Oil and Gas Giants Recommit To Renewables Amid COVID-19
Duke Energy announced April 28 it will double its renewable power by 2025.
PHOTO COURTESY OF DUKE ENERGY
With COVID-19 economic slowdowns, and the resulting drop in demand for oil, gas and electricity, the outlook for traditional energy sector growth and capital investment is dim, if not outright grim. But even with cratered oil and gas prices, renewable energy is emerging as a sector on the move.
“This is a magnitude unlike anything we’ve planned around,” says Deepa Poduval, senior managing director and associate vice president of Black & Veatch’s management consulting business who specializes in the oil, gas and utility sector. “We always talk about oil and gas and the multiple cycles that the industry goes through. This is different than that.”
Construction continues on most oil and gas projects, including massive liquefied natural gas plants, but global politics and demand destruction have upended the outlook for the near and mid-term, Poduval says. After current projects are complete, clients will likely pause before making new investments. “I don’t think we get through this next six to nine months without multiple bankruptcies,” she says. “What will come out of the other end is a leaner industry with larger producers and bigger balances.”
Andrew Wittmann, lead construction sector analyst at Baird Equity, says that for industry firms serving the oil and gas sector, “we see reductions [in revenue and earnings] starting in 2Q 2020 through essentially all of 2021, harsh cuts given customers are forecasting 30-75% reductions in capital budgets.” He notes one firm facing a 60% decline in oil and gas profits from its peak.
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Poduval expects the global slowdown will accelerate growth of renewable energy and electric vehicles, but says the transition won’t be instantaneous. The drop in power demand has given low-cost renewables a larger share of production, providing power systems “levels of wind and solar power they wouldn’t have had otherwise without another decade of investment,” Fatih Birol, executive director of the International Energy Agency, said in late March.
Energy Majors Shifting
Shell, Total, BP, Duke Energy and NextEra have in recent months announced commitments to growing their renewable portfolios even as oil prices bottom out at record low prices. Shell is investing $2 billion a year in its renewable energy business.
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“We believe the market opportunity for low-cost renewables has never been greater in times when consumers and businesses deal with the challenges of economic uncertainty,” said James L. Robo, CEO of NextEra, the parent firm of utility FPL and one of the largest renewable generators in the world.
In its first-quarter earnings call April 22, he said that despite the pandemic-related economic slowdown, NextEra expects to complete 5,000 MW of wind and solar projects in 2020 and $1 billion worth of battery storage in 2021. Duke Energy said April 28 that it will double the amount of renewble energy on its grid to 16,000 MW by 2025.
French oil and gas company Total said it is cutting capital spending more than 20% after the oil price collapse. The firm remains committed to its12.9 million metric tons-per-year capacity Mozambique LNG project in Africa, expected to start up in 2024, although ExxonMobil said in April it would delay a final investment decision on the Rovuma LNG project in that country, which had been set for later this year, while it worked with partners to reduce costs. Analysts were not optimistic how soon there would be a decision to proceed on the $27 billion to $30 billion project.
Total emphasized that it would make no cuts to its $2 billion annual spending in its renewable energy units. CEO Patrick Pouyanne said he views renewables as an opportunity, predicting they would become 25% of its business in the future.
But the firm and others have seen clean energy projects delayed by the pandemic. in an April 20 article, Forbes says that renewable energy industries are “significant enough ... that they are exposed to macroeconomic forces as are the fossil-fuel behemoths.”
More than 106,000 U.S. clean energy workers lost their jobs in March, says an analysis of unemployment data by BW Research.
With more cuts expected, the clean energy and oil-and-gas sectors are separately angling for federal stimulus funds. The Trump administration is working toward an oil and gas package, but not a similar one for renewables.
How Do Offshore Winds Blow?
Even so, offshore wind power could provide a large boost for renewables. Approval of the first commercial-scale offshore wind farm, the 800-MW Vineyard Wind project off the coast of Massachusetts, is expected by year-end, James Bennett, renewable energy chief at the U.S. Interior Dept.’s Bureau of Ocean Energy Management told industry executives April 21.
Steel will be in the water this year off the coast of Virginia, he also said.
Dominion Energy, teamed with Danish developer Orsted, will build the first offshore wind turbines in federal waters with a two-monopile pilot. Construction will begin before summer and finish before the end of the year, Dominion said.
Bennett expects 12 to 15 projects will be built along the east coast before the end of the decade, with a capital investment of about $25 billion. Construction and operation plans have been submitted for seven projects and another five are expected soon.
BOEM now is determining whether it needs to lease more territory for development on the Outer Continental Shelf to meet state offshore wind capacity goals, Bennett said. Other challenges include transmission, which he said “may need a larger vision” than one line coming on shore from each project. Offshore wind “will be a key component to energy in the future,” he said.
Despite Bennett's projections, offshore wind development faces delay from current market realities.
All project permitting was delayed last year when BOEM decided it needed to determine the cumulative effect of the construction of multiple wind farms, which pushed back Vineyard Wind’s final environmental impact statement by 17 months.
The BOEM official said COVID-19 constraints has affected agency staff, but he does not anticipate approval schedules to slip. “There are some challenges, but we continue to move forward,” he said.
Too Much Oil-Price Change
In New York, the virus impact has delayed until August public hearings for one key project, South Fork Wind.
But developer Orsted on April 22 told Maryland regulators that based on the Vineyard Wind approval review, commercial operation of its offshore project will be delayed until 2023. U.S. Wind, developer of a Delaware offshore wind project, announced on April 29 that it will delay its completion until late 2023.
Both firms, in public statements, indicated that their decisions relate to BOEM's announced delay last year in approving the Vineyard Wind project. Market proponents speculate that Trump Administration politics, which have not favored offshore wind, also could be a factor.
Matt Palmer, WSP Global Inc. vice president and offshore wind manager, said that accelerated design of offshore wind facilities as BOEM approves permits could provide the U.S. an economic boost when it is badly needed.
Still, the question of how the virus and the oil price crash will affect renewables has conflicting viewpoints.
The global energy transition to renewable sources was beginning to ramp up when the virus and low oil prices hit, making it difficult to compete with low fossil fuel prices, said Michael Grande, senior director of S&P Global Ratings said in a webinar held April 17. But he added that weariness caused by oil-price volatility could “ramp up renewable investments.”
