Thank you very much. Thank you. I could not have done that in English, never mind Norwegian. On my behalf, welcome to everybody here today on behalf of Equinor's investor relations department and the team that we've got presenting here. It's always good to have so many of you both here, but also on the website as well.
Just a reminder, we've got a series of presentations. There's five in all, sort of 15, 20 minutes or so each one, covering various topics. We'll break into Q&A. We'll do some Q&A from the event here. For those watching on the website, if you were to send me any questions that you wish to ask, I can raise those during that normal Q&A session. I'd like to welcome all the speakers here today.
We'll be kicking off with Eirik Wærness, who'll be giving us an update on the macro. Always good value, always good to listen to. We're going to zero in a little bit more on the NGLs. We've got Luis Alfredo Ruiz going to talk to us about that market. Very important for our liquids production, particularly on the NCS.
We're going to look at digitalization. We've got a couple of presentations on that one, a little bit of an update and then a specific example. We've got Torbjørn Furever, talking to us about the overall thing. Bernt Edvard Tysseland, who's going to be talking to us about the IOC, the integrated operations center which is now up and running.
Finally, before we go into the Q&A, very delighted to welcome the EVP of the NES business, Pål Eitrheim who's going to talk to us particularly about the offshore wind. With that, I'll ask Eirik to start. Thank you.
Thank you for the kind introduction, Peter. Having the privilege of talking about the macro and market updates is not always very uplifting, but still, we can try. It's always exciting. There's a lot of uncertainty around us, and nobody knows where markets or prices are going. If we pretend we do, don't believe us. We can make scenarios, but predicting anything with any kind of detail is extremely difficult these days, both short and long term.
We're facing markets that are characterized by significant uncertainty in a lot of dimensions, which will affect behavior and also strategic decisions with a long-term perspective, but also in the short term.
To get our eyes around all of these, the thoughts around all of these uncertainty dimensions is extremely difficult, not only for the energy industry, but I think for the globe as a whole. We're talking about sustainable development.
That was the main topic of this morning's conference in the theater nearby. It's not only one dimension of sustainability, but it's 17, and we have to deliver on all of them, and we have 10 years and 2 months to do it. How will that impact energy markets and energy industries and macroeconomic growth if we try to deliver on this?
That's a main uncertainty for all of us. We are in lack of political leadership. It was mentioned in the conference just an hour ago, an hour and a half ago, that in the U.S., they're not now looking to the president for leadership, so they have to find it elsewhere. That's a significant development, I would say. To the extent that that continues, delivering on sustainability will be extremely difficult. Uncertainty about policy changes, continued polarization.
Every time somebody tries to do something with impact, whether it's in climate or another way, you get protests, often characterized by yellow vests. We have countries leaving trade organizations. At the same time, we have a trade war going on between two large players that will affect economic growth. It affects risk premiums, and it affects investments.
Going forward also in terms of what will be the future of work, how will digitalization in micro, as we're going to listen to later, impact macro? When do we start seeing productivity impacts of the digital opportunities? Will we, and how?
How will it affect future work, as an example? There are massive uncertainties surrounding also the energy sector and global macroeconomics. With all that, where is the world going to be in 2025 or 2022 for that matter, or not to mention 2040 and 2050?
Those are some of the things that we struggle with on a daily basis, and that I know that many of you are thinking about as well. I'll touch a little bit upon the macroeconomic picture, then I'll go into the macro oil market and the macro gas market as we've seen it so far this year.
I guess one aspect of global macroeconomics is that we see indications of increased uncertainty, elevated geopolitical worry, if you like, if you have this economic policy uncertainty index, which measures feelings of uncertainty. It's never been as high as it is now. You can see some peaks there with the Gulf War, with financial crisis, with the Eurozone crisis in 2011, then with the combined impact of Brexit and Trump.
Now we're at the top, probably driven by the combined impact of trade wars, Brexit, which never disappears, it seems. Yellow Vests, polarization issues, Hong Kong, as one example, trade war, all of that impacting sentiment of uncertainty. Then another, I guess we're waiting for something to happen in terms of the United States. We've just passed the record number of months of continued economic expansion.
We have 123 months behind us. When is the recession coming? Is what people are asking. We have very low unemployment, lack of flexibility of that market to continue to grow, if you like. Will recession hit? When? Will it just be a moderate slowdown, or will it be more impactful? One key parameter that we're looking at and not being able to predict to any kind of detail.
What will be the impact if the U.S. were to turn into negative territory? How big will the impact be on other parts of the global economy, et cetera. Elevated economic uncertainty. We're now seeing also that the Chinese slowdown filters through to manufacturing indices and the sentiment indications in the manufacturing sector as well.
On the Chinese side, record low economic growth. Hasn't been as low over the last 25 to 27 years. The big question is will they be able to boost productivity? They still have muscles there to be able to do something, but will it have an impact?
The spread to business sentiment on the manufacturing side, which previously probably was even more important than it is now, because the manufacturing sector is less important in many economies than it used to be.
The quick question now is to what extent will this reduction in optimism, if you like, on behalf of the manufacturing sectors in different parts of the world spread to the service sector? Which in some of these countries now have become much bigger, much more important. As an example, in the case of the U.S., we're talking about a manufacturing sector that is 12%, 15% of GDP.
It's not that big, but it's the issue of how is that reflected in service sector development. Our base case for the short term is at the global level, we think of a muddling through type of GDP development. No global recession. That's extremely rare, if that happens anyway, that has basically only happened once over at least in the last generation.
Our base case is that the GDP at the global level will grow on average to 2.7% on average over the next three years, 2020-2022, which is moderate, but still growth. Of course with significant uncertainty both on the more granular development in different regions, but also uncertainty around that average level and what that means for things like oil demand, for instance.
To the oil market highlights so far this year, and there's not much left. I guess this is going to be the highlights for 2019. Fundamentally, a lot of factors that could drive prices up, but then combined with a number of other factors that more than compensate, if you like, and take away at least visible proof of things like geopolitical concerns and unrest.
A lot of these factors are driven or affected or impacted by developments in the U.S., even though they take place or they're visible elsewhere. Of course, the continued record growth of shale oil has a dampening impact on oil markets. If people believe that that's going to continue for a long period or that the flexibility is enormous, you should have a dampening impact of anything else in the oil price.
That is partly, but only partly balanced by the OPEC+ holding back production. The U.S., on the one hand, providing this massive bearish element in the oil market helps on the other side by tightening sanctions against Venezuela, against Iran. We have Venezuelan production now, which is almost 2 million barrels per day lower than what it was at peak.
The Iranian supply is 1.5 million barrels lower than it was early 2018. Of course, that contributes to tightening the market. Then we have the underlying geopolitical tensions in the key producing region of the world, the Middle East, visibly by the terrorist attack in September, having a fantastic impact on the price for about 12 hours. Whereafter the market came back to what it was just before.
Where we probably haven't seen all of the consequences quite yet, but at least what it serves to show is that the market fundamentally believes it's very well supplied and that it could handle the largest disruption in supply ever with such a little impact on price. Then, of course, the main reason why low spare capacity, high demand, still growing by slightly less than a million barrels per day.
Why you can handle those types of events then with that low impact is of course the underlying fear that the economic growth will slow down and thereby affect demand negatively. That's been a massive bearish element in the market over this year. The normal visibility of geopolitical premiums that we should see here are not there.
The reason is, of course, the sentiment in terms of slowing demand growth driven by trade war. We'll see how that works going forward. Going into next year, our conclusion is that on the supply side, which is the columns to the left there, going into next year, we have continued growth in supply, not only from shale oil, which will grow but slower, we think.
We see some indications now on the rig counts, et cetera, et cetera, that could indicate that growth could slow down. We will see growth in Norway. The fantastic ramp-up of Johan Sverdrup being the most visible example of that. We'll see growth in Brazil.
As a consequence, there is a risk of oversupply if you look at it over the whole year as a whole, where demand growth still will be there, but moderately so, slightly higher, we think, than this year.
With continued OPEC policies in terms of not affecting supply growth negatively or positively from the OPEC to any scale, supply growth will be higher than demand growth on average next year. Then a gradual rebalancing, if you like, or a better balancing of the market, going forward.
This is reflected, of course, in what the markets now see in terms of an indicator of some prices with the backwardation and indicating that the market agrees with us. This is a well-supplied market for the next couple years. Over the medium to long term, our belief is that there will be movements going both ways, but gradually over the medium and long term, the factors that are bullish will pull the market somewhat up gradually, more than what we've seen over the last years here.
Last year here we have the different variables that have different impacts on the prices so that the shale oil growth, which is then driving prices down, is one element. We have the slower growth in demand pulling prices down. We have the OPEC rebalancing contributing to a higher price.
Of course, the underlying geopolitical situation should have been more visible. If you look going forward, we think that OPEC will have much more of a balancing effect gradually over the long term. The shale oil development will also not contribute to lower prices, but be part of a balancing picture and slightly further into the future in terms of a year or two from now, we'll have also demand contributing to a pickup.
Relevant over the long term is also, of course, the view on what are the marginal supply costs going to be. That doesn't matter over the next two, three years. When we get into the longer period, then we have to look at where the supply curve is going, and that's also something that should moderately help on the oil price side.
