COLUMN | Favourable winds still blowing – Part one [Offshore Accounts]

The future is clear. Offshore renewables have a massive tailwind. This month has seen Europe’s largest wind energy company, Ørsted, announce strong results (here) with profits for the first half of the year of over US$1.5 billion, whilst its stock price (here) has doubled since January 2019 on the back of expansion into the USA and Asia.

The major oil companies, on the other hand, all slumped to massive losses on the back of multi-billion dollar write downs in their oil and gas assets, due to lower forecast oil prices, and the impact of the pandemic on actual hydrocarbon prices from April to June.

Big oil bleeding

Shell’s reported loss for the second quarter, by contrast to Ørsted’s profit, came in at over US$18 billion, including a large non-cash write-down, whilst Total reported a net loss of over US$8 billion. Shell and ENI have both cut their dividends this year.

BP’s reported loss was over US$16 billion, including the inevitable non-cash impairments. BP also halved its dividend. BP’s CEO Bernard Looney announced that the company intends to increase its annual investment in low-carbon technologies by ten-fold, that it will boost renewable power generation twenty-fold, and that it would shrink its oil and gas production by 40 per cent over the next decade, reducing production by a million barrels of oil a day compared to 2019 (see Reuters‘ analysis here).

Early leaders fade fast

So, offshore wind is on a roll. When we last surveyed the windfarm installation industry back in the summer of 2017 (here), a number of trends were already evident: that the original industry leaders, Fred Olsen, Swire Pacific and Vroon were losing ground to the big Dutch and Belgian dredging giants, like DEME and Jan de Nul, and that the major offshore construction players like Subsea7 were moving into the wind farm installation sector as well.

The first movers had entered the business on the back of their complimentary offshore experience, but were hamstrung for growth by the miserable performance of their legacy offshore fleets, which deprived their wind farm installation businesses of capital.

Swire Blue Ocean lost in parent’s red ink

Thus, it came to pass. Swire Blue Ocean suffered a catastrophic failure to the crane on its jackup installation vessel Pacific Osprey in the summer of 2018, which injured four crewmembers and the saw the crane out of service for nearly two years. Finally, in June, the company announced that the crane was back in service (here), highlighting the bottlenecks and long lead times for the specialised lifting equipment needed for turbine installation vessels.

Last week, parent Swire Pacific Offshore reported yet another dreadful set of results, with a loss of US$640 million in the first six months of the year (here), due to still more write-downs on its 70-vessel OSV fleet, and still more conventional operating losses. CEO Peter Langslow noted that the company’s windfarm installation vessel revenues had fallen 70 per cent year on year, to cap a monumentally bad six months.

A year ago, we asked what went wrong at Swire Pacific Offshore (here); clearly it is still going wrong. Swire doesn’t have the capital to invest in new renewables equipment, especially when its airline Cathay Pacific is also bleeding cash.

Vroon: vroom, vroom no more

The same is true to Vroon, struggling to survive the wrath of its creditors in an offshore industry downturn. The company announced the sale of its MPI windfarm installation business in 2018 to Van Oord (here), with two jackups and the management being sold to the dredging giant, which had already build the DP2 jack up Aeolus for turbine work.

The third Vroon jack-up, MPI Enterprise, now Wind Enterprise, was bareboated to Ziton, with a purchase option exercisable in March 2021.

Goodbye Vroon from one of the fastest growing marine services markets in the world, but the company still has 50 OSVs as consolation, many laid up.

Brave turn by Fred Olsen

Only Fred Olsen has shown any appetite to invest (its drilling business went bust and was liquidated in 2018). The Fred Olsen installation jackup Brave Tern (great online tour of the vessel available here) is being upgraded to a 1,600-tonne crane, ready for service in 2022 (here), which doubles the vessel’s lifting capacity.

This lifting upgrade is necessary, as turbines have got bigger and bigger. The latest GE Haliade turbine has 12 MW capacity, whilst Siemens Gamesa has developed a 14MW turbine (here) with 222-metre rotor diameter.

Dredging giants pile in

But whilst the first movers have failed to invest and have lost ground, the dredging giants are piling (excuse the pun) into the sector, spending billions of dollars in investment in higher specification equipment to meet the demands of the larger turbine blades, the bigger foundations and deeper jack-up water operations.

DEME suffered a temporary setback when its game-changing, new jack-up Orion experienced a catastrophic crane failure whilst outfitting at the Liebherr construction yard in Rostock, Germany, on Saturday, May 2. The video of the spectacular crash, which thankfully saw nobody killed, can be seen here.

