Why Is Denmark Ditching Natural Gas?

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By Viktor Katona

Denmark’s announcement that it would stop offering exploration licenses came down on the European oil and gas sector like a bolt from the blue. Not that it would be a completely unexpected move – the offshore production of Danish gas has found itself bogged down in having to modernize without the required political backing for it – rather it is a move that puts a lot of pressure for other producing nations that might be confronted with popular pressure to follow Copenhagen’s path. The Danish climate and energy minister Dan Jorgensen has stated early December that Denmark would seek to end all oil and gas production completely by 2050, meaning that the total phaseout will roughly correspond to the winding down of Denmark’s flagship producing asset and largest gas field, Tyra.

Denmark has historically been the overlooked member of the quarter of North Sea oil and gas producers, despite producing from its offshore assets since 1972. Denmark’s 19 oil and gas fields pale in comparison to Norway’s 112, however there is one gas field that is up there with the bests of the North Sea – the Total-operated Tyra field accounted for 90% of aggregate gas production and has been a vital element of Denmark’s becoming a net gas exporter. Tyra was temporarily shut down for redevelopment maintenance works in September 2019, at that point it was assumed that it would take roughly 3 years to remove the old platforms and replace them with updated ones – by 2022, the stakeholders thought, everything would be back on track and Denmark would need not import gas for its needs. But then came the coronavirus pandemic…

The Tyra Redevelopment Project envisaged the replacement of the two process and accommodation platforms with one. The project team managed to decommission the old platforms by the end of this August but the next steps were missing. The wellhead and riser modules for the new Tyra are being built in Singapore, the accommodation module in Italy and the process module has been constructed in the Indonesian city of Batam. All three of the construction sites share one common trait, namely that they were massively impacted by COVID-19 lockdowns and associated restrictive measures. As a consequence, the new Tyra topsides cannot be installed in 2021 and have been officially postponed into 2022, meaning that first production from revamped Tyra is expected to start flowing by the summer months of 2023.

The main reason for the redevelopment programme itself lies in the subsidence of producing platforms over 35 years of production – as gas pockets collapse over the years, the seabed below the platforms has slid down by 5 meters since Tyra’s commissioning. Thus, the distance between the sea bottom and the platform surface decreased to a mere 15 meters which is too risky to contend with. The $3.4 billion revamp seems to have taken place just at the right time, at least as far as one can judge by news reports of alleged gas leaks from one of the platform’s legs. Once the new Tyra platform is commissioned, it is assumed that it will be able to maintain production of 60kboepd for another 25 years – by that point Tyra will have been producing for more than 60 years, since 1984.

Graph 1. Denmark Gas Production in 1980-2020 (Billion Cubic Meters per Year).

Delaying Tyra’s return mean different things for different nations and consumers. For Denmark, it means that 2022 will be a year of wasted gas opportunities and will have to retain the status of net gas importer for one year more than it had assumed. Even more painful than to Denmark, delaying Tyra’s recommissioning will create several layers of complexities for Poland, a market that had peculiar hopes for Tyra to come back again as soon as possible. The main source feed for the 10 BCm per year Baltic Pipe that is currently under construction was believed to come from Norway and Denmark; meaning that not only did some of the companies involved decide to quit the oil and gas business (see Ørsted) but also Denmark as such will decline faster than previously assumed.

The underlying corollary of Denmark shifting its focus onto renewables and keeping whatever oil and gas project it currently wields as a legacy carryover is that it would inevitably import more natural gas in the interim period. In fact, if one is to look at the import statistics ever since Tyra was shut down for maintenance, imports did increase significantly. By and large Denmark has two main sources of natural gas, either from Norway’s continental shelf or via the onshore German system and it has been the latter that sprung up palpably. Considering that Germany is barely producing any gas and has no LNG import terminals, it can be assumed fairly safely that the gas arriving to Denmark is Russian gas routed via Germany, a really ironic twist of events given Copenhagen’s obstructive stance towards Nord Stream 2.

Graph 2. Denmark Monthly Gas Imports in 2015-2020 (in million cubic meters per month).

Denmark has been dreaming up and implementing a very ambitious climate policy that sets a 70% emission drop by 2030 (compared to the 1990 baseline) and going carbon neutral by 2050. In view of Tyra’s gradual decline in the 2040s and no other alternative to replace it, the timing could hardly be better. The Danish government will also set up a financing mechanism to promote offshore carbon storage, endowed with some $550 million. Oil companies active in Denmark’s offshore might even use the Danish green drive to create new business opportunities – companies like INEOS or Wintershall Dea have already expressed their interest in repurposing their drilling infrastructure into carbon dioxide storage hubs (the CO2 would in effect be stored below the seabed).

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