Onto the gas highlights for this year, which is a little bit of or much of the same story in a sense. Then you just replace the shale oil with LNG as a variable, then you have the same story. Massive growth in supply of LNG. We come to the end of a 5-year period of capacity additions, which is visible in the market.
Australia has now passed Qatar as the largest supplier of LNG globally. These numbers you can see there is the change in the relevant variable year on year from October 2018 to October 2019. We've had a growth in capacity of 12%. LNG imports to Asia only growing 3%, which is then the main reason why most of that LNG growth ended up in Europe.
Europe is sort of sitting in the middle between exports out of the U.S. and an Asian market that grew less than many people had thought, partly because of the weather during the summer. Also, the general low demand growth caused by the trade tensions. Finally, also some nuclear capacity coming in again into the power markets.
As a consequence, of course, you have a massive growth, relatively speaking, a massive growth in LNG imports to Europe, even though LNG is not that big a part of the European demand picture. You can see how much that grew, 77%. In a situation where the overall demand for gas only grew 3%, that has had a bearish impact and pull down on the gas price also in Europe. We've had a record year on new FIDs as well on the LNG side.
I guess Qatar is one of the countries that want to take back its position as the biggest LNG exporter. That will not impact the market yet. That will come into play several years down the road and will be necessary to deliver on the underlying growth in gas demand when you look in the period 2023 and onwards, basically.
We gradually see that the new capacity of LNG will continue to be significant next year. In 2021 and going further, we will not see that type of growth. The current or the recent FIDs will then come back into play in 2023, 2025. One difference between oil and gas or I should say crude and gas, is that the regional markets are still an important characteristics of global gas.
The regional balances are important to take into account and which are also sort of a key indicator for the demand for LNG exports or imports. On the European side, looking a bit forward, what we forecast is a relatively stable demand outlook.
Growing gas to power demand. Gas has, in fact, now become fashionable again, even in Germany. With a decline in indigenous production, in particular in Groningen, we should have a relatively good development in the import demand. Need for imports into Europe. Of course, to what extent that will contribute to the tightening of the market, and it depends on the situation in Asia, if you like.
In the United States, we see a growing surplus, growing need for exports, partly driven also by associated gas, which combined with shale oil production, also meaning that the fundamentals of the gas market not necessarily is the main factor driving the development on gas supply. It's more the development of oil resources that also at the margin delivers more or less gas.
Fundamentally then in Asia, what we see is a growing supply gap. It's a region which doesn't have enough indigenous gas, which will increasingly have to import gas, and part of that is going to be piped gas, but a lot of it will be LNG when you look a little bit further into the future.
This is the same story as the IEA just gave you, even for the very long term in this morning's conference and in the world, energy outlook is a long-term massive growth in LNG demand in Asia, even if the world were to turn towards delivering on climate targets. There's sort of the same short and the medium and longer term picture for how do we expect these different drivers to affect the European prices?
This is the drivers for the European markets, and you can see that in the summary of 2019, with the LNG supply contributing to lower prices, LNG demand, good gas demand being relatively neutral, we think. Falling domestic production contributes to higher prices. Pipeline imports from Russia and Norway contribute to lower prices, we're well supplied there, et cetera. That's how it has looked for the short term.
If you go into the longest part of this time horizon, we have, again, slightly more bullish factors driving the price up than what we've seen lately. An improving balance over the medium term is what we expect. You can see also what the market said, I guess, just before the weekend in terms of gas price development.
Things like storage levels, expectations for the Russia-Ukraine issue in terms of transport at the end of the year or beginning of next year is an important factor affecting the very short-term prices. Expectations for the development of French nuclear electricity is another element that can rapidly shift these short-term price curves up or down in Europe.
Since I'm not a meteorologist, I cannot tell you what the weather is going to be, but if people believe in a mild or a normal or extremely cold winter in Europe in February, March, it's going to impact the price forecast. With all that uncertainty and the bullish and various factors, I guess I'll just give the word to Luis on NGLs. Thank you.
Good afternoon, everyone. Thank you for having me. You hear also those streaming. I will give you an overview on NGLs, so natural gas liquids. I will start with a brief introduction on what it is and our position as a company, following by the market overview. Natural gas liquids. This is a mixed bag. This is not one single product.
The most important products you have in this bag are ethane, propane, butane, and natural gasoline. They have different purposes. They go to different markets. Sometimes they compete as a force in the same market. Those pose several dynamics or interesting dynamics in terms of prices when you consider them. 50% of this demand comes from a mix of propane and butane, also called LPG.
It's important to notice that you cannot really control any of them in the mix, and they are a by-product, the balance happens on the demand side. In our profile, the portfolio, 51% of the total equity volumes are liquids. That means crude, condensate, and NGLs. 17% of our share is NGLs. We have a very robust portfolio in terms of shipping and trading.
We have over 800 voyages per year, and we trade around 7% or 9% of the waterborne LPG. That means also that we trade around 8 million tons a year of LPG and 1 million tons a year of ethane. The shipping portfolio is around 20 or above 20 time charter vessels, that allows us to have this global reach.
When it comes to the market overview, the first one I want to show you is how the overall mix of crude is nowadays. The mix is becoming lighter and lighter. That goes a bit with the comments from earlier before in production of shale oil has contributed a lot to this. The oil doesn't come alone.
It comes with a lot of NGLs in it. As you can see here, in the period of 2018 to 2023, we have a much lighter mix and higher shares of NGLs coming. This picture will change a bit afterwards, as the additions of oil will be medium and heavier. In some areas you will have depletion of a production. The picture will change a bit after 2026, 2027.
For the coming years, what we have is really a lot of NGL coming our way, essentially from the U.S. LPG supply oil is mainly driven from oil and gas production. When we come to where it comes from, the sector, it comes mostly from processing oil and gas. That is linked to the coming oil on the shale oil.
As more you get there, more NGLs you get. Also come from the refineries. From those places where you have refining hubs, like the Middle East and Asia, you will also have a supply of NGLs.
When it comes to location, you can see on the right, is mostly coming from North America. That is processing of oil and gas. Then you have Asia and Middle East, as I mentioned, refining hubs. That supply comes from the refineries.
This is also where I put the first slide. If you see how light the mix becomes in terms of oil, and that mix goes to the refineries, you also increase the share of NGLs coming from refining. When it comes to the demand, the picture on the left, that really shows what I said before. More than 50% of the demand is residential consumption.
As you can imagine, that is very much linked to development in the countries and policies. If you want to displace biomass, also called wood or kerosene, and you support that, you increase demand.
That will come essentially from development countries, from petrochemicals, industrial, or also for field transportation. When it comes to petrochemical, that part of the demand is also linked to macroeconomics. As better the world goes, more demand for plastics or other elements on the petrochemical sector you will have.
If you see on the right, really, compared to other indicators, the growth of the LPG is notable in terms of the demand, in terms of when it comes to consumption on the residential sector and also for petrochemical.
This shows a bit how the shifts are nowadays, and that picture can flip very fast. It is very linked to the trade world, it's very linked to where the demand comes from, it's very linked from the supply.
If you see North America, Middle East, they are the net exporters. The flows will go that way to Southeast Asia or Far East, and even to Latin America. Africa is a very special place because you will have a balancing situation, but it has a lot of potential to increase demand. The demand in Africa is really scattered around, and there is no policy.
There is no harmonized policy for replacement of biomass in the region. That is an area we said to pay attention in the future because some of the demand will come from that region. At the moment, with the conditions we have between U.S. and China, majority of the North American volumes are going to Japan, South Korea, or Taiwan, instead of going to China.
China is replacing those volumes with material coming from the Middle East and even Australia. As you can imagine, if there is an agreement eventually there, this can flip really the trade flows. When it comes to prices, if we go far to the left, that was a world in which everything was probably a bit more quiet and less volatile. You see a better relationship across commodities.
You see a better relationship between gas and oil and also ethane and propane. That is early 2000s. If you are in the middle of a graph, as we enter into a more volatile world, you start to see that at times, these commodities decouple from oil. As if you go further to the right, you see that the oversupply of the NGLs has really pushed prices down.
What I mean here is that not necessarily the commodities are decoupling from oil, but that is a situation that we might experience over time. As we go into 2020, that situation will roll. We will see lower prices from the NGLs, especially after the bottlenecks on the Permian Basin in the U.S., and also some of the bottleneck on the infrastructure that will allow the U.S. to put LPG to the water.
That situation will roll a bit into 2020, 2021, and will change a bit afterwards. The future of the LPG market really is how you bridge that demand in Asia and try to connect with the volumes coming from the U.S. If you see the key points to watch, of course, we have the U.S.-China trade war.
The way that develops will really impact the flows around. You also have recent supply from the Middle East. If something happens in the Middle East, you are affecting one of the other cores of supply, and that is the supply now going into China, essentially. You can also talk about global economy slowdown, and that will impact directly the demand of LPG for both residential and also for the petrochemical.
That is why this demand is also linked, what I call, to the macro indicators, because that is really what, at the end of the day, pool demands on the petrochemical side. How good are countries or governments into pushing these policies to replacing biomass? This is really a big issue in India or in China.
