At time of writing, we have just passed the one-year mark since Russia invaded Ukraine. Both sides have faced devastating impacts, including severe damage to infrastructure and massive loss of life. Sadly, there are a no real signs that the war is coming to an end. The conflict has challenged the global order in a way not seen since World War II and caused disruptive ripple effects far beyond the battlefields. Global military alliances have been revitalized while others have been challenged. As one policy expert noted: “European security hasn’t just shifted a bit, it’s fundamentally changed.”

Russia’s senseless and unprovoked attack on Ukraine accelerated what many consider a long-predicted crisis. The invasion and subsequent Western sanctions put increased pressure on already strained oil and gas supplies from years of underinvestment and a rapid economic rebound from COVID-19. The result was one of the most volatile years on record for energy markets. In the first half of 2022, crude oil prices soared due to the said supply shortages. By year-end, growing US production and a massive release from the Strategic Petroleum Reserve helped bring prices under control. Markets ended 2022 in better shape than the first half of the year, but terms such as protectionism, fragmentation and deglobalization emerged to describe a new set of challenges for geopolitics and the global energy industry.

The events of the last twelve months have unveiled how fragile the global energy system is. Furthermore, it has laid bare uncomfortable truths about the current state of the world and how we need to rethink our collective path forward in the ‘Energy Trilemma:’ the need to find balance between energy reliability, affordability, and sustainability. One thing is clear: we can’t tear down the house before the new house is built. For Aker, the past year did not bring on a recalibration of our strategy as much as a reaffirmation that we are positioned to tackle dual priorities. For over 180 years, we have married our nation’s natural resources with our brightest minds. The risk profile for our industry ventures has varied – as has the volatility of the markets in which we operate. Today, we have our feet firmly planted in conventional energy production that is still required over the medium term; we are deploying technology to reduce our climate footprint and improve efficiency; and, lastly, we are continuing to invest in and build technology and infrastructure for lower emissions energy production for the long term. Each carrying risks – and opportunities for value creation. While Aker’s share price has not escaped the global sentiment in 2022 and total shareholder return decreased 9 percent for the year, we are coupling our strong industrial foundation with technologies, partnerships, and new opportunities for growth.

In conventional energy production Aker’s position is, and will continue to be, through our E&P company, Aker BP. Aker BP had a remarkable and transformational year, recording an operating revenue of USD 13 billion for 2022 and contributing USD 268 million in upstream cash to Aker. Following the successful Lundin integration, Aker BP has doubled its production, reduced its unit cost, and consolidated its position as a global leader with low carbon oil and gas production. The company has a substantial resource base, and shortly before year-end, it submitted ten Plans for Development and Operation (PDOs) for projects with total recoverable resources of 730 mmboe. The company’s share of the investments is estimated to USD 19 billion, with an average break-even oil price estimated at USD 35-40 per barrel. Aker BP is truly building an E&P company of the future. Its world-class team has worked relentlessly to reduce emissions, which today stands at less than one third of the average in the global industry, and below the average for operators on the Norwegian Continental Shelf (NCS). It’s an important contributor to the fact that Norwegian oil and gas production now has lower emissions than all other oil production in the world.

Building this kind of resilience requires long-term strategic thinking, which is a key concern for Aker across the portfolio. It’s an example of how focusing on increased efficiency, investing in digitalization, and ensuring best-in-class operations makes us more robust as we tackle the Energy Trilemma.

As the geopolitical situation of 2022 has shown, the industries to which we are exposed continuously contend with issues that are largely outside of our control. One such issue is disrupted supply chains which have been mired in multiple bottlenecks. It requires rigorous planning – and contingency planning. Although the bottlenecks are gradually easing, current prices are higher than what inflation can justify. Many suppliers are basing their pricing on historical data that is now outdated. For Aker BP, which is working on developing a record high number of projects, this is a key priority both in procurement and follow up of its suppliers. Through active ownership, Aker is focused on maintaining capital discipline, while optimizing dividend payout and earnings growth.

