Oil Producers Turn to Wind Power
Posted by hkarner - 28. Dezember 2016
Source: The Wall Street Journal
European oil companies take on offshore wind projects; a way to diversify and leverage experience drilling at sea
The oil-and-gas giant is facing shareholder pressure to develop its renewable business. Add in falling construction costs for such projects, and Shell has decided to join a handful of other oil companies aiming to leverage their experience drilling under punishing conditions at sea.
Norway’s Statoil ASA is already building its third offshore wind farm, in the Baltic Sea, and is developing the world’s first floating wind farm off the east coast of Scotland. Denmark’s state-owned Dong Energy AS—once a fossil-fuel champion—is now the biggest player in the offshore wind market.A Shell-led consortium won a bid this month to build and operate a portion of the Netherlands’ giant Borssele wind project in the North Sea. Once complete, the Shell-built section will generate enough power for roughly a million homes at a price of €54.50 ($56.95) per megawatt hour—a customer rate approaching that of cheaper power sources like coal or gas.
Offshore wind’s competitiveness is highly subject to local power prices and government measures, including tax credits, subsidies and rate guarantees. Nonetheless, in European markets, the wind industry had thought near parity was years away.
“Right now the offshore wind project is competitive with any power source,” said Dorine Bosman, Shell’s manager developing its wind business.
Offshore wind-power projects involve driving steel foundations into the sea floor for towers that support building-size turbines with propellers wider than the wingspan of an Airbus A380. Though historically more expensive to build than onshore wind farms, offshore projects can take advantage of less restricted space and stronger, more consistent winds.
The technological arms race to build these complex projects economically is so heated that many companies, including Shell, won’t disclose how much they are investing, treating their commitments like a trade secret.
Fossil-fuel companies’ push into wind reflects their growing sensitivity to global efforts to limit climate change and how that will affect consumer demand for their main offering: oil and gas.
France’s Total SA wants 20% of its portfolio to consist of low-carbon businesses within the next 20 years. Shell established a new division this year focused on investing in sources such as wind, solar and biofuels. Statoil has a $200 million fund for projects such as wind technology and batteries.
Investments by big European oil companies in wind and other renewable energy sources remain small—around 2% of their overall capital-spending budgets, according to McKinsey. The industry is cautious about betting big on alternatives after getting burned in the past.
It remains unclear if offshore wind can be a steady moneymaker without government support, which besides tax credits and minimum rates can include guaranteed access to power grids.
“It should be the ambition of everybody to not have subsidies,” Ms. Bosman of Shell said.
Lower costs—brought on by technological improvements, economies of scale and low interest rates—are helping move the sector in that direction. Earlier this year the wind-power industry was targeting a price of €100 per megawatt hour by 2020; subsequently three auctions of project rights this year in the Netherlands and Denmark settled on rates below that level.
Shell previously pulled back from involvement in offshore wind that proved unprofitable and says it will be primarily an oil-and-gas supplier for decades to come. But the improving economics of wind power have prompted the company to dip its toe back in the water, joining others in crowding the heavily subsidized specialists that once dominated the sector.
Dong Energy has sold off a large portion of its fossil-fuels business, including five Norwegian oil and gas fields, and now has 29% of the world’s built offshore wind capacity, according to spokesman Tom Lehn-Christiansen. Goldman Sachs Group Inc. took an ownership stake in Dong Energy in 2014, and the company went public in June.
Statoil has invested $2.1 billion since 2010, or about 20% of a single year’s capital budget, in offshore wind parks. After two years of whipsawing oil prices, offshore wind’s relatively stable prices are dreamlike for oil executives, said Irene Rummelhoff, Statoil’s executive vice president for renewables.
Even Exxon Mobil Corp., which hasn’t put the same emphasis on renewables, has dabbled with the technology, with the idea of using floating wind turbines to help power its offshore oil and gas platforms.
Although solar power is expected to be the fastest-growing renewable energy source over the next five years, the International Energy Agency forecasts offshore wind capacity will triple by 2021. While that will remain below 1% of global capacity, the growth prospects are particularly attractive in regions such as Northern Europe where sunlight is in short supply for half the year.
Japan, China, India and Taiwan are all poised to place bets on offshore wind now that its cost is coming down, according to the industry group Global Wind Energy Council.
In the U.S., President-elect Donald Trump has been skeptical of wind power, warning of its cost, unsightliness and risks to wildlife. However, Texas was a forerunner of onshore wind energy in the U.S. under the watch of former Gov. Rick Perry, Mr. Trump’s pick to lead the Energy Department.
Offshore wind in the U.S. got a boost this month when the country’s first park went online off the coast of Block Island, R.I. Days later, Statoil won a bid for a potential project in the Atlantic Ocean south of Long Island—its first offshore wind lease in the U.S.
Jeffrey Grybowski, CEO of Deepwater Wind, which developed the Block Island project, said the oil companies will face a tougher landscape in the U.S. compared with Europe because of bureaucratic hurdles and fewer incentives.
“We think our competitors are going to have a lot to learn,” he said.