Oil And Gas Companies See Opportunity In Offshore Wind Energy
Oil and gas markets are ensnared by oversupply and falling prices, not to mention a global pandemic. It illustrates the need to be more responsive to changes in the energy climate. And the good news is that the signs are pointing to more investment in renewables, specifically offshore wind power.
It’s a business decision that is also addressing climate change. A new report by Wood MacKenzie says that $211 billion will get invested in offshore wind over the next five years — something that is well-suited for oil and gas companies. That is because they have an implicit understanding of the waters where the infrastructure would be placed. And as the coronavirus is demonstrating, those companies are also seeking to diversify their portfolios.
“We expect the offshore wind market to grow more attractive for traditional oil and gas players,” writes Soren Lassen and Mhairdh Evans, with the global consulting firm. “There is limited crossover today, but first movers have gone with the wind and more will soon follow. As interest and investment in offshore wind grow, investment in offshore oil and gas is likely to stabilize, narrowing the gap between the two sectors.”
Consider Norway’s Equinor: It has a goal of reducing its carbon intensity by half by 2050. Part of the strategy is to expand its renewable energy ventures and specifically those in offshore wind: As much as 6,000 megawatts in six years and 16,000 megawatts in 15 years.
The U.S. Department of Energy estimates that offshore wind energy has a capacity of 2,000 gigawatts here. But just 30-megawatt off the shores of Rhode Island called Block Island Wind Farm is online. It revved up in 2016. New York State is now soliciting 800 megawatts of offshore wind projects — something that it hopes will lead to 2,400 megawatts of such power by 2030.
While the United States may not be ideal for offshore wind energy, the global markets may have better opportunities. China, in fact, is growing its offshore wind market, while Japan, Korea and Taiwan are in the early stages of development. India, too, is making forays. Europe, though, is the international role model, with more than 18,000 megawatts of offshore capacity.
The main obstacle is the high associated costs. In some cases, the price of offshore wind power is two-three times as high as onshore wind power, says Navigant Consulting. Industry, though, is working on deploying larger wind turbines to achieve better value.
“The shift to a low-carbon economy presents the question of what role oil and gas companies will play in this transition, and what their strategic options are in the more immediate and longer-term,” Luke Fletcher, senior analyst at CDP said. “Equinor’s recent rebrand to a broad energy company, expecting to invest 15%-20% of (its capital expenditures) in new energy solutions by 2030, is symbolic of this shift.”
The Wood MacKenzie report poses the obvious question, which is that oil and gas investors are oftentimes expecting double-digit returns and that renewable energy investors anticipate more modest results. But as the current scenario is showing, what goes up can also come down — that oil and gas are helping to drag down the world economy because of its vulnerability to the coronavirus. Simply, green energy projects are not as volatile, given that developers can sell their output under long-term power purchase agreements.
Oil and gas companies spent 1.3% of their 2018 budgets on such things as wind and solar power or battery storage and carbon capture. And the CDP, formerly known as the Carbon Disclosure Project, said that Europe’s Equinor, Total, Shell and Eni ranked highest for leading the low-carbon transition while China’s CNOOC, Russia’s Rosneft and U.S.’s Marathon Oil lagged further behind. Altogether, it says that oil and gas companies have invested $22 billion in alternative energies since 2016.
Offshore wind and oil and gas companies may be a good match. But obstacles remain. Besides costs, logistics are also an issue: While it may be less hassle to build turbines in the ocean and out of view, developers must still connect the electricity to transmission. And that means building underseas cables before hooking up with the wires that are onshore.
“Today most activity is clustered on the offshore shelves around Europe, China and South Asia, with North America catching up,” the Wood Mac authors say. “What’s got the attention of many oil and gas investors is the large potential of offshore wind and the fact that the wind developments are sited in the mature, well-established upstream areas they already know well.”
The confluence between global market risks and climate mitigation efforts are working to bring the oil and gas sector into renewable energy’s world. Offshore wind power is a beneficiary — a trend that could have profound implications both overseas and in the United States.