Behind Big Oil’s headline-making – if slow-rolling – transition into renewables, a wider ripple-out is travelling through the industry’s supply chain, with a stand-out trend gathering pace in the offshore energy sector , where contractors that had historically drawn a huge slice of their revenue from the world’s maritime hydrocarbon basins are now rapidly reinventing themselves for the international offshore wind market.

Saipem is a case in point. A veteran of the global offshore oil adventure, the Italian contractor is repositioning its offshore engineering and construction (E&C) division, powered by a fleet of vessels led by the giant S7000 – which has already seen high-profile use mating turbines to spars for the world’s first floating wind array, Hywind Scotland – to drive its diversification.

But that’s just the start, with the company investing in a new floating wind concept as well as wave power technology as its offshore E&C unit shifts toward generating 50% of its income from “non-oil projects” inside the next ten years.

Darius Snieckus spoke with Paolo Formica, managing director of Saipem’s offshore division, and Luca Cattedri, head of commercial strategy for the business unit, about the contractor’s energy transition plans.

What has been Saipem’s overarching approach to its energy transition to far, as an oil & gas contractor?

Paolo Formica: We firmly believe that the energy transition is an integral part of the future of the oil industry – the need to reduce CO₂ emissions dramatically is something we all have to work on. Our proposition is in a reasonably short period of time, a significant part of Saipem’s portfolio will be ‘non-oil’ – we believe 50-60% in the next five or ten years in offshore E&C. Among these projects, offshore wind will play a big role and that is the reason why we are investing capital, human resources and skills and competences to provide solutions which are appealing to developers. In 2019, 15% of the purchase order portfolio of the offshore division consisted of renewable projects, in particular offshore wind.

Saipem of course has a long-standing core competence in offshore engineering, construction and drilling – how are you approaching knowledge transfer, skills transfer to projects like Hexafloat [a new-look floating wind concept on track to be installed off Ireland in 2022 as part of the so-called AFLOWT demonstration project]?

PF: Our experience with floating technology is an area where there is a skills transfer – not easy of course, but perhaps easier for us than some other oil & gas contractors – and more than this, we are looking at the next ten years of bottom-fixed offshore wind development and which competences we can transfer [in the meantime]. We can rely on our engineering capabilities, our competitive fabrication yards as well as on our construction vessels, all of which means we can offer a business model that is integrated and de-risks the developer’s position on a project.

Offshore wind is still – though this is changing quickly – a pretty new industry and is in the middle of the learning curve. There are still margins to be improved.

What additional capital investment considerations are there underpinning this market transition?

PF: So far, our model has relied on assets already in our portfolio – our engineering offices in London and Paris, fabrication yards including Karimun in Indonesia, which can fabricate triple-digits’ worth of jackets a year, or Arbatax in Sardinia, which is smaller but can handle orders off Europe. Then we have our various construction vessels, the S7000, the S3000, the Saipem Constellation and the DeHe. We don’t see an immediate need to make massive investments to improve our competitive position [for offshore wind], but it is nonetheless in our industrial DNA to look forward prospectively in case opportunities arise. In particular, the increased size of the turbines makes our fleet and yards particularly suitable to the future challenges of the renewables industry.

If you look at the investments some of the oil majors are making today – Shell, for instance, or Total – with less than 5% of their total capex [capital expenditure] going into renewable energy projects as it stands, to what extent do you feel you will be responding to existing clients for contracts in the coming years, versus contracts from utilities and newcomers to the renewable energy space?

Luca Cattedri : In general, we are aiming to be a key enabler of this business [offshore renewables]. So rather than being obsessed with who our clients might be, we are more interested in providing the industry with a proposition that adds value to the market – and that is, as Paolo said, in integrating fabrication and installation because we can guarantee the assets. The oil & gas industry will be instrumental to the energy transition so, yes, we will be aiming to support them in both the direction of travel and speed of transition.

Coming back to floating wind – since Saipem is one of a select group of companies developing commercial-scale designs – we know from reading various analyst notes that the sector could be as marginal as 4GW or a prospective 20GW by 2030 and that the next few years’ progress will be strongly determinant of which end of that build-out spectrum we reach by this date. Considering your involvement on the AFLOWT project, your early work on a very interesting project off Saudi Arabia, the idea that you could use your Indonesia yard for US West Coast floating wind project delivery, what role do you think Saipem could have in accelerating the expansion of this sector?

LC: The challenge today for floating wind is to be profitable at a commercial scale for the first investors in the sector. In a market where costs are being driven down dramatically, margins are being reduced every day, and so it is fundamental that new, more cost-effective solutions are found. The only way to do this ultimately is to find engineering solutions that allow you [to manufacture and install more floating wind units] at a higher speed. For us, having come out of oil & gas [an industry that has had had to squeeze costs in declining economics], we know that there is operational speed and speed resulting from greater efficiency.

PF: For Hexafloat, we have designed a system that can be built in any yard in the world in serial production and installed in large numbers. Because we are not a pure fabricator or a pure installation contractor only, on any specific project we can optimise the engineering of both fabrication and installation to reduce the cost and reduce risk – which also further reduces the cost.

LC: The emphasis on project execution [on projects] involving many, many units – as floating wind or conventional bottom-fixed offshore wind projects do – can lead to closer cooperation between the developer and contractor and its supply chain, to find some new means of leveraging cost reductions. Hexafloat reflects this: it was designed in parts that can be easily and cheaply fabricated and transported and assembled [before being towed out] and installed with ROVs [remotely operated vehicles]. This will, without question, reduce the risk during construction and speed up a project’s development.

Saipem’s push into renewable ocean energy technologies has not been restricted to offshore and floating wind. You’ve taken an investment in an innovative wave power concept called the Penguin, being developed by Wello . What has the thinking behind this been, not least given the choppy history of the wave power sector with its high-profile failures last decade – Pelamis, Aquamarine Power, and others – and recent successes, AW-Energy among them?

LC: Well, wave power technology is at another maturity level compared to offshore or floating wind, of course. Ten years from now, it will be different. The Penguin is now best thought of as an ancillary power technology, for specific applications – offshore oil platforms, small islands, and so on.

PF: This is something unique about us, as Saipem – we have ‘two souls’: one looking one-to-two years ahead [including conventional offshore and floating wind] and another looking five-to-20 years forward, through our engineering house, that explores wave power, wind power kites [the company is developing a high altitude wind energy concept with KiteGen], and other technologies and projects [Saipem recently signed a collaboration deal with technical consultancy Studio Rinnovabili to bid on wind and solar power engineering and construction contracts in domestic and international markets].

LC: We are always searching for the technologies that could have more rapid expansion and growth – looking at them from an engineering perspective, evaluating them and, if there is a good reason to do so, investing in them, because we prefer having an in-depth knowledge of what we are investing in, rather than simply buying a technology because it is ‘successful’. This way, we can ensure – in a responsible, sustainable manner – our energy transition as a company.

Transition

'In the next 5-10 years 50% of our offshore work will be non-oil'