Hi, everyone, and welcome to this webcast and business update with Horisont Energi. My name is Magnus Solheim, and I work as an equity analyst with Fearnley Securities. Today, we have Bjørgulf Haukelidsæter Eidesen, Chief Executive Officer, and Dan Jarle Flølo, Chief Financial Officer in Horisont Energi. Bjørgulf will give an update on the company. If you have any questions, please send it in the live chat and it will be answered during the Q&A at the end of the presentation. With that, I give the word over to Bjørgulf.
Thank you. Thank you very much. Thanks for all that are attending today. Following yesterday's news, we are now providing you with an additional market update and this Q&A session. We did announce yesterday a change in the ownership group of the Barents Blue project, and we want to provide you with more information about this change and the plans going forward, what will happen in 2023 in the Barents Blue project. I will now share my presentation with you. Let me walk you through the update. I'll first do a short introduction. Let me see. Here we are. In the company now, we are working to mature two large projects. We have the Barents Blue project, which most of you know very well, and the Polaris project, which is more new.
Yesterday, we announced that Fertiberia is becoming a new 50/50 partner in the Barents Blue, replacing Equinor and Vår Energi as partners. The Barents Blue project will continue with the strongest survivors of that project. With the Polaris project, move forward with site selection for CCS and terminal at Haugaland Næringspark previously. For the Polaris project, we are waiting for the award of the carbon storage license. We have two main business areas. It's clean ammonia, and then it's carbon storage and removal. We move more into the Barents Blue project, which is the main theme of today. The Barents Blue project is Europe's first large-scale clean ammonia facility that implies in size over 2,000 tons per day of ammonia production. This plant is 3,000 tons per day, so being in the bigger league of ammonia plants globally.
We have a best-in-class lifecycle carbon footprint achieved through carbon capture above 99% and other measures. Clean ammonia is a core area of interest for Fertiberia, our new partner, as a leading producer of fertilizers and ammonia, targeting necessary emissions from all fertilizers production sites by 2035. We have indeed found a leading company within the energy transition and within the green ammonia globally and the biggest one in Europe for sure. It's actually the first major fertilizer company manufacturing CO2-free ammonia at an industrial scale in Europe today and selling it. We announced that we enter into a cooperation agreement with Fertiberia on a 50/50 partnership with key milestones going forward to be achieved, and then deliver, in the end, the project to FID and for execution and operation. With this announcement, we have, as we see it, gotten a more European project in clean ammonia.
We have a partner that is very well-positioned in Europe in the clean ammonia market with clean ammonia for sale, and they provide a lot of benefits to this project in terms of their 50 year operational experience with ammonia, and the technical competency and organization that will contribute to making the project even better. Also the full commercial operations that Fertiberia currently has globally within green ammonia and ammonia as such, and also to the factories in Spain provide large offtake from the Barents Blue plant from the first initial train to these plants, securing the offtake and marketing of the ammonia in the project. Furthermore, we have some activities together with Fertiberia going forward. The first one is to sign the letter of intent for the gas supply to the first train.
It is also, and that is without Fertiberia, but to establish the new license group for the Polaris carbon storage when Equinor and Vår Energi steps out, which they will following a process in the license. We will have to establish a new license group with a new partner that would act as the operator of this license. That is also a key activity for the next months. Furthermore, we will now together with Fertiberia update scope, plan, and budget for the decision gate two in the Barents Blue and then also in the Polaris in order to get to the FEED phase. Summarizing, all technical work and get the commercial agreements in place will allow us then later on as another key milestone to pass the decision two and enter into FEED and moving towards FID.
These are the key activities that we will work on together with our new partner, and we are very much aligned on moving this project forward. It is still an IPCEI hydrogen project. That remains. We have the grant, which we will use together with Fertiberia to mature the project and to provide additional capital for funding the CapEx in the project when it comes to the realization. Fertiberia has a large green ammonia project in the north of Sweden, almost the size of Barents Blue, but that project is in the fertilizer value chain, but it is a project with many similarities. So Fertiberia brings also a lot of experience from that Northern Sweden project into Barents Blue, which I think is valuable. At the same time, they have the largest green ammonia project in operation in Spain.
