Green shift for oil and gas majors?

In a bid to avoid turning into energy dinosaurs, European oil and gas majors are becoming increasingly active in the renewable sector. 

In this week’s pod Nordea analyst Thina Saltvedt discusses how these firms are investing in green energy in an attempt to diversify and decarbonise their business.

Host:

• Richard Sverrisson, Editor-in-Chief Europe, Montel. 

Guests:

• Thina Saltvedt, Senior Analyst, Nordea Bank. 
• Nora Kamprath Buli, Editor Germany, Montel. 

Transcript

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:06

Hello listeners and welcome to the Montel Weekly podcast, bring You Energy Matters in an informal setting. My name is Richard Sverrisson and I'm joined today by my colleague Nora Kamprath Buli, editor Germany and Thina Saltvedt, who's a chief analyst at Nordea Bank. So a warm welcome to you both.

Nora Kamprath Buli, Editor Germany, Montel: 0:21

Hello.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:22

Today we'll talk about the challenges in transforming the way we produce and consume energy. Tina, you are a former oil and gas analyst, and now you're looking at the renewable sector. It, that's quite an interesting change. Can you explain the reasons for your direction or your, your moving to the more, into the green side of things? The re renewable sector?

Thina Saltvedt, Senior Analyst, Nordea Bank: 0:40

Well, first of all, it's a personal matter. Mm-hmm. Because I wanted to work with something I've, uh, thought is the future. I'm starting to get a bit afraid of what we're seeing, like how the, uh, the effect of the CO2 emissions on, on, basically on the earth. Mm. Uh, the climate changes. And, uh, also because this very interesting to follow up on the new energies. Or the new energy sectors, how did it develop new companies coming in? So, uh, I think it's both like a personal worry about, uh, the changes in the climate, but also because it's very interesting to, to see the new, new energy sources and not at all the new sectors building up.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:22

For sure. I mean, how, how do the sectors compare?

Thina Saltvedt, Senior Analyst, Nordea Bank: 1:25

Oh, they're very different from oil and gas. I mean, that's mature sectors. Mm-hmm. Um, especially, you know, the, the, uh, oil market is the global market. Wind, solar power, they're still, you know, local markets. Um, they're not that interconnected. So, uh, and also the companies could be small. It's really, so I would say they're more fragmented as well. So, uh, but of course it's new.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:50

Yeah. Yeah. So

Thina Saltvedt, Senior Analyst, Nordea Bank: 1:51

it's, so it will develop,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:53

if you

Thina Saltvedt, Senior Analyst, Nordea Bank: 1:53

compare it to the gas market that is still is becoming more international with the LNG. But of course it's more regional, I would say. It's not totally global yet.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:03

Not yet anyway. No, from a personal perspective, I, I, I always sense quite a big difference between the gas and renewable sectors and, and some of the ways that you've described. I've, um, in terms of terms of age and gender and dynamism of the people you know of, of, of the markets, um. Would it, would it be fair to characterize the old sort of gas and the old majors as dinosaurs and some of the, the younger, I mean, or some of the renewables companies as more sort of dynamic and fast moving, reacting to change?

Thina Saltvedt, Senior Analyst, Nordea Bank: 2:32

I think some of the old companies start or want, or they, they basically see the future also within the green sectors. Mm-hmm. Uh, they might be because they feel threatened about the development. They don't want to end up as a dinosaur, but some of the old. Um, fossil sale, uh, fuel producers, the oil companies, and say that, okay, this is not my niche, you know? Mm-hmm. I want to stay in the sector I know I can do. And then, you know, we have to compete for the last barrels we are going to produce. Some say that, okay, this gives us a new opportunity. Well, we want to grow into the new green sector. We want to. Use the experience, the technology we have and try to transfer that into the new areas. So, or the new green areas, for example, offshore wind. So, uh, I think it varies a bit and it varies also what a big, you know, the oil companies want to do. Some of them are going into, um, battery production. Mm-hmm. Uh, some of them are going into electricity. Some of them are going into. Solar wind power. So it varies a lot, I would say. So

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:31

we'd, I think we'd want to come back to that in terms of the different strategies, uh, uh, you know, adopted by, by the, the oil and gas majors into that, that move into renewables. But I remember a colleague of mine at Arrival Newswire, he was, he was booed off stage at a gas conference in Singapore. I think he's an oil and gas conference because he, he suggested that the gas companies. Should look to German utilities for an example of what happens if you don't adapt to disruptive change. And they weren't very happy, the audience wasn't very happy with that. Have you ever witness witnessed anything like that?

