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Oil Infrastructure Operators Grapple With A New Energy Reality

Tsvetana Paraskova

The energy infrastructure company that transports a fourth of the crude oil produced in North America is looking to increase investments in renewable energy projects as it prepares to have its asset portfolio reflect the global energy mix in the energy transition.

Calgary-based Enbridge, whose most valuable asset is the Mainline System carrying close to 3 million bpd out of Western Canada to the U.S. Midwest, aims to diversify more into natural gas and renewables projects. The firm has identified investment opportunities in offshore wind in Germany, the U.K., and France, Enbridge’s chief executive Al Monaco told the Financial Post in an interview published this week.  

“We think having a diversified approach, having a gradual approach to the transition through natural gas and renewables makes a lot of sense,” Monaco said.

This is the latest push toward boosting investment in renewables by a major company in the oil and gas industry.  

Integrated oil majors, especially those in Europe, have already started to increase their renewables portfolios, pledging to become net-zero energy companies by 2050 or sooner.

In the midstream segment, however, Enbridge is the exception rather than the rule of a company looking to reflect the growing share of renewable power generation worldwide in its portfolio.

Some midstream companies have started to use renewable energy to power their oil and gas operations, such as U.S. natural gas processing and transmission firm Williams, which is looking to develop solar installations on land it owns close to its existing facilities to power its operations with electricity from solar energy.  

But as a whole, the oil and gas midstream industry hasn’t been too keen to go into owning renewable energy projects, except for Enbridge.

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“There’s still lots of runway for oil and natural gas but it makes sense for us to mirror that global supply picture. I think you’ll find most companies, or the vast majority of companies in our sector, are not positioned in that way,” Monaco told the Financial Post.  

Enbridge first invested in a wind farm back in 2002, and since then, it has invested more than US$5.8 billion (C$7.8 billion) in renewable energy and power transmission projects currently in operation or under construction, the company says. Enbridge holds stakes in various operational offshore wind projects in England, Germany, and France, onshore wind farms in Canada and Texas, and solar projects in Canada and Nevada.  

Enbridge, together with EDF Renewables and wpd, began construction of the Fécamp offshore wind farm off France’s northwest coast earlier this month. The commercial viability of the Fécamp wind farm is underpinned by a 20-year power purchase agreement (PPA) granted by the French authorities in June 2018.

The more attractive PPAs in Europe encourage Enbridge to look at additional offshore opportunities in Europe right now, instead of in North America. The United States could be a good opportunity in the future, Enbridge’s Monaco told the Financial Post.  

At its Investment Community Presentation this month, Enbridge said that it had identified US$745 million (C$1 billion) in annual growth opportunities in renewables post-2020. This compares with US$1.5 billion (C$2 billion) yearly growth opportunities in the gas transmission business and another C$2 billion in its core Liquids Pipelines business.

Enbridge also plans to use adjacent solar installations to self-power compressor stations and to integrate renewables with existing gas infrastructure as part of its efforts to boost growth.

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Unusual as it may be for an oil pipeline operator to invest in renewable energy, the case for investing in clean energy has never been stronger, according to the International Renewable Energy Agency (IRENA).

Thanks to a decade of declining costs, renewable power has become increasingly cheaper than any new electricity capacity based on fossil fuels, IRENA said in a report earlier this month.

Between 2010 and 2019, solar photovoltaic (P.V.) costs dropped by 82 percent, solar concentrating power (CSP) costs fell by 47 percent, costs for onshore wind dropped by 39 percent, and offshore wind costs declined by 29 percent, according to IRENA’s estimates.

“Renewable power generation technologies are not just competing head-to-head with fossil fuel options without financial support, but increasingly undercutting them, in many cases by a substantial margin,” the agency said.  

By Tsvetana Paraskova for Oilprice.com

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