We are trying to replace wood that is used for cooking by using LPG. How effective or how successful the policies are will affect also the demand. On our side, or the Equinor response, of course, what we are aiming to have is a flexible supply. We have reach, global reach. We are present in several markets. We are a very robust portfolio.
We are trying to develop a lot of flexible outlets, not only in the region, even though Northwest Europe is our hub, but we are also developing in Latin America, MED, and Southeast Asia. Of course, we maintain our competitive advantage in the Northwest Europe as a reliable supplier and our position and market share on ethane.
This is what I have for you on remark. I will have to have a comment about what happened in Saudi Arabia, that Erik also mentioned it. In the aftermath of the attack, we were very focused on oil, essentially. Given the scale of the attack and the plants that were affected by that, really, the response of LPG market was strong. That was because LPG balances are thinner than for oil. There are not the same storages. Also we had lack of news about that.
The price response on the LPG was very noticeable. We have focused really on oil instead of the LPG part. That is a comment aside, because such events sometimes divert our attention. On the package, you will have a list of the quotes that we are using. This is just for your information. These are all the quotes we use, the relevant quotes we use for the pricing of NGLs. Thank you.
Okay. We move from the market and the macro to the work we are doing within digital in Equinor. Now it's around two years ago since Equinor launched a company-wide digital roadmap. Since then, we have set our ambitions. We have made some early technology strategic choices.
We have recruited new competence to Equinor and also formed new partnerships with the external companies. We take a business approach to everything we're doing in digital. You will see that a bit later from Bernt Tysseland, ensuring that the business areas have a strong ownership to all the initiatives we are running.
What you're asking ourselves, what parts of our value chain can we improve or transform by using some kind of digital technology? We are seeing that are several areas that we can improve. The most important is within safety.
How we use our data, our soon 50 years of experience to make even better risk, better decision. How can we use automation to remove human exposure into operating? We have set target to reduce the development cost, overall cost base of the company, but to see even higher potential from increasing the value side. That means how can we increase production, increase the probability of commercial discoveries, and increase the recovery rates of our reservoirs.
Finally, we see that by using both data and automation, we can both contribute to taking down the carbon footprint of existing asset, as well as supporting Pål, that will speak shortly, with his renewable side to succeed with offshore wind, the best within data and data analytics. We have communicated a set of targets to achieve this.
We believe we can increase the value creation from existing fields by $2 billion in the period between 2020 to 2025, Equinor share pre-tax. We have set a target to further take down the drilling cost by 15% on top of the improvement we saw in the company from 2013 to 2017 under the STEP program.
We are now working on the early concept or fields of the future. We have a vision to reduce the future CapEx by 30% and OpEx by 50%. We have started on this journey with Valemon that is now have the control room in Bergen with Oseberg Vestflanken that is now operated from Oseberg Field Center and don't have a heliport or a toilet offshore.
To achieve this, we both need to use and work on the change management of those people and on the data. We see that data is going to be key to innovation in our industry in the coming years. To succeed with using our data in new ways, we need to disconnect data from current legacy application, which we have more than 3,000 of within Equinor.
Two years ago, we decided to establish a cloud-based data platform that is called Omnia. Over time, we will expose more and more of our data into Omnia and build all of our new solution on top of this data platform. This is a strategic partnership we're having together with Microsoft. We also use open source technology and other vendors to build this. This is our architectural concept.
Omnia is key both to ensure that data is shared across and within Equinor, across application, but also across organizational boundaries, but also in the way we work with the external ecosystem.
We're using something we call APIs to connect with the external world, and we're already now sharing data both with service companies within drilling a well subsurface, and increasingly so also with the equipment companies related to integrated operation center that Bernt will talk more about.
Equinor has also fronted a few industry initiatives to agree on common standards for how to build the data structure into the cloud. One of those is something called Open Subsurface Data Universe that Equinor was part of from the beginning, and now all the big IOCs and service companies are taking part of those efforts.
That will ensure that we are not creating something in Equinor that is not talking with other IOCs or other supplier companies. We believe Open Subsurface Data Universe can really change how we work within our industry. Let me then give a few examples of what we are working on for the last couple of years, and the solution built on top of this data platform.
One of the big areas we have looked into is what we call operation center, and Bernt will deep dive into the one that we have set up for Norway. A similar center was established in the U.S. a couple of years ago out of Austin. Today, we are streaming data from our 1,200 onshore wells through Omnia, and then we can use data analytics in new ways.
Similarly, within our O&M operations, we have set up a center in Bergen, and tasks that previously were carried offshore are now done offshore in that center. Some examples of what we're working in, letting people work in new ways, then using data to make better decisions. Within the operation maintenance and project area, we've been working on a concept that we call digital field worker.
Here we have made a decision to upgrade many of our offshore assets, both in Norway, internationally. Until now, we haven't had sufficient connectivity at many of our brownfield assets, that is now what we are investing in. We either get 4G or Wi-Fi offshore. We are providing our operators with our tablet out in the field, and a set of applications that have been developed so far.
The future will bring us the same as we use our iPhones today. The operators will have more and more application that they can use to have a more safe and efficient workday offshore. This is something that already have been tested, and now broadly implemented in Equinor. One of the application we have developed is called Echo or a digital twin.
It's already been implemented at Johan Sverdrup, Castberg, Mariner, Oseberg Øst, and Hammerfest LNG. In Echo, we are taking the 3D model that was not easily accessible before and make it easily accessible so we can have it on the phone, on a tablet, and so forth. We use this Omnia platform to find all relevant facility data, asset data, drawings, P&IDs, real-time data, and make it available in the 3D model.
Now the operator engineers can navigate around on the installation and find all the information and update the information as needed. Finally, we are also broadly scaling something we call the operational planning tool. This is being used by our operational team when they plan the activities.
Previously, they used between seven and 10 application to do the two weeks plan, four weeks plan, three months plan, and everybody in the room had a different opinion and view on the operation that we're going to do. Data from this system is integrated through Omnia into one application, and everybody looks at the same data and have the same risk understanding.
We're also using something called natural language processing, a cognitive technique, so the machine automatically going into the work order, read what is going to be done, and go into all our historical incidents report and recommend the most relevant previous incident to our engineers before they do the work.
If it wasn't relevant, they hit this button and the recommendation engine goes down for the next people using it. Very interesting technology. We can use other places in the company as well.
Within the subsurface and drilling a well area, we also see huge opportunities. Half of our data volumes in Equinor is subsurface-related. Reservoir data, seismic data, wells data. Now we're gathering all this data also in Omnia.
So far, we have implemented something we call a Subsurface Data Lake at more than 40 of our installation, both in Norway and internationally. The subsurface community are already quite data savvy. When they suddenly can look at this data across assets and across organizational units, this can really change the way they work.
The first product we have built on top of this subsurface data is called our Reservoir Experience Platform that you see here. In our legacy system, it took almost 20 minutes just to load the relevant data that it needed to do a task.
This is now done in second on a much broader data set. Approximately half of our subsurface community is already using this solution, and week by week, it's being made available to more of our employees.
Within drilling and well, we have communicated that we are going to drill more than 3,000 wells over the next 20 years. Today, based on the current technology, all of these cannot be drilled profitable. We need to use new technology and digital solution to ensure that these can be drilled commercially.
One of the technology we have been working for many years on is called automatic drilling control. We have made significant progress on this technology. It was tested in 2017 in the Barents Sea, and then we successfully avoided two sidetracks, saving around $10 million. We are going for this pilot in the Barents Sea, and the technology is now available on eight drilling rigs. Our ambition is to have it implemented on 15 within a year or so.
This is the main technology to take out the target we have set of 15%. This is just the start of some of the projects we are currently scaling. We have the portfolio we are working on a more prototyping, shaping phase. How does all this technology come together? Recently we have both started up Johan Sverdrup and Mariner.
Both have branded themselves as digital flagship and digital frontrunners, that is without reason. Johan Sverdrup was a pilot both using the-- This is the Echo solution I talked about. They used the field worker concept and several others. By using these tools to work in new ways, they were able to start the operation one month earlier compared to plan.
Seven Mariner have used several of the same technologies and have more than 30 first use technology when they started up. Mariner is also connected to the integrated operation center that Bernt will soon talk about. To conclude my presentation, what does it take to succeed with the digital transformation of Equinor? I'm back to the beginning.
This needs to be driven and owned by the business, we need to have those knowing the operation, subject matter experts engaged from day one. We need to engage the whole Equinor workforce into this journey.
We have launched a digital academy and have run more than 50,000 training sessions so far, as example. Finally, while we have many smart people in our company, most of the best ideas will come from the outside.
That's also why we are working with new partners, and we're using Omnia solution to think in new ways how we're going to collaborate with external ecosystem. I will give the word to Bernt that will give a deep dive in the integrated operation center being one of the key initiatives we are running.
Thank you. Thank you, Torbjørn. My name is Bernt Tysseland, as Torbjørn also said. I'm head of Equinor's new integrated operation center. We call it for short IOC. Of course, not to be confused with an International Oil Company. Actually you see a picture here from our monitoring center in Bergen. That is really from our center, so it's not a picture we have stolen from anybody else.
