Offshore companies turn to lower carbon projects as energy transition gathers pace.
From the biggest Majors to service companies, traditional energy companies are increasingly seeing opportunities in the offshore renewables and low carbon sector.
This is partly driven by higher returns as technology improves, and the costs of manufacture and installation fall. But the biggest influence is the rising tide of popular opinion, which is slowly but inevitably pushing nations towards ever more ambitious environmental targets and agendas.
In the UK and wider North Sea, low carbon investments mean wind, and some tidal – as well as lower carbon alternatives such as gas rather than oil. Offshore wind is very much in its ascendancy with its ever-growing scale and ambition showing it’s a powerful alternative to transitional energy sources.
The switch to lower carbon forms of energy is highlighted in recent name changes among the old Scandinavian national oil and gas companies – moving the emphasis away from hydrocarbons and towards ‘energy’ more generally. BP were the early movers to do this many years ago with its ‘Beyond Petroleum’ campaign under Lord Browne.
Oil today, gone tomorrow
Norway’s Statoil has removed the reference to oil and switched its name to Equinor. The company said that "Equinor is formed by combining ‘equi’, the starting point for words like equal, equality and equilibrium, and ‘nor’, signalling a company proud of its Norwegian origin.” It also said it wanted to “use this actively in its positioning” – with the aim of improving public image and boosting recruitment among the young. While still a major oil and gas producer, Equinor has certainly invested in low carbon technology and renewables, primarily offshore wind, including Hywind - the world's first floating wind farm off the coast of Scotland. Equinor straddles the two industries, with visions of further major investments into renewable energy industry.
DONG - out for the count
And while Equinor still deals with oil and gas, Danish Oil and Natural Gas (DONG), has far larger ambitions, not only has it removed the hydrocarbon references in its name – now Ørsted – it has also moved exclusively into renewables, after selling off its gas business to INEOS in 2017 and has the goal to create a world that runs entirely on green energy. The name ‘Ørsted’ refers to Danish scientist Hans Christian Ørsted, who was a major contributor to several scientific discoveries including that of electromagnetism in 1820.
The biggest oil and gas companies, including Equinor, are looking at a range of lower carbon options. Shell plans to spend $1-2 billion/year on clean energy by 2020. This includes North Sea wind, where it is leading a consortium developing the Borssele III and IV wind areas, which will supply the Netherlands’ with power at its lowest-ever strike price (at end-2016) for wind of 54.5 euros per megawatt hour (compared to £92.5/MWh plus inflation for the UK’s Hinkley C nuclear plant). It also aims to reduce the net carbon footprint of its operations and the energy products it sells by 50% by 2050 through a shift to gas, biofuels and green electricity - along with developing carbon capture and storage (CCS) capacity. Many of Shell’s investments assume government-imposed carbon prices, which Shell considers essential to encourage companies to reduce emissions.
Total is aiming highest among the Majors, with a 20% renewables target by 2020, which has led to the recent purchase of a number of low carbon energy companies – although not much in the way of offshore wind. Like Shell – the world’s biggest Liquefied Natural Gas (LNG) supplier - Total has also been expanding its relatively low carbon gas investments, including purchasing LNG assets from Engie last year.
A new market for Service companies
Service companies generally have been facing a squeeze in margins and a reduction in activity in traditional markets, following cutbacks in operator capex and a greater focus on shale investments. Overall, oil and gas company capex is still 40% below the levels it was in 2014, although this is expected to improve significantly following recent crude price rises, according to McKinsey Energy Insights (about $66bn for its sample in Q1 2018, compared to $110 billion in Q1 2014).
Can straddlers compete with dedicated suppliers and dedicated energy companies?
Offshore wind is an important sector for any growing offshore service company, projects are becoming larger, more ambitious and more technically challenging. Even though there are transferable skills, any company that feels they can directly import their services from oil and gas will find it difficult to compete. It’s a different industry that wants to develop its own robust supply chain that can deliver on its priorities and its goal to drive down the cost of wind energy.
The challenges facing the two sectors are different. The oil and gas sector is traditionally associated with high margins, longer term certainty and higher salary expectations in addition to its longer operations history, although there are higher associated hazards and risks. Renewables on the other hand, has a high construction risk; it is associated with high innovation and rapid technology development, and service companies are required to 'pivot faster'. It is also more aligned to manufacturing than oil and gas, and there is more uncertainty over activity, at least in the short term. Companies that can bring the knowledge and advantages of both sectors to deploy across industry’s will be able to create a large advantage.
Accommodating a new era
Attollo Offshore also straddles the two industries, providing jack-up accommodation and well service rigs/liftboats to both hydrocarbon and renewable offshore projects. Its jack-up accommodation facilities are just as relevant for wind projects as they are to oil and gas, with employee welfare and comfort a priority in both sectors. O
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