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Renewable energy is reshaping global energy markets. For the oil majors. this poses a threat to legacy oil and gas operations. but is also an opportunity to diversify and future-proof portfolios. as a recent report from Wood Mackenzie highlighted.
As Wood Mackenzie notes. the growth opportunity in renewables cannot be ignored. It forecasts average annual growth rates of 6 per cent for wind and 11 per cent for solar over the next 20 years. Renewables will have captured a much bigger slice of the global energy market by the middle of the next decade.
Wood Mackenzie believes the value proposition of offshore wind is competitive with some upstream investments. Returns rank favourably with many of the majors’ pre-sanction long-life developments. the most comparable upstream asset class.
Wood Mackenzie also believes offshore wind may offer them the most attractive route to organic growth in the near-term. It offers scale and scalability on a par with upstream mega-projects. It expects capital to be diverted from upstream to build positions in wind and solar.
Growth in offshore wind is something the majors cannot afford to ignore as they plan for 2035 and beyond. They need to diversify and can bring their expertise in the value chain to help balance portfolios and hedge against future erosion of the upstream value proposition and the anticipated hardening of investor sentiment towards carbon.
That would be one of the reasons why. as I reported recently. Shell. which recently returned to the offshore wind market after a long absence. says it would like to see large-scale. integrated development of offshore wind projects of up to 10 gigawatts. If that seems unlikely at the moment. don’t forget that offshore wind industry leader Dong Energy evolved into a pure-play offshore wind outfit from what was once an oil and gas company.
Shell is looking to grow its footprint in wind in the coming years and is proposing that the next phase of offshore wind development be thought of as a stepping stone. a de-risking exercise. towards a much bigger offshore wind industry that operates at the scale of the potential resource. Its belief is that industrial development at scale would lower cost. create value across the supply chain. and stimulate economic growth.
Offshore wind has already comfortably exceeded cost reduction targets. The next phase of its development could see oil companies stepping in. with capital and expertise. prompting development of mega projects that will dwarf existing windfarms.
The European majors are leading the way. shaping strategies to establish a presence in this fast-growing market.
