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Storage companies seen pivotal for mitigating energy transition risk

Highlights

Storage firms have skills base to handle hydrogen

Storage an attractive prospect to investors

ESG attracting a range of interested players

Storage companies are in prime position to take advantage of the transition to alternative fuels, with ESG -- environmental, social and governance criteria -- providing new opportunities and costs, delegates said at S&P Global Platts European Oil Storage Virtual Conference.

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With decades of experience handling chemicals and fossil fuels, storage companies are well-placed for the expected increase in hydrogen demand, Willem Jansonius, a partner at DIF Capital Partners, told the event on Jan. 21.

"A lot of oil storage and mid-steam management companies will play an important role in that shift to hydrogen," Jansonius said.

Energy transition is bringing ESG factors to the fore, presenting an important potential area of growth for energy storage companies while investors look to minimize risk, panelists said.

Location of storage infrastructure has been and will be crucial, but at some point which products can be handled will be equally important, according to Bert van der Toorn, managing director for mid-stream and downstream oil, gas and petrochemicals at investment bank ING.

ING is interested in clean hydrogen and its willingness to extend credit for a storage transaction very much depended on the products being stored, he said.

The energy transition looked bleak for oil products in most but not all instances, van der Toorn said, adding diesel and gasoline will be obvious victims of a move from petroleum-based fuels but there were few credible alternatives to jet fuel. that meant demand for it and for storing it will remain, he said.

While petroleum and other liquids will lose first position as the global source of energy consumption they will only be knocked into second place by 2050 and their consumption then will be higher than in 2020, rising from around 200 quadrillion Btu to around 240 quadrillion BTU, slightly lower than renewables at 250 quadrillion BTU, Ellen Ruhotas, managing director of midstream company Zenith Energy Europe, told the conference.

PORTFOLIO GROWTH, RISK

There was money to be spent in storage, van der Toorn said, with lockdown creating pent-up demand and forcing storage asset values up. "People can see and believe they are safe havens," he said.

There is interest in the production end of green energy too. Testament to the energy transition's appeal is the fact that it is attracting investment from a diverse range of sources.

French oil group Total said recently it and 174 Power Global, a Hanwha Group affiliate whose activities include manufacturing defense products, have signed an agreement to form a 50/50 joint venture to develop 12 utility-scale solar and energy storage projects with 1.6 GW cumulative capacity in Nevada, Oregon, Texas, Virginia and Wyoming.

That was not motivated by "tree-hugging and love of flowers" but was a quest for high yields, said Nicolas Firzli, director-general of the World Pensions Council (WPC) and chairman of the Singapore Economic Forum (SEF).

The European Central Bank already requires reports on exposure to energy transition risk, van der Toorn said.

Both blue hydrogen -- produced from fossil fuels, and green hydrogen -- produced from renewable power, offered opportunities for storage, Ruhotas said.

There were announcements in 2020 of major projects in locations including The Middle East and Australia, which showed momentum was growing, Ruhotas said, adding there was considerable room for growth.

Renewables supply around 5% of global energy demand and investment in hydrogen-fueled vehicles in 2020 was only 130th of that in electric vehicles, she said.

In June 2019, the UK legislated that the country must reduce its emissions of greenhouse gases by 100% relative to 1990 levels by 2050. Hydrogen has been identified as one tool to achieve that. But to do that it must increase its use of hydrogen from the current level of 27 TWh to 270 TWh, Ruhotas said.