lloyd’s Register stressed that Net Zero will not happen without the deployment of CCS.  With around 6 giga-tons of CO2 to be stored each year by 2050 fast action is needed to commission many more projects in addition to pioneering projects such as Northern Lights (Norway) and Kasawari (Malaysia). The importance of CCS to kick start the path to net zero is clear, however the costs to capture, transport and store CO2 are huge and this is simply the price to pay to implement a net zero strategy while hydrocarbons are still being produced and consumed as the primary energy source.

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Lloyds Register view the energy transition as a technology transition and the offshore domain being the playground where projects can be deployed faster. Regional advantages need to be exploited such as the high offshore wind potential in Romania, perhaps the highest potential in Europe. Renewable, sustainable, and affordable power generation is the long-term goal, but this still requires technology to absorb surplus electricity. The so-called “Power-to-X” concept would propose to take the surplus energy and convert it into an energy vector such as:

• Hydrogen

• Ammonia

• Methanol

• Synthetic fuel

Another issue to tackle is capacity in the European electricity grid, in particular for solar power generation.

Hydrogen

Hydrogen is viewed as one significant strand of future of clean energy provision and EY provided a clear perspective to explain its pros and cons. Renewable energy is primarily creating electricity, but this cannot be so easily deployed easily in sectors such as heavy transport, heavy industry, aviation, and shipping. It is in these sectors where hydrogen will have significant impact to reduce the carbon footprint. Hydrogen production is not new and is most commonly created via the steam methane reforming (SMR) process, in which superheated steam is mixed with natural gas in the reforming reaction, producing hydrogen gas and carbon dioxide. This is so-called Grey hydrogen. If the carbon dioxide from Grey hydrogen can be captured and stored, this category is Blue hydrogen. Green hydrogen is created entirely from renewable energy, such as wind and solar, and this is the type of hydrogen that is most desirable from the perspective of sustainability. Pink is the category of hydrogen created by electricity from nuclear power. One of the challenges in deploying hydrogen is the ultra-low temperature (-240 degrees C) needed for liquifying, this cooling process itself consuming the equivalent of 30% of the energy value stored. Another is that the energy value of hydrogen is roughly one third that of the equivalent volume of hydrocarbon gas. Green hydrogen is still in its infancy, however the announcement in recent days by Shell to take the final investment decision for the Holland Hydrogen I, the largest Green hydrogen facility in Europe, is encouraging.

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Energy Transition – the New Exploration?

The energy transition is hugely exciting, challenging, and full of opportunity to innovate for sustainable energy production in future generations. We need to look at all options for energy generation and this requires a period of exploration for the multiple sources of new energy that will replace the few, yet powerful, sources of fossil energy we have used for the past century. This is a period of great evolutionary diversification in energy and, like in Earth history, some of those evolutionary pathways will continue and others will become extinct. A great deal of action is needed to push this exploratory period, including:

• fiscal incentives

• subsidies

• infrastructure development

• stakeholder education

• creation of functional markets

• fundamental research

• technology development

• waste management

A wide, collaborative, and self-supporting community of partners from all these areas can provide a positive vehicle for progress. Exploration is fraught with risk, as we know from the oil and gas industry, and therefore partnerships and collaboration can help to share that risk amongst many stakeholders.

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When conference delegates asked about the exact scale of the costs needed for the energy transition, it was admitted that there is no clear answer, for now. The reality is that the significant cash returns from fossil fuel exploitation will still be needed to fund this new period of renewable energy exploration, most likely for several decades, until a time in the future when we can leave the fossils forever in the Earth.

Gary Ingram

July 2022