While spending on renewables is forecast to reach record levels in 2021, offshore oil and gas exploration and production will be vital to global energy for decades to come
This was exactly the point V.Group chief executive René Kofod-Olsen was making when he kicked off Riviera Maritime Media’s first Annual Offshore Support Journal Virtual Conference and Exhibition in March. While he called renewable energy a “massive trend”, Mr Kofod-Olsen said there will be an offshore industry for the foreseeable future. He said energy from oil and gas must complement renewable energy and noted anyone claiming “oil and gas is only from yesterday is really short sighted.”
The world’s thirst for energy cannot be satiated by wind alone.
Well respected for his broad OSV industry knowledge and acute insight, Mr Kofod-Olsen noted that financial institutions and investors need to provide the capital to continue to develop offshore oil and gas projects, not just renewables.
To stay relevant to capital markets and support the global energy transition, former oil majors are now rebalancing their portfolios between hydrocarbons and renewables to transform themselves into energy majors.
As a result, spending between hydrocarbons and renewables is beginning to come into balance.
Developers are forecast to spend US$243Bn on solar photovoltaic, onshore and offshore wind this year – up from US$224Bn in 2020. By contrast, spending on upstream oil and gas will be up just 2% year-on-year, increasing from US$306Bn in 2020 to US$311Bn in 2021, according to Rystad Energy.
“OSV owners need to rebalance their portfolios to remain aligned with existing and new customers”
What this says to OSV owners is that they too will need to rebalance their portfolios to remain aligned with their existing and potential new customer base. In his advice to OSV owners, Mr Kofod-Olsen noted that this market diversification should be accompanied by efforts to digitalise and decarbonise vessel operations. These three Ds will shape the OSV industry over the next year. “Transition is ahead of us and it will be a difficult task to get the right strategy ahead,” he said.
Part of that strategy would be to incorporate digital tools to run vessels more efficiently, providing more transparency and unlocking hidden value. As for decarbonisation, OSV owners investing in efforts to reduce vessel emissions and improve fuel consumption would be able to offer these as competitive advantages, as a value-add service to charterers, underpinning potentially longer charter contracts. Owners need to develop their own unique selling propositions. In an oversupplied OSV market, owners need to capture every advantage they can get.
In reviewing his company’s Q4 2020 results, Lars Peder Solstad said the OSV industry continues “to make life hard for ourselves by competing at unsustainable rate levels. Even in a scenario with more normalised activity levels, oversupply remains an issue. Further consolidation and recycling of vessels are needed. Active involvement from the main banks is essential to make this happen.” Solstad Offshore plans to increase its presence in renewable energy and in offshore wind in particular.
The good news for Solstad Offshore and the rest of the OSV sector is that EPC spending on offshore oil and gas will be up substantially in 2021 – 250% y-o-y – after a historically bad 2020, according to Westwood Global Energy head of offshore Thom Payne speaking at the virtual conference; this will create more opportunities for OSV utilisation. With tender activity strengthening, H2 2021 should see an improvement – something we can discuss at the live Annual Offshore Support Journal Conference in the fall.