Thina Saltvedt, Senior Analyst, Nordea Bank: 4:02

Well, I think what we're seeing now if I think some of the oil and gas companies. Have, maybe they got the shock from what we've seen in the coal market. Because there's no doubt that both that demand for coal seem to, to face and end soon. But the other part I think is also the consumer. You know, how the consumers look at industry as such. Mm. And I think they're starting to feel the pressure that, you know, people are starting to blame. Them for, for, you know, the, uh, climate changes we're seeing around. Mm-hmm. So it's, uh, negativity is, uh, increasing against, you know, the fossil fuel producers and I think they can feel it as well. You could see that on the marketing campaigns, for example, how they want to brand themself. Mm-hmm. Often you're seeing that the brand and oil company next to an windmill. Yeah. Why did you do that? Because they want to be, um, accepted in the audience as well under public. Mm-hmm. So, uh, so I think, uh, you know, they feel the pressure,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:56

so I think. You know, we're gonna, we're talking here about how, how they reacting to change, um, these oil and gas majors, but do you think. All of them see the need to transform? Or is there certain, certain companies in certain parts of the world that are, are more, uh, reacting more quickly?

Thina Saltvedt, Senior Analyst, Nordea Bank: 5:12

We've seen that European companies, oil and gas companies are more into, you know, changing than the American ones. Mm. Uh, some of the Americans, uh, don't seem to feel that much pressure actually about the climate changes at all. Uh, but we can see that European ones are testing out new markets. Uh, to a large extent. The rest, I wouldn't say are they changing very much Middle East Asia. They haven't seen big changes there. But also, you know, in Europe, I think it depends a bit on the size of the company as well, because if you don't have that. Big amount of money you can lean on. Mm-hmm. Uh, you know, we are probably more careful about testing out new markets. Uh, so I've seen talk to our company saying that, you know, the new green, uh, energy sector is not something for us. Because we don't think that we have any, well, our experience and, and technology is not within that area. We want to stay where we are and rather compete with the other oil companies, but. The last barrel. Yeah. Then, you know, moving into something we don't know anything about. And we have seen also that some of the, they, you know, the oil companies that want to test out the new green markets, they're moving slowly because it's not, uh, one thing is the technology and experience you have from producing oil and gas. But the other thing is that how do actually the, uh, the wind and solar market work. Who are your competitors? Who are your, uh, clients? What kind of contracts do you have? Mm-hmm. So this is new to have, to learn that as well. And I think that is where, you know, most of the challenges, uh, lies. Not necessarily the technology, but, but you know, how the market works.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 6:42

But do you think some of the pressure to change is coming from outside is in terms of, you know. Pension fronts, looking at who they're investing in. I mean, this, this is part of the, the pressure on the companies that they're, they're, they're facing pressure from, from shareholders or from, from pension funds or, you know, to, to change

Nora Kamprath Buli, Editor Germany, Montel: 6:59

insurance companies especially, well, that's the call sector. I guess we're seeing more, but. Is there a worry that this could apply to, to oil and gas down the road, or,

Thina Saltvedt, Senior Analyst, Nordea Bank: 7:09

I think we have already seen that, uh, that, um, the financial sector is starting to change here because we, in the financial sector, since I work here, uh, we, you know, we have started to, uh, actually require. Come, or we actually measure companies. We are lending money, financing. We're also investing in because we want to know the climate footprint, also the sustainability footprint of the company. So every company, you know, will lend money or our financing or investing in. We make a sustainability ranking, uh, of the company. They get a score, and that score is part of also their creative process. So of course they feel the pressure, but we also see that many of the big investors. For example, Norwegian Oil Fund. I've said that, you know, we, uh, or it was actually the Ministry of Finance, you came at, uh,

Nora Kamprath Buli, Editor Germany, Montel: 7:56

uh,

Thina Saltvedt, Senior Analyst, Nordea Bank: 7:57

last year and said, okay, the, uh, Norwegian Oil Fund should co, uh, should, um, sell out of EMP exploration and production companies. And not the companies that have downstream production or, or also are moving into the green sectors, but the pure, you know, EMP companies. And of course that created a reaction in the in the markets because the, the Norwegian oil fund is the largest sovereign world. Wealth fund in the world. It owns 1.4% of the listed stocks in the world. So of course, when they moving, that makes, uh, a note to the rest of the world. And what we saw was that the, uh, um, the energy index in Europe fell by 1.7% when this, um, message came out. So of course, what the big, uh, the big, uh, you know, either pension funds or the big funds are doing the big, large, uh, invest. When they starting to move and set a new direction, of course the smaller ones will follow, but in, yeah, in different timing here, of course. But, uh, when

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:56

you say energy index, what do you mean? Tina? The energy index fell by 1.7%. Yeah. Yeah. So what, what's that? Is that an index of all the energy companies or, I haven't got

Thina Saltvedt, Senior Analyst, Nordea Bank: 9:04

into the details of it. Okay. But, but, but it Okay.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:06

But it certainly created lots of ripples then, didn't it? Yeah. That, that, I think it was.