It's definitely a great pleasure for me to be here today to present on behalf of Equinor how we do use the industrial Internet of Things in IOC to deliver even better with respect to safe and efficient operations, lower emissions, and higher cash flow. As you know, we in Equinor covers all traditional areas within oil and gas, as well as new energy solutions. We operate offshore platforms worldwide. Most of them still on the Norwegian continental shelf.
We are technical service providers for several gas receiving plants in Norway, and these are all customers for the integrated operation center. We support many of them with concrete services that I will come back to shortly, and we have a rollout plan so that we can onboard all of them. We also have a smaller integrated operation center for shale oil and gas.
That is not part of my presentation here today. Our CEO, Eldar Sætre, was very clear, I think, to the Capital Markets Update in London in February 2018 that the IOC will help within the following ambition. First of all, we will utilize data and digital tools to reduce safety risk and carbon footprint from our operations.
Secondly, increase value creation by $2 billion Equinor share pre-tax in the period from 2020 to 2025. I will say that we are actually already generating value through IOC, and I will talk a little bit more about that later. The IOC vision is forward-looking operations through better decision support and tools. In concrete terms, we can actually visualize this by what you see on the slide behind me.
Point one on the slide addresses regularity on the producing facilities, both offshore and onshore. We in IOC help the facilities to avoid unplanned shutdown of important equipment through online monitoring and by early finding degradation that can lead to unplanned downtime, and hence we are able to deliver more of our products to the market every day.
Points two and three on the slide indicates how we stream data actively from wells and processing equipment at our facilities, both offshore and also coming onshore into our new digital solutions.
We consolidate and visualize live data in order to get new insight. We monitor this data daily, focusing on proactive support to the producing facilities so that they can produce at maximum production potential, as well as increasing production further through analysis and adjustment of production bottlenecks.
Finally, point four on this slide points to how we support the producing facilities in minimizing energy consumption and flaring of gas, and thus the carbon footprint from our operations, which also, of course, generates lower cost in terms of lower CO2 tax. To sum up, the IOC business case is very much connected to higher daily production, but it also helps out with reducing operational cost and increased safety.
I will talk even more about that. How does it really work? Well, first, as Torbjørn also talked about, we actually now stream sensor data not only to on-premise servers, but further to Equinor's new cloud-based data platform, Omnia.
The focus is to really enable data to be a key asset for IOC engineers in our support to the producing facilities. This includes enabling centralized online monitoring, data analysis, machine learning, sharing, visualization, and analysis of the data.
On Omnia, we combine sensor data from wells and equipment with other needed data to make faster and better decision support to the producing assets from one focal point in Equinor. In IOC, we use awareness visualization that are built by user-centric agile teams.
At a glance, my teams can then get a high-level overview of their domain and determine the state of the process, learn, and share across the producing facilities. Our digital solutions are now being continuously improved through sprints, integrating more data from the value chain, building new visualization and machine learning models to reach clear common targets with respect, again, to improve safety, increase production, and lower emissions.
Here you see really the principle of the operating model. You see the integrated operation center in the middle. This slide is also trying to depict how we are organized and the services that we do provide to the producing facilities.
We are organized with a multidisciplinary monitoring team composed of personnel from my units for production optimization and predictive maintenance. This team run daily monitoring and is based in Bergen.
We also have expert operational support in Stavanger, Stjørdal, and Bergen that actively support the producing facilities and our internal unit for development of new digital tools. Our monitoring and operational support services are delivered by engineers with background in petroleum technology, process engineering, process control and automation, rotating and static mechanical engineers, electrical engineers, as well as specialists on field and metering instrumentations, valves, and telecommunication.
Since our engineers work on data that is now gathered from the producing facilities into one common cloud-based solution, one engineer can follow up many installations in a fleet overview from our onshore IOC facility.
This increases productivity by having less asset-specific follow-up. Let me give you just one example. We use now two engineers to follow up rotating equipment across almost 40 assets, including Mariner. In the old days, there could be as much as one engineer per asset.
Further, our setup gives better cross-facility learning both with respect to production and energy optimization, and the follow-up of equipment, and generating then more production every day.
Even with cloud-based digital solutions, the co-location that we have, especially within monitoring in Bergen, is really giving added value because our engineers always have colleagues with different engineering background to discuss issues and problems at the facility that we support.
They do this within one physical room and thus faster and better support the producing facilities with effective multidisciplinary advice. We also have development of new tools. Development of new digital tools is really our software delivery unit. We have four so-called agile teams. They are typically eight to 10 people with information technology and subject matter background. They are based in Stavanger and Bergen.
Their main task is to liberate data from many data silos that also Torbjørn talked about within each producing facility. They design tools, also in close collaboration with external suppliers, so that the monitoring engineers in IOC can have easy access to multidisciplinary contextualized data and be empowered to make faster and better decision support to the producing facilities.
We are also using suppliers in building an ecosystem where the suppliers are integrated as a virtual part of the integrated operations center. We are today a little bit over 100 people working in the IOC. It's important to say we have done this without increasing headcount at all in Equinor.
When we started our IOC in September last year, we supported four offshore platforms with newly developed digital tools for production optimization. We have now scaled to 16 offshore platforms. Actually, we have increased to 17 this week.
We will complete the rollout on the Norwegian Continental Shelf covering 32 assets by late fall next year. 1st of January, we also established our own department for energy and low carbon. We have also for several years been monitoring selected heavy rotating machinery, offshore telecommunication systems, and fiscal metering equipment.
Last year, we consolidated these units into the IOC. We are now supporting all operated offshore producing facilities in Norway with deliveries from this area, and have since IOC started up last September also added on many onshore gas receiving facilities without increasing, again, the number of engineers that we use. For newer facilities, we are also monitoring selected valves, field instrumentation, and electrical equipment.
The purpose, of course, is to reduce unplanned production losses, and it has really given us the possibility to change predictive maintenance programs from calendar-based to a concept where we use online monitoring of equipment condition to decide when to do maintenance.
Again, let me give you an example. We have for one of our newer facilities reduced the preventive maintenance program with 30%, and thus we can also have less people offshore and reduce cost.
We are working closely with our colleagues in the international operated facilities in Brazil and the U.K., and also with the greenfield projects and of course New Energy Solutions that Pål later also will talk about and how we can support them more. Think big, start small, scale fast is often a term that is heard within digitalization. For us in the IOC, this gives real meaning.
We do think that what we work with will change production, operation, and maintenance significantly. At the same time, we want to make sure that we deliver real bottom-line effects and results.
We needed to start rather small. We are scaling fast in several directions, both with digital tools, the range of equipment we monitor, and the number of facilities we support, and the international reach of our support.
The first machine learning algorithms are already in production. We are together with partners inside and outside Equinor developing this into all areas. The way we work in IOC is really new, our new way of working. Besides myself and my department leaders, all people are allocated in from different departments in Equinor and from suppliers. This is covering our engineering and IT competence need.
In this way, we make sure that we get learning also out to the other departments when they are rotating. Further, the IOC model allows a wider use of condition-based maintenance concepts and on-site monitoring of wells and equipment, especially for newer facilities. This reduced the need for offshore manning and also cost.
New development work continuously together with both subject matter experts to improve our digital tools. I will say that our multidisciplinary teams generate bottom-line value constantly. As mentioned, our target is $2 billion Equinor share pretax 2020 to 2025. However, in order to make sure that we can deliver on this, we established internal cash flow KPIs starting already last year.
We measure cash flow increase for each case we have been able to deliver fully, and I will give you a short status and some examples on what we are delivering together with the producing facilities. On the left side, you see the delivery areas that I have already talked about.
As mentioned, we have an official target of $2 billion 2020-2025, but we have already established the internal targets. What I can say is that we did deliver on our internal target last year, and we have also passed our internal target this year in 2019. I brought with me some concrete examples. The first example is on loss prevention.
In this case, a good collaboration between IOC and other Equinor technical expertise and the producing facility in question made us able to use new data in our analysis to solve a problem with the efficiency of a gas turbine driving the gas export compressor at that facility.
We got full efficiency up much faster than we normally would have done, and this has a significant value in terms of avoiding production loss. The second example in the middle is from another facility, and it exemplifies how continuous data flow and visualization of production constraints makes it possible to proactively put together a task force from IOC, from operation technology, and from the facility to remove a bottleneck without doing any physical modifications.
In this case, we were able to lift gas production with more than 2.8 million standard cubic meters per day, generating increased cash flow every day. The last example is related to CO2 intensity.
Here, the energy network in Equinor with the IOC representatives were able to use data across the value chain from offshore asset A to onshore asset B and reduce the receiving pressure at asset B, thus resulting in higher gas production without increasing fuel consumption and thus lower the CO2 intensity and of course, also lower cost in terms of avoided CO2 tax. To sum up, the IOC setup works.
All results are products of active use of data collected through the industrial Internet of Things, and very good collaboration between IOC, other technical expertise inside and outside Equinor, and of course, the producing facilities that we do support. Thank you for your attention.
