The winds have shifted. As the long-term outlook for fossil fuels sours, major oil and gas industry organizations are turning to energy sources they once shunned as unprofitable. But if they want substantial portfolio diversity, they'll have to pony up major funds, according to a May 2017 Wood Mackenzie report: It would take US$350 billion in wind and solar project investments through 2035 to equal the 12 percent market share they currently hold in the oil and gas market.
“It has become imperative for oil companies to look elsewhere for diversification and growth strategy,” says Abhishek Rohatgi, analyst, Bloomberg New Energy Finance, Singapore. “The renewable sector presents a good diversification opportunity.”
The most promising projects are offshore wind farms, which offer scale and scalability, according to the report. And thanks to tech advancements, the ROI on these projects is rising.
“Government policy has driven most wind farms built today. But increasingly wind farms are being built, and will be built, because they can provide the cheapest technology for new electricity generation,” says Tom Harries, offshore wind analyst, Bloomberg New Energy Finance, London, England.
Given their decades-long experience of tapping oil deposits in extreme open sea conditions, major oil industry players are well-suited to deliver complicated offshore projects.
In October 2017, for example, Statoil and Masdar Abu Dhabi Future Energy Co. completed an estimated £200 million project to build the world's first floating offshore wind farm, in northern Scotland. Statoil credits successful completion to its extensive offshore oil and gas experience. Statoil's first-of-its-kind floating facility requires less steel and resources than a traditional offshore farm, while also consistently generating more energy. The organization also has plans for traditional offshore projects (which anchor turbines to the seafloor) off the coasts of Germany and the United States. Meanwhile, Royal Dutch Shell is slated to build one of the world's largest wind farms off the coast of the Netherlands; the €300 million project is slated for completion by 2023. While major oil and gas organizations can leverage their offshore experience to move into wind, some are also looking to build up expertise specific to wind power generation technology. So they are buying companies with turbine construction and grid integration capabilities.
“Increasingly wind farms are being built, and will be built, because they can provide the cheapest technology for new electricity generation.”
—Tom Harries, Bloomberg New Energy Finance, London, England
Bloomberg New Energy Finance found that asset finance and acquisition deals among major oil industry organizations are at the center of their shift to offshore wind. It analyzed 69 acquisitions from 2002 to the end of the third quarter in 2017 and found that 55 led directly to wind energy projects. “Oil companies are seeking to build in-house capability to develop offshore wind projects,” Mr. Rohatgi says. “They are looking to learn and gain skills from experienced project partners.” —Sam Greengard
It would take US$350 billion in wind and solar project investments through 2035 to equal the 12 percent market share major oil and gas industry organizations currently hold in the oil and gas market.
Source: Wood Mackenzie