Are oil giants really turning to offshore wind power?

15 May 2017

Some of the world's major oil and gas companies are diversifying their portfolios by investing in offshore wind power to ensure their long-term viability as environmental pressures increase and the role of fossil fuels in power generation declines.

Europe's largest energy company, Royal Dutch Shell, has created a new division to boost investments into wind power. In December 2016, it partnered with Van Oord, Eneco and Mitsubishi/DGE, winning the right to develop and build the 700-megawatt Borssele offshore wind farm in the Netherlands, and recently qualified to participate in the Kitty Hawk lease sale for a wind park off the North Carolina coast in the US.

Statoil, Norway's national oil company, has announced it will invest $US500 million in offshore wind in 2017 and says offshore wind could account for up to 20 per cent of its overall capital expenditure by 2030.

The economics seem to make a lot of sense." 

Oil services providers are also transitioning into offshore wind. In January 2017, underwater engineering company Subsea 7 announced it would pay $US319 million to acquire the 50 per cent it doesn't own in offshore installation constructor Seaway Heavy Lifting.

"These companies take a very long term view and are looking at the mix of energy sources likely to be available from 2030 onwards," says Iain Reid, Head of European Oil and Gas Research at Macquarie Group. "While wind power investments account for just a small part of their revenues now, they are forecasting the eventual decline of fossil fuel usage in producing energy, and thinking about how they are going to transition into new ways of working in the future."

Same model, different energy source

Most large energy companies already have the expertise and commercial knowledge necessary to successfully develop offshore wind farms.

Wind farms operate on a similar basis to floating oil and gas rigs – companies buy the right to develop a site, pay contractors to install the turbines, manage the operation and sell the power to the grid.

In their offshore wind power developments, large energy companies can draw on their decades of experience constructing and managing floating rigs.

Statoil says potential returns from offshore wind parks are in line with those for oil projects, and forecasts wind farms – onshore and offshore combined – could supply 18 per cent of the world's electricity by 2050.

Reid says other factors driving the oil and gas sector's embrace of wind power are increasing global climate awareness and the need for traditional companies to attract young professionals.

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The improving economics of wind

Wind power has proved itself a stable, environmentally sustainable source of energy without the price volatility of oil and Macquarie expects offshore wind to benefit from an increasingly profitable future.

Progressively wind farms are moving offshore due to better wind conditions, enhanced underwater building technologies and falling production costs.

Global installed offshore wind capacity expanded by more than 50 per cent in 2015, to 11.7 gigawatts, led by projects in Germany and the UK. Macquarie forecasts annual installations will grow almost threefold in Europe over the remainder of this decade.

The Dutch Government estimates Shell's Borssele offshore wind farm in the Netherlands, set at a new record low auction price of 5.45 euro cents per kilowatt hour, could operate free of subsidies and be competitive with fossil fuels after 7.5 years.

"Just as companies have significantly brought down the installation and production expense of offshore oil and gas since the middle of last century, the cost of installing renewable energy is also coming down strongly," says Reid. "The economics seem to make a lot of sense."

Though still a very small part of the power mix for energy giants now, offshore wind looks set for robust growth in the years to come.

For more information on the report 'Wind in its sails' (31 January 2017) contact Macquarie Research.