Big oil and renewables don’t always have to be adversaries, and nothing speaks to this more than the emerging offshore wind opportunity in the U.S. that could see offshore oilfield service providers fill the gap in the slump by shifting to renewables.
Unlike in Europe, where offshore wind farms provide 11,027 MW to the power grid, the United States has no offshore wind production to speak of. But that is about to change as the Deepwater Wind project offshore Rhode Island gears up to come online later this year.
The Block Island Wind Farm heralds the birth of an entirely new industry in the United States, and its presents a huge opportunity for offshore oilfield service providers struggling in the snowballing effect of sustained low crude oil prices.
The initial investment in the Block Island project is massive. Deepwater Wind secured funding to the tune of $290 million to complete the project.
But once the 130-turbine wind farm is complete, Deepwater Wind will face unique challenges in maintaining their equipment—challenges that offshore oilfield companies already have a wealth of experience in tackling. Related: Oil Finds Some Support As U.S. Output Falls
Transporting employees to offshore rigs, maintaining equipment, conducting repairs in offshore conditions; these are all day-to-day tasks that offshore wind farms will require once they are fully operational.
The building of offshore wind farms also presents an opportunity for oilfield service providers to offer their expertise. No companies in the United States have experience like oilfield companies in constructing massive installments miles offshore. Transporting workers and equipment, securing rigs to the seafloor, and logistics planning for building offshore are just a few skills that oilfield service providers have had years to perfect.
And as the industry emerges, a second project is also at play, put forward by U.S. Wind. Some 14 miles off the coast of Maryland, this project is slated to be even bigger than the Block Island Wind Farm. With a $2 billion budget, there is a huge opportunity for oilfield service providers to expand their portfolio.
It’s clear that the offshore wind industry is poised for incredible growth. The initial major investments have been made and favorable tax credits have been extended by Congress. Tax credits were extended for 2015 and 2016, and will continue at 80 percent of the present value in 2017, going down to 60 percent for 2018 and 40 percent for 2019. Related: Oil Companies On Edge Ahead Of Super Tuesday
All told, the U.S. Department of Energy estimates that the U.S. will be getting 20 percent of its electricity from wind by 2030.
Some of the big players in the oilfield services patch are already chalking up offshore wind experience—at least in Europe. No. 7-ranked Houston-based FMC Technologies Inc. (NYSE:FTI), which is a leading supplier of subsea systems, has plenty of wind experience.
But General Electric (GE) is probably the best example of a diversified energy company that is crossing the boundaries between renewables and fossil fuels. GE Renewable Energy and GE Oil and Gas, together, can weather—and even take advantage of—the oil price downturn.
Last year, GE bought the power and grid business of French-based Alstom for $10.6 billion, and then used that to launch its Renewable Energy segment. And while oil prices are in a sustained depression, GE is using the time to grow its offshore wind farm prospects. In fact, GE is already entrenched in the emerging US offshore wind farm opportunities.
GE and Alstom are building the Deepwater Wind farm turbines, and Jérôme Pécresse, president and CEO of GE Renewable Energy, has called the project “the precursor for bigger offshore potential in the U.S.” Related: Brazilian Oil Giant Petrobras Could Lose Its Most Valuable Assets
And it’s also planning to be in on the Dominion wind farm off the coast of Virginia.
The price environment here is key, he noted, because energy costs are higher in the Northeast. “There are places in the U.S. where offshore wind can be competitive because of good wind.”
GE Oil & Gas president and CEO Lorenzo Simonelli concurs. In a recent interview carried on Fuelfix.com, he noted that GE’s wind farm ideas were all about “disruption” during a downturn. GE, he said, is on the offensive.
While the oil industry certainly isn’t going anywhere anytime soon, the emerging offshore wind opportunities are exactly where oilfield services can start making up for lost market share while they wait for crude prices to rebound. GE is already on the offensive with wind farms. Will others follow?
By Dex Dunford for Oilprice.com
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