Posted on Sep 17, 2020 at 7:00 a.m.
The turn is still timid but is confirmed day by day. Faced with black gold prices more and more uncertain , the European oil giants are stepping up their offensive on the promising offshore wind market. Latest emblematic operation: the buyback at 1.1 billion dollars of half of the stake of the Norwegian Equinor in two wind projects off New York and Massachusetts, announced by the British BP last week.
This is BP’s first major operation in the sector. In June, Total also announced one of its first offshore wind operations: the acquisition of 51% of the largest offshore wind farm in Scotland from the energy company SSE. A project whose construction costs amount to 3 billion pounds.
The Norwegian Equinor stands out
“The amounts of these operations are not major on the scale of the petroleum industry but they are in the offshore wind market. Each year, the industry leader Orsted invests around 3 billion euros ”, points out Simon Redmond, senior director at S&P Global. This is just the beginning because in wind power – with rare exceptions – oil companies are still a long way from having turned the table around.
Undisputed leader, Danish Orsted dominates with approximately 7 gigawatts (GW) of generating capacity and over 25 GW under construction worldwide for the next five years. Far behind stand out the German RWE, the Swedish Vattenfall and the Norwegian oil company Equinor, one of the few to have really gained a foothold in the sector.
The offensive of the oil giants in offshore wind power is only a small part of the long-distance race they are leading to diversify their business models and cope with the energy transition. But she ticks several essential boxes. “Revenues from wind projects are more predictable [que ceux issus du pétrole, NDLR] because often associated with long-term contracts ”, S&P Global states in a report.
Take advantage of the market euphoria of “green” stocks
Growth is also on the cards: the European Union plans to increase its installed capacity from 22 GW at the end of 2019 to 90 GW in 2030, then to 450 GW in 2050 … “Today offshore wind power generates barely 1% of the European energy mix. But this market will undoubtedly be the one that shows the most significant growth in the years to come. There is a bigger and bigger cake to share ”, says Massimo Schiavo, senior analyst at S&P Global. It must be said that the market is becoming global: the United States and Asia are also launching. So many arguments that the oil companies are trying to make to investors to take advantage – them too – of the wave of enthusiasm for “green” stocks.
To achieve this, oil companies have undeniable assets. In addition to their deep pockets to invest or buy established players, they “Know how to lead complicated projects at sea where the issues of logistics transport, construction and operation are complex”, pointe Christophe Brognaux, senior partner at BCG. The International Energy Agency agrees and estimates that the cost synergies between offshore activities in oil and those in wind would amount to nearly 40%.
10 global players maximum
However, places could be difficult to take, faced with well-established energy companies. The profitability of the market, penalized by competition, is also under strong pressure. “In the offshore wind market, the stakes are likely to be drawn fairly quickly. The limited number of major projects, the sharp drop in costs in the sector which weighs on its profitability and the execution risks favor concentration. There will be 6 or 10 major global players at most ”, considers Christophe Brognaux.
In this context and in view of the major objectives posted by BP, which intends to multiply its production capacity of electricity from renewable sources by twenty, to reach 50 GW by 2030, scenarios of mergers between giants emerge. “Market rumors suggest BP’s interest in Orsted or RWE”, Christophe Brognaux still slips.