Equinor gets hitched after €400m Danske move

It’s love on the Danske floor. This month, Norwegian utility Equinor has spotted the Danish energy trading company Danske Commodities standing by itself at the edge of the disco. The Norwegian firm then sidled over, scooped the trader into its arms, Dansked the night away – and then consummated a €400m takeover deal.

That’s how I like to think it happened anyway.

Yes, this is the news that Equinor – the oil and gas giant that was called Statoil until it re-branded in May – has bought Danske Commodities. The Norwegian giant has been making a big deal about how its re-branding showed that it was going greener. This €400m takeover shows that it’s supporting those nice words with actions.

Equinor explained more in its statement about the deal. The utility is seeking to build a ‘material industrial position’ in renewable energy projects, and plans to invest 15%-20% of its capital expenditure in these ‘new energy solutions’ by 2030. This statistic has drawn the ire of environmentalists, which Equinor has responded to here.

So far, it has invested in the wind sector with offshore projects including the 402MW Dudgeon, 385MW Arkona, 317MW Sheringham Shoal, and 30MW floating pioneer Hywind Scotland. It is also working on schemes in the 4.8GW Dogger Bank zone in UK waters and the up-to-1GW Empire Wind project off the coast of New York.

Of course, wind is a tiny part of the Equinor business compared to oil and gas, but it is with deals like the Danske acquisition that it will be able to re-dress the balance. The buyout gives Equinor a platform in the electricity-trading space, alongside its oil and gas trading operations, meaning it can own and operate wind farms long-term.

As for Danske Commodities, the firm is not well known in the wind sector. Founded in 2004 and based in Aarhus, it is an electricity trading business that operates across 37 countries and traded 318TWh in 2017 – which is the equivalent of over double the annual electricity consumption of Norway – and traded 389TWh of gas in 18 nations.

Irene Rummelhoff, EVP of new energy solutions at Equinor, said buying it would help Equinor gain more value from its renewables assets including wind farms, and get a better understanding of national energy markets globally. This is set to be increasingly important as renewables are exposed to more merchant price risk.

That latter point is key. Equinor wants to compete with other utilities in offshore wind, but is at a disadvantage compared to those with experience of trading electricity. It is seeking to fix that by buying a platform that will help it manage energy price risk.

Gunnar Herzig, managing director at finance advisory CLIFI, says the deal is needed to “make sure [Equinor is] on a level playing field with the other trading companies”.

For these reasons, we don’t think this deal is the start of a trend. We may see other oil and gas giants like Shell and BP building out their electricity-trading platforms too, either organically or by acquisition, but such deals should be few and far between. In addition, Equinor's snake-hipped Danske move should help it grow in other renewable sectors including solar, much like Engie has done since changing its name from GDF Suez.

Our view is that the Danske deal is an important step for Equinor to make good on its high-profile move to embrace more renewables, and show people that re-branding isn’t the same as ‘greenwashing’. If this marriage can help it do that, it’ll be singing ‘He’s The Greatest Danske’ for years to come. Or ‘Danske For The Memories’.

That’s it for the bad puns, I promise.