That also is in commercial operation, which also is very beneficial to the marketing of the ammonia. At this point, I would like to start the Q&A session so that we can get your questions to this new announcement and to the new partnership moving forward. Please, Magnus.
Yes. Great. So we have a couple of questions here. I think you commented on it already a little bit, but if you could sort of give some more details into the milestones that you are working on for Barents Blue this year. What will sort of be the next key milestones for the project in the coming year?
Yeah. I guess like many investors have been anticipating, it is to get the gas supply agreements. The first step there is letter of intent to get those in place. Next step would be following up with the term sheets. But first step now is get letter of intent for the full gas supply of the first train. That is a key milestone that we will work on together with Fertiberia. So they also have gas purchase organization together with the gas purchase organization in Horisont Energi. So that is a very important milestone for the project that the investor market has been asking for. The next one, obviously, to establish the new license group for the Polaris carbon storage is important. There are interested parties in joining the license.
We need another partner that can be the operator of this license and that can take this project to DG2 and then later on, FID together with ourselves. We will target to have a joint team building on all the experience that we have built on the Polaris carbon storage in Horisont Energi since February 2020. We have been working on Polaris for a long time. Then we will update the scope, plan, and budget, together with Fertiberia, utilizing their experience. A lso starting to look detailed into optimizations, field optimizations, cost reductions, and so on, to further improve the best business case of Barents Blue, but have a very detailed plan together with them now, to move the project to DG2 as quickly as possible.
Then finally, to pass the DG2 milestone and be able to move into the field phase and to get the project moving towards FID. And this is the ultimate milestone for the CF between the partners.
Great. It is a question on what value or niche does Fertiberia see in the project that Equinor and Vår Energi do not see. If you can comment a little bit on, I guess, how the development of the project changed when you have the new partner in the project.
Yeah, it is a good question. I guess Fertiberia is the large player in the ammonia market today, and it is the biggest player in the green ammonia market. So they have the most marketing experience and commercial operations in the new green ammonia market, which they are marketing globally. For them, getting this size of volume, one million tons of decarbonized ammonia, ultra low carbon ammonia, we have a carbon footprint that is even lower than green, allows them to also decarbonize the rest of their production in Spain. They are able then to provide, let us say, a clean ammonia product or clean ammonia-based product to the market. Also getting into the new clean ammonia markets like shipping and power together with Horisont Energi. So they see this as a big opportunity to grow and scale the green and clean ammonia marketing.
I guess Equinor and Horisont Energi are not part of the ammonia market today and do not have any marketing of the product and will have to establish the full commercial operations in this new market. Having a player that knows the market, knows the pricing, knows the products and the value chains, and wants to get into the project, clearly demonstrates that they think that this is a very, very good project and adding upon what they already have in this market. So I think it is the opportunity that this volume presents for the marketing of clean ammonia in Europe that is a key driver.
It is a question on the IPCEI grant. I guess you commented on it a little bit in the announcement, but if you can sort of give some more details into the criteria that needs to be met in order to access the grant.
Yeah. It is formally approved by EU and ESA, and Horisont Energi is the applicant. But in order to get the payments of support, we need to establish Barents Blue SPV, which will be the beneficiary of the state aid. This SPV is then contemplated now to be established by Horisont and Fertiberia jointly in a 50/50% partnership. Following such establishment, we can start to draw upon this mandate. Firstly, for the work leading up until the activities, leading up until FID, which is about EUR 7 million. Then following that, the activities around FID as part of the project financing, which is about EUR 40 million. The main criteria is to establish SPV at this point.
Great. Then it's several questions on the Fertiberia announcement, but also on why explicitly Equinor and Vår decided to pull out of the project. I guess you have commented on it a little bit, but if you can just summarize all the questions on that into one answer, I suppose.
Yeah. I think that the point I mentioned around the commercial operations of Fertiberia as compared to the, let's say, commercial position of Vår Energi and Equinor in the ammonia market is one part of the answer. The state of the existing clean ammonia market, which I guess is a familiar territory for our two executive partners, would be one part of that answer. The other part would be that, I guess Vår Energi clearly stated when they did their IPO that they would focus on upstream and not invest in these type of projects. So they have sort of answered that question already in a way. When it comes to Equinor is clearly doing blue hydrogen projects, but they have also a significant project portfolio.
