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Tariq Siddiqui's picture
COO, Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind -  Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles...

  • Member since 2021
  • 136 items added with 95,361 views
  • Jul 1, 2021
  • 1268 views

Big Oil always goes in big. It has to, if any new strategic position is to make a material impact on its massive portfolios. And offshore wind is the big new thing the European Majors are seizing upon, an ‘oven-ready’ zero-carbon technology with big growth prospects. 

KEY INSIGHTS

WHERE IS OFFSHORE WIND IN BIG-OIL NEW ENERGY STRATEGY ?

  • Offshore wind (OSW) will be a core part of integrated zero-carbon portfolios, which will include carbon capture and energy storage. It will also have a central role in green hydrogen.  t’s one of a number of core options where the Euro Majors are gaining exposure.
  • Equinor aims to be an “offshore wind Major”, focused on being the best-in-class operator – it’s already the leading oil Major with net equity capacity of 12 GW, more than the rest put together. But the others (BP, Total & Shell) are working hard to catch up. 

WHAT IS SIZE OF OPPORTUNITY IN OSW ?

  • Offshore wind is niche today at 35 GW, just 6% of global wind capacity, most of which is onshore.
  •  Wood Mackinzie forecast global installed capacity will exceed 200 GW by 2030.
  • The established markets are all in northern Europe and China, the next wave – US, elsewhere in Europe & Asia – is just opening up.

WHAT IS THE COMPARATIVE ADVANTAGE FOR OIL COMPANIES ?

  • The developments fit neatly into Big Oil’s skill set in offshore development, there are operational synergies 
  • Majors can leverage their international footprint to access new markets, an advantage over local-focused utilities. 

WHERE THEY ARE TODAY & WHERE THEY WANT TO BE TOMORROW?

  • The Euro Majors’ have obvious lead over US majors; operational capacity is just 0.7 GW, 3% of the global total outside China. But they are on a mission and have secured 30% of the 9 GW that achieved final investment decisions in 2020.
  • Diversifying across geographies & technologies; the Euro Majors are pushing early into floating offshore wind.
  • The Euro Majors (excluding Shell) have a ambitious target for renewables, including solar and onshore wind of 125 GW by 2030 

ARE EVALUATIONS TOO HIGH TO MAKE ANY PROFIT?

  • Big Oil will need to clearly articulate the value proposition as it commits large capital into new energy, including offshore wind.
  • Developers will have to ensure discipline on project delivery, execution, capital and operating expenditure to be profitable.
  • Based on current models according to WoodMac, the single digit  profits are quite possible!

BOTTOMLINE

  • There’s very strong alignment in offshore wind that’s helping to push the transition forward. Big Oil and its competitors want more projects, and governments need to ‘feed the beast’ to help meet their net-zero targets.
Discussions
Matt Chester's picture
Matt Chester on Jul 1, 2021

The developments fit neatly into Big Oil’s skill set in offshore development, there are operational synergies 

Majors can leverage their international footprint to access new markets, an advantage over local-focused utilities. 

A lot is made of the ability of oil to pivot to wind-- particularly experience in offshore platforming. But I would think there's way more different than similar and that applicability is more for specific offshore platform workers to be able to be useful in the wind sector. But oil and electricity are massively different, transmission issues are not the expertise of big oil, etc. I'm hoping they do put their money where their mouth is with a serious shift, and not a small baby-step to 'appear' green. But in the end, is it harder for big oil to figure out electricity or for power companies to take their operations offshore? 

Tariq Siddiqui's picture
Tariq Siddiqui on Jul 3, 2021

The UK offshore industry has benefitted immensely from the oil field experience; whether its in the offshore capital project development or the vessels needed to install the enormous Wind turbine Installation Vessels (WTIV). The Shell for example has moved a sizable offshore workforce to help its project current under construction in northeast USA. Besides the the deep financial pockets of the oil & gas industry, Offshore wind industry can also benefit in supply chain, R&D, capital project management, offshore vessels, EIA to fast track the nascent industry, especially in USA. 

Mark Silverstone's picture
Mark Silverstone on Jul 2, 2021

There is no doubt that Big Oil brings crucial expertise to wind generation, both onshore and, especially, offshore.  But with oil at $75/barrel, they can make way more money developing and selling oil resources. I do not believe that they can or even wish to go very big on wind until they are convinced that the market for oil is gone or, at least, going.

Ironically, efforts to "defund" big oil seem, at least for the moment, to have the effect of concentrating their available capital where they can make the most money (by far): Oil and gas.

Shareholder revolts (Exxon) and court orders (Shell) may have some effect.  But, major shifts in focus away from oil and gas will require much more incentive than that, including massive and well aimed government action.  For a start, in the US, the end of tax breaks for oil companies, infrastructure electrification of transportation and a carbon tax would help. But the market is far larger than the US and Europe.  Somehow these government actions must extend to developing nations to spur development of renewables for electricity.

Yes, it is no doubt true that "Big Oil’s offshore wind journey is only just beginning." But they better get in high gear pretty quickly if they want in.  Their expertise is not so exclusive that it cannot be duplicated fairly quickly.

Tariq Siddiqui's picture
Tariq Siddiqui on Jul 3, 2021

Mark, you are spot on! Carbon pricing is a key; whether using cap-n-trade to allocate limit on emission and let market drive the carbon cost, or vice versa put a carbon price (carbon tax) to limit the emission, either way there will be an incentive to reduce and dissuade and decrease use of fossil fuels.  The market is indeed very large, especially in Asia-Pacific; where energy security, along with access to low cost, affordable and available energy is a key and will to impose government regulations is still not there. Indeed, there is a NEED FOR SPEED.

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