Offshore service companies adapting to energy transition
July 24, 2018
As the oil majors invest more in technologies such as offshore wind, oilfield services companies must adjust their offering to remain competitive, writes Jeremy Bowden
WHAT: Offshore service providers need to be flexible.
WHY: Intensified competition and the energy transition have driven many to turn to the renewables sector.
WHAT NEXT: Smaller companies will find niches and colonise them whilst bigger ones track the global oil majors’ activity.
The UK offshore sector is changing as wind power ramps up and oil and gas work becomes scarcer. Traditional offshore service companies are taking advantage of these changes and adapting to the new shape of the market.
Following in the wake of key decisions by European oil and gas majors such as Equinor, Royal Dutch Shell and Orsted (formerly DONG) to invest in lower-carbon forms of energy, particularly offshore wind, smaller companies with a significant North Sea footprint are also making their own transition.
A recent example is Petrofac – traditionally an oil and gas service provider – which signed a major agreement in May with Transmission Capital to provide engineering services to six UK wind projects. The company has already secured subsea engineering work at the Lincs and Robin Riggs offshore wind farms. Petrofac said at the time that the deal was part of a wider shift into the offshore wind engineering sector.
Another example is Italian engineering services company Saipem. The company’s Sapiem-7000 crane is currently being used to help manoeuvre and install wind turbines on the Hornsea One wind project in the North Sea. In mid-2017 the crane was used to install the turbines for the Hywind floating wind project off the coast of Aberdeenshire – the first of its kind – after winning the contract from developers Equinor and Masdar.
After Hornsea One, the Sapiem-7000 unit will complete the decommissioning of BP’s nearby Miller platform, before travelling north to remove the Varg platform in Norwegian waters for Spanish oil major Repsol. The vessel’s work schedule illustrates its flexibility, with Saipem saying expertise required by the two industries is broadly similar. And it highlights that there is plenty of experience and knowledge in the offshore oil and gas sector that the burgeoning wind sector is eager to utilise.
Innovative and flexible
Gilein Steensma, the new energy lead for the EMEA region at Advisian, part of the WorleyParsons group, is positive about the role smaller companies can play in the energy transition.
“A lot of the innovation happens in the smaller companies. They have the flexibility that larger companies don’t and can pick a niche and develop that – such as optimisation of a particular process or operation,” he told NewsBase Intelligence (NBI). “Oil companies have seen the societal drivers and regulations coming to curb climate change and try to work in the areas where they feel comfortable – such as offshore and in the process side of the energy business.”
Other types of company that now straddle the two industries include those that provide support and facilities for offshore workers. One example, Attollo Offshore, provides accommodation rigs to both hydrocarbon and renewable offshore projects.
However, Attollo’s managing director, Ben Moore, was less enthusiastic about the ease of switching from one sector to the other. “Offshore wind is an important sector for any growing offshore service company; projects are becoming larger, more ambitious and more technically challenging,” he told NBI. “But even though there are transferable skills, any company that feels they can directly import their services from oil and gas will find it difficult to compete. Wind is a different industry that wants to develop its own robust supply chain that can deliver on its priorities and its goal to drive down the cost of wind energy. The speed in which the industry has developed has been astounding, and that is only set to continue.”
The new low-carbon projects favoured by the major oil companies combine wind or natural gas with hydrogen or carbon capture and storage (CCS), both in power generation and heating, which offers a whole new set of opportunities to smaller companies.
For example, in the UK there is Cadent’s HyDeploy project in northwest England that aims to produce ‘brown’ hydrogen from methane.
Meanwhile, in the northwest part of the Netherlands, Gasunie is looking at options to expand and utilise offshore wind to produce ‘green’ hydrogen for use (combined with natural gas) in gas turbine power generation and distribution to households for heating (the power grid in the area is insufficient to supply all the power needed for electric heating).
“Service companies have an understanding of larger oil and gas companies, and so can provide sustainable solutions for these companies, depending on location,” said Steensma.
Shell has been looking at hydrogen for a long time, given that it is a refinery by-product and is also required in some refining processes. “Shell has bought a utility in the UK [First Utility] and is looking at facilities to produce hydrogen for consumption at remote locations. If they have a utility and are producing hydrogen for their own consumption, producing it as a commercial energy product is the next rational step. These companies are analysing the market and finding where the opportunities are, and often towards a utility approach,” he said. Smaller companies need to be aware of this and identify where they can add value.
“As well as progressive companies like Orsted and Equinor, which are major offshore wind investors, there’s Shell and BP. Even companies like Canadian pipeline operator Enbridge have also moved into offshore wind in Europe – so there are some significant shifts among companies that have historically worked in oil and gas,” Steensma said.
Smaller carbon footprints
There are also opportunities for offshore services companies to help operators reduce their own carbon footprints. “There is considerable effort being made internally to reduce emissions too, especially through improving energy efficiency,” Steensma continued. “It makes economic sense in the short term, as it makes a facility cheaper to run, as well as in the longer term as a way of avoiding some of the costs associated with emissions and, ultimately, the cost of climate change.”
The traditional problem for the oil majors has been the low returns associated with renewables as compared to hydrocarbon projects. But there are shifts under way in the market. “If all companies are going to do is generate electricity and sell it to end customers, then that is historically a very regulated and limited return business,” Steensma noted. “But instead, energy companies are taking a step back to see where the value can be extracted along the whole energy chain in a post-transition energy system. Pressure from society and investors is driving this.”
If this kind of investment continues even as oil prices rise again then those service companies that have not already sought a fresh niche in renewables may need to start making the transition.