Our understanding is that they have priorities in this portfolio, and there has probably been a challenging work to prioritize projects, and this project did not pass through that prioritization. There could be many reasons, but it's difficult to say what the exact reasons are, but I guess there are different things they have been evaluating in such an assessment. This project is an early mover into the clean ammonia market, and it will require quite an effort to set up the commercial operations, which we now will be able to solve together with Fertiberia. I think that is the best answer we can give at this point, apart from what Equinor has stated themselves.
Great. I think that is clear. There is a question on the gas supply. Where will the gas supply come from? Vår said that they do not see Barents Blue being big enough for the off-take from their Barents Sea developments. The question is: Is Vår still a potential gas supplier, and could Equinor still supply too?
Yeah. I guess there are different answers to that question. First off, to fill up the first train in 25 years, there is really only one field that can do that. That is the Snøhvit field. Secondly, the Snøhvit field has a gas solution, which is the LNG plant, but they have substantial amounts of gas out in time and have also ability to produce more gas and transport more gas into the Melkøya plant, but this gas cannot be processed in the LNG train currently due to the capacity constraint in the LNG plant. There is a clear business case, together with Snøhvit, that they can produce more gas, sell the gas to Barents Blue, decarbonize that gas through our decarbonized value chain, and then get accelerated gas production.
For the first train, the focus is on the Snøhvit field, which is the gas that is already there and can be readily accessed through the Melkøya plant. Other gas developments, as Vår states, needs to have new project developments, including new infrastructure to get the gas to shore. There are need for investments, and these fields have other production profiles, you can say, than compared to the Snøhvit field.
There is a question on where are you in the process of finding new operator of the Polaris license? When can we expect this to be in place?
This will be a key priority. We will focus very clearly on this immediately. We already have interested companies. We will run through a process with interested parties, to determine together with the authorities who will be the new operator of the Polaris license. We have high ambitions for this, but we expect that the process will take a few months. We need to do this duly together with the Ministry of Petroleum and Energy and then also with the Petroleum Safety Authority.
It is a question on the power situation for the project. You will need a lot of power. The situation is limited in Finnmark today, ref Equinor and Melkøya. If you can comment on that.
Yeah. We do actually not need a lot of power. We have a very power-hungry plant. The one million ton of production needs 35 MW, which is significantly less than what Melkøya is requesting from the grid. But this is a continuous process, and we are working very good alongside the local power company, Lusitano in Hammerfest, which is organizing this on our behalf, together with Statnett. That is a very simple solution for us to connect to the grid, and Lusitano is taking care of that. When we have results from Lusitano, we will share that with the market. But this is, in our view, we have a, let's say, a limited need for power compared to most other users.
Then it is a question on FID on Barents Blue, and when do you expect to take FID?
Yeah. So with the key ambition being now to get the stage two in place as soon as possible together with Horisont Energi, we expect now that the investment decision will be next year in 2024. So exactly when 2024, we will get back to, because now we will work together with Horisont Energi on the updated scope, plan, and budget, including to FID. So we will be able to update the market on this at later stage, but now I would say the best we can say now is we expect it in 2024.
Great. Then it is a question on the gas prices and the forward curves. They have decreased significantly over the last month. So if you could elaborate on how this impacts your business case.
Yeah. It is a good question. We have seen the gas market change completely. The volumes that we are targeting to purchase is volumes that would otherwise have been produced in the 2040s. So these volumes cannot access today's market. Furthermore, when we purchase the gas, we purchase not a dry gas product. We purchase a different kind of gas product, but the gas product that we can process in our plant. So you can say the existing gas market dynamics and the short-term prognosis is not something this gas can access on the short term or medium term.
Great. Then there is a couple of questions on investors, and if you do intend to find new investors like Horisont Energi, if you are working on that at the moment.
Yeah. To find new strategic investors for the company. Yeah. I guess when we move forward now, we will start that process of establishing, let's say, a new core investor group. That will be work that we will start and go forward. We have done some early planning on this, but I guess that will also be something we will get back to. We expect maybe that the first capital raise in the future will be related to the project financing of the Errai project, which I also will get back to a bit later in this session. That would be a good time to onboard new strategic investors to get a new investor group established for the company.
