Offshore wind, green hydrogen ‘nice-to-haves’ for oil & gas majors as hydrocarbon production moves towards its peak – Westwood

While oil and gas majors are increasingly entering new offshore wind and green hydrogen projects, it is but a small portion of the overall pie, to quote David Linden from Westwood Global Energy Group.

As a reaction to the energy transition, the oil and gas majors are diversifying and now have more of an energy focus, but they are continuing to grow their hydrocarbon production and not reducing their hydrocarbon production profile. Not until 2030 onwards, anyway, from when more significant shifts will start taking place. Until then, the industry will follow the path towards reaching the emissions targets based on incremental changes.

One of the examples is TotalEnergies, which will be producing more energy and is going for half of its production growth being LNG and half electricity by 2030, when those two areas will jump. Since LNG is a hydrocarbon, the company will be producing more hydrocarbon in the next five to ten years than they are producing today, according to David Linden, Head of Energy Transition at Westwood.

Offshore wind – Good addition to diversification portfolios

This road paved with incremental changes also involves oil and gas companies investing more in blue hydrogen than in offshore wind and the emerging renewable (green) hydrogen market.

“Offshore wind is a fraction of their CAPEX and their energy production, so an argument could be made that it is a side show for some of the companies, and it is also more important to some than to the others, as it is the case with Equinor”, David Linden said in an interview with Offshore Energy.

David Linden, Head of Energy Transition at Westwood. Source: Westwood

Still, in its energy transition strategy, Equinor talks more about blue hydrogen and CCS than offshore wind, which is important for the company’s renewable portfolio, but it is not one of the primary fields the investments will go into.

While the majors from the fossil fuel sector, which have the finance to back large projects, are making grand entrances into offshore wind and teaming up with different companies to bid for and develop wind farms at sea, established offshore wind players will not clash with the deep-pocketed newcomers from the old and experienced industry.

Rather, oil and gas majors will keep partnering with offshore wind companies, who in turn can use the partnerships in the fast-growing market. The incumbents are also adapting as the market changes.

“If you think about how fast the market is growing, Ørsted, SSE, and Scottish Power, they can’t do everything all by themselves, so I would argue that it is additive in one respect. What it does change there, of course, is the competitive dynamics when you get to leasing rounds and accessing new territories”, Linden said.

“Companies like Ørsted are now evolving, by for example entering geographies quite different to the ones they were in so far. We also see different partnerships, such as developers teaming up with local utilities and supply chains as they need that differentiation to access a market”.

The blue side of things

A similar story is with the green hydrogen market where, more often than not, it is not the oil and gas companies that are involved in projects, but utilities, pipeline companies, industrial players, smaller financial bodies and governments, and offshore wind companies as the market provides a synergistic approach to green hydrogen production powered by wind energy.

Oil and gas company are only occasionally playing a major role in green hydrogen projects. Shell has plans in the Netherlands and BP has talked about a partnership with Ørsted, but it is utilities and midstream to downstream parts of the value chain that are going to make a difference in these markets, not oil majors, according to Linden.

“Now, if we were talking about blue hydrogen, it is quite a different story. Equinor is all in on blue hydrogen, as it is core part of their strategy, and it is similar with BP and Shell. While they all talk about green hydrogen projects, I would argue that blue hydrogen is going to play more of an important role, at least in the medium term, before they really get serious about green hydrogen”, David Linden said.

Green hydrogen drive is going to come from other players, in terms of relative scale.

Looking at the European Union’s hydrogen strategy – it is a green hydrogen strategy and the players who are involved massively with that are companies like RWE, Iberdrola and similar players, while companies such as BP or Shell are far more interested in industrial hubs in the UK. There, they could make a real difference with blue hydrogen, CCS, and combination of capabilities that they are probably much better at than the utilities, according to Linden.

“Projects like what Equinor is doing with SSE, for example, with power stations, is interesting. They are building a power station that is 100 per cent powered by hydrogen. But it is much more on the blue side of things”, David Linden said.

“The leader in the green hydrogen market, in my opinion, is Ørsted. If you watch what they are doing and the projects they have, that is where interesting things are happening”.

All these green hydrogen projects are either at a pre-feasibility stage or at a very early stage of development. However, looking at who is more interested and invested in this nascent phase, it is Ørsted, and more than many other companies in Europe.

Ørsted will be a huge value driver to the Power-to-X story overall, and Denmark in particular, where they are going to have excess wind and will want to be able to supply that energy in different ways to others. Power-to-X, which includes green hydrogen, is a core value add in this case as it solves the puzzle on how to create fully renewable power systems.

“For them of course it is of particular interest because that is where they can see value add. Is it necessary for, let’s say, BP or Shell? It is interesting, but for them it is more about how to decarbonise a refinery at this stage, rather than how to invest in really big green hydrogen projects”, David Linden said.