Investing in the New Energy Era
December 7, 2021
Senior leaders in energy, finance, and technology discussed the challenges and opportunities in investing in a lower-carbon future for the oil, gas and energy industries. The pressure is on, and companies, both public and private, are making bold commitments, even as global energy demand skyrockets. What will the “Decade of Action” look like as companies with the biggest impacts attempt the net zero transition?
- Ravina Advani, Head of Energy Natural Resources & Renewables Coverage, BNP Paribas
- Chantal Becker, Partner, McKinsey & Company
- Joshua Haacker, Chief Investment Officer, OGCI Climate Investments
- Demosthenis Pafitis, Chief Technology Officer, Schlumberger
- Brad Wells, Managing Director & Head of Energy, BMO Capital Markets
- Ashish Sethia, Global Head of Commodities, BloombergNEF
It’s a dual challenge of reducing energy-related carbon dioxide emissions while industrializing new technology at scale, said Demosthenis Pafitis, Chief Technology Officer, Schlumberger, in opening the discussion.He spoke to initiatives such as Schlumberger’s commercialization this year of 20 new transition technology products.
When it comes to net zero targets, are oil and gas companies ambitious enough? Panelists had variations on the same answer; strategies across the globe are incredibly diverse. “I think we agree that there’s no one solution,” said Joshua Haacker, Chief Investment Officer, OGCI Climate Investments. “But is the pathway clear enough? Each member company we work with has a different set of assets, a different, individual strategy and a different regional footprint. It’s not a one-size-fits all transition.”
Transition is accelerating at a rapid pace, according to Ravina Advani, Head of Energy Natural Resources & Renewables Coverage, BNP Paribas, adding that some company strategies are weak, and some incredibly strong, the latter relying on science-based goals and addressing emissions across their entire value chain. Comparing Europe with the US, Advani said oil and gas majorities addressing Scope 3, which encompasses the “lion’s share of emissions, are largely in Europe.
Chantal Becker, Partner, McKinsey & Company, agreed, noting that companies in the US are responding to influences such as political pressure. COP26, she said, resulted in broader, more near-term targets, and spoke to optimism that the pace of transition is underestimated. “Until people see that this can be both beneficial to society and to carbon and to economics, people are reluctant to make bold commitments,” Becker said, echoing that the pathways have to be clear.
When it comes to investors, more consistent, comparable and reliable information is coming out, said Brad Wells, Managing Director & Head of Energy, BMO Capital Markets, but they range from meeting the bare minimum requirements to “best in class” disclosure. Add to the equation the varied ways investors interact with and monitor companies, said Advani. Financial institutions can use sustainable-linked loans with attached pricing incentives and penalties.
A differentiated product market, and the potential for end user premiums, is a definite possibility. “It’s very clear that pools of capital are chasing opportunities,” said Wells, “but it’s definitely early days.”
That said, the technology to measure emissions is available, and is a large part of the solution for much-needed transparency in reporting.
“Ultimately, transition capital should be sufficient “if the return profile makes sense,” said Wells, speaking to the notion that existing oil and gas companies will literally transition out of business.On the supply side, he said the cost of capital for existing oil and gas markets is rising faster than the general market.
Not a shortage of financial capital, but of human capital, Becker said of an analysis at COP26. She spoke to company resilience and it coming down to “who are the winners you’re going to back.”
Pafitis spoke to attracting talent -”that journey has already started” – by companies without a decarbonization map. As for scaling, “There’s absolutely a different level of commitment at the highest levels,” Pafitis said, “but I’m convinced that this is going to get real traction and scale when I start to see it influencing supply chain decisions.”
The panel discussed CCS (carbon capture and sequestration/storage), promising clean energy investments for oil and gas, and rising oil and gas prices that will leave producers with telling decisions to make in the next few years.
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