Markets

Tekmar’s subsea products address the global offshore wind and subsea oil and gas markets and, to a lesser extent, the wave and tidal markets.

Offshore wind

The offshore wind industry is rapidly maturing and is moving towards a position where it can be considered a mainstream supplier of low-carbon electricity. In Europe, industry reports indicate that offshore wind will be a more cost efficient energy source than natural gas by 2022.

Supportive regulation in the developed world has resulted in significant inflows of public and private investment, while governmental commitments to meet climate change targets, such as in the case of the United Nations Paris climate accord, are expected to drive demand for increases in renewable energy capacity.

Offshore wind is considered to be complementary to other renewable energy technologies, particularly solar energy. Existing sources of renewable energy suffer a number of limitations, particularly their intermittent and unreliable power output. As such it is expected that future energy systems will consist of a variety of renewable solutions that together are able to meet demand efficiently and reliably.

Technological progress, growth in the scale of the industry and a reduction in the cost of capital has resulted in greater levels of competition and, as a consequence, the cost of installing offshore wind farms has reduced significantly. Whilst certain alternative sources of energy continue to be less expensive than offshore wind, the price of offshore wind in Europe dropped sharply between 2015 and 2017.

According to forecasts from Westwood Global Energy, global offshore wind capacity is expected to grow from 17.1 GW in 2017 to 102.7 GW by 2026, representing a 22 per cent. CAGR, as global capital expenditure in offshore wind is predicted to amount to almost €444 billion within the same period.

Subsea oil and gas

The subsea oil and gas market has experienced a period of turbulence since 2014, with increasing price pressure driven by underlying supply and demand dynamics. While market prices of oil and gas are key to determining levels of activity and investment in the wider sector, demand for subsea product is also influenced by the onshore oil and gas sector. Of particular note has been the boom in shale oil and gas driven by developments in fracking technologies, most prominently in the United States, which has acted to reduce demand for subsea oil and gas.

The reduction in price per barrel for Brent Crude, extracted from the North Sea, to below $30 in 2016, the lowest in over 10 years, sparked a recession in demand for new projects and a subsequent drop in demand for new equipment. This reduction in price also forced companies to seek more cost-effective solutions to ensure that the price of extraction remained viable.

The oil price has now stabilised consistently above $40 per barrel for the last six months and more projects are coming back online. Regions most affected are those with deeper water production and, consequently, higher cost of extraction and, as such, shallow water areas such as the Middle East are less affected and offer greater opportunity for projects which are less sensitive to price.

Following what has been viewed by industry commentators as the bottoming of the market in the last few years, an upturn is beginning to unfold. Oil prices have recovered, the industry has gone through a restructuring process and the offshore market is beginning to see a gradual increase in tendering activity.

The market for providers of offshore oil and gas protection solutions, reflective of the wider oil and gas sector, is significantly more mature than that of the offshore wind sector. It is characterised by a duopolistic market structure that is dominated by Balmoral Offshore Engineering and Trelleborg AB.