Rystad Energy: Closing the spending gap between offshore wind and oil and gas

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While global oil and gas capital expenditure will rise nominally in this timeframe, anticipated growth in offshore wind investments will bring Europe, the US, and Asia (excluding China) to the tipping point before the end of the decade.

Although Rystad Energy expects global offshore oil and gas expenditure to increase marginally to more than US$140 billion by 2030, the rapidly growing offshore wind sector is forecast to reach a market size of US$87 billion over the same period – a 70% increase compared with 2021's market value of US$50 billion. Furthermore, estimates show that less than US$10 billion will separate offshore greenfield CAPEX for oil and gas and offshore wind investments by 2030.

While the global crossing point is further out in time, countries and regions that prioritise offshore wind are expected to see a gradual decline in offshore oil and gas investment and the inevitable crossover. China and the UK – the two largest offshore wind nations by operational capacity – already reached this crossing point in 2017 and 2020, respectively. Europe is expected to be the world’s largest offshore wind region by 2030, with 119 GW of capacity. The continental crossing point is expected to come in 2026, whereas offshore wind investments in Denmark alone are expected to outstrip oil and gas as soon as next year, Rystad Energy states.

Of the countries and regions analysed by Rystad Energy, the US offshore wind sector is expected to see the fastest growth in investment, albeit from very low levels in 2020. At the same time, offshore wind activity is surging in China, but the country will see investments decline towards 2030 as feed-in-tariffs (FiTs) phase out from 2022 onwards. Nevertheless, significant ongoing investment is expected to make China the world’s largest offshore wind market, with 58 GW of installed capacity in 2030.

“To remain relevant in a changing market, offshore service companies will need to monitor this trend closely as they draft long-term strategies that position them for a smooth transition into offshore wind, enabling them to take advantage of what promises to be a major growth industry,” says Alexander Dobrowen Fløtre, offshore wind expert and Vice President at Rystad Energy.

Two regions are expected to see clear and opposite trends between the two industries – Europe and Asia (excluding China). For Europe, investment levels in offshore wind have been high for some time, making it the most mature offshore wind region in the world with 25.7 GW of operational capacity. With the decline in offshore oil and gas investment and CAPEX budget cuts by E&P companies during the pandemic, offshore wind and offshore oil and gas CAPEX levels are expected to nearly intersect in 2022. However, with a slight recovery for oil and gas as the economy recovers in a post-pandemic world, paired with a temporary slow-down in offshore wind investment growth due to project timing, the crossing point is not expected to occur in Europe before 2026. From then on, the offshore wind and offshore oil and gas markets are expected to part ways in terms of investment levels.

The offshore wind industry in Asia (excluding China) is still in its infancy, but capacity is expected to see rapid growth during the decade. In the short- to medium-term, intertidal (near-shore, shallow-water) wind farms in Vietnam and conventional offshore wind in Taiwan are expected to drive capital investment towards 2025. Rystad Energy expects mainly Japan and South Korea to add to sectoral growth in the second half of the decade. With declining offshore oil and gas investments, the crossing point is expected to occur in 2028.

Different countries have different stories, and some have already seen offshore wind investment surpass those for oil and gas. The UK is currently the largest offshore wind nation in the world, with around 10.5 GW of operational capacity. At the same time, the UK continental shelf is a mature offshore oil and gas region where many fields have already been decommissioned. Although the levels of investment in offshore oil and gas and offshore wind have intersected previously, the more permanent crossing point occurred in 2020. As the UK is targeting 40 GW of offshore wind capacity by 2030, activity levels are forecast to remain high, meaning the offshore wind market is expected to remain larger than the offshore oil and gas market through 2030.

China’s limited, shallow-water offshore oil and gas sector has seen flat investment levels of approximately US$5 billion annually. At the same time, offshore wind investments have grown rapidly since 2015, thanks in part to supportive policies. As a result, China experienced its crossing point in 2017. Although offshore wind activity is likely to slow once current investments tail off, the sector is expected to remain larger than offshore oil and gas throughout this decade, Rystad Energy states.

Denmark has had limited offshore oil and gas activity and was one of the early movers in the offshore wind sector. Despite this, it currently ranks only fourth in Europe in terms of operational capacity, with 2.3 GW, as many of its early wind farms were relatively small. The two industries have trailed each other in recent years, but it will not be until 2022 that investment in offshore wind is expected to surpass offshore oil and gas in Denmark. This follows the nation’s current tendering activity and ambitious plans for large scale energy islands with long-term targets of more than 10 GW of additional offshore wind capacity.

The US, meanwhile, has seen declining oil and gas investment levels, with CAPEX levels expected to fall below US$10 billion from 2023 onwards. At the same time, the Biden administration has set an ambitious federal offshore wind target of 30 GW by 2030. While Rystad Energy expects the US to fall short of its declared target, the company’s forecast of 21 GW by 2030 will still entail rapidly increasing investments to between US$8 billion and US$10 billion from 2025 to 2030. Although offshore wind investment is expected to fall below that of offshore oil and gas in 2030, following a slight recovery in the latter sector, offshore wind in the US will again see larger CAPEX levels than oil and gas after 2030, as upstream investment tails off.

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