Following the COP26 summit, all eyes are on the oil and energy sector. Numbers show we’re nowhere near on track to keep the 1.5° Celsius goal and mitigate the worst effects of climate change.
The pressure is at its highest for oil and gas to transition to green energy. Critics decry how companies are not moving fast enough, while some companies fire back saying that plans to diversify and transition are already well underway. “There is an enormous value opportunity for our company, trillions of dollars are going to get spent rewiring and re-plumbing the Earth’s energy system,” says Bernard Looney, CEO at BP.
A few billions of those trillions are already on the move into a resource that’s leading the renewables sector in growth and development: offshore wind. European oil majors are expected to spend 8 billion USD a year on offshore wind by 2025, according to energy consultancy firm Wood Mackenzie.
They’re already making aggressive strides into the sector, even crowding out legacy companies in offshore wind. Below are some of the developments that are making large ripples as oil and gas giants pivot to renewables.
Equinor’s Push to Become Global Offshore Wind Major
Leading the oil majors with its 12GW capacity and relatively longer history in the offshore wind market is Equinor. While the Norwegian giant is still primarily a petroleum company and continues to invest in developing oil fields, it also owns a major stake in offshore wind farms like Dogger Bank Wind Farm. Once complete, the farm is set to become the world’s largest.
Equinor has also built a solid foundation in floating wind, which researchers believe will play a central role supplying the offshore wind capacity the world needs to achieve net zero. The company owns Hywind Scotland, the world’s first commercial floating farm. Further afield in Asia’s burgeoning wind market, it also has a presence in Donghae 1, a 200MW floating wind farm developed in partnership with the Korea National Oil Corporation (KNOC).
BP Bids Big on UK’s Offshore Wind Sector
Back home, BP is spending hundreds of millions and snatching leases to develop large swaths of seabed in the Irish Sea for offshore wind farms. The oil company’s bids were up to fifteen times higher than the average, even muscling out Ørsted, a global leader in offshore wind. Two developments have already been announced following BP’s win. Named Mona and Morgan, the projects are expected to generate a total capacity of 3GW–enough to power approximately 3.4 million UK homes.
Mona and Morgan are only part of the oil giant’s spending spree in the UK’s offshore wind sector. Together with German energy company EnBW, BP is also looking to secure offshore wind acreage in Scotland. Part of the bid is to spend £40 million to turn the Port of Leith into a green energy manufacturing hub.
Shell Building Offshore Wind Portfolio Across Regions
Shell has made sizable purchases into the sector the last couple of years, one of which is the Netherlands’ oldest offshore wind farm. The company now owns 100 percent of the Egmond aan Zee wind farm, which is located near another Shell offshore wind project, the Hollandse Kust Zuid. Once operational, the new development is expected to have an installed capacity of 759MW.
Shell’s most recent acquisition is a 51 percent stake in Ireland’s Western Star Project. A similar deal was made early this year, with the oil giant signing on to develop the Emerald Project floating wind farm, also in the Celtic Sea.
Similar to Equinor, Shell is also looking to establish a foothold in the rapidly growing Asian offshore wind market. It’s expected to take an 80 percent stake in MunmuBaram, a 1.4GW floating wind project off the coast of Ulsan that can power around a million homes in South Korea.
Total Floats Projects in the UK and Asia
BP wasn’t the only winner in the Crown Estate’s most recent seabed auctions. Total, in partnership with Macquarie Group Limited’s Green Investment Group (GIG), nabbed rights to a 1.5GW offshore wind development off the East Anglian coast. It also owns an 80 percent stake in Erebus, Wales’ first floating wind farm. Early this year Total further unveiled plans for a second floating wind development in the Celtic Sea, the 300MW Valorous.
Total and GIG’s joint venture has also signed onto co-develop five floating wind farms in South Korea. Earlier this year, the French oil major acquired a 23 percent interest in Taiwan’s 640 MW Yunlin offshore wind farm, further fortifying its foothold in the region.
The Price of Swapping Rigs for Turbines
For oil and gas, the writing is on the wall. “Any oil company operating in the UK knows two things: one, that it needs to reduce the emissions from its operations and two, that it needs to find alternatives to oil for its future growth,” says Mark Lewis, chief sustainability strategist at BNP Paribas Asset Management.
Judging by the flurry of activity these past couple of years, it appears that oil and gas is hedging their bets on offshore wind, using their expertise and deep pockets to grab market share. Some worry that the exorbitant upfront prices oil majors are spending to catch up are driving up prices for end consumers.
Others like Spanish utility company Iberdrola remain unbothered, believing that the flush of investments is a rising tide that will lift the value of the entire sector. “It is good news for us. I was not surprised by the result. Oil companies will be ready to pay high prices because they need to change their equity story. They need to show the market that they are really committed,” says Ignacio Galán, Iberdrola’s Chairman and CEO.
Whether that commitment translates to meeting net zero goals remains to be seen. Yet as the future of companies itself hinges on transitioning to renewables, expect the oil majors to continue their aggressive entry into the industry both in the UK and the fast growing Asian offshore wind market.