Thina Saltvedt, Senior Analyst, Nordea Bank: 9:10

So probably some M-S-E-I-I, I'm not sure I haven't got into.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 9:13

Okay, no worries. Yeah.

Nora Kamprath Buli, Editor Germany, Montel: 9:15

Um, but you mentioned that we can see a divide between European and, uh, and maybe American, Asian, middle Eastern companies. Um, and, and what I've noticed here, some companies, you know, they started or they, they already implemented a name change to, to sort of change their image away. Especially here in Norway, we've seen start oil, uh, who has changed their name to Equin a bit. Less clear was, uh, in, in Denmark we've seen dong that's used to stand for Danish oil and the gas, uh, company, I believe, uh, into Ted. Do you think that's just pr, is it really sort of trying to, uh, to showcase that the thinking within those companies is changing? Well, dong is actually

Thina Saltvedt, Senior Analyst, Nordea Bank: 9:54

selling out of oil and gas, so of course that's not a show off. So they're moving in. To the green sector. Now, eor, uh, I don't think that is greenwashing either, but I think they're moving slowly because they want to gain experience before they really start to heavily invest in sector. Uh, these are sectors that don't know very much about, for example, wind production they want to use to experience. And also some of the technology they have, especially for offshore wind because, they know the offshore sector very well, but of course you need to test, you need to see how, how is the market working? They don't have that experience. Of course, when going into a new market and test. Also, you need to deliver. I mean, you need to deliver return on your investments at the end. So of course they want to test out and see how that works. So, and now it looks much more promising, I would say. Um, so of course, uh. I, I guess, um, they will, you know, increase those investments going forward as well. So I think, uh, you know, uh, from the start moving a bit slowly to, to learn gaining experience. And I think that is why they're also partnered up with, um, a solar company in, in, uh, south. America also because they, they, uh, there was a new market and they wanted to have a partner. Mm-hmm. So different ways of doing it, but, uh, I don't think for, as we have seen for other European oil and gas companies as well. I don't think this is greenwashing. You can rather ask about the marketing of all of this sometimes, but not the actual, uh, strategy of doing it. I, I, um. I think that is, you know, they, they want to gain, um, they actually see profit coming into these markets in the future. And it's not that long until we expect that. So both solar and, and, uh, wind power, uh, have fallen so much in cost that you don't need subsidies. And of course, that will also remove the, uh, political risk, which is connected to it. And when you reach that point, I think you reached a tipping point where you'll see much more capital coming into the market. Because capital owners are all. Orphan and like too much of political risk. Yeah. So, um, so I think, uh, you know, we're seeing, we will see more changes in this and more investment coming in in the future.

Nora Kamprath Buli, Editor Germany, Montel: 12:06

And what we've also seen where maybe these companies don't have the technology or the know-how themselves they go, the route of acquisitions we've seen with some of the more continental, uh. European players like BP or Total, they have bought I think Shell as well. They have bought Soun, which is a German solar battery producer, but they also produce very large batteries, that balance grid. So they have used this and they also bought Lime Jump, which kind of aggregates and, and, and provides PPAs, uh, for, for sort of flexible generation. Do you think those are different strategies? Uh, where you don't have the knowledge yourself, you, you acquire companies and, and, and that will help them grow. And how much investment of the overall pot, I mean, there are huge companies with a big balance sheet, um, is actually going into, into the green sector.

Thina Saltvedt, Senior Analyst, Nordea Bank: 12:53

Well, I think it's, uh, as you say, different strategy here. Some, some of the companies want to use the experience and move that into new new areas. But other companies want to, you know, need to buy the experience and, and you know, the technology because they don't have it at the moment. So it's different way of ways of doing it. As we're seeing at the moment, you know, the investments in the new energy sources are not that big compared to, to the rest. So still, you know, the the oil and gas companies in Europe in Europe, if you look at the portfolio, it is not really reflecting, you know, the Paris goals. Mm. So they still invest more in fossil fuels than they do in the in the green sectors or battery technology. So

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:33

do you have any idea of the ratio there?