Not surprisingly, the global oil and gas industry’s profits surged in 2022 – to about USD 4 trillion, from an average of USD 1.5 trillion in recent years, according to the International Energy Agency (IEA). Into 2023, many companies are revising their price forecasts to reflect the increased demand for non-Russian supplies. Moreover, they are finding themselves at a crossroad: how to create strategies that maximize returns from high energy prices while also investing in low emissions industry. For Aker, these strategic considerations also come at a time when Norway’s cementing its critical role in European energy security. In the gas market, the roller coaster of 2022 led to an annual average price that was six times the 2017-2021 average. The weaponization of natural gas following the war was the biggest factor, as Russia curtailed exports to Europe, leading to frantic efforts to replace the gas supplies ahead of the anticipated cold winter. Our nation has played a critical role in boosting gas deliveries to Europe, supplying 33 percent of Germany’s gas needs in 2022 and replacing Russia as the largest supplier. Governments across the EU began subsidizing energy bills to help consumers and companies cope with soaring cost, while ramping up efforts to reduce gas consumption, focused on filling its gas storage ahead of the cold season.

As discussions raged on price caps on natural gas, protectionist measures, and ensuring access to secure, affordable energy, questions arose on the right balance between government involvement and market forces. At Aker, we believe increased government intervention is the right medicine, but only if administered properly with the optimal dosage. Domestic policies should look outward, encourage long-term investments, and strengthen ownership models and industrial development. Fiscal regimes and taxes are a competition between countries where it is most attractive to invest. In Norway, we have an enormous opportunity to be in the front seat of a new industrial era, but we need to leverage our world-class public-private cooperation model to succeed.

The value of our investments in Aker Horizons, Aker’s investment company within renewables and clean technology, declined nearly NOK 9.4 billion in 2022. The drop illustrates some of the current challenges in the short term for the renewable energy industry, which is still mired by high risk, bottlenecks, and low margins. It’s partly a financial issue and partly a structural discussion about longer-term offtake for industries such as offshore wind. Cost of capital is too high to succeed at scale and longer term. Gone is the sentiment of the last few decades, marked by political stability, free trade, affordable energy, and liberalization – a time where business has trumped politics. Instead, politics is now trumping business. Business models, including the oil and gas industry, are built on precisely the foundation of the period we now leave behind. The renewable industry needs increased visibility and predictability of revenue streams. Politics will be an important part of that – sharing the risk burden and giving greater predictability to help developers secure project financing. Regardless of challenges, 2022 also proved the importance of renewables for energy security in future low-carbon societies, triggering innovations and activities that fit well with our current capabilities and future ambitions.

Renewable project financing is expected to pick up in 2023 – thanks in large part to legislation like the Investment Reduction Act (IRA) in the US and the Green Deal Industrial Plan by the European Commission. The IRA, targeting USD 369 billion in spending, subsidies, and tax incentives to promote clean technologies and clean energy production in the US, is nothing short of a game changer for green industrial growth at scale. However, reception has been mixed with critics claiming that the legislation is discriminatory and protectionist, unfairly disadvantaging non-US companies. The EU commission vice-president went so far as saying the IRA could have a ‘toxic’ effect on some European industries when combined with cheap, stable energy prices in the US. The EU’s own version of the legislation builds predominately on allowing more national subsidies, easing state restrictions to allow creation of tax benefits. Many investors and clean technology industries are critical to the funding regime, saying the nationalistic approach not only makes it harder to access financing, but doesn’t safeguard European unity and competitiveness in a splintering world. At a time when the world urgently needs to convene, protectionism, fragmentation, complexity, and uncertainty, are pushing agendas further apart.

