In my many years in the oil and gas industry, I grew used to seeing predictions of both boom and bust in the industry, sometimes at the same time! Now, the consensus seems that the North Sea oil and gas industry is in crisis, battered by markets, environmental and political maelstroms.

There is a way for oil and gas companies to help weather the storms by growing a more balanced portfolio. The offshore wind industry offers significant opportunities for some oil and gas companies to tap into a growing and long-term source of business, with compound annual growth rates of 25% across Europe between 2005 and 2020 and a projected £60bn in capital and operational expenditure between 2016 and the end of 2020. The oil and gas supply chain has developed world-leading technology and skills over several decades to meet the challenges of operating in often-hostile offshore environments. These technologies may benefit the offshore wind sector as it adopts innovative techniques aimed at reducing costs and tackles the challenges of operating further offshore and in deeper waters, albeit involving 100’s of turbines rather than a single rig. The number of oil and gas companies making a successful transition into the offshore wind sector has been below expectations, given the synergies between the industries. The companies that have, such JDR Cables (now Europe’s number one array cable supplier in offshore wind), show that broadening is possible.

It is important that flexible entry and growth strategies are clearly established from the outset. Many of the oil and gas companies I talk to assume margins within the offshore wind sector will be low due to the drive to reduce costs. I always tactfully point out that this drive for lower costs represents an opportunity rather than a threat for them. Offshore wind developers are hungry for supply partners who can demonstrate longevity of support, an innovative mindset and a willingness to create value through standardisation, innovation and economies of scale. Conversely, offshore wind companies can also use their knowledge and experience to improve oil and gas operations.

I’ve found that oil and gas companies usually need help understanding offshore wind, including:
• Direction and size of the international market, especially in Europe, US and the Far East.
• The market drivers, including regulatory issues and financial support available from public bodies, such as Renewable Obligation Certificates and Contract for Difference mechanisms.
• The culture, supply chain, procurement practices and offshore wind farm life cycles, and
• Cost reduction pathways and technology trends.

The oil and gas industry faces many challenges. Offshore wind can provide a new revenue stream for oil and gas companies using existing capabilities. To access this, their plans must be based around a clear value proposition and a thorough appreciation of the challenges.
BVG Associates helps new entrants to the offshore wind sector. We’ve helped companies understand the market, establish their value proposition, mitigate risks and develop their take-to-market strategies. Success depends on oil and gas companies recognising the long-term potential of the sector rather than seeing it as a short term fix.

 

Alan Duncan

Senior Associate

BVGA