Thina Saltvedt, Senior Analyst, Nordea Bank: 13:35

Uh, I don't, no, but it's small.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:37

Okay. It's small 'cause it's so small

Thina Saltvedt, Senior Analyst, Nordea Bank: 13:39

that they hardly report it in the quarterly report. Okay. So that, that's, that's quite minimal. You say something. Yeah,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:43

absolutely. So, again, as you say, falling far short of the Paris goals. Yeah, yeah, yeah. Do you think, do, does your impression that they have a clear. Strategy or is there kind of buying solar, buying batteries, buying retail, just sort of trying a bit of everything and see what works.

Thina Saltvedt, Senior Analyst, Nordea Bank: 14:01

I'm not really sure about so, but, but of course they have a strategy of they want to go in there, otherwise they wouldn't be there at all. Mm-hmm. And I guess because they also see that, you know, the shift can come quite fast. And also, you know, costs have come down so fast as well. Mm-hmm. Solar power, 80% within the last 10 years. Wind power, I mean, 50%. So, I mean, it shouldn't take that long before you start earning money in these markets as well. And of course, battery technology, if you can break, you know that, you know, you, you will be the first one to actually make batteries. So, uh, so well functioning that you can actually store electricity there for a bit longer period, then of course you will reduce. Ti uh, you know, the argument that you need, for example, natural gas as a bridge or as, as a backup as well, uh, for solar and, and wind power because, and I think Tesla is starting to get there, uh, launching this new battery and I, I guess now energy co companies before oil and gas companies. Seeing this as well. So they want to be part of this development, but moving slowly because they don't have the experience yet. Mm,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:04

no.

Nora Kamprath Buli, Editor Germany, Montel: 15:04

But do you think the, the oil and gas majors are becoming a threat to traditional utilities? We also see that they buy retail companies that sell power. And if we are now looking at the emergence of electric vehicles, you could argue that in the future, you know, you don't pump. Uh, petrol at a, at a, at a petrol station is going to be power. Is that future moved? And, and will it push out traditional sellers of electricity?

Thina Saltvedt, Senior Analyst, Nordea Bank: 15:30

They might, I mean, they're coming in as, uh, as, uh, competitors, uh, that could change the market. We've seen that in the, uh, car market. You know, completely new place. Totally changed that market. Tesla was one, Google and Apple is another. So in introducing new strategies, the new way of thinking, new technology of course will change the market, uh, as well. And that could be good, you know. For the car market, it's been very good because the car, the traditional car makers, they didn't want the electric cars to come into the market. It was very difficult and several had tried before, but you know, when they, uh, when Tesla came and, you know, open up for others and the new technology was introduced and, and customers started to like this. Uh, you know, that totally has changed the market and you now see all, almost all the, the car producers are introducing electric cars. Mm. So I, I don't think that, you know, new dynamics in the market are, uh, are bad. I think, you know, it might threaten somebody, somebody existing companies, but is that bad or is it good to get new competition and more efficiency maybe. Mm. Maybe that is what we need to, to adapt

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:39

and it forces them, the established players to change as well, you know, as, as it happened in the EV markets, the car.

Thina Saltvedt, Senior Analyst, Nordea Bank: 16:45

Absolutely. So, um, I'm not necessarily, uh, negative to that. I, I, it might actually speed up the prices. So

Richard Sverrisson, Editor-in-Chief Europe, Montel: 16:51

how do you see the demand for oil and gas developing it in Europe? Generally, I mean, you, you mentioned now that there's a, there's a favorite, you know, phrase from the, from the gas company. They like to say it's a bridging fuel between, between what we have now and, and the future. I mean, would you agree with that or do you think that, you know, certain technological transformations could render that? Uh, not exactly applicable.

