Big oil toys with wind but stays onshore

STRATEGY: The world's biggest oil and gas companies have shown some interest in renewables but not much in wind power and even less in offshore, despite their marine experience.

Eyebrows were raised when Spanish oil company Repsol acquired wind developer SeaEnergy earlier this year. The oil industry and wind power have typically been uneasy bedfellows, and yet this is not the first time a company best known for fossil fuels has moved into the wind sector.

The world’s oil and gas majors wield huge economic and political power but are not immune to environmental and climate-change concerns. Shareholders want to see their stocks invested in businesses that are seen to be ethically sound, environmentally aware and meeting the low-carbon agenda. This has resulted in some of the oil and gas majors including renewable energy — and in some cases wind power —in their energy portfolio. But these investments have remained at the periphery of their core businesses and are often perceived as an attempt to gain positive PR rather than a genuine shift in strategy.

According to Michael Eckhart, president of the American Council on Renewable Energy, international oil companies have, over the past 15 years, spent $5 billion on developing renewable energy — just 10% of the total invested in low-carbon projects by other corporates and venture-capital funds. "Big oil does not consider renewable energy to be a mainstream business," he says. "It’s a side business for them."

BP leads the way

BP has made headlines for its renewable-energy interests. When the company rebranded a few years ago with the slogan "Beyond Petroleum", there were accusations of a contrived flexing of green credentials that an oil and gas major might otherwise find difficult to prove. In his book Spills and Spin – the Inside Story of BP, published last month, Tom Bergin describes how former CEO John Browne, now Lord Browne, transformed BP in the early 1990s into an expansionist organisation with an environmental rebranding that consciously emphasised its small alternative-energy portfolio.

Today, the BP alternative energy division encompasses solar energy, biofuels, carbon capture and storage research and development, as well as wind power. It invests $800 million a year, representing 4% of the company’s total annual investment.

Lord Browne now says of BP’s decision to move into wind power in the 1990s: "Wind energy was a profitable low-carbon business in line with BP’s broader strategy at the time." Today, he is an advocate of wind power’s role in the energy spectrum, saying that offshore wind in particular has a vital role in delivering the central objective of UK energy policy — to ensure affordable, secure and environmentally sustainable sources of energy. He sees this in the context of recent events impacting energy worldwide, such as political unrest in the Middle East and North Africa, the oil spill disaster in the Gulf of Mexico, the crisis at the Fukushima nuclear plant in Japan, volatile fossil-fuel prices and rising emissions of carbon dioxide.

Lord Browne told a recent Renewable UK event in Liverpool, England: "Offshore wind is not a silver bullet to these problems. No one is claiming that it is. But it is a vital part of a diversified energy mix adapted to the risks inherent in the world’s energy system." He argued that fossil fuels appear much cheaper than most renewables simply because their most significant costs in terms of dependence on foreign imports, price volatility and carbon emissions are hidden. "Fossil
fuels may be cheaper, but that does not make them better value," he said.

Among present or past oil chiefs, Lord Browne is probably the most enthusiastic supporter of renewable energy. His former company retains a foothold in the sector. Today, BP’s wind assets are focused primarily in the US because, it says, the country offers a combination of favourable onshore wind conditions and positive public policy. Of its 2GW wind portfolio worldwide, 1.3GW is in the US. BP has 13 operational wind farms there, with a further 1GW of wind generation in an advanced stage of development.

BP's US wind farms

The company acknowledged the growing role of renewables in the global energy mix at the launch of its Statistical Review of World Energy 2011 in June. BP’s chief economist, Christol Rühl, said that in the past five years renewables had contributed 10% of primary energy growth — more than petroleum-based products. The review goes on to raise some of the challenges that may face renewable energy, including the potential conflict between subsidisation and scale, with Europe now seeing a rollback of some support policies.

US focus for Shell

Like BP, Shell, the world’s largest energy company and second-largest business in the world by revenues, has substantial wind-power assets. The Anglo-Dutch giant is involved in projects in Europe and North America, with operating assets of 1.1GW. Its focus is on North America, where eight of its 11 wind farms are located. European projects are in Germany, Spain and the Netherlands.

Shell recently upped its intended investment in new renewable-energy projects. Karen de Segundo, chief executive of Shell Renewables, told investors in London in June that the group is to invest between $0.5 billion and $1 billion in developing a range of new energy businesses, concentrating on solar and wind energy.