I guess one of the good things about all the stuff we are developing now on the digital side is that it's developed and paid for by oil and gas assets. That makes it even better for the New Energy Solutions assets to actually take them over and use them. That links very closely to what is my motivation for New Energy Solutions, and that is actually to develop a profitable business for Equinor with a line of sight to a long-term future for the company.
Also make sure that we actually do it in areas and in ways which we think are close to our DNA and where we think we can compete. Clearly, there is an element also on the renewable side that we are balancing growth with a performance element, and that is also influencing our priorities.
We need to demonstrate the same cost and capital discipline on the renewable side of the business as we do on the oil and gas part. What I'll do is I'll briefly give an update on strategy and portfolio, and then an update on some of our key projects and including updates on floating wind. Let me start with some disclaimers on my side.
I will focus on offshore wind. I will not spend a lot of time on onshore renewables, on solar and onshore wind in different parts of the world, nor will I address the low carbon part of it. Inside of my area is also carbon capture and storage and Northern Lights. We'll come back to that in a different setting.
The third disclaimer is that if you have high hopes for getting a lot of new numbers on returns and CapEx and stuff like that, you're not going to get it today. You have to wait until Capital Markets Day, where we are going to provide a little bit more detail. 2019 was a pretty good year for Equinor. It was also a pretty good year for the part of our business that I am responsible for. We started up Johan Sverdrup in Norway.
We started up Mariner in U.K. For those of you who were at the autumn conference today, I think Eldar captured it very well. He said there would be no Dogger Bank without Johan Sverdrup. Clearly, there is a cash flow element to that, but there is also an underlying phenomenal competence and capability element that is creating those links.
Everything we can do on rotating equipment in the IOC and everything we can do in terms of algorithms, a lot of that we can also deploy into the offshore wind space. On the next slide, we have won bids for Empire Wind in New York and for Dogger Bank in the U.K. Dogger Bank in the U.K. is going to be the biggest current offshore wind project under development, so that is a massive project for us.
I'm going to come back to why do I think that is strategically important, because size is not the goal in itself. It is an enabler for quite a few other things that I'm going to come back to in a moment. You have seen that we have sanctioned the Hywind Tampen project. That is, first and foremost, a technology development project.
It is one of those projects that is going to move the needle for floating wind, not the way we need to be in terms of cost, but actually taking it a notch up in terms of scale. It is also a significant measure in terms of reducing our footprint on the Norwegian continental shelf. 200,000 tons of CO2, which are the effects of Hywind Tampen, is material for our portfolio on the NCS.
We've also accessed the new lease in Massachusetts in the U.S., and we farmed down half of our share in Arkona. For those of you who wonder if offshore wind assets can be good business, I think farming down 25% of Arkona for EUR 500 million is demonstrating that there is value to be created also in this space for Equinor.
Finally, we are working on a robust pipeline for growth in the long term. We are quite satisfied with the near-term portfolio we have, so we now have the opportunity of looking slightly further out in time and making sure that our focus now is on executing on the projects that we have in our bag.
There are some success factors that I want to draw your attention to in terms of offshore wind and how that space actually works. Scale is one. This is a business where being big is not necessarily a goal in itself. It is an enabler for synergies. We see it on procurement, where the number of turbines that you are procuring matters a lot in terms of the costs and the prices that you are able to get.
We also see quite a lot of upside on the operational and maintenance side in terms of being able to capture synergies between different projects over time, driving costs down. Why is this important? It is fundamental because it is the direct factor influencing your competitiveness in the next auction.
This is a cost game. It's a zero-sum game. There is a winner-take-all principle, and if you're not competitive, if you have to start fiddling with financials or play with power prices, then I think you are on a slippery slope in terms of actually building a robust and profitable business. The second thing that we see is important in this space is continuity of portfolio.
Having the opportunity to move warm teams from one project to the next, taking in new technology and taking the learning from one project to the next, is also a significant factor for driving costs down.
We do see that with the portfolio we now have, including the Baltics and Poland, we are going to have continuous project execution between now and 2030. Clearly there is a capability-building element of that is also going to reinforce our competitiveness for new opportunities as we go forward. Access to new technology.
Bigger turbines has a lot to say in terms of cost. If you actually go and see these things, you stop thinking of them as turbines, i.e. pieces of kit. They are power plants. Go to Rotterdam and see the Haliade-X that we're going to install on Dogger Bank. They are just massive.
The blades alone are the length of a football field. They are getting really, really massive and finding that balance between innovation and turbine technology and industrializing models so that you actually churn out enough of them to bring the cost down is going to be key going forward. Lastly, don't get carried away by winner's curse in auctions.
Cost and capital discipline is also a key element for this business as we go forward. It is clearly a growing market, it has, unlike many of the other renewables, it has the benefit of offering scale. We've heard the IEA at the autumn conference today, they were recently out with their outlook for offshore wind.
I think the tabloid version of their assessment is that by 2040, offshore wind could be the biggest power source in electricity or biggest source of power generation in the EU by 2040. We see even more ambitious targets arising in parts of Asia going forward. For me, offshore wind is not the strategic step out for Equinor.
It is a strategic extension of a lot of the things we have in-house. In the same IEA study, they basically point to a considerable overlap between the oil and gas part of the supply chain and what we have on the offshore wind side. They are talking about something around 40%, but I see it every day because I am pulling and buying resources out of the Equinor matrix every day.
It's the same community that's been working on the Aasta Hansteen gas development that is working on the Hywind project. It's the same HVDC community that has worked on Johan Sverdrup that is now going to work on Dogger Bank. That is, to me, a quite strong confirmation that we have some continuity in terms of carrying our capabilities forward. These projects are getting bigger.
That is very close to our DNA. We are good at managing projects and large projects. We know the supply chain, not necessarily all the brand names in this segment, but we have quite a few of the same players on the turbine side, on the marine operations side, and on export solutions and cables that we know from the oil and gas side. We also have brand equity in this market. We see that vendors actually want to work with us.
To some extent, I get a sense sometimes that it's as important that the vendors choose us as us choosing them. Because they are doing the same crystal balling ahead of auctions in terms of where they are positioning their resources as we are doing when we are competing. Auctions are won and lost. It's a winner take all. You'd build this portfolio in a very different way than what we do on the oil and gas side.
We already established in some of the key markets for renewable and offshore wind growth going forward, be it in the U.K., be it in the U.S. and elsewhere, where we've had organizations in place for many years. Lastly, as these projects grow and risks increase, having a balance sheet to back it up is also quite important in terms of actually improving returns as we proceed.
Still, it's also very different from oil and gas. I've spent 20 of my 21 years at Equinor on the oil and gas side, and I now have a little bit over a year on the renewables side. It's been very interesting to see the speed that this is developing in, and also the agility that you actually need, that Torbjørn alluded to be able to move the needle as we go forward. The risk picture is very different. I'm used to dealing with exploration risk.
There is no exploration risk here. When we have a measurement tool in the water, we know what the wind resources are going to be like. We still have, and will continue to have in many markets and geographies, a guaranteed revenue stream with guaranteed prices, protecting you from the downside for quite a few years going forward.
I also think that we do see we are going to be increasingly exposed to market risks in the mature markets. You will see these markets move at different speeds in different geographies, and there is no way that one market can leapfrog onto the cost level of the previous one, simply because so much of that cost effect is taken out by having an effective supply chain. I think that is broadly recognized in this industry.
I don't think merchant risk will come overnight. As I said, I think it will come gradually and over time. Secondly, I also think that we're going to see a drive towards higher returns as the market risk element increases going forward. That is the risk that we know from the oil and gas side. We have been dealing with market risk for oil and gas for many years.
This industry at the moment has all the characteristics of any growing markets. We see new entrants, we see a nascent supply industry, we see steep learning curves and rapid cost reductions. One of the things that attracts me is that it offers scale, and you can one, if you were to compare onshore renewable projects with the Dogger Bank, you need a hell of a lot of onshore renewable projects to be able to get to that scale.
It's offshore, which is an environment that we are used to dealing with, and we know the risks and we are actually quite comfortable that we can manage those risks. We do think that this market will evolve. We have been in this space for around a decade with Sheringham Shoal back in 2012. We have developed Dudgeon and we've been in the U.K. for many years.
I think that experience is quite useful as we are building the next legacy in this area. I also believe that we are quite well-positioned in some of the main geographies. Most of the near-term growth is expected in Europe. We see that U.S. is taking off and all the Eastern Seaboard have defined very clear targets for how much renewable power/offshore wind power they would like to have in their respective portfolios.
Then we have a foothold in Asia that is clearly now also setting offshore wind on the agenda. Finally, I think the position we have taken very early, and I have to say with quite a lot of strategic foresight from the people who work with it, we've taken an early position in floating wind.
My personal view is that it's going to be the next wave of growth in this area as the bottom fixed potential is being developed. That is clearly an area where a lot of our offshore legacy is going to have a direct relevance. We have a solid portfolio of producing assets, and we communicated that the real post-tax IRR for the producing portfolio is around 10%.
It is a portfolio that has given us quite a bit of important learning and experiences, and we do have operational experience from operating in this area. I don't think safe and efficient operations will be less important for us in this area. We are systematically benchmarking ourselves with externals to make sure that we are in the ballpark where we need to be.
