“This is a complete catastrophe. There are no other words to describe the situation.”
This was the observation of analyst Vladimir Zernov in his succinct summary of the offshore oil and gas market meltdown of April 2020, which we reported in our review of the worst week for offshore in living memory, five years ago.
Now it is the turn of offshore wind for the bad news to pile up. It is not quite a “complete catastrophe” yet, but last week was not a great one.
As we observed then, in Roman times, bad news was presaged by blood raining from the skies. Today, it comes in the form of contract cancellations raining down. Offshore wind companies might want to pack an umbrella and knuckle down for storms ahead.
What’s happened? Maersk has dropped a bombshell.
In September, we observed that wind turbine installation vessel (WTIV) owner Cadeler receiving a US$110 million contract cancellation payment from troubled Danish windfarm operator Ørsted was not good news.
Ørsted terminated a long-term contract for one of Cadeler’s WTIVs, which had been due to work on the 2.4GW Hornsea Four offshore wind project in the UK from the first quarter of 2027 through to the end of 2030.
We observed that it reminded us of the early stages of the oil and gas crash of 2015 when oil companies paid hefty fees to cancel rigs for which they had no work. In the short term, the rig owners profited handsomely but in the long term they were all hammered, as the cancellations left their fleets without work.
We could see not long-term good news for Cadeler getting a cheque now, instead of a four-year project charter for a WTIV.
History may not repeat itself, but in a cyclical business like shipping, it certainly rhymes.
The second stage of the collapse in offshore drilling in 2015 was a rush by rig owners to cancel rig orders at shipyards in China and Singapore. As demand fell, the rig owners did not want to pay out hundreds of millions of dollars to take delivery of rigs for which there was no work, so they found every legal and contractual excuse to terminate their contracts and request refunds on the milestone payments made.
The result was a pile of rigs abandoned at shipyards and a pile of arbitration cases between rig owners and rig builders, such as the one we covered here.
One of the hardest hit companies by this wave of cancellations was Keppel Offshore and Marine, which merged with Sembcorp Marine in early 2023 in a US$3.34 billion deal to create Singaporean offshore powerhouse Seatrium.
Even in 2022, Keppel still had ten jackup rigs and six floating rigs in the fleet that it inherited when several customers went bust in the offshore downturn and abandoned these units in its shipyards. These units, including the drillship Can Do, were explicitly excluded from the Seatrium transaction and parked in a Keppel parent company-managed infrastructure fund.
But now Seatrium has received a devastating cancellation of its own. On Thursday, Maersk Offshore Wind notified Seatrium that it was cancelling its US$475 million contract for the construction of a WTIV that Maersk had chartered to Equinor's Empire Wind I project off the coast of New York.
The American Government had previously issued a month-long stop work order on the Empire Wind project. Maersk said that it would be seeking recovery of the instalments paid to Seatrium and would not accept delivery of the unit, which was approximately 98.9 per cent complete, due to delays in the construction schedule.
As we have covered, the American Government has expressed hostility to offshore wind projects, and has placed legal and regulatory hurdles to try to cancel and postpone even previously approved projects on the eastern seaboard, like Revolution Wind, which is 80 per cent complete.
Shares in Seatrium fell seven per cent on the Singapore stock exchange on Friday after the announcement of the Maersk decision.
Since Maersk only owned that one WTIV, we may assume that the company is now exiting the wind segment entirely: no WTIV, no Maersk Offshore Wind business.
One may also assume that the bad news in offshore wind in the United States was poorly received in Copenhagen, coming at the same time that Reuters reported a startling fall in Maersk’s core container shipping business.
Reuters found that the rate for Shanghai to Los Angeles, the busiest container trade route, is now down 58 per cent from a year ago, meaning that container rates in the Pacific are “now below the US$2,200 overall rate major ship owners like Maersk and Hapag-Lloyd need to turn a profit.”
Maersk is going to need every penny of capital to shore up its core business if the container trade situation continues to deteriorate. After years of soaring profits driven by Covid supply chain issues and the closure of the Red Sea by the Houthi attacks on shipping, the high boxship orderbook, the US tariffs, and the chronic overcapacity in the container industry are coming back to hurt even Maersk. It’s not going to be pretty in containers nor wind.
