Shell’s chief financial officer Sinead Gorman said the offshore wind sector faces a “multitude of issues” and predicted many players in the market will be checking the “terms and conditions” of their current agreements in the sector.
Offshore wind is a “tough market, without a doubt,” said Gorman, adding that “inflationary pressure” is one of many issues it is currently facing.
“The market has a lot of work to do” in terms of ensuring “the right returns are there”, she added.
Gorman’s comments came just a week after Sweden’s Vattenfall sent shockwaves through the industry – and blew a hole in the UK’s offshore wind ambitions – by halting a North Sea project over soaring costs.
Gorman was speaking to analysts following the release of Shell’s latest quarterly results, in which the company revealed a big second quarter fall in profits $5bn – down over 50% on the same period from last year. This is largely due to energy prices dropping from their Russia-Ukraine war-fuelled peak.
In its renewables business, adjusted earnings dropped to $228m, compared with $725m in the second quarter last year. The first half of 2023 saw adjusted earnings for the business of $617m, down from $1bn in the first half of 2022.
Commenting on the recent German tender for offshore wind, which saw fellow oil and gas giants BP and TotalEnergies clean up 7GW in capacity across four undeveloped sites in the North and Baltic Seas, Shell CEO Wael Sawan said that the company had “competed hard… and lost”.
Despite the issues facing the sector, Sawan said that Shell’s strong trading and customer bases in the German market made it an attractive destination for the company. However, “in spite of our ability” to “leverage trading,” Sawan said ultimately Shell “just couldn’t compete” in the tender.
The company has this year been the subject of a refocusing on its core oil and gas operations under new CEO Sawan, who has said that its upstream hydrocarbons business is centre stage after starting in the role in January.
Several high-profile renewable energy executives have recently left the business, including Thomas Brostrom, the former Orsted high-flyer who was recruited to lead Shell’s push into offshore wind.
Sawan insisted that he has had a largely positive reception in his new role but said “I’d be lying” if I said there were not some people that didn’t “question” what his appointment “means for energy transition”. The press had raised “alarm bells” in the minds of some, he said.
However, he stressed Shell is investing $10-15bn dollars over the next three years in renewables, making it one of the largest investors in the energy transition.
The company's offshore wind interests include the 759MW Hollandse Kust Noord project in the Netherlands with Eneco and a multi-GW floating wind plan off Scotland in partnership with Iberdrola.
Commenting on Shell’s latest financials, activist group Global Witness said that its analysis shows that the company’s investment in oil and gas is “predicted to skyrocket to £11.3bn, marking a 10% surge from the previous year.”
“Despite the intensifying climate emergency, Shell’s spending on what it categorises as ‘renewables and energy solutions’ pales in comparison – only between £1.6bn and £3.1bn in 2023.”
The group also claimed that Shell’s “renewables and energy solutions” category is “problematic,” as it “lumps together real renewable energy projects – like solar and wind power – with those that are not renewable and will not help fight the climate breakdown, like carbon capture.”