Offshore wind will play an important role in the Majors’ plans to transform against the backdrop of the global energy transition.
Some of the European Majors, such as Equinor and Shell, have been on that road for several years. However, other European major oil companies have recently adopted radical shifts in strategic direction that will transform them over the coming decades.
Why are oil Majors attracted to offshore wind?
It’s all about a change from big oil to big energy and expansion in renewable power, and offshore wind will be a huge part of that. Offshore wind is an obvious choice for the oil majors for several reasons.
Firstly, the offshore wind sector has large growth potential. We estimate that installed capacity in offshore wind will grow sixfold over the next decade to nearly 200 gigawatts (GW), and government targets are even higher than that. The ultimate potential of the sector is much bigger, and our figures indicate the total capacity of projects in the development pipeline is currently over 400 GW.
Secondly, there’s an obvious overlap with the oil Majors’ experience in managing and developing the operation of large offshore oil and gas projects. The Majors can use their supply chain power synergies with oil and gas operations and existing project management experience to create value.
Finally, offshore wind provides avenues for additional growth within emerging new energy technologies. Green hydrogen is the obvious one that everybody is talking about now, and the oil companies are already targeting this area.
How will oil Majors make the transition to offshore wind?
The Majors’ offshore wind portfolios are already some of the most geographically diverse in the sector. Portfolios are mostly early-life and the Majors now account for a significant proportion – 30% in 2020 – of sector capacity reaching final investment decisions. They will seek to gain a competitive advantage through operational and marketing synergies, geographical reach, partnership experience, financial muscle, and technology leadership.
Partnerships are a key feature of the Majors’ strategies, helping entry to new wind markets, facilitating operational knowledge transfer, and providing access to technologies such as floating wind. Equinor has the most in-house business development and operational experience and so has an advantage over its peers in this respect.
However, it’s worth noting that strategies will diverge as each company focuses on areas of competitive advantage. For example, Equinor is targeting leadership as a developer while Shell stands out as being most market oriented.
Where are the opportunities?
Most Majors are simultaneously building out solar and onshore wind, but offshore wind has a bigger project scale and higher capacity factors. According to Wood Mackenzie’s Corporate New Energy Series, annual spending on offshore wind by the Euro Majors before project financing will increase to around US$8 billion a year in 2025, which is more than 18 times 2020 spending levels. This is a game-changer for the development of offshore wind and illustrates the level of commitment from these companies.
Gross (pre-project finance) capex projection based on current project pipelines in offshore wind
Equinor aims to be an “offshore wind Major” and is already the leading oil Major with net equity capacity of 12 GW, which is more than the rest put together. But the others are working hard to catch up, with BP and Total placing increasingly bigger bets on wind technologies. Shell is more customer focused and sees offshore wind as part of its integrated value chain that supplies low-carbon energy to its customers.
What does the future hold?
The Majors will be active participants in wind tenders scheduled for 2021. Lease and deal activity will increase as companies look to enhance and diversify portfolios, especially in new markets.
The race to expand floating wind solutions to commercial scale will also continue. Equinor has been active in floating wind for over 20 years and they will continue to invest in this area. Shell and Total will also look to get involved in projects that advance this technology. This could become an important source of growth for all three in the 2030s.
Credit: Wood Mackenzie