When we deconstruct those numbers, they show that we still have a way to go before we are among the very best, but we also have clear line of sight to where we need to be. When we deconstruct the result of auctions, either auctions we have lost or auctions where we have got access to the data, I'm encouraged to see that we are not losing because we are too capital intensive, and we are not losing because our OpEx is too high.
If that was our starting point, it would have been a very different story, but we are actually quite competitive in those areas. There are other levers that competitors have to pull in order to knock us out of the game.
There was a lot of talk in the previous session on digitalization in terms of improvement, and I think that we see quite a lot of upside also on the operational side through digital tools and also through ways of working differently going forward than what we have been doing. We also think that it's possible to realize upsides from wrapping those types of risks for new entrants that are coming in.
Operations O&M for-profit model going forward is something that this industry is likely to see. Because of the financial nature of many of the players that come in with rather limited technical and operational experience. In the short term, we have quite a strong pipeline of bottom fixed wind coming. It's a pipeline that will give us scale that I think is crucial to take us forward.
Personally, I have the view that projects build companies, and I keep reminding people how the old Hydro and Statoil were built. Hydro were very much built on the back of Troll and Oseberg. Statoil was very much built on the back of Gullfaks and Statfjord. These big projects, they shape capabilities, and they develop generations of leaders and professionals that also can serve other projects and build that capability on a portfolio scale.
We are currently in 2019, and what we have been able to do, I think we're currently ranked around number 5 in three of the areas that we have highlighted as clusters on our side. Zoom in towards the landing by going through quickly a few of the projects where we are in. I said that scale matters and Dogger Bank 3.6 gigawatts separated into three projects of 1.2 gigawatt each.
The potential in the Dogger Bank area in total is probably around 20 gigawatts. If you look 15, 20 years down the line, and you know the role that the Sleipner field has played on the Norwegian continental shelf as the gas junction where everything is tied in, this could be the socket for the North Sea in the longer term.
That's why I'm saying it's strategic. It's smack in the middle of a lot of the developments that are going to come, and that was one of the reasons why we were so eager to get on the inside of it. These three projects alone can supply up to 5% of the U.K.'s power demand. Why is scale important? It's strategically important because of the positioning. It is important because it improves our bargaining power with supplier and basically taking cost down.
It is also important in the operational synergies that we see going forward and how we can think of the U.K. as an integrated area with the opportunities that Bernt described with the integrated operation center and that type of a thinking going forward. It is also an observation that it is clearly attractive to tap into infrastructure investment market and pension funds who see this as a type of attractive asset going forward.
I know that some of you are interested in what are the technology advances that we bring into the Dogger Bank development and how can we take the background we have, not as a pure-bred offshore wind developer, but as a broad energy company with a strong legacy and capability in oil and gas? Just to give you a couple of examples on how Dogger is leveraging that legacy that we have.
First of all, it's a willingness to go for the largest machine out there and the turbine from GE, the Haliade-X. We do have that risk appetite because we are used to qualifying new technology, and we're willing to make those kinds of calculated risks with new technology. That is very close to our DNA as a company.
The second one is that we are building a completely new installation vessel. Instead of transporting one and one monopile to site, we're going to do 10 at a time. Again, an experience that we have from the oil and gas side in terms of optimizing logistics. Lastly, and back to Eldar's no Dogger Bank without Johan Sverdrup.
The HVDC that Aibel and ABB are going to deliver and actually going to do quite a lot of the work in Haugesund, that comes directly from the offshore experience that they have on Johan Sverdrup and elsewhere. They have been supplying offshore wind also in Germany. They are systematically building a base of capability that is giving them a new strategic leg.
I was in New York a few weeks ago talking to New York stakeholders, and I was amazed to see the interest in the Empire Wind field. It was a strong element of pride, which Norwegians tend to have when Americans say that we are doing something interesting. Secondly, it was also quite a bit of respect for the fact that we're going to develop something that will be really important for the future energy philosophy of New York State.
This is the cornerstone and the stepping stone of building a profitable business on the U.S. East Coast. We've taken a lease in Massachusetts that we're also going to bid in auctions going forward, and there's still significant potential, more than 1.5 GW left after the 816 MW award in N.Y. We are seeing the East Coast as an integrated business system.
We are developing knowledge of the supply chain and the local power markets, and we are developing relationship with stakeholders that's going to serve us as we go forward. We're of course also going to utilize the capabilities of Danske Commodities on the power trading side.
Lastly, floating wind. Why do I spend so much time on that in the public domain? Isn't this something that is very far out in time and far too expensive and we're never going to get there, et cetera?
When we look at the map and the water depths, the moment you go beyond 60-ish meters, that's when bottom fixed becomes too expensive and too complicated, and that's when you have to go floating. If you look at the areas around the world that could be potentially used for power production, some 80% of that potential would have to be developed by floating solutions.
We have worked on this since 2009. We've taken the cost systematically down, and we have set an ambition for Hywind Tampen to take it down another 45% compared to where we are. We've set the long-term ambition in 2030 of delivering power from floating wind at EUR 40-EUR 60 per megawatt hour. Further out, you have higher capacity factors. The wind is stronger and more steady. You are further out, so the NIMBY factor is smaller here.
It is not going to be conflict-free in the sense that we are this coexistence with shipping, with marine, with defense, with fisheries, lots of issues that we need to manage. They clearly have some advantages of, for instance, doing onshore or nearshore developments. It opens up a whole range of interesting options for us in the future.
Areas like Japan, South Korea, and California, the nature of their shelf means that they have to go not necessarily via a big bottom fixed development before they get to floating. They will probably have to go floating much earlier, and those are markets that are clearly interesting from our side. I'll stop there. I guess we are ready for Q&A, Peter, or Yeah. Thank you.
Thanks, Pål. Lars, will you take over Q&A?
Yes. The last part of this session will be a Q&A session. If you think you have heard a lot of details during these presentations, that has exactly been the purpose. This is an opportunity for you to dive into details which you would not hear about at the CMUs and other events where we more emphasize the headlines and perhaps also the things that are really driving the interest for the company in the long term.
However, the company is built up on a lot of details, and some of these you have heard about today. This is an opportunity, through the Q&A, to dive further into these details. I encourage you all here to take some questions.
We will also have some questions from the U.K. side through the internet. Peter will provide these questions. Eric as well, I think. I think we start with some questions from this audience. If I see some hands, I will immediately turn over. I'll start here with Jørgen.
Yes. Thank you. Jørgen Bruaset from Nordea Markets. I have two questions regarding offshore wind for Paul. Just going back to what you said about the appetite from pension funds and long money buying into these type of projects, how dependent is your business case and your expected returns on these projects on farming down, i.e., how sensitive are you to interest rates remaining at the current levels for your business case?
That's the first question. The second question is, if I look at your competition in the U.K. and what Ørsted has done on their Hornsea projects, your CapEx per megawatt is roughly 30% higher, and your strike price is roughly 30% lower than what we've seen on Hornsea 2. Is there any specifics in the projects that would differ in terms of transmission assets and so on? Are you investing in infrastructure in Dogger Bank for any future extensions in terms of clusters? Thank you.
Are we going to answer as they come in or?
Yeah, I think we should do so, yes.
How dependent are we on long money and investments? I think that every asset will have different rationale for how you actually sit with it and what type of equity shares you are left with in the end. You will see a mix of different structures in our portfolio at the moment. It is clearly so that there is a considerable upside to returns if you're able to farm down to basically long money with different sort of return expectations going forward.
There could be other reasons for farming down and bringing in other types of partners, more of an industrial nature, whether they are providing benefits in terms of offloading CapEx in a period or grid connection, transmission, knowing the market, et cetera.
It's not black and white, and I don't want to quantify it, but we clearly see that this is one of the sources of added value creation that is out there. Judging from the experience that at least I have in this, so far, the interest out there is very big. I think if you take Arkona as an example, it's one of the few times I have experienced that making a shortlist was extremely difficult.
There was a lot of companies who wanted to be shortlisted and potentially go forward. That interest is there. How the interest market, et cetera, will develop going forward, that's outside of my control. What I can do is to de-risk the asset and make sure that we have a quality package to potentially offer at some point.
To be honest, I don't know Hornsea 2 very well, so I'm hesitant to make an explicit comparison. Obviously, assets in different periods and different times will have different profiles, both in terms of CapEx and also which round you bid them into. I think the difference from an Equinor point of view to some other assets is that we're going to have a quite significantly bigger turbine.
Yes, there is built-in optionality or room to optimize this asset for things that might come in future. We're not pre-investing in capacity, but we've clearly thought about the scenario where there might be added assets coming into this particular area because it is quite attractive
We will now turn to Teodor Sveen-Nilsen.
Sorry. Thank you for a great presentations from all of you. I have two questions to Pål. First, you mentioned two gigawatt hours target. When are you aiming for reaching that, and from where will you bridge the current production up to two gigawatt hours production?
The second question is actually pretty technical. I'm not sure whether it's relevant or not, but could you discuss a little bit around challenges for current in the sea, for the Empire project versus the Dogger Bank project? Thank you.
