Equinor 2Q24 results | Climate Transition Analysis

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Challenges remain for Equinor’s renewable segment as it faced another quarter of losses. The company announced a downgrade to its renewable generation target to 70% growth on FY23.

Our view

Equinor released its 2Q24 results, confirming the risk to its renewable energy generation guidance (>4 TWh) that we highlighted last quarter. The company has now downgraded this guidance from 100% to 70%, reflecting the significant ramp-up needed. Although growth ambitions for renewables is strong, the company is struggling to deliver on earnings and capacity compared to peers. 

In our latest assessment, we ranked Equinor’s transition strategy last against its peers. The company has progressed the least on its NCI as of FY23 (-1% of -20% by FY30). With renewables as their only decarbonisation lever, outside of netting strategies such as CCS, more information is needed on how it will strategically deliver on its FY30 NCI target. Additionally, despite CCS’ materiality, Equinor has yet to provide any discrete disclosures for the business.

Investors engaging with Equinor should ask:

1) For disclosure on the dollar value of capex for Renewables & Low carbon solutions that forms the basis for its capex target, including a reconciliation between Renewable capex disclosed in its results.

2) The impact of renewables to meet its FY30 NCI target, and an indication of whether Equinor’s decarbonisation strategy is fundamentally reliant on netting strategies such as CCS. We estimate that nearly half of its 40% NCI reduction target by FY35 will rely on CCS. 

3) With renewable earnings still in the negative, how is Equinor positioning itself to build a competitive and sizeable renewables business to diversify oil and gas revenue streams.

Key findings

• 01 2Q results saw big investments.

  • In 2Q, group capex was up 10% on 2Q23 at $4.8bn. While overall exploration and production capex was down 3% on 2Q23, there was significant growth recorded in low-carbon capex (+128% to $608m). Spending in low-carbon was primarily related to offshore wind projects in the US and Europe ($576m).

  • Alongside an increase in renewable capex, renewable production was up 90% in 2Q23 to 655GWh, putting production for H2 2024 at 1.4 TWh. In oil and gas, production was up 3% in 2Q23. 

  • Earnings after tax were down 3% at $2.15bn. This was driven by a 30% reduction in earnings in the Marketing, Midstream and Processing segment due to lower margins, lower refinery throughput and higher costs related to low-carbon projects.

  • In emissions, Equinor reported 1H24 scope 1&2 emissions of 5.6 MtCO2e, down 4% from 1H23.

• 02 Struggles in renewables, downgrade to generation target

  • As the only low carbon lever to reduce NCI that isn’t reliant on CCS, renewables are a key part of Equinor’s transition strategy. As we flagged in Equinor’s 1Q24 results, the company needed a significant ramp-up in renewable generation (>17% each quarter over 2Q24-4Q24) to reach its target for more than double on FY23 (>4 TWh). 2Q24 results saw Equinor downgrade this to 70% growth on FY23 (~3.3 TWh). The company cited a slower ramp-up of Dogger Bay A, with full commercial production now expected during 1H25 (previously late FY24). The project is currently at 480 MW out of 1200 MW for the first phase.

  • Equinor continues to face challenges in its Renewables segment, reporting a post-tax adjusted operating income loss of $85m, down from $77m in 2Q23. Investors will be eager for signs of profitability, as the company has yet to post a profit in this segment, unlike other majors’ integrated power segments. Notably, Equinor's renewables segment is unique among majors in that it does not include gas power generation or retail gas sales (which is included in the Midstream, Marketing and Processing segment).

  • Progress in Empire Wind may be a sign of upside. Previously, Equinor took a $300 million impairment due to pricing issues after New York regulators denied its petition to renegotiate offshore wind project terms. However, the company has now secured a new rate of $155/MWh, up from $118/MWh. Empire Wind I will have an 816 MW capacity, with Equinor's current capacity around 1 GW. At its April ESG day, Equinor guided to install 1-2 GW of new capacity annually.

• 03 Big moves in CCS

  • Equinor's 2Q24 results highlight significant developments in CCS and its transition strategy. The company secured CO₂ storage capacity of 17 Mtpa with licences for Kinna and Albondigas on the NCS, and Kalundborg in Denmark. This capacity could fulfil up to half of Equinor’s 30-50 Mtpa transport and storage target by FY35.

  • Equinor counts the negative emissions benefit from any carbon it stores, even if it is unrelated to its customer base. We estimate that nearly half of its 40% NCI reduction target by FY35 will rely on CCS. 

  • Having received licences for up to 17Mtpa of storage capacity in 2Q24, Equinor will now need to be able to demonstrate it has the capability to scale CCS as a service, else risk not meeting its NCI. Furthermore, should CCS be a material lever to net-out emissions, Equinor has yet to provide any discrete disclosures for the business.