“Mixed” prospects for offshore energy

“Energy transformation”. You know this term, but where did it come from? Although interest in alternative energy sources dates back to the oil crisis in the 1970s, it was during the 2015 Paris Agreement that the first hard goals were set to limit global warming to below 2oC compared to pre-industrial levels.

The “energy transition” refers to the shift from fossil fuels – including oil, natural gas and coal – to renewable energy sources such as wind and solar power, as well as energy storage based on lithium-ion technology. The pursuit of electrification and improvements in energy storage are key enablers of this transformation.

In the maritime space, a sector expressly excluded from the Paris Agreement although responsible for about three percent of total global greenhouse gas emissions, most recent attention has received IMO 2050, the International Maritime Organization’s greenhouse gas strategy, which sets a net-zero greenhouse gas emissions target emissions by 2050.

These goals – net zero emissions, temperatures below 2oC – influence investment strategy, operational procedures and equipment selection. Ultimately, they provide a lens through which the entire marine energy sector can be viewed as investors and regulators prioritize environmental, social and governance (ESG) factors.

The state of renewable energy sources

Offshore wind has long been touted as a viable solution, but in 2023 the sector faced rough seas.

On the US East Coast, major projects were canceled in 2023 due to macroeconomic factors such as skyrocketing inflation, rising interest rates and supply chain issues that impacted the entire industry. Further development means that developers need more favorable conditions, but these conditions will come with higher energy costs for the already constrained consumer.

On a potentially positive note, the former wind farm companies were dissolved earlier this year and the Equinor and bp joint ventures split. Equinor will assume full ownership of the Empire Wind 1 and 2 projects, while bp will assume full ownership of the Beacon Wind project. Similarly, Ørsted is seeking full ownership of Sunrise Wind as it works to acquire Eversource’s 50% stake in the project.

Exclusive control over these projects should allow developers to make better business decisions while gaining negotiating leverage over regulators. Because despite the noble intentions of the transformation, “If it doesn’t make dollars, it doesn’t make sense.”

Mergers and acquisitions market

While companies are moving away from each other in the renewables space, they are consolidating in the upstream segment.

Both Exxon and Chevron made massive investments worth around $60 billion each in acquiring Pioneer and Hess, respectively. Chevron’s purchase of Hess includes future inventory, particularly the Stabroek block in Guyana, which forms the basis of Chevron’s future production plans.

Talos Energy recently completed the acquisition of QuarterNorth, increasing production by approximately 30,000 barrels of oil equivalent per day (Mboe/d).

In the natural gas space, Chesapeake Energy and Southwestern Energy announced a $7.4 billion all-stock merger at the beginning of the year, which will create the largest natural gas producer in the U.S. “This powerful combination redefines the natural gas producer,” said Chesapeake’s CEO and CEO Nick Dell’Osso, “creating the first U.S.-based independent company that can truly compete internationally.” Dell’Osso will lead the combined company.

Investment in 2024

The energy industry is off to a strong start, largely driven by strong oil prices, which will allow the mining industry to maintain hydrocarbon investment levels for 2023 at around $580 billion and generate over $800 billion in free cash flow in 2024. These investments are driven by expected stable oil prices from 2023, with the average WTI price at USD 78.84 per barrel.

However, not all of this is positive for renewable energy sources.

Deloitte’s 2023 survey of O&G executives found that investments in low-carbon projects would be made if the returns on these projects exceeded 12-15 percent. However, the return on large renewable energy projects in 2022 ranged from six to eight percent. This means that in 2024 there will be a more likely focus on (1) improving operational efficiency and reducing direct emissions, and (2) alternative low-carbon fuels such as natural gas, biofuels and hydrogen.

However, if investments in renewable energy projects wait until now, there will be a green light in 2023 for large mining projects that will strengthen the industry in 2024.

In the United Arab Emirates, the ADNOC group has signed contracts for the development of the Hail and Ghasha offshore gas fields. This is an interesting project as it is the world’s largest subsea sour gas development and aims to operate with net zero CO2 emissions. The project aims to capture 1.5 million tonnes of CO2 per year by transporting it on land and storing it underground – a truly integrated solution.