This has set back the delivery of the vessel from Cosco by at least a year, furth tightening the supply of these valuable ships at a time when every utility and government is clamouring to add renewables capacity offshore.

Enlightened investment in Voltaire

Jan de Nul already operates two small jackups in the wind installation sector, but in 2019 announced two large newbuilds, the jackup windfarm installation vessel Voltaire (here) and Les Alizés (here), a floating installation crane vessel, from the CMHI Haimen shipyard in China.

The company boasted “Together with the Voltaire, this new vessel will be in a super-size class of its own, capable of building the newest generation of offshore wind farms. Les Alizés, which will be ready in 2022, is equipped with a crane having a lifting capacity of 5,000 tons and equally impressive lifting heights.”

Drillship repurposed for Taiwanese turbines

Boskalis is also aggressively investing in the sector. In 2017 the Dutch player converted one of its semi-submersible heavy lift vessels into a DP2 transportation and installation vessel, Bokalift 1, which features a self-propelled 3,000-tonne crane and huge deck space of 165 metres by 43 metres (here), part of a trend of specialisation to separate the transport of foundations and monopiles from the installation of the turbines themselves. In May this year the company cut steel on the modification of Bokalift 2.

Drydocks World in Dubai is converting the former drillship GSF Jack Ryan, recently named YAN to save on paint, apparently (here) for windfarm work. A 4,000-tonne crane will be installed on the vessel in 2021, capable of lifting structures more than 100 metres high, the company advised.

Bokalift 2 is already contracted to work on the Changfang and Xidao offshore wind farm construction off Taiwan. Boskalis said that the project includes the transportation and installation of 62 three-legged jacket foundations and the accompanying 186 pin piles.

The future of wind is Asian?

The growth of wind farm activity in Asia is accelerating, as Boskalis’ success in Taiwan shows. As windfarms are installed outside Europe, the market is expanding, creating new opportunities.

The largest market outside Europe, China, is hard for foreign players to access – despite the recent accident (reported here) which saw the 2019 built Zhen Jiang jackup installation vessel suffer a calamitous accident, whilst installing turbines at the CSIC Jiangsu Rudong H3-1 300 MW offshore wind farm, which resulted in serious flooding to the vessel.

However, Japan, Taiwan and South Korea have all launched ambitious plans to build offshore renewables sectors, and are open to foreign expertise. Taiwanese windfarm activity has been one of the few bright spots for the offshore market in Asia, with companies including Solstad and MMA Offshore reporting contract wins supporting the growing offshore windfarm installation activity there this year – you can read MMA’s “exciting” announcement here.

Douglas Westwood reports that Taiwan expects to have installed around 10 GW of offshore wind turbine capacity by 2030, up from 128 MW now. South Korea has committed to a target of 10 GW by 2030, and to releasing three to four new offshore sites every year, whilst South Korea has set a target of 12 GW, but with a focus on floating solutions rather than monopile turbines.

Vietnam has launched its first project, to widespread interest from international investors and PetroVietnam subsidiaries.

Offshore wind holds dominion in the US

America is also moving to build its first large windfarms offshore as well. Geoquip Marine recently announced a contract win with Dominion Energy (here) on the Coastal Virginia Offshore Wind project. This is the largest single offshore wind project in the USA and is the first to be commissioned by an American electric utility for connection to the power grid.

Geoquip reported that the coring, boring and soil sampling contract has demanded the simultaneous deployment of three of its DP2 vessels, the Geoquip Saentis, Geoquip Speer and Dina Polaris. Dominion has been following the Ørsted model and has set itself a goal of “net zero” emissions of carbon dioxide and methane from power plants and gas infrastructure from 2050, so this project will likely be the first of many. Legislators in Virginia have enacted a law requiring the company’s local electric utility to use 100 per cent carbon-free energy by 2045.

Boom today, bust tomorrow?

So, wind looks set to take a rising share of global energy production in the years ahead, with numerous new projects planned, hopefully displacing polluting, dirty coal (as we argued here). But shipping is a cruel business, where boom inevitably leads to bust. Just as the surge in deepwater drilling in the early 2000s led to a massive overcapacity issue problem after 2015, when rig owners piled in to build too many drillships, and brand new PSVs piled up idle alongside, all justified with the same hockey-stick graphs of eternal prosperity; so, too, offshore wind is starting to show signs of overheating.

Next week, we’ll be looking at how the pipeline of newbuild windfarm installation vessels is growing alarmingly. Speculators see the glint of gold. Exuberance is rising. Is the sector starting to get frothy?