“The starting point of any country’s story is its location in relation to neighbors, sea routes and natural resources,” writes British journalist and foreign affairs specialist, Tim Marshall. Whether it be oil, wind, solar power, minerals, access to (or lack thereof) contributes to a nation’s and region’s economic development, political relationships, and future opportunities. Like our industry peers, Aker is forced to make strategic decisions under unprecedented unpredictability. We do not know what the future holds. What we do know is that we sit close to some of the world’s most valuable natural resources. Since the discovery of the first offshore reservoirs in the North Sea in the late 1950s, we have had access to what has become the powerhouse of Norway’s petroleum activities and crucial to the development of the entire surrounding region. The North Sea has contributed approximately NOK 16.5 trillion to the Norwegian economy alone. According to the Norwegian Ministry of Finance, in 2021, the North Sea made up 20% of our GDP, 20% of government revenues, 20% of investments, and 50% of total exports. This is significantly higher since the outbreak of the war in Ukraine.

Done right, we have an opportunity to ensure the North Sea secures its position in a new energy reality. The natural resources are there, the question is: how will they be developed? At Aker, we believe in cross-border collaborative efforts – favoring joint development of a massive, shared resource base over protectionist measures. Furthermore, private businesses enterprises need to think differently. In addition to leveraging track records of public-private partnership, we need to move away from the transactional method of doing business. Instead, we need to unlock the tremendous value of long-term partnerships which will enable us to speed up and scale the energy transition we all are committed to. Together with partners in the UK and other surrounding nations, we can tap the North Sea’s enormous opportunities as a massive, shared resource base for low emissions energy production. This includes vast carbon capture and storage opportunities and unleashing the potential for the North Sea to become a leading hub for offshore wind production.

Industry Capital Partners (ICP), Aker’s asset management arm under the leadership of Yngve Slyngstad, is diving headfirst into the challenge of financing renewable projects globally at scale. ICP, as its name suggests, brings industry and capital closer together – coupling decades of industrial experience in Aker and other leading industrial companies with geopolitical expertise and competent, highly skilled investment teams. Even though spending on low-carbon technologies increased 31% from 2021 and surged to a record level of USD 1.1 trillion, according to BloombergNEF, annual investment in renewables needs to more than triple, and to average USD 4.55 trillion between 2023 and 2030 to make 2050 climate goals possible. With Norway as its home base, ICP can build an investment fund structure that sits close to a world-class model for public-private collaboration, industry expertise, and natural resources. The timing is impeccable as political and regulatory support for the energy transition gains momentum globally, creating enormous investment opportunities. ICP targets to raise its first funds in 2023, working along the entire spectrum of opportunities – from early-stage to mature projects and infrastructure.

Moving on from developing the physical to the virtual – or rather the connection between the two. Specifically, the metaverse. People and organizations across the globe are looking to digital technologies to become more resilient and to work smarter. As Satya Nadella, CEO of Microsoft, recently noted, he is seeing customers use platforms and tools to connect what technology can do with what the world needs to do. While the term itself is still a being defined, the metaverse is estimated to be worth USD 2.5 trillion by 2030, according to Bloomberg Intelligence, changing the way people and businesses communicate, collaborate, and operate. Aker’s portfolio companies within industrial digitalization, Cognite and Aize, have long worked on virtual representations of physical equipment, assets and processes that contextualize relevant industrial data in real-time to enable data-driven decision-making and overall asset optimization. By enabling customers to visualize, simulate and analyze, their digital technologies are helping businesses drive economic growth while simultaneously reducing their footprint. Doing more with less.

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I want to close off by thanking the thousands of employees across the Aker companies. Your commitment to improving operations, adapting to new technologies, and your resilience through uncertain times, never ceases to impress me. We are experiencing unprecedented geopolitical events and market volatility. However, I am confident that with the expertise and resilience across our group, Aker’s opportunities to make a difference has never been greater. I look forward to continuing the work within Aker, as well as with our many partners and stakeholders. Together, there is no limit to what we can achieve.