The cancellation of the Maersk contract puts Equinor in a bind as well – recall that the Norwegian energy giant had chartered the Maersk WTIV for the Empire project, so presumably Maersk has either cancelled that contract on the grounds of force majeure (I speculate) or has found a substitute vessel to replace the cancelled Seatrium newbuild. It’s not clear which.
Maybe Seatrium will complete the unit and bareboat it to an established operator like DEME or Jan de Nul to complete the contract with Empire for Equinor, or maybe Maersk will contract an existing unit and perform the work with that WTIV.
As with the rig cancellations of 2015 onwards, these shipyard contract disputes can take years to play out. Hanwha only put out the former cancelled drillship Tidal Action (the former West Libra) to work in Brazil earlier this year and Eldorado struggled to get Atlantic Zonda (the former Pacific Zonda) on contract until this year as well. Both were ordered in 2013, 12 years before they started work.
Seatrium now has a US$475 million problem… but the lesson of the drilling industry is that cancelling a nearly completed unit does not make the excess capacity go away; it just hands the problem back to the shipyard.
Longer term, even if it prevails at arbitration against its customer, Seatrium needs to find a buyer for the WTIV, just as the Korean yards turned to Eldorado Offshore, the Turkish state oil company and Northern Ocean, amongst others.
Who will step forward in wind?
One might just attribute the Cadeler contract cancellation and the Maersk shipyard cancellation as single issue problems, unique in their own way. One might attribute the uncertainty over the future of offshore wind in the United States purely to the caprice of the Trump administration, but together these problems start to look systemic.
The big red flag here was the news on Thursday that Denmark’s Ørsted, the world’s largest offshore wind farm developer, would be cutting a quarter of its workforce, approximately 2,000 jobs, by the end of 2027.
“The reasons for this are that the company will be focusing more on offshore wind and Europe, that a number of offshore wind farms will be finalised in the coming years, and that the company needs to improve its competitiveness,” Ørsted said.
The redundancies come even after Ørsted managed to raise additional equity of DKK60.4 billion (US$9.4 billion) through a heavily discounted rights issue to stabilise its balance sheet to manage the cash flow hit from the interruptions to its American projects and difficulty of selling down stakes in the troubled projects.
The company’s shares have halved in value over the last year and even after the recapitalisation measures, Ørsted is now only worth US$25 billion and is controlled by the Danish government, with Norway’s state-controlled Equinor as the second largest shareholder.
Sadly, when an industry moves from a high demand market to a falling market, head count reductions are inevitable. I would anticipate other wind farm developers to be looking to reduce costs and reduce staff numbers, simply because there are fewer immediate new projects in the pipeline.
It is not that there aren’t projects ongoing, and it is not that offshore wind doesn’t have a future, it is simply that demand is slowing and competition is hotting up across the sector.
To the surprise of many, wind turbine manufacturer Ming Yang recently announced plans to build the UK's largest wind turbine manufacturing facility at Ardersier in Scotland. The Chinese company said the US$2 billion project would create up to 1,500 jobs, and that it anticipated the first turbine to roll off the production line by late 2028.
The firm is the largest private wind turbine manufacturer in China, and this would be its first European production facility as it brings competition to Vestas, Siemens Gamesa and GE into their traditional Northern European market.
It comes at a time when the pipeline of projects beyond 2027 is starting to look shaky.
We see these problems in Lithuania, where a second attempt to tender a concession for the development of a 700MW offshore wind farm in the Baltic Sea failed last week, due to a shortage of bidders.
According to Lithuania’s National Energy Regulatory Council, only one bid was received, from state-owned the Ignitis Group, so the process is deemed to have failed for a second time.
This comes on the back of the high publicity problems faced in the US, of Mitubishi cancelling three floating wind tenders in Japan, of Equinor announcing in August that it was pulling out of the 2GW Australian Novocastrian offshore wind farm project as well as the cancellation of all of Equinor’s offshore wind projects in Spain, Portugal and Vietnam.
That’s not to say that the workload for existing projects is not progressing. It’s what happened when those projects finish that is the concern.
Last week, DEME announced some milestones in its work to install new turbines off Taiwan.
The company confirmed the completion of all jacket foundations at the Hai Long Two and Hai Long Three offshore wind farms in Taiwan in August this year, and now DEME’s Taiwanese joint venture CDWE has successfully installed all 37 wind turbines at the Hai Long Two wind farm, on behalf of operator Hai Long Offshore Wind and its contractors and suppliers partners Shimizu Corporation and Siemens Gamesa.
