Capital expenditure for renewable energy projects is set for a new record in 2021 of $243 billion, narrowing the gap with oil and gas spending, which is projected to be $311 billion, according to Rystad Energy research.
Capital expenditure for renewable energy projects is set for a new record in 2021 of $243 billion, narrowing the gap with oil and gas spending, which is projected to be $311 billion, according to Rystad Energy research.
Renewables capex is set for another record year, picking up where last year left off, when spending hit $224 billion. By contrast, oil and gas capex this year is expected to stay in line with 2020’s $306 billion – a far cry from the industry’s better days in 2019 when E&Ps spent $422 billion.
Capex for renewables is now just 22% below the estimate for upstream oil and gas projects. Most of the renewable energy spending has been on onshore wind projects, rising to $100 billion from $94 billion in 2020. Solar PV spending is expected to climb to $96 billion in 2021 from $88 billion last year, while offshore wind will see capex grow to $46 billion from $43 billion.
Most of the expenditure stems from Asia, which has 156 gigawatts (GW) of capacity under construction as of January 2021, followed by Europe with 32 GW. China’s decision to slowly reduce subsidy assistance from January forced many projects to start construction early, which further supported spending activity. Much of the spending is down to China’s 800-megawatt (MW) Rudong offshore wind farm and the 2 GW Zhuozi County Project, as well as Orsted’s 1.4 GW Hornsea 2 project off the UK.
Upstream oil and gas capex is expected to increase by less than 2% in 2021, with spending on greenfield projects declining by 6%. However, sanctioning activity is estimated to increase this year by 30%, mainly due to Qatargas’ $30 billion North Field East development, which makes up 33% of the total budget to be sanctioned this year.
‘Last year’s events forced leading oil and gas businesses to look at strategies to reduce exposure to the risky market amid the energy transition. Oilfield service suppliers, for instance, have started a considerable transformation, hoping to be more relevant in a greener market and become a more attractive option for investors,’ said Chinmayi Teggi, energy service analyst at Rystad Energy.
Rystad Energy has compared the revenues of 170 listed suppliers exposed to the upstream oil and gas, wind and solar markets. Its analysis reveals that while oil and gas-focused businesses on average experienced a revenue drop of 23% in 2020 from the previous year, wind and solar PV-focused businesses enjoyed an 18% growth in sales.
Quarterly revenue for service companies, including geoscience firms, exposed to the upstream sector has deteriorated steeply, with fourth-quarter revenue last year slumping 25% from a year earlier amid a lack of new contracts and slow execution of backlog work. Revenue from well services and seismic segments fell last year by 35% from 2019 levels, while drilling tools revenue shrank 25%.
However, some positive performance was seen from giants Schlumberger, Baker Hughes and Halliburton, driven by a combination of backlog execution improvements and an uptick in US shale activity towards the end of the year. The overall revenue of these companies gained 6% in the fourth quarter from the preceding three months.
By contrast, service companies working in the wind and solar sectors experienced growth in the fourth quarter of last year compared to 2019. Service players working on wind projects recorded a 15% year-on-year boost to revenues for the fourth quarter of 2020, with full-year revenues improving by 20%. Sales at service providers working on solar projects rose 3% in the fourth quarter from Q4 2019 and climbed 14% for the full year.
