Seeking New Businesses

Renewables - Offshore Wind

The New Energy Solutions group (NES) looked across Equinor’s assets to find existing competitive advantages and where they would need to develop new skills. One option they first focused on was offshore wind production. Offshore wind was not new to the company. Even before its merger with Statoil, Norsk Hydro had been developing a floating wind turbine to provide electricity for its offshore drilling rigs and Statoil had begun a pilot implementation in 2008-'09.

Unlike onshore wind or solar assets, offshore wind farms drew on many skills that Statoil had developed in its offshore oil and gas business. Statoil's engineers working on oil and gas had the knowledge needed to design the foundations of offshore wind facilities and manage the maritime environment. Like other oil and gas companies, Statoil also had experience with interacting and negotiating with governments, which would also be relevant for offshore wind projects.

Other elements of the oil business could be brought into offshore wind projects. Many suppliers and equipment manufacturers that Statoil had dealt with for decades on the oil and gas side were also very active on the offshore wind side. By building on its existing relationships and entering the market early, the division believed Statoil was in a good place to reduce the risk of supply shortages as other players entered the renewables market. 

Statoil’s focus on safety would also carry over to wind operations. Perhaps just as important, Statoil had experience in evaluating, funding, developing, and executing large, complex, expensive offshore projects. Their strong capital base could allow them to invest in capital-intensive projects that would require many years to start producing any return. 

But others opposed a focus on offshore wind, arguing that the cost of developing offshore wind facilities meant that it could never become competitive with other new energy sources. Rummelhoff remembered her team's response,

We trusted our analysis and judgment, which said that costs would come down quickly. We did not anticipate that it would come down as quickly as it did, but we anticipated a learning curve as the industry matured and we saw larger turbines coming. And we also saw that this was a way to differentiate ourselves from the huge competition out there because the entry barriers to creating offshore facilities are higher. This was clearly a big company's game. And we also saw a lot of synergies with the existing oil and gas business.

Addressing New Local Stakeholders

Even with technical expertise in offshore wind, entry into new renewable markets would require the company to develop new approaches to deal with new stakeholders. Local regulators, local suppliers, local utility companies, local unions, and local consumer and neighborhood groups would all come into play. Every town and county could add additional issues. Equinor had extensive experience working with national governments to gain permission to drill and negotiate taxes and fees. However, oil and gas were commodities and prices were global. But by moving into the renewable generation sector, Statoil would encounter new stakeholders in dealing with power markets and energy regulators.

For example, In the United States, new offshore wind farms required federal, state, and local permits, and every state had different regulations and incentives. Every town and county could have additional regulators for local issues and environmental concerns. Complicating the process further, renewable energy sources were new technologies, and many governmental agencies were still formulating regulations to evaluate and approve these new operations. Getting all approvals and permits in place could take years, and the pace was outside the control of the company.

Understanding power markets also required new expertise. Statoil had some insight into power markets since it sold gas to utilities for gas-fired power plants. But regulatory rules and policies and public sensibilities varied from country to country and required local expertise. Taking on long-term power contracts required evaluating variables that did not apply to oil and gas contracts, such as the effects of inflation or other external forces and contingencies.

The NES recognized that not only did Statoil have to engage new stakeholders as the company transformed, but the company's internal culture and behavior would also have to change. For example, the legal department would need to draw on local attorneys familiar with local operations; public relations and communications groups would need to work locally to be attuned to local issues. Offshore wind projects could be stymied by local towns or homeowner groups if an offshore wind farm was visible from land, or if an electric cable came ashore near a popular beach. How best would this Norway-centric company make that adjustment? Given the need to engage more local players in the new markets and draw on local expertise, would the company adopt a more decentralized model? Would it allow more local empowerment to make decisions using skills and talent at the local level, and not expect efforts in new markets to follow patterns that had worked locally in Norway? As it looked at the added complexity of dealing with local markets, should Statoil first stay with the EU countries, where it was familiar with local operations and suppliers? Or should it look globally for renewable investment opportunities?

Evaluating Other Opportunities

In contrast to offshore wind, onshore renewable projects like wind or solar required a different set of skills. With its limited experience in these areas, Statoil decided to move slower in pursuing these opportunities. Nonetheless, to develop a broad energy company, Equinor’s executives considered solar generation and other renewable energy sources as future opportunities. Many of the new energy generation systems, like on-land solar panels or wind turbines, were developed technologies and did not require Equinor's strong technical skills. Equinor considered teaming up with companies already on the solar side or buying onshore players with the right local skills on a limited number of projects, to learn more about the onshore markets.

Rummelhoff and her team also worked with other divisions within the company to investigate new business opportunities that were consistent with a low-carbon future. For example, carbon capture and storage (CCS) was a strong contender. The company had been capturing and storing CO2 from its North Sea gas production for many years, using its knowledge of the regional geography to find undersea locations for storage. Providing CO2 capture and storage for others could become a profitable business. Equinor could focus on carbon capture and storage for industries that were high CO2 emitters in North Western European countries surrounding the North Sea geological basin. These industries could be reached by pipelines to carry the CO2 out to the locations for storage. For example, sectors such as cement production had very high CO2 emissions as a byproduct of their chemical processes, which could not be avoided by switching to renewable energy. (If cement production was a country, it would be the third largest emitter of CO2.)^[1]

Another possible direction for the future would be the production of hydrogen, formed by separating natural gas into hydrogen and CO2. As part of the production process, the CO2 would be captured and stored through CCS, leaving the hydrogen available directly for use as a clean fuel or used in fuel cells, without adding to the CO2 in the atmosphere.

The company's leadership also extended the new thinking to Statoil’s suppliers. As an example, they announced to the oil shipping industry their intent to only charter vessels that were fueled by natural gas products such as LPG or LNG. And since Statoil was utilizing approximately a hundred tankers at any given time, they had a large ability to influence and stimulate a lower-emission shipping fleet globally.

Consistent with its strategy, Equinor continued to seek opportunities in oil and gas. It acknowledged that petroleum products would be needed in the short and medium term, and Equinor was focused on reducing carbon emissions in extracting oil and gas operations. continuing investments in oil and gas would continue to support the Norwegian economy, as well as provide the revenues to allow the company to grow its renewable and low-carbon options for the future.