On the last one, I don't feel like the right person who's going to do that. I would be so far outside of my comfort zone that I will say something I regret. I'll refer you to somebody who can address it. I don't think I referred to a two gigawatt hour target. That is news to me. If I said that, I must have been talking.
It was maybe additional, so it was two gigawatt hours, something on the side.
That was probably the production level that we are getting close to now. I don't think we have articulated a target. We are a bit hesitant to be volume driven and target driven along the lines that you are indicating, because I think it puts some incentives on developing this business that is not necessarily what we are looking for.
My main driver is that whatever we end up doing needs to have a business case at heart. We are actually walking away from quite a few opportunities out there because we don't see a line of sight to competing effectively and having sub-optimal business cases.
I don't have a volume target for my organization, and we don't have it on our scorecard. We are nearing 2 gigawatt hours in production from our portfolio, but it's not the target to get there. Obviously our production when our Arkona transaction is closed will go down because we're farming away 25% of that.
Just regarding my second question on current, if you can confirm, yes, there is a challenge?
No, I can't confirm it. I'm not that close to that issue. Actually I don't feel like commenting on it even. Yeah.
Can we now pass the mic to Anne-Johun?
Anne-Johun Hansmo from Capital Markets. Also questions for Pål. Typically, these projects nowadays are long-term contracts. Will you then also typically seek project financing with a rather high, for you at least, debt level? Is it typically that the transmission assets is part of your development project or that you've got control of it?
Again, it's difficult to give a sweeping answer that will answer everything. I think the honest answer is that it will vary a bit. If you look at the portfolio we have now, we are sitting with Empire 100%, Equinor. That gives us quite a bit of optionality in terms of what we want to do and how long we want to sit with that.
To put it this way, we are not going to decommission Empire as 100% equity owner. That is very unlikely. We have some geographies where project finance is almost a requirement, because the partnering that is required will drive us in that direction. There are other geographies where we think that could be a good thing to do from a risk management point of view, if you have more political risk or country risk type of structures in there.
I'm quite flexible in terms of how we are going to finance it. Clearly this is an area where project financing is more normal than what we know from our traditional sort of oil and gas business. Again, on transmission assets, that varies a lot. In some cases like the U.K., you develop it and then you basically divest it back at a certain rate.
In other geographies, even in Europe, this is taken care of and it's being developed by others, and you basically plug your system into their system. Again, we can work in both systems. In general, I like being in control of the transmission assets, especially offshore, because that gives us an integrated overview of the entire supply chain. If I could choose, that is what I would actually prefer.
It is very clear that wind is popular among this audience as well, Paul. I hope there are some questions to the rest of the.
So do I.
All the presenters. Going in the wind. We're turning now to questions from the internet. Erik, you got some there.
Yes, a couple of two from London and one from, let's say London, Paris. It's Société Générale. Let me start in the order of the speakers. Eirik Wærness, this is from Exane, from Alwyn Thomas . "Given the softer looking outlook for gas prices heading into 2020, should we now expect lower flex gas volumes?" Then to Luis, that is from Société Générale.
The question is, "If you could talk more about specific changes observed in terms of end markets, geographically speaking, for NGL volumes produced by Equinor in North America." Then the third one to digitalization. This is from Barclays, Joshua Stone. "As you roll out digital solutions within Equinor, what safeguards are you putting in place to protect the company from the risk of cyber attacks?
Good. I think we take the questions in that order. Eirik, if you will start.
Okay, on the question for gas price outlook and consequences for flex gas, I guess. I wouldn't necessarily say that I said softer outlook for gas prices, but a soft outlook for the gas market going into next year. That's the way most of these variables point in that direction. We have storage levels at very high levels.
If I were able to speculate with any kind of security about next winter's or next summer's weather, I could be more certain where this market is going, but I'm not in that position. We will have new LNG capacity coming in, but at the same time, gas demand is relatively stable in Europe, and it's growing elsewhere. We also have had a change in the production permit for the Troll field, for this gas year, taking into account a slightly lower framework for production.
How the market develops into next year depends also on the Russia and Ukraine situation, as I said, and where we will end up. We will see this during the summer. Where we will end up on that is the result of all that. It's impossible to say with any kind of detail whether we will see more or less flex gas.
Turn to Luis.
Okay. Regarding the changes, if we go back to the 17% share, that is essentially the Norwegian Continental Shelf, that is exported out of Norway really into Europe and other markets.
We are exposed to some of the volumes coming from the U.S., essentially. We are also de-investing from Eagle Ford, there are less volumes coming in the portfolio from there. We are adding Johan Sverdrup, on the long term, that will really decrease a bit the position on the NGL market.
Okay. The last question was on digitalization.
Yeah. Regarding cybersecurity, I think first of all, cybersecurity is a threat that is continually evolving, we need to work very hard to understand it. It's an area where we never can say that we are finished or have accomplished everything we need. We work along at least four main axes. One is to ensure that we have up-to-date governance, steering documentation based on international standards and best practice.
That's number 1. Secondly, we work on the technology phase in terms of we are separating the office net with the operational net. I mentioned our data platform that is built based on Microsoft technology, then we are working very closely with Microsoft and work on their cybersecurity measure. The third one is awareness. The biggest risk, in fact, is us as employees, us as humans.
If we click the wrong link, if we open the wrong email. We run a lot of internal awareness campaign, so we improve the cybersecurity culture within Equinor. The fourth area, if something happen, we need to be ready to act on it. We run a lot of training, desktop training to be prepared if something happen. Anything to add on that?
No, I think you're spot on. I think that's also what we learn from others. If you listen to what Hydro also had as a experience, it's really also about training and preparing because you cannot guarantee 100%. Teodor?
Do you need a mic for?
Yes. You will get a mic right now.
Thank you. One question to Eirik on oil market. You said that a base case GDP forecast over the next few years was 2%-2.7%, is it?
2.7 on average.
2-2.7, right. I guess then also you have a scenario oil demand growth of 400,000-800,000 barrels per day, maybe. In that scenario, what kind of oil price scenarios do you see? Of course, you might disagree with my assumption, 400,000-800,000 barrels per year.
Yes. I do. I think we're close. I showed you. The average growth for the next two, three years is slightly below 1 million barrels per day per year in demand growth. The 2.7 average GDP growth, that's on market exchange rate, don't confuse that with PPP type of growth rates. Make sure you compare the right type of growth rates. Of course, uncertain.
As I said, we have at the moment a well-balanced, if you like, oil market, but characterized with massive geopolitical uncertainty as well. We have very low spare production capacity. If we got another attack like the one in Saudi Arabia, the impact on price could be massive depending on the sentiment in the market at that moment. We see now tendencies of rig rates or rig count coming down in the U.S. How is that going to develop?
We have a lot of oil supply out of the market. With a different type of geopolitical climate, trade climate, you can allow some of that coming in. How all that plays out, a lot of things indicate that significantly lower prices than what we have now would have an impact on the shale production going forward.
If you have much higher prices than we have now, the marginal demand will be impacted. Our base case is that over the next couple of years, it's going to be roughly in the same area that we have now, but gradually picking up.
As we've said, the prices in 2025 and 2030, in 2030 will reach $80 per barrel real. That's our base forecast. That is driven partly also by the fact that we think long-term supply curves are going to start to matter when you get into the 2025 area and going forward.
We will now return to Anne-Johun .
I have a question for Luis related to NGL. You said that in 2018, the NGL share in Norway was 17%. This year it's been higher. It will be reduced again with the start of Johan Sverdrup. Is it possible to indicate the NGL share when Johan Sverdrup phase 1 reach plateau production?
17% is the share of the NGL of the 51% liquids of the volume of the equity. That translate more or less to 6%-8% NGLs from the total equity, really, to clarify that one.
Johan Sverdrup will add probably 20 kilobarrels of NGLs per month, but I don't really have the exact figure of how that will impact the whole portfolio. It's a medium-type crude, so it's a very low really volume of NGL coming from Johan Sverdrup.
Mmm
I don't think it will have a big impact.
I would assume that it would clearly reduce the share compared to what we have seen now most recently.
Over time.
Yeah, I might add that that is certainly the case because it's primarily crude that we get from Johan Sverdrup. Also, keep in mind that we are divesting the Eagle Ford. Eagle Ford is producing something close to 50,000 barrels to us now, and about 45% of that is NGLs. That's going out of the mix, and then you get Johan Sverdrup into the mix.
Clearly the overall percentage of NGLs in our production is decreasing. Still, it is important, and having some knowledge about the NGL market is an advantage if you're looking into estimating earnings for Equinor. Let me see. Do we have more questions from the internet, Erik?
Yes. One more from BNP Paribas Exane. Again, on digitalization. Can you estimate the level of carbon emissions reduced due to digitalization methods per year since implemented?
Our approach to that is that the digital can enable the ambition we have in the broader. We have an ambition to reduce it by 3.2 million ton.
Yep.
Far, we have reduced by around 1.6. We're seeing that digital tools, both in terms of using data in new ways, but also for the future fields where we can have more unmanned, more remotely operated. That will, of course, have a positive contribution. Bernt, one of your teams is working exactly that.
Yeah
existing assets.
Oh, it's exactly as Torbjørn is saying. We are actually reaching probably closer to 1.8 this year. We have built digital solutions to follow up each and every installation, especially on the NCS, towards how they are actually using their energy so that we can reduce the carbon footprint from our operations.
