SPOTLIGHT | Green H2 hopes and pure-play offshore wind prospects focusing minds for US Gulf lease

August 18, 2023
6 min read
Featured Image

A first offshore wind auction in the Gulf of Mexico this month could be a springboard for the energy transition in the ageing oil & gas basin, but questions surround the economics of the play, writes Signe Sørensen

Eighty-five years after the first offshore oil & gas well was spudded in the US Gulf, production from the ageing hydrocarbon province is forecast soon to peak. Meanwhile, a new chapter in the maritime energy basin emerges on the horizon, with the federal government slated to open the first lease auction in the Gulf of Mexico region at the end of the month for as much as 6GW of offshore wind plant – enough to supply around 2m American homes.

The wind resource in the region is incontrovertibly massive: the National Renewable Energy Laboratory has scoped out some 500GW of technical potential flying over the waves of the region that is still supplying 97% of America’s oil & gas.

But despite having the advantage of large swaths of shallow-water perfectly suited to bottom-fixed turbines and in theory also a range of routes-to-market for the green power generated in the future, question marks hang over the landmark auction.

Gulf of Mexico wind speeds – compared to global benchmarks – are relatively low at around 7.5 meters per second in the lease areas, landing the estimated levelized cost of energy (LCoE) for the three areas cordoned off for the sale in the neighborhood of $75-83/MWh (pre-tax, real 2023 value), according to the latest Aegir calculations.  Then there is the hurricane risk, competition with cheap onshore wind and solar, and, in Texas, the absence of any political support for offshore wind. 

Picture of Block Island Jackets at Gulf Island Fabrication Louisiana_US Gulf Lease
JACKETS REQUIRED: Steel foundations for the US first offshore wind farm, the 30MW Block Island off Rhode Island, were manufactured in Louisiana at Gulf Island Fabrication (Foto: GIF)

Boosters for the play that could enhance the appeal of the US Gulf to developers include the relatively short distances to grid and ports of the first trio of lease areas – Galveston North and South off Texas and Lake Charles off neighboring Louisiana – as well as proximity to coastal industrial and urban demand centers, established hydrogen infrastructure, and numerous local shipyards and maritime contractors primed to diversify and expand the US supply chain as the offshore wind build-out gathers pace.

Range of routes-to-market

For the 15 developers that were pre-qualified for the current US Gulf lease auction, routes-to-market will be key to bid levels for the coming lease, which will be a multi-factor model with bids factoring in a monetary element as well as credits linked to supply chain and jobs worth up to 30% of the offer placed. Largely due to the offtake uncertainty, lease prices are expected to come in lower than in the recent offshore wind lease rounds off the Carolinas in the Atlantic and the Pacific off California.

Power purchase agreements (PPAs) with utilities, where electricity and/or renewable energy certificates are bought directly from developer – as has been the case on the US East Coast – and corporate versions in which PPAs allow private companies to source renewable offshore energy, will likely be central to the region’s first developments, with Louisiana utilities and heavy industry corporations as prime PPA partners. Decarbonization of existing oil & gas operations, such as is happening in the North Sea, may emerge as a minor, wildcard route-to-market option. 

Headshot Signe round

'The greatest demand for US Gulf of Mexico wind power is hoped to come from the network of hydrogen generators and consumers on the 'Chemical Coast', which may soon be looking to shift from grey H2 to green'

Signe Sørensen
Senior Research Analyst
Regional Lead Americas
Aegir Insights

The greatest demand for US Gulf of Mexico wind power is hoped to come from the network of hydrogen generators and consumers on the ‘Chemical Coast’, which may soon be looking to shift from grey H2 to green. Indeed, there are proposals to establish ‘clean’ hydrogen hubs with federal funding, including the HALO, HyVelocity and Horizons Clean Hydrogen complexes. From mid-2030's this endgame route-to-market may become dominant for Gulf of Mexico wind power economics and determine the ultimate scope of the play. 

The level of interest in this month’s auction could therefore well turn out to be an indicator of how much stock the industry puts in the coming hydrogen revolution in the US and in its own ability to find ways to sell its power without state subsidy – for though Louisiana is targeting 5GW offshore wind by 2035 via a climate action plan, none of the Gulf of Mexico’s coastal states are currently directly supporting routes-to-market for offshore wind.

GREEN DREAMSCAPE: Zones marked out for offshore wind power in US Gulf and active H2 pipelines in Texas and Louisiana (IMAGE: Aegir Insights)

Oil & gas ‘synergistic’ role

The leasing – which operators including Shell, Equinor and TotalEnergies have been green-lighted to bid into – will also likely reveal whether the energy industry believes that synergies with existing maritime industries including offshore oil & gas will sway the financial viability of offshore wind in the region.

The oil & gas industry could be the trump card in this month’s auction, given that it has 345,000 sector-related jobs with options for skills transfer to offshore wind in the province, along with a long-established supply chain ranging over construction, installation and operation of offshore energy structures. These benefits may act as counterbalance to the otherwise not impressive economic conditions with low wind speeds and a lack of state support. 

However the leasing round pans out, the US Gulf of Mexico is bound to take shape for offshore wind as it did in the early days of the oil  & gas adventure in the basin, with first focus trained on development of the near-shore resources, and deep-water, floating wind plays only becoming economic if LCoE falls dramatically, given the slower wind speeds compared to other potential floating wind acreage e.g. off the West Coast.

UPDATE: The US Gulf of Mexico auction, which went ahead on 29 August, was greatly undersubscribed with only one lease awarded, to German utility RWE, off Louisiana for $5.6m, and no bids attracted by two leases off Texas. We had anticipated lower prices in the Gulf of Mexico than to the last couple of federal lease sales in Carolina Long Bay and off California, where prices were already falling from the record-setting heights of the New York Bight tender last year. But the complete absence of bids for the blocks off Texas was a surprise.

Nervousness linked to global supply chain woes and general cost squeeze in the industry, worsened by the ongoing power purchase agreement disputes in the US Northeast, could well be making the US Gulf look too risky a development target at this time. But if macroeconomics are a main reason for the lukewarm interest in the auction it could also indicate that this could change for future auctions in this region, if the broader situation market is more stable.

In light of this upcoming lease auction, Aegir Insights' has just released an updated market report on the Gulf of Mexico to our subscribers, covering strategic plays and site economics in this area.

Reach out to us to learn more about Aegir Insights' market intelligence service and Auction Intelligence package, covering timelines, criteria and strategic angles of upcoming global offshore wind auctions.

LCoE estimates are based on a long list of assumptions and are presented here in real 2023 values, pre-tax. Reach out to get insights into Aegir Quant and how Quant can be used to calculate LCoE estimates customized to various scenarios, pre- or post-tax or in nominal terms.

This article was first published in Aegir Insights' offshore energy intelligence newsletter, Beaufort.

Delivered straight to your inbox every Sunday, Beaufort will sharpen your market insight for the week ahead with exclusive commentary, analysis, and in-depth journalism delving into the talking points, thought leaders and technologies shaping offshore wind.

Sign up for free here!


Aegir Insights provides industry-leading intelligence powered by data science for offshore wind energy developers, governments and financial institutions.

Aegir Insights ApS

Aegir Insights
Havnegade 27,
1058 Copenhagen,

CVR no.: 39104792


Aegir Insights

Aegir Insights
Havnegade 27,
1058 Copenhagen,

CVR no.: 39104792

All rights reserved 2023 © Aegir Insights Aps