In 2026 CDWE will install the 36 turbines at the Hai Long Three offshore wind farm.
But even Taiwanese contractors in wind are pivoting to traditional oil and gas to hedge their wind exposure.
One of the biggest investors in offshore wind vessels in Taiwan has been Dong Fang Offshore (DFO), which has a large orderbook of service operations vessels at Vard in Vietnam, and even a memorandum of understanding for a newbuild WTIV with Lamprell shipyard in the UAE. Given the recent market turbulence, it is not clear whether this will translate into an actual newbuild WTIV contract.
However, DFO’s recent publicity drive has focused, with much hyperbole, on its role in Northern Europe with traditional offshore contractor DeepOcean.
I quote the recent, breathless social media release entitled, “The Art of Expansion and Prudence: Inside Dong Fang Offshore's Maritime Empire Strategy.” I guess the headline is more respectable than simply using the words of the gay disco anthem Go West for the header for the release, although this is effectively the content of the message:
"In 2026, Dong Fang Offshore will shatter geographic barriers when its vessel Orient Adventurer becomes the first Taiwanese marine engineering ship to operate in Europe's North Sea – offshore wind's ultimate proving ground.
"The breakthrough required two years of relentless pursuit. The odds were brutal. Million-dollar vessel deals require hands-on management and instant support - luxuries impossible from across the Pacific.
"So how did Taiwan break through? Industry reputation saved the day. Marine engineering is a small world, and DFO's sterling performance record became its passport to Europe. When DeepOcean's due diligence team descended on Taiwan for exhaustive audits, [DFO CEO] Chen's team passed with flying colours.”
Having the flexibility to service both offshore wind and offshore oil and gas is going to be critical for the survival of many offshore wind players. For the contractors like Subsea 7, DEME, Boskalis, Van Oord and Jan de Nul, their model is sector agnostic, and they have demonstrated track records across multiple types of projects.
But for smaller and more specialised players like Cadeler, Edda Wind, IWS, Norwind and even Dong Fang Offshore, the ability to pivot will be critical. As the events of recent weeks have shown, the pendulum swings both ways.
At the moment, offshore wind is facing significant challenges, just as 2020 proved to be catastrophic for offshore oil and gas.
We concluded our review of the calamitous last week of April 2020 with the following summary: “Basically, the entire offshore drilling industry is insolvent, burdened by unsustainably high debts, unsustainable cash burn, and limited growth prospects.”
The situation in offshore wind is going to take a lot longer to play out as electricity markets are national, rather than global, demand for electricity continues to rise driven by data centres and AI processing, whereas in 2020 oil consumption collapsed in the lockdowns. Utilities will take longer to react to changes in costs and revenues compared to oil and gas companies, which are totally exposed to commodity spot prices and are ruthless at stopping activity when oil prices slump.
Exposure to the volatile Brent price had disastrous consequences for the offshore drilling companies and supply vessel owners in the Covid crisis. However, bad news continues to accumulate in the wind sector. With another three years of the Trump presidency ahead, I just don’t see a quick and easy path for the sector back to growth.
Bourbon Gomen, an 80-tonne DP2 anchor handler built in 2012, has been added to the auction slate with a reserve price of US$7 million for an online bid on November 6.
The small laid up platform supply vessel Bourbon Liberty 153 sold for the surprising price of US$3.62 million on October 10 to an unnamed buyer, but anchor handlers Bourbon Liberty 209 and 206 were not sold and their prices have been reduced to US$4 million and US$2.7 million, respectively, for a new round of bidding on October 16, along with the long term laid-up subsea vessel Bourbon Evolution 801, which is now priced at US$14.5 million “as is ,where is” in Abidjan in Ivory Coast, just in time for the election there.
As Stanislaw Warinka has tattooed on his arm, “Ever tried. Ever failed. No matter. Try again. Fail again. Fail Better.” And at lower prices, as ICBC is discovering.
It’s a quote from Samuel Beckett, the Irish author and French Resistance fighter, whose writings deal with the struggle to find meaning in a bleak, nihilistic universe.
I can think that both offshore wind and offshore oil and gas contractors can relate to that sentiment. And Chinese banks, too.
Background reading
Our coverage on Keppel’s peculiar and poorly disclosed transactions involving its legacy fleet of abandoned rigs is here. Maybe the infrastructure fund can also take on the WTIV from Seatrium?