Can Offshore Wind Save the Workboat Industry?

In March, the U.S. workboat company Harvey Gulf filed for Chapter 11 bankruptcy, the latest in a long list of casualties dating back to 2014 when oil prices collapsed. The list includes notables like Tidewater and GulfMark and some of the better-known North Sea operators, who either declared bankruptcy or merged with competitors to better weather the storm. Bourbon, the biggest of the big, has managed to avoid bankruptcy thus far but has been downsizing and restructuring for the last two years. It still has a long way to go.

But Harvey Gulf was different. For one thing, it’s privately held (by The Jordan Companies, a well-respected mid-market private equity firm that purchased it in 2008). So it didn’t have the quarter-to-quarter performance pressures of publicly traded companies like most of its competitors. For another, it caters exclusively to the high end of the market – the deepwater and ultra-deepwater – with big, high-spec vessels that command primo day rates. The fact that even a privately held, well-managed and top-tier company like Harvey Gulf could go under signaled that the worst was not over and there was likely more to come.

Bankruptcy is not the end of the world, of course, as you savvy MarEx readers know. It’s just a convenient way of shedding debt and starting over. Companies go right on operating under Chapter 11 “protection” until their debt issues get resolved (usually in exchange for equity in the “new” company) and they emerge with a cleaned-up balance sheet and a fresh outlook on life. Tidewater did it in 75 days. It took GulfMark a while longer – six months. How long it will take Harvey Gulf is anybody’s guess.

But if anyone thinks the worst is over in the Oil Patch, just take a look at the latest earnings reports. The “new” Tidewater reported a loss of $39 million in the latest quarter, and the forward-looking projections are not encouraging – no significant recovery till 2019 or later, if ever.

Lifesaver?

In this environment it’s hard not to think of offshore wind – in the U.S. especially – as a potential life-saver. It’s already working in northern Europe where boats that used to service North Sea oil platforms are now tending offshore wind farms – liftboats and crewboats and pipe-laying vessels and survey vessels.

The same is true of Southeast Asia and the Indian subcontinent, where new wind farms are being laid out at a steady rate and workboats are finding new employment. One big operator said that, even in the U.S., his company had more workdays doing site surveys for new wind farms off the East Coast than it had searching for new oil and gas fields in the Gulf of Mexico.

Shipyards are benefiting too – particularly smaller shipyards – since wind farms require specialized vessels and traditional workboats often need extensive, and sometimes expensive, conversions to do the job right. The market for new wind farm vessels in New England, particularly, is booming.

The Potential

The U.S. is no stranger to wind power. Onshore wind. It’s second in the world to China in the amount of installed wind power, most of it in the Midwest and West. Ironically, President George W. Bush, the son of an oil man and an oil man himself, was one of the first to promote the benefits of wind when, as Governor of Texas 20 years ago, he signed a bill deregulating the state’s power industry and encouraging the production of clean energy.

Today, Texas – the nation’s #1 oil-producing state – is also the #1 wind state with 23 GWs (gigawatts) of installed capacity producing roughly 15 percent of the state’s energy needs. Its vast plains are home to some of the largest windfarms in the world with hundreds of turbines each. North Dakota, another big oil-producing state, gets more than 20 percent of its electricity from wind. And four states – Iowa, Kansas, Oklahoma and South Dakota – get more than 30 percent of their energy needs from wind.

“American wind power reached new heights for energy generated and U.S. jobs in 2017,” stated Tom Kiernan, CEO of the American Wind Energy Association (AWEA), “and don’t be surprised when the industry continues to break records. Wind is competitively priced, reliable, and clean – a winning combination that’s creating economic growth in all 50 states.”

Onshore wind grew nine percent in the U.S. last year to 89 GWs, enough to power 27 million homes. It currently accounts for seven percent of U.S. electricity generation and recently surpassed hydropower as the nation’s single biggest source of renewable energy.

The next big frontier? Offshore. Estimates vary widely, but the consensus says the power potential of offshore wind ranges from two to four times the capacity of the current U.S. grid. Coming back down to earth, the Department of Energy recently stated that offshore wind could reach 22 GWs of installed capacity by 2030 and 86 GWs (roughly equal to the current amount of onshore wind) – by 2050.

