Serving oil and gas companies... sustainably?
Serving oil and gas companies... sustainably?
Another day, another attempt to cash in on the energy transition
At the start of this year, I wrote about the schizophrenic position that oil field services and equipment (OFSE) companies find themselves in as the global energy transition advances. Caught between the comfort of huge revenues from traditional oil and gas work and the need to face up to the sector’s long-term decline, firms like Baker Hughes, Saipem and Technip — which provide the complex engineering services that keep the fossil fuel energy system running — have in recent years been rebranded as ‘energy transition leaders’.
Two things make this possible. First, OFSE companies are in fact taking on an increasing number of transition-related projects, and are able to keep these front and centre in marketing materials while making the bulk of their money from traditional oil and gas. Second, when compared to their clients — integrated oil companies which actually produce and sell fossil fuels — OFSE firms have an easy job of emissions reporting. While process emissions from the use of their equipment (e.g. methane leaks at wells) must be reported as part of their Scope 3 (indirect emissions) disclosures, engineering firms have no official responsibility for emissions from the use of the fossil fuels whose extraction they facilitate.
No company represents this dynamic better than Maire Tecnimont — branded as Maire — whose website blares “WE MAKE ENERGY TRANSITION HAPPEN“. The Italian firm emerged from the former Fiat Engineering in the early 2000s to become a leading engineering, procurement and construction (EPC) contractor for the oil and gas industry, but in recent years has heavily touted its work on carbon capture projects and its ‘Sustainable Technology Solutions’ business.
In September 2023, Maire closed a €200 million bond offering governed by a new financing framework, which includes incentives for the company to make progress on its reported direct and indirect CO2 emissions figures — the bond issuance was significantly oversubscribed and closed in three days. As of 2022, the company already enjoyed an emissions score of 98/100 in ESG ratings data provided by the London Stock Exchange Group (LSEG).
Maire’s rebrand has coincided with a surge in its share price. In mid-2020, as the company was bailed out with a €365 million loan from the Italian government, its share price hovered around €1, while at the time of writing it’s over €8. But is this growth actually based on a forward-thinking pivot towards transition-related work? A quick look at the company’s project backlog suggests otherwise.
Two charts from Maire’s 2023 annual report make the situation clear. First, a breakdown of the company’s project backlog by business unit shows just how minimal its Sustainable Technology Solutions offering really is, accounting for less than 1/64th of the engineering and construction unit’s future revenue at the end of 2023.
The second chart shows the breakdown of the backlog by region, revealing an extreme tilt towards projects in the Middle East. Well over half of the future revenues in that region — $8.7 billion, slightly less in Euros — are attributable to a single contract with the Abu Dhabi National Oil Company (ADNOC) for work on the Hail and Ghasha sour gas project, for which Maire will build on-shore gas processing plants, pipelines and support facilities. Last week, Maire’s work in the broader region received a further boost with the announcement of a $2.3 billion award from Sonatrach, the Algerian national oil company, for similar on-shore gas work, to be carried out as part of a consortium with Baker Hughes.
Both projects raise serious sustainability questions, most notably about the risk of methane leaks. Last year, a study in the Atmospheric Chemistry and Physics journal, based on remote sensing data from satellites, concluded that rates of leakage in “almost all countries of the Middle East and North Africa” — including both Algeria and the UAE — were “much larger” than the 0.2% target set by the industry’s own monitoring group, the Oil and Gas Climate Initiative (OGCI).
In October 2023, The Guardian reported that the UAE had failed to disclose its methane emissions to the UN for more than a decade, while in 2022 an analysis funded by Greenpeace found that the Hassi R’Mel gas field in Algeria — the same field on which Maire is contracted to work — had been leaking gas for nearly 40 years. While there is an argument that upgrading infrastructure on leaky fields is part of what’s needed for the world to decarbonise, the academic evidence suggests that leaks are only part of the problem, with substantial emissions also coming from less tractable process issues like “deliberate venting or incomplete flaring of gas.”
In the case of the Hail and Ghasha project in the UAE, environmental concerns go beyond methane leakage. At COP28 last year, activists staged a special press briefing — complete with fancy dress — to protest the project’s potential impact on the Marawah Biosphere Reserve, home to the endangered Dugong species. Even the project’s fundamental logic is questionable from a climate standpoint. The sour gas to be extracted has an unusually high CO2 content, which ADNOC plans to address with large-scale carbon capture facilities, aiming to make the extraction and processing ‘net zero’ by offsetting emissions with re-sequestered CO2. Which raises the obvious question: why dig it up in the first place?
Maire’s recent contract awards have been a point of pride for its home country: the Hail and Ghasha deal was announced by the Italian government, which owns a significant stake in project partner Saipem, while the Sonatrach deal was described by Maire’s CEO as “a strong recognition of the entire Italian value chain” which “strengthen[s] bilateral relations between Italy and Algeria.” Ultimately, these statements say more about the European OFSE sector’s real value — as a powerful bargaining chip in the hard business of international energy diplomacy — than any amount of greenwashing marketing material.