Shell operates one offshore wind farm, Egmond aan Zee, which has 36 Vestas 3MW turbines. The company says it directly transferred its experience with North Sea oil and gas platforms to the project. Located 10-18 kilometres off the Dutch coast, it was the first large offshore project in the Netherlands when it began generating electricity in 2007.

More controversial is Shell’s biggest North American wind project, Nedpower Mount Storm, a 50-50 joint venture with power company Dominion that began generating electricity in 2008. Situated along the high ridges of Canaan Valley in West Virginia, the 264MW project supplies the Mid-Atlantic power grid. When it opened, Marvin Odum, president of Shell Oil Company, said: "The NedPower Mount Storm project provides emissions-free power from a non-depleting source into a market serving the populous mid-Atlantic region of the United States. The delivery of this project not only adds to the economic activity of West Virginia, but also contributes to diversity of energy supplies." But the project attracted some opposition locally over visual intrusion and its location close to a national heritage site. There were also construction delays and criticism of the impact of construction and logistics activities.

Like BP, Shell sees its wind interests as more than just green window dressing. "We know that energy demand is surging, with experts predicting that by 2050 it could be twice as high as it is now," says Dick Williams, manager of Shell WindEnergy. "Over the longer term, a broad mix of energy sources will be needed." Shell says it has invested more than $2 billion over the past five years in research and development surrounding alternative energies and carbon capture and storage. Shell’s alternative-energy strategy mainly focuses on biofuels for road transport, although the company continues to develop and operate its wind portfolio, particularly in North America.

"Each year, wind power generated by Shell helps to avoid approximately three million tons of CO2 that would otherwise be emitted from other energy sources," says Williams. "Shell’s wind strategy focuses on larger-scale projects and we have invested more than $800 million in wind since 2003. Our current emphasis is on developing and constructing greenfield projects in high-resource areas that have access to high-demand markets."

However, Shell famously pulled out of the London Array offshore wind farm project in 2009. At the time it cited a desire to focus exclusively on the US market, where it could enjoy higher returns. Withdrawing from the 1GW UK project, which when completed will be the world’s largest offshore wind farm, exposed Shell’s renewable-energy credentials to some severe criticism.

North Sea player

A third oil and gas giant that has made a significant foray into wind power is Norway’s Statoil. As a seasoned player in the North Sea, the company has decided to leverage this experience by focusing on offshore wind. In June, Statoil signed two agreements to sell the bulk of its onshore wind portfolio in order to focus its investment offshore. It sold its 50% stake in Sarepta Energi to TroenderEnergi Kraft and sold another four onshore wind farms to Finnmark Kraft.

Statoil’s senior vice-president of renewable energy, Staale Tangesvik, said at the time: "Renewable energy is an important priority for us. We … want to sharpen our focus where we believe we can contribute most. Offshore wind is an area experiencing strong market growth, and one in which Statoil can utilise its expertise as the world’s largest offshore operator."

Much of Statoil’s offshore wind assets are found off the coasts of Britain. One key investment is the 317MW Sheringham Shoal wind farm in Norfolk. It is also part of the Forewind consortium which is building the world’s largest offshore wind farm, the 13GW Dogger Bank project to which Statoil will contribute 9GW. The company has also developed the Hywind floating turbine. A prototype has been successfully deployed off the Norwegian coast, and an environmental assessment has begun at a group pilot site off the Scottish coast near Aberdeen. A second group pilot is under consideration off the coast of Maine on the US eastern seaboard.

As renewable energy grows at a tumultuous pace across the world and with the energy majors having very deep pockets to dip into, it is remarkable that only a handful of them have so far made anything more than a token commitment to wind power. Even more surprising, the two largest players — BP and Shell — have shown very little enthusiasm for offshore wind, despite all the talk about how transferable the oil and gas industry’s skills are to this burgeoning sector.

The oil and gas companies that are keen to pursue a low-carbon future tend to focus on biofuels. Ethanol, for example, is a good fit for these companies as it closely matches their existing business. As for other renewables, biomass and solar power, rather than wind, have so far turned out to be the green technologies of choice.

While the energy majors’ desire to broaden their energy portfolio may be genuine — if only to send out positive green messages to investors — oil companies remain primarily fossil-fuel energy businesses and look set to stay that way for the foreseeable future.