DOE further estimates there are 28 projects in the planned or approved phase with potential capacity of 25 GWs off the U.S. East and West Coasts, Great Lakes and even Hawaii with the potential of providing 160,000 new jobs. Projects totaling eight GWs have been approved or committed to in Maryland, Massachusetts, New Jersey, New York, Connecticut and Rhode Island.

The most promising appears to Baltimore-based U.S. Wind’s 750-MW Maryland Offshore Wind Project to be located 17 miles east of Ocean City off the coast of Maryland. It would be the U.S.’s first utility-scale offshore wind farm with 187 turbines constructed over three phases with the first phase scheduled for completion in 2020.

A smaller project located in the same general area is Deepwater Wind’s Skipjack Wind Farm, which would deliver 120 MWs of energy or enough to power 35,000 homes. Deepwater Wind, you remember, was the developer of the even smaller Block Island Wind Farm, which came online in late 2016. Block Island was the first and so far only offshore wind farm in the U.S. with five turbines generating 30 MWs of power.

The Trump Administration is fully behind these efforts under its “all of the above” energy policy. Commenting on a recent wind lease sale, AWEA’s Kiernan noted: “Secretary [of the Interior] Zinke’s leadership is transforming the enormous potential of offshore wind into a concrete pillar of American energy dominance. Expanding the market for offshore wind is good news for American workers and the coastal communities needed to manufacture, deploy and operate these projects. Working closely with the states, this Administration can lead the U.S. to become a world leader for offshore wind as it is for other sources of energy.”

A “Moonshot”

There are challenges galore, of course, and plenty of naysayers. One of the most outspoken has been NextEra Energy’s CEO, Jim Robo, who called offshore wind “terrible energy policy” and a “moonshot” in terms of costs and the learning curve involved and lengthy project timelines. Ironically, NextEra is a leader in solar and onshore wind construction in the U.S. and is fully committed to renewables as good energy policy. It’s also a good investment (NYSE: NEE). But it wants no part of offshore wind.

Robo has a point. The learning curve is steep, and costs per kilowatt hour can be four or five times that for onshore wind. In both areas, the European example is enlightening. Based on nearly 30 years of offshore wind construction, the Danes in particular but other European nations as well have developed technologies and experience that have driven costs down dramatically. Europe currently has 16 GWs of offshore wind – 500 times what the U.S. has. Costs have dropped to as low as seven or eight cents/kwh. Compare that to the 25 cents/kwh for Block Island.

So U.S. offshore wind developers will rely heavily on European knowhow and suppliers in building offshore. U.S. Wind is partnering with Danish wind giant DONG (recently rebranded as Ørsted) and other European suppliers just as Deepwater Wind depended on the expertise of Norway’s Fred. Olsen Renewables in building Block Island.

Combine European knowhow with American ingenuity and innovation and it won’t be long before America is on the cutting edge of offshore wind technology. GE has been building some of the biggest and most efficient wind turbines for years now. U.S. boatbuilders and shipyards can do the same.

Rhode Island-based Blount Boats is already building small windfarm service boats under a licensing agreement with the U.K.’s South Bay IOW (Isle of Wight), a leading global provider. Louisiana-based Gulf Island Fabrication makes foundations for offshore oil rigs – and for offshore wind turbines. The company built foundations modeled after oil platforms for the Block Island Wind Farm. And Houston-based Zentech, a builder of offshore platforms, is partnering with Virginia-based Renewable Resources International to build the first Jones Act-compliant, jackup installation vessel for offshore wind farms, expected later this year.

“With larger scale offshore wind projects following Block Island, the U.S. market requires forward-looking marine logistics, such as Zentech’s competitive, Jones Act-compliant jack-up installation vessel,” commented Andy Geissbuehler, Managing Partner of Renewable Resources International, in announcing the agreement. “U.S.-made, domestically accessible and designed in concert with the advanced European offshore wind industry, this vessel conversion is another example of the important role the U.S. oil and gas industry will play in accelerating the U.S. offshore wind industry.”

A Winning Formula

Indeed it will. U.S. oil and gas technology is the best in the world, and that know-how will be put to good use in creating new jobs and new opportunities for American manufacturers. “Make no mistake,” AWEA’s Kiernan said at the annual WINDPOWER conference in Chicago last month, “Wind is winning and will keep winning if our industry stays focused on priorities that attain, elevate and grow demand.” – MarEx