In late August, it became starkly apparent that the economics for offshore wind in the Gulf of Mexico aren’t quite where they need to be. The Bureau of Ocean Energy Management’s first lease auction ended with just one of three available tracts sold.
German company RWE Renewables purchased the tract off Lake Charles for $5.6 million, while two other tracts near Galveston, Texas, received no bidders. The lackluster bidding underscored several problems facing the offshore wind industry as a whole, as companies struggle with soaring costs, rising interest rates and permitting delays.
That’s been enough to prompt some companies to tap the brakes on entering the market. Eric Danos, owner and CEO of Danos Ventures, a subsidiary of oil and gas service company Danos located in Gray, Louisiana, says the dismal showing is indicative of the challenges the industry faces.
That’s why he’s backing off the pursuit of wind energy for now as he waits for the industry to mature.
“The costs have gone up significantly and, fundamentally, the Gulf of Mexico hasn’t been an ideal market for wind energy,” Danos says. “We don’t need to be an early adopter. There’s too much risk in the market and the fundamentals still need to be worked out. We are taking a ‘wait and see’ approach.”
It comes down to dollars and cents, Danos says. “That’s why a lot of the contracts on the East Coast are being renegotiated,” he adds. “They are happy to have wind energy, but they want it at the same or lower cost than carbon field energy. That’s the dilemma now.”
Read the full story from the latest edition of 10/12 Industry Report.