Bloomberg News

Wind’s $168 Billion North Sea Boom Lures Oil Industry

May 01, 2012

North Sea wind farm. Source: E.On

North Sea wind farm. Source: E.On

Oil service companies led by Technip SA (TEC) and Subsea 7 SA (SUBC) for the first time are working with wind energy developers in the North Sea’s 14 billion-euro ($19 billion) a year market.

The offshore engineers plan to exploit the similarities between building undersea oil installations and constructing offshore wind farms and have both established renewable energy units. Petrofac Ltd. (PFC) also offers expertise to wind developers in the North Sea, where fossil fuels first discovered in 1966 are being depleted as clean energy demand rises.

“The synergies available between offshore wind and oil and gas are most apparent in the North Sea,” said Jayesh Parmar, a London-based consultant at Baringa Partners LLP. “It makes sense here to be operating in both areas.”

The move into renewable energy comes after Britain’s oil and gas production has shrunk more than half since peaking in 1999 at about 4.5 million barrels of gas and oil equivalent a day to about 2.2 million barrels now, according to the Oil & Gas U.K. industry group. Production from Britain’s continental shelf has fallen about 6.2 percent annually in the past 23 years.

Drawing on offshore energy expertise and government mandates to raise the amount of power derived from clean energy, countries around the North Sea led by Britain plan to have 35.5 gigawatts of offshore wind projects by 2020 from 2.9 gigawatts today, according to Bloomberg New Energy Finance. The total cost of the increase will be 127 billion euros and the facilities would provide 3.2 percent of the European Union’s electricity demand.

Scotland, North Sea

Britain has about a third of the potential sites for offshore wind farms in Europe off Scotland and in the North Sea, more than any other nation.

“The offshore wind developers are now seeing the value of having the oil and gas companies getting involved,” Subsea7 Renewables Vice President Bob Dunsmore said in an interview. “They’re moving into the environment we work in.”

For a 50-turbine offshore wind installation, as much as 25 percent of the capital expenditures are services work that can easily be done by oil and gas companies, Parmar said.

As wind projects ramp up in size, the crossover with skills and equipment is growing, said Will Rowley, an analyst at the private subsea engineering group Acteon. The U.K.’s oil and gas industry employs about 440,000, according to Oil & Gas U.K.

Commonality of Skills

“To a large extent there is commonality between the engineering and management skills required to successfully deliver offshore oil and gas projects and those required to successfully deliver offshore wind projects,” said Richard Cooke, head of renewables business development at Petrofac.

The European Wind Energy Association predicts at least 446,000 will work in industries related to North Sea offshore wind by the end of the decade, more than double today’s 192,000.

Conversely, countries like the U.S. and Brazil with major oil and gas basins have yet to develop offshore wind projects of significance due to permitting delays and local opposition.

While three developers concluded agreements in the U.S. to sell the power produced by their turbines, none have secured financing. The Cape Wind project off Massachusetts has been in development more than a decade.

Brazil, set to become the fourth-biggest wind turbine market this year, is pursuing onshore farms, which are cheaper to build for power than coal-fired plants.

Focus on North Sea

So the focus remains on the North Sea for offshore wind and related grid connections as Britain targets renewable energy for a seven-fold jump in offshore wind to 13,000 megawatts by 2020.

At least 114 billion euros, and up to 152 billion euros, of investments are needed in the next eight years to build as much as 35,500 megawatts of offshore wind in the North Sea, including Britain and Germany, according to New Energy Finance.

Germany, ending nuclear power production following last year’s Japan disaster, wants to boost sea wind production to 10,000 megawatts, with turbines contributing as much as 5.7 percent of gross energy production. France wants to go from no offshore wind production to 6,000 megawatts in eight years.

China, forecast to be the second-largest market for offshore wind outside the U.K., completed its first project, the 102-megawatt Shanghai East Sea Bridge, in 2010.

China’s government is targeting 5,000 megawatts of offshore wind by 2015 and 30,000 by 2020, yet lack of experience and limited access to capital is likely to result in only 4.2 gigawatts getting built within three years, according to BNEF.

Shanghai Bridge

Technip delivered the first floating offshore wind turbine in 2009 and established an offshore wind unit last May after acquiring the Scottish cable installer Subocean Group.

“We see offshore wind as a natural fit in wishing to diversify and become a company involved with different aspects of the energy business whilst still maintaining our core capabilities,” Ron Coockson, head of offshore wind for Paris- based Technip, said in an e-mail.

The world’s biggest oil industry supply and crew ship fleet, Bourbon SA (GBB), started doing work in the offshore wind sector in 2010, Chief Operating Officer Gael Bodenes said in a phone interview. Company crew boats, anchor-handling tugs, offshore supply and subsea support vessels have worked on projects in the U.K., Germany and Portugal, he said.

“There is no doubt that offshore wind will compete with oil and gas for jobs and that’s good in some ways as it will employ people as oil and gas declines,” Alistair Phillips- Davies, a director at SSE Plc, said in a London interview.

London Array

Most of the skills to work on an offshore wind farm, including installing pipes and cables, are the same as the oil and gas sector, said Stephen Reynolds, a former oil and gas engineer for Qatar Liquefied Gas Co. who now installs Siemens AG (SIE) turbines at the 1,000-megawatt London Array wind project.

Sixty percent of companies recruiting for U.K. offshore wind positions received applications from the oil and gas sector, according to research by Trends Business Research Ltd. for Renewable U.K.

“This is an opportunity to create highly skilled jobs and that can’t be a bad thing,” said Steve Green, a Renewable U.K. training network director.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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