One target that we have communicated is within our U.S. onshore business, is to reduce the miles driven by 25%. That's the center we have in the U.S. that is using algorithms for route optimization, where we can optimize that. That has both a positive cost, safety, and CO2 impact. We are on our way towards that target.
I think we have a question from Oddvar Bjørgan. Is that correct, Oddvar? Yes.
It's a question for Eirik on natural gas. These days everybody seems to be so bearish on natural gas prices in the short to medium term. Recently I've seen spot prices in Europe going up dramatically last 14 days from below $3 to today it's like $5.56 or something. Do you see any other reasons than the colder weather for this actually this surge in actual spot natural gas prices?
Well, I think I wouldn't exclude that we're getting closer to the point in time where we need a clarification of the Russian-Ukraine transport issue. We've seen the forward markets have shown that type of impact now for several months. We're now approaching a time where that needs to be clarified.
We're getting into winter, and you add on those two impacts. The weather has been slightly better, if you like, or for gas demand in Asia as well. I think it's probably a combination of those factors, including the weather here. That is the main reason why we've seen that increase over the last month, or like last weeks, if you like. I mean, the flip side of that is, of course, that if the markets might overshoot also here in terms of if we get a clarification.
If the winter in late January, February turns out to be milder than what is based into where the current forward market is basing their forecast, basically we could get a refraction again and a lower price. Again, because this is probably very sensitive to very small changes on these two, three variables.
Okay. Do we have any questions from the internet at this moment? No. I think, Jon, did I see your hand? No. It's Teodor. I see your hand. Okay. Teodor
Thank you. I just wanted to, it's maybe a question for I think it was Torbjørn that talked about $2 billion value creation, long-term pre-tax, based on various initiatives. Will that be driven by cost reductions or increased resources or increased production? Could you give some more details on those $2 billion, please?
The $2 billion is equal to 3% production increase, so it's only driven by production increase of existing assets. That's the driver behind that target. It's aggregated from until 2025. Kind of cost targets going forward that we have internally comes in addition to that target.
It's increase in maximum production potential and a reduction in losses.
Okay, sure. Understood. My last question for today hopefully is on, Pål, you said in your disclaimer that you didn't want to disclose any new numbers on internal rate of returns or CapEx on the renewable projects. That's fine. On the capital markets day, what kind of parameters should we expect you to provide some guidance on?
The flippant answer is come and see. I don't want to pre-guide the guiding. We are in the middle of working on that. We clearly recognize your interest in getting to know more and more transparency, et cetera, and we clearly recognize that. I don't want to sort of put out the teaser now. We're in the middle of that process now, let's see when we come to February.
That's fair.
It's an excellent opportunity to remind you all that the CMU will be at 6th February for Equinor. Same day we have the fourth quarter results. Do we have any more questions from the audience? Yes, we do. Okay.
Paul Wynni, Norges Bank is for Eirik Wærness. The futures curve indicate an oil price in 2025 around $60. I know that is a thin market and everything. You have a price assumption, as far as I know, of $78 real in 2025.
77, I think.
Yeah, whatever. Indicating a nominal price around $ 85. Can you elaborate on that price difference between the futures curve of $ 60 and yours on $ 85, please?
Well, I guess first of all, the future price is generally a fantastic indicator of two variables, which is today's spot price and the sentiments about how well supplied the market could be some months into the future. That's generally what that curve shows.
As you said, the market out there is extremely thin, and I think you would see an impact on that price if we started to trade around at that point in time. When we make our longer term forecasts from three years into the future, way beyond that, we look at things like where do we think the marginal cost is going to move, how does that look with the FIDs been taken over the last two years, technology development, the likelihood of a tightening or weakening of the supplier markets, things like also different tightness for different types of crudes.
The price you're referring to is a Brent type of crude. With all that, looking at whether we think the market is most likely going, we see a significant increase in the price over the medium term, whether that's going to be exactly $77 by 2025 or $80 by 2030, that's where we are, with a large range of uncertainty around it.
When you look at how different consultants, for instance, look at what price do you need to have a break even profitability of different kinds of oil needed to fill the gap between, we lose 5 million barrels a day every year, just to normal decline, and that has to be replaced. When you look at what, for instance, Wood Mackenzie says that what is necessary to fill that gap and what's the break even of that?
You can get very thin with very small variations in supply and demand. You can deliver with resources at $65 a barrel or at $90 a barrel, depending on which is the marginal source of supply once you get five to 10 years into the future. It's within that space, we think that we need it. In order to deliver on 104.5 MMbpd of demand in 2025, we need a higher price than we have it today.
Looks like the final question, second last question we will have is from the internet, Erik.
Yes, it's from Kepler Cheuvreux, Anders Holte. We're back to question to Pål Return development on offshore wind. Where are you compared to your targeted unlevered IRR on Empire and Dogger Bank? Any guiding to be expected on the annual cost of operation for either of the projects at the CMU?
We haven't communicated a target for any of the future projects. What we have communicated is basically the existing producing portfolio. We haven't indicated a range. I think there are different forces working in different directions. Clearly we see that cost is continuing to come down.
We see that turbine sizes are getting bigger, and that means less steel and less installation cost and all of these things. We also obviously see that the prices are coming down in the auctions and have been coming down significantly. We are kind of in a process where these are pulling in slightly different directions.
The second sort of generic observation is that it's very sensitive to what point in time do you actually look at returns, because you are going to work with these business cases from the moment you access them and all the way through to production, and then you are potentially commercializing parts of your share.
Obviously, the returns will be different at different points in time. We are not likely to guide on individual assets on operational cost per asset. That expectation, I don't think you should have. You will recognize our approach in this area from what you know from the oil and gas side as well, of guiding on a portfolio level and guiding on numbers where there's reasonable quality in the base of it.
Oddvar, yeah?
Yeah. Another question to Pål. It seems like you expect a lot of offshore wind project awards on the East Coast of the U.S. going forward. How realistic is that when you have probably a U.S. natural gas market that will be oversupplied for the next five, 10, 15 years or something? How easy is it to compare with those prices? Do you need a lot of subsidies, you think? If you could elaborate a little bit on that.
The East Coast isn't the East Coast, kind of. It consists of seven different states with different priorities, different regimes, different mixes in their energy systems. Even though they are part of greater regions in energy terms, they vary quite a bit. I think that in terms of auctions and activity going forward, all of these states have in common that they have put out some very specific targets in terms of their power mix going forward.
That power mix is very different from state to state. Some are importing power from Canada, and some are doing other things, and some have gas, and some have coal, et cetera. I'm encouraged by the fact that there is a very strong political drive to actually get this in place, and it's very strongly anchored in the various congresses of the various states. I'm encouraged by that.
There are a couple of other factors that play into this. Leasing is a federal responsibility, and it's actually the same federal agency that is leasing offshore wind acreage, that is leasing oil and gas acreage that we know well from the oil and gas side. That also needs to be linked to the state's procurement schemes.
You should not expect anything like a five-year plan from BOEM where they say, "Here are the lease sales that are going to come going forward," and then perfectly synchronized with the different states, because they're also competing to attract these opportunities. Empire Wind, for instance, we can basically bid in different states from that lease because of the location that we have, and we are likely to do so going forward. Massachusetts has some of the same optionality.
It's a long answer to say, I'm confident that the U.S. will continue. I'm confident that the prices will continue to go down as the supply chain matures, but I'm also clear that there needs to be, in the early phase, there needs to be incentives in place to be able to drive this in the right direction. That's the last comment on that.
The regimes also vary quite a bit when it comes to whether it's a pure price play or whether there are expectations to local content. That varies also from state to state. New York, for instance, is a state where the local content expectation was baked into the procurement and the tender, and we basically had to deliver on that.
You have other states where it's a pure price mechanism, where I think the feedback I'm getting from them is that they think that they have been surprised to see the price level that players are willing to compete on in the various states.
Thank you.
If I can just supplement as well, it's just these states have very different ambitions and to some extent, also very ambitious carbon pricing.
Yes
targets that would impact the profitability of wind versus gas.
That's a good point.
Thank you very much. You truly delivered some detailed questions. Thank you. That will conclude the Q&A session, and I leave the word back to Peter Hutton.
Well, all I want to say is, well, see three sets of thank you for Lars. Well done. You can do it on the Q&A as well. That was very well done. Thank you for everybody coming today, especially on a fairly inclement day. Not exactly what good for solar, okay for wind, better for gas in terms of the weather.
Thanks to all the speakers, Luis, Pål, Eirik, Bernt, and Torbjørn. Thank you very much. As always, one of the things that I think Equinor has always been appreciated for is it gives access to a wide range of people who are actually doing the day job in the detail, and that's always appreciated. On behalf of investors, my thanks as well.
Last and absolutely not least, this is also an opportunity for me to thank and also to make sure that everybody here knows all the team that we have in Investor Relations here in Oslo. Lars you know, Erik is here, Ida. You may not know Marta, who has joined us fairly recently to look after ESG, and Sophie as well. Thank you very much to everybody, and pleasant afternoon. Thank you.