In the UK, both Equinor and Ithaca have confirmed investment decisions for the controversial Rosebank field, ultimately approved by the North Sea Passages Authority. The project aims to recover an estimated 300 million barrels of crude oil and connect subsea wells to the relocated FPSO system. Production is scheduled to begin in 2026 or 2027.

In the Gulf of Mexico, a number of projects have received the green light, including Woodside Energy’s Trion project in the Perdido Basin. The project will use a floating production unit (FPU) connected to a floating storage and offloading vessel (FSO). Shell decided to continue the Dover project in the Mississippi Canyon block, tying up with the Appomattox production center. It also illuminated the Sparta project, which includes eight production wells connected to a semi-submersible FPU.

Meanwhile, in Guyana, the situation in the Stabroek Block is gaining momentum as ExxonMobil approves its fifth development project, Uaru. It includes as many as ten drilling centers and 44 production and injection wells.

Development of FPSO

Increased production and development investments rely heavily on floating production storage and offloading (FPSO) units, with many of these planned in Guyana.

The Errea Wittu FPSO, which means “abundance”, will be deployed approximately 200 kilometers off the coast of Guyana, at a depth of 1,690 meters and with a storage capacity of two million barrels of oil. It will be “one of the most sustainable FPSOs in the world, using a power production system with an on-board combined cycle turbine.”

The mooring pre-installation contract was awarded to Jumbo Offshore Installation Contractors by MODEC Guyana. The FPSO mooring system consists of nineteen legs with suction anchors, 8,800 meters of chain sections and 43,168 meters of polyester rope. The Jumbo Fairplayer heavy lift vessel has been uniquely designed with large cargo space to enable transportation and installation with a minimum number of trips.

Igor Rijnberg, Subsea Sales and Business Development Director at Jumbo Offshore, said: “The Jumbo Offshore team is very grateful to MODEC for this opportunity. We will leverage the extensive experience in deep water mooring installations acquired over recent years to ensure reliable, intelligent and efficient project implementation.

OSV Market

Rising EPC (engineering, procurement and construction) spending and the growing supply shortage of premium ships (less than 15 years old) could push OSV utilization rates to 83 percent by the end of 2024, says Westwood Global Energy Group.

In 2023, OSV’s active global fleet stood at 3,077 ships, with approximately 250 premium ships still in reserve. They will continue to be phased out of the system as the year progresses. Daily vessel rates have also become more attractive, increasing by almost 70 percent since the economic recovery began in 2021.

Despite this, rates still do not justify building new ships due to increased shipbuilding costs. Tidewater’s analysis suggests rates need to increase to $38,000 per day at 90 percent utilization to justify ordering a $65 million new building to meet the capital cost over a 20-year life.

A lack of new facilities, increasing demand and limited supply mean that both vessel costs and daily rates will continue to rise.

Limited ship supply also means that market players must operate more efficiently, with full transparency of ESG-related requirements, and ABS is working with operators such as Edison Chouest Offshore (ECO), which operates a fleet of almost 300 ships, to decarbonize travel through gas inventories greenhouse and sustainability reporting services.

Carbon accounting, also known as a greenhouse gas (GHG) inventory, is the process by which organizations quantify their greenhouse gas emissions. Quantifying emissions gives organizations data insights to understand their climate impact and set emissions reduction targets. This helps manage carbon compliance risks, meets emissions reporting requirements and meets stakeholder expectations.

“It is ECO and ABS’s shared commitment to transparency and environmental and social stewardship that led us to work with ABS on sustainability reports that set new standards in corporate responsibility,” said Bryan Rousse, Sustainability Coordinator at ECO.

2024 and beyond

While renewables are having a difficult time, overall the marine energy industry looks strong for 2024 and beyond. Future investment in infrastructure and storage technologies will play a key role in accelerating the transformation, while further offshore investment will keep the fires burning at home.

The energy mix, still based mainly on oil and gas, benefits from operational efficiency and intelligent use of assets. Greenhouse gas planning helps marine assets operate more cleanly and efficiently than ever before.

The future looks bright.

Sean Hogue is senior vice president of operations at Baker Energy Solutions.