Change of Direction

 

The offshore oil and gas industry has bounced back from the doldrums of recent years with a leaner look and fewer players. Worldwide rig utilization is the highest since 2014, thanks to a wave of scrapping and a revival of activity. But the other offshore – wind – is taking a backseat as investors look for more profitable options.

Five years ago, European oil majors announced a significant pivot to renewables. Shell, BP and Equinor all pledged to shift billions in resources to offshore wind and solar and put serious money down on big-ticket projects. Many of the most important offshore wind leases in the U.S. – including Empire Wind, Atlantic Shores, SouthCoast Wind and Attentive Energy – went to these oil and gas giants.

Unlike its European peers, ExxonMobil stayed out of offshore wind and kept its capital allocation focused on projects with the highest returns, like its flagship Stabroek Block lease off Guyana. This strategy worked, and Exxon posted $56 billion in profits in 2022, the highest earnings ever recorded by any European or American oil company. Tens of billions of dollars in dividends and stock buybacks followed.

Unsurprisingly, investors voted with their dollars. Driven in no small part by offshore E&P success, Exxon's stock has risen more than 210 percent in five years, outperforming BP (50 percent), Shell (130 percent) and Equinor (140 percent). In response to investor pressure to be more like Exxon, European oil majors have begun letting go of renewables and the CEOs who signed off on them.

FROM WIND BACK TO OIL

This February, BP announced that it would cut $5 billion from its planned renewable-power investments and boost spending on O&G by $2 billion a year, effectively ending its ambition to go net-zero by 2050. It's announced plans to sell its entire U.S. offshore wind portfolio, and the rest of its $10 billion wind pipeline has been spun off into a separate JV with Japan's JERA – with a new emphasis on "capital-light" activity.

BP CEO Murray Auchincloss, who took over from green-energy stalwart Bernard Looney in 2023, says that shareholders are happy with the new approach. "We were just pursuing a few too many things over the past five years, and it was really, really time to focus those [businesses] down to the very highest quality that compete on returns," he said in an interview at CERAWeek in March.

Likewise, Shell's new leaders plan to cut offshore wind spending and reorient the remaining low-emissions portfolio towards battery storage, gas-fired powerplants and LNG. This January, Shell took a $1 billion charge to write off its 2.8 GW Atlantic Shores wind farm, ending its involvement in U.S. offshore wind.

Norway's Equinor, an offshore pioneer and an early leader in the oil-to-wind shift, has dropped a plan to put 50 percent of its fixed asset spending into green energy. It plans to boost O&G production by 10 percent through 2027, led by its investments in the Norwegian offshore continental shelf.

As oil majors pull or pause their investments, U.S. offshore wind stakeholders face a risky regulatory environment. President Donald Trump has promised to "end" offshore wind. All future lease sales and permitting processes have been paused. The Administration has revoked a permit for a previously-approved project, Atlantic Shores, and most of the big players see the writing on the wall.

At least, for now.

"We have a concession for 50 years," said Patrick Pouyanné, Chairman & CEO of French oil major TotalEnergies, in a conversation with Bloomberg. "I understand that during these next four years there is no way to obtain any federal license, so I don't want to spend my time. So we say no, we put a pause, we have reduced our teams to a minimum. And then in four years, we'll see if federal policies are changed."

For all the gloom, there are some bright spots for shipowners. In Europe, progress has slowed, but the demand for installation vessels remains greater than the supply. The global leader in turbine transport and installation, Denmark's Cadeler, reported in March a record $2.5 billion contract backlog for future wind farm work. It's confident enough in the industry's outlook to invest in new hulls and will have seven new high-spec WTIVs (wind turbine installation vessels) in its fleet by 2027 – and is said to be contemplating M&A options, too.

E&P BOOM

Commercial and political realities have cut deep into offshore wind, but the decline is offset by more activity in offshore oil and gas. That's fine for vessel owners who happen to have dual-purpose service vessels (as many do). Much of the capital pouring out of offshore renewables is flowing right into offshore E&P.