Thina Saltvedt, Senior Analyst, Nordea Bank: 17:15

Yeah, because the oil, uh, demand has decreased. I mean, especially you see, uh, on the fuel side, traditionally it's more on the fuel side. We use. Oil. In Europe, you don't use it that much for heating, or of course you do have something in other areas as well, but more than 60% goes to. Transportation. So when you will have, the cars have become much more efficient and that is a way you can blame the oil companies themself when letting oil prices go up to almost $150 per barrel. Of course, we as consumers find more efficient solutions. And of course that triggered the investment in green. Green energy as well. And also, you know, the European, uh, pol or European policies, uh, by being more, you know, they want to be more independent of any supplies. They want to cut CO2 emissions and you know, also want to what? To introduce more green energy. That has a big impact on the total fossil fuel production and consumption in Europe. So, uh, and uh, with the last European elections we have seen, or the EU election as well, you saw that the green parties are moving up sharply. So I think, you know, they want to speed up even more. And that is of course, a threat to the, the gas companies because they want. They wanted to be that bridge builder. Of course. We could see that the eu, at least production or natural gas is going down and will be interesting to see whether the UK as well. It started with some Shell gas production, and now we saw these earthquakes coming. Scary. I, I find it at least, I guess. This that will increase the opposition against this kind of production as well. So you want, I, I think it looks like the EU want to speed up the move to go more straight into the green areas. And if you could, of course, make the, the, um, networks more flexible, uh, you know, more connected as well. So we get more connection between the, uh, the European, uh, electricity networks, and of course if you can introduce more efficient batteries, why should you invest that much in natural gas? So for, but we see it here in, in Norway as well. We are getting more, you know, um, we are getting more competition, um, in the natural gas market in Europe. First of all, the year consumption is going down, then you have much more cheap LNG coming out from the us. Qatar Australia, not in Europe. It's in the rest of the world. And, uh, you know, so the natural gas market is, uh. Yeah,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:40

it's also developing, it's also changing in a sense. Yeah, absolutely. I'm just wondering as well, Dina, do you, do you have a view on, I mean, you mentioned offshore wind. Mm-hmm. Do you have a view on floating wind? I mean, do you think that has a, has a as a future, and if so, where?

Thina Saltvedt, Senior Analyst, Nordea Bank: 19:55

We absolutely hope so. In Norway.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:58

Uh,

Thina Saltvedt, Senior Analyst, Nordea Bank: 19:59

no. I, I think, you know, it does does have a a big opportunity because we have seen many places, not only in this country that it's a lot of opposition to have onshore wind production, of course, because working with sustainability, you know, one thing is that working, if you only look at the climate. Effect. It's nice to have wind power also on land. Mm-hmm. Uh, but you know, these, uh, windmills do take up some land that could be used for other things, agriculture, you know, for food production or, or it could actually be a, a threat to, to, um, ecological, uh, you know, environment. So, um, moving it out on shore would help. Of course when you can have a floating wind power you could move it quite far from, from shore and you can actually move it as far out as the, uh, oil, oil, uh, rigs are or producing today. And of course then you can't. Some, some people are complain about they don't like windmills. So of course you wouldn't see them and they could be massive. They are massive testing out these new windmills. Much more power of course, as well. Then you need of course you need to get the electricity to land if that's where you're going to use it, but, you know, more power with, with the. Huge, um, wind parks. Mm-hmm. Of course, you get newer questions there because then you will compete with fish, uh, fisheries or fishermens or, and, uh, and of course how it affects, uh, you know, the oceans. Uh, but still Japan is one place where they would look into to floating wind because they have, quite deep seas outside the coast and they want to have green power and they don't want to import. They import a lot of their, their, um, energy. So, uh, I think floating wind could be very interesting for, for Japan. It

Richard Sverrisson, Editor-in-Chief Europe, Montel: 21:46

certainly, certainly safer than floating nuclear plants. Uh, but, but anyway, but I mean, uh, do you think. The, the, the driver behind that will be the, the so-called the old oil and gas majors, or do you, and do you think they could, how far away from creating offshore, you know, floating offshore wind without subsidies? Are we, are we five, 10 years away from that or,

Thina Saltvedt, Senior Analyst, Nordea Bank: 22:09

yeah, we're still five, 10 years away, I will say. Do you need still to develop the technology even further and then of course you haven't tried to make it, you have to scale it up Yes. To get the cost down and not even close to that yet. So that is why we hoped we could make a home market for that in a way. To be we probably don't need that much electricity as such since we have a lots of of hydro. But we could export more green energy and we could also attract more energy intensive industries to come to settle in, in Norway. Yeah. So in that kind of sense, we hope that the government will actually focus more on this. Kind of production. Yeah, it's interesting. They have actually supported that now as well to have a test to produce floating wind, to use the electricity for, for having or access to more clean, uh, energy to the, uh, oil rakes. But, uh, of course that could be used, other, other areas as well.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 23:02

Yeah. Well, I'm afraid. That's about all we have time for this week. Okay. So, so thank you very much Tina and, and Nora. Um, and, uh, listeners, make sure you tune in next week. Also, remember to keep up to date with all our stories on Montel News and follow us on Twitter and LinkedIn, and you can subscribe to the Monte Weekly podcast on iTunes and Spotify.