Great. Then it's a question on, given the development over the last days, will this change any plans or cause delays compared to what has been communicated?
No, this will not change any of the plans. We will now strengthen the capabilities for Barents Blue, so we should expect an improved progress in that project. On the Errai project, it remains unaffected by any of these updates.
Can you share an indication of what market price you can achieve, cost of ammonia production from Barents Blue? Can it be competitive with conventional ammonia?
Thank you for the good question. At the end of last year, we saw the Carbon Border Adjustment Mechanism being approved by EU. It includes ammonia and it includes hydrogen, and it will be enrolled over a certain period. When it is fully enrolled, it will imply a full carbon pricing of all the imported ammonia. Obviously also the internal ammonia in EU will be subject to carbon pricing if it is not decarbonized like the Barents Blue production. This creates a level playing field between the gray ammonia and the clean ammonia. The main difference between the clean ammonia produced in Barents Blue project and the existing gray ammonia production, is that we have a higher energy efficiency, so we use less gas to produce the product, and we have an effective carbon storage cost compared to the ETS quota cost.
We are close to the market. Being in northern Norway, it is a short route to the market by vessel. Through this, we will be able to develop a competitive product in the European market environment. This was also one of the original motivations for locating the plant in this location, that through this project, you would, under the regulatory framework in EU, be able to compete with existing production. On gas, for sure, a big advantage compared to the European players having to purchase gas in the spot market.
Great. I think we have been through most of the questions. I guess, is there anything else that you want to finish off with? I know you had wanted to go through a slide or two on the Errai project, so maybe we can go to that part.
Yes, that is correct. Thank you. We also want to, as we have the investors present, say a few words about the Errai project, which is progressing very, very good. We have a joint project development now together with Neptune Energy as operator, and Horisont Energi is planned to be the operator in the operational phase. This project was initiated back in 2021, so it has been under development for some time, in particular the subservice part. It is the key part of the plant CCS value chain that we are developing in Europe together with E.ON, now also together with Neptune. We plan to store 4- 8 million tons of CO2 annually in the first phase, with additional potential following updates based on operational data later in the operation phase. We have selected an onshore site for the plant, which was announced after Christmas.
It's a CO2 onshore terminal in a location called Haugaland Næringspark, where we have a large industrial park where this carbon storage could provide also infrastructure for storing carbon for customers of that industrial park, existing and future. We also have a large interest from customers. We also announced an agreement with E.ON for storing CO2 from their decarbonized plants around EU. This is the second CO2 terminal Norway has developed following Northern Lights. This is also an early stage in the overall carbon storage development. Carbon storages, and the economics, and dynamics is not very well known to the investor market. We will communicate more around these things and explain more about how these projects are set up and what the value is. But in principle, what we have here is a large carbon storage asset.
We are in the licensing process to get this asset. The terminal itself is also an asset, being key infrastructure for carbon storage developments. The offshore license will be an asset. We have previously mentioned that we will be able to store more than 185 million tons of CO2 in this storage. This will be targeting the European and domestic third-party customers. This is the large new market that is developing rapidly. We have seen a large increase in demand for carbon storage over the last year. This is also a very, very strong project, in this market already taking an early position together with Neptune Energy. We're also very, very happy about the development here. The DG2 is planned for June this year, with investment decision early next year.
The license we expect to be awarded in Q1. That would also be an important milestone in de-risking the Errai project. We have an estimate to start up by 2026. That is early in this market and there are many customers requesting these early startups. This puts this project in a very good position in EU. Like with Barents Blue, this is also an activity under the EU taxonomy. We are developing this project also to be compliant with the EU taxonomy, being a sustainable project. We then have ability to have green financing also for this project and have customers within the EU green market, use this service. That is also I wanted to mention this, as another key project that is moving forward with a lot of important milestones during 2023. That was the presentation for today.
We have our mission statement firmly before us. We are really accelerating and will be able to accelerate even more now together with Fertiberia. We're looking forward to share the news from forward you, so there should be a healthy news flow from both the Barents Blue project and the Errai project going forward.
Great. Thank you for the update and thank you to everyone who listened in. With that, have a nice afternoon and goodbye.
Thanks a lot. Bye.