BP, a leader in the U.S. Gulf, has spent $7 billion in the region since 2022 and has been increasing its commitments even as it steps back from U.S. wind. In 2022, it greenlighted its sixth offshore production hub in the Gulf, Kaskida, and is nearing a decision on its seventh, Tiber. Both are fully owned by BP, and they're the top projects on the company's oil-focused priority list. "We have a fabulous position in the Gulf of America with the Paleogene, 10 billion barrels in place," said Auchincloss.

It also helps that the Trump Administration is all-in on oil and gas. At CERAWeek, U.S. Energy Secretary Chris Wright said that the Administration is "unabashedly pursuing a policy of more American energy production and infrastructure, not less," news that was welcomed with a round of applause. Wright highlighted the Administration's swift approval of a new offshore gas terminal, Delfin LNG, which will use a legacy offshore pipeline to supply floating liquefied natural gas (FLNG) plants off Louisiana.

An offshore boom would mean a welcome return to full utilization of U.S. offshore service vessels, says Aaron Smith, President & CEO of the Offshore Marine Services Association (OMSA). With enough demand, the industry could kick off a new offshore vessel construction cycle, and the supportive tone from the White House is encouraging for future investment in tonnage.

Alongside its backing for the energy industry, the Trump Administration has a positive attitude towards American maritime, and the policy environment appears to be shifting in favor of a U.S.-supplied offshore sector. Driven by the strategic need to grow the U.S. shipbuilding base, the White House is listening closely to the needs of the industry. It's even set up a dedicated shipbuilding office in the Eisenhower Executive Office Building, right across the street from the West Wing.

"This Administration gets that if you want to bolster U.S. shipbuilding, you need a U.S. vessel owner to put in an order," Smith adds. "And U.S. mariners need vessel owners to sign a paycheck. With some of the developments we're looking at, I think you could eventually see the whole offshore project lifecycle dominated by U.S. vessels, from geophysical surveys through offshore supply through decommissioning. Not foreign-controlled, but created by American workers with American resources."

CHARTING ITS OWN COURSE

Inside China's energy market, Beijing is charting its own course in offshore wind, oil and gas with an all-of-the-above approach.

Like the U.S., China is all-in on offshore oil and set a new, 1,000-well record for offshore drilling last year. Its state-owned offshore E&P champion, CNOOC, announced surging profits of $19 billion for 2024, driven by record production.

And while its focus is China, the key to CNOOC's profit margin is Exxon: CNOOC got in early with a 25 percent interest in Exxon's Stabroek Block lease off Guyana, giving it a quarter of the massive upside from this frontier basin.

Though its ring-fenced offshore wind sector is often overlooked, China's grid accounts for more than half of all installed offshore turbine capacity worldwide. With 41 GW plugged in and counting, it has long since blown past America's 30 GW ambition.

China's provincial policymakers see value in a local energy supply chain, and domestic manufacturers have responded with a turbine arms race. Names like Goldwind, Dongfang, Shanghai Electric, CRRC and CSSC Haizhuang are all pursuing 20 MW-plus turbine designs, far outpacing anything in the West for sheer scale. In October, Dongfang unveiled China's latest world record, a 26 MW turbine nacelle the size of a building. When assembled, the turbine's swept area would be broad enough to comfortably park a Panamax inside.

China is also set to dominate floating wind technology, which it needs in order to capitalize on frontier areas in deeper water. In January, CRRC installed and turned on the world's largest floating wind turbine, a 20 MW giant with an 850-foot blade diameter. The previous recordholder for a floating turbine was also Chinese, and CRRC beat it by 20 percent.

These floating turbines are a priority because they're the only option for long-term domestic growth: With a foot on the gas and 250 GW worth of projects in planning, China will simply run out of shallow water for bottom-fixed turbines by the 2030s, according to Cosimo Ries of policy think tank Trivium China.