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Ørsted Divests “Loss-Making” LNG Business

Danish renewable energy giant Ørsted announced last week that it has signed an agreement with leading global natural resources company Glencore to divest itself of its liquefied natural gas (LNG) business

Danish renewable energy giant Ørsted announced last week that it has signed an agreement with leading global natural resources company Glencore to divest itself of its liquefied natural gas (LNG) business, describing it as “loss-making” and projecting that it will “remain so for years to come.”

Ørsted has been in a long-running effort to streamline its business as it aims to set itself up as a global leader in renewable energy. At the same time that it was leading the industry with offshore wind deployment in Europe, Asia, and now North America, the company was also divesting itself of business units it had deemed no longer practical under its new business direction.

The company divested itself in September 2017 of its oil & gas business and promptly moved to change its name from DONG Energy. This year, the company finally managed to receive approval to sell off its Danish power distribution and residential customer business — a plan which had been in the works for some time, as it announced in 2018 that it had initiated a “structured divestment process” for its Danish power distribution and residential customer businesses which has nearly 2 million customers. However, the Danish Ministry of Finance almost immediately raised concerns and the divestment was placed on hold until September 2019, when the company completed its long-awaited divestment of its Danish power distribution, residential customer, and City Light businesses to customer-owned Danish energy company SEAS-NVE for a price of DKK 21.3 billion ($3.14 billion).

In a move which will only serve to further streamline the company’s focus on renewable energy, Ørsted announced on December 19 that it had signed an agreement to divest its liquefied natural gas (LNG) business to the leading global natural resources company Glencore.

Ørsted entered into a long-term agreement in December 2007 with the Dutch LNG regasification terminal Gate in Rotterdam regarding the right to use 3 billion cubic meters of annual regasification capacity from 2011 to 2031. Over a decade later and the company’s LNG business consists of the long-term regasification capacity agreement with the Gate terminal in Rotterdam and five LNG purchase agreements.

However, even though Ørsted describes the business team as performing “well during the last few years” the business itself has not, described as “loss-making” and “projected to remain so for years to come.”

To get the business up and running as a profit-making business would require further financial improvements and contractual commitments. However, it seems the company is not willing to take the risk on committing to make its LNG business a profit-maker and, with a continued focus on building its renewable energy business, announced last week that LNG trading will no longer be a part of its future core business.

The divestment transaction includes a payment from Ørsted to Glencore and will result in a loss that exceeds the company’s current provision related to the LNG activities, and will have a positive impact on its EBITDA (Earnings before interest, taxes, depreciation, and amortization) from 2020 onwards, while the company’s EBITDA for 2019 remains unchanged.

An Ørsted spokesperson, speaking to GTM, explained that the company has “oil and gas pipes in the Danish part of the North Sea, a gas processing facility in Nybro, Denmark, and an oil terminal in Fredericia, Denmark. According to a political decision from 2016,” the spokesperson added, “all of these assets are to be divested to the Danish [transmission system operator] Energinet. There is an ongoing process in terms of this divestment.”

Ørsted will now focus closely on its renewable energy businesses, which include offshore wind, bioenergy, onshore wind, solar, and storage, as well as its Markets supply business which handles the purchase, sale, and distribution of clean, intelligent, and energy-efficient energy. At the end of the third quarter Ørsted boasted deployed renewable energy of 8.5 GW — including 5.6 GW of offshore wind power, nearly a gigawatt of US onshore wind, and 1.8 GW of biomass energy.

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