Oil majors and utilities begin battle for power
Oil companies calling themselves energy companies
On the utility side, meanwhile, electric cars offer an opportunity for expansion at a time when sluggish economies and rising efficiency have slowed demand growth to a crawl.
On the oil side of the energy industry, pressure from investors is forcing companies to look at ways to curb greenhouse gas emissions, while the rise of electric vehicles is threatening to put a brake on the growth in demand for crude.
Vitol, the world’s largest independent energy trader, said last Tuesday it expected oil demand to peak within 15 years, and intended to focus on cleaner fuels and power trading in the coming years.
Shell suggests 30 per cent of its business could be in electricity by the mid-2030s. It does not have long to master those new skills.
Technology and climate change force energy providers to rethink strategies
The falling costs of renewables and batteries, and innovations in grid management, are breaking down the standard model of electricity supply
Ed Crooks in New York and Anjli Raval in London MARCH 25, 2019
Ten years ago, you knew where you stood with your energy suppliers. Oil companies sold road fuel, while utilities supplied electricity and gas. Today, those old lines of demarcation are blurring: utilities can fill up your car and oil companies want to keep your lights on.
Technological progress and the threat of climate change are forcing both oil companies and utilities to rethink their strategies, and are pushing them into each other’s territory.
The result is set to be a period of intensified competition and instability, as companies that were previously able largely to forget about each other are now forced to battle for dominance.
On Sunday Royal Dutch Shell, one of the world’s largest oil and gas companies, announced that its First Utility retail power business would be rebranded as Shell Energy, with 700,000 households switched to renewable power.
Customers will be offered not only cleaner electricity but discounts on fast-charging for their electric vehicles as well as broadband and smart-home technologies.
Shell has floated the idea that by the 2030s it could be the largest power company in the world. Meanwhile, Enel, the Italian electricity group that by some measures holds that title today, last week highlighted the rapid growth in its network of electric car-charging points.
By the end of 2018 it had installed 49,000 worldwide — up 63 per cent during the year, chief executive Francesco Starace said as he announced annual earnings. The competition to provide the best offerings is given an additional edge by a clash of cultures.
People who work in the high-stakes world of oil and gas have traditionally looked down on the humdrum plodders of the electricity sector, described by one gas executive as “useless”.
The next decade will reveal whether that confidence is justified. It isn’t easy to manage customer books that are huge, and get billing accurate, and be trusted to go into people’s homes to install equipment and maintain it.
Some of these are quite big asks Iain Conn, Centrica
On the oil side of the energy industry, pressure from investors is forcing companies to look at ways to curb greenhouse gas emissions, while the rise of electric vehicles is threatening to put a brake on the growth in demand for crude.
Vitol, the world’s largest independent energy trader, said last Tuesday it expected oil demand to peak within 15 years, and intended to focus on cleaner fuels and power trading in the coming years.
Total, the French oil and gas group, has a similar message. “We really think as an energy company,” Philippe Sauquet, its president of gas, renewables and power, said at the recent CERAWeek conference in Houston. “And being an energy company, of course, is leading us into electricity, which is the fastest-growing segment of energy consumption.”
On the utility side, meanwhile, electric cars offer an opportunity for expansion at a time when sluggish economies and rising efficiency have slowed demand growth to a crawl.
“Electric mobility is potentially an important opportunity,” said Alberto Piglia, head of Enel’s e-mobility division. “If by 2040, 40 per cent of the vehicles [sold] will be electric, this opens up tons of business opportunities, not only in the consumption of electricity but also in the management of the charging stations.”
Iberdrola of Spain, also among Europe’s largest utilities, has signed deals with car companies to work on electric vehicle systems. In January, it announced an agreement with Nissan to work together in Spain, Britain, the US and Brazil on ways to integrate electric cars into the grid.
Iain Conn, chief executive of Centrica, the owner of British Gas, said he was being “bombarded” with inquiries from electric car manufacturers looking for similar partnerships. “We are in discussions about after-market billing for electric vehicle customers,” he said. “This is all changing rapidly.” Those changes are setting up some unexpected rivalries.
Six years ago, Mr Conn was head of refining and marketing at BP, and Ben Van Beurden and Patrick Pouyanné held the equivalent roles at Shell and Total, making them his direct competitors. Mr Conn took a diagonal move to the utility industry to lead Centrica, while Mr Van Beurden and Mr Pouyanné stayed with their companies and both became chief executives.
They might have expected that their worlds would have drifted apart, but in fact the convergence of their businesses is making them increasingly direct competitors.
Shell and Total have been acquiring companies along the electricity supply chain, from renewable generation to battery storage to electric vehicle charging and domestic power. The falling costs of renewables and batteries, and innovations in grid management, are breaking down the standard model of electricity supply.
Households and businesses can have access to their own local resources, such as rooftop solar panels, battery storage and demand response technology, reducing electricity consumption when there is strain on the grid. “You go from a boring, predictable system to a complex intermittent system,” said Maarten Wetselaar, director of gas and new energies at Shell. “The amount of trading and optimisation that is now possible in the power market?.?.?.?is a really good opportunity for people that are good at energy trading. And we are very good at energy trading.”
Returns on capital have traditionally been lower in power than in oil and gas, and industry analysts have questioned whether traditionally oil-focused companies would be able to make the same kind of profits from their new cleaner energy as in their dirtier businesses.
Ben Van Beurden, chief executive of Shell, was formerly head of refining and marketing © Reuters
But Shell and the other new entrants, like incumbents such as Centrica, see their future in providing energy services, from smart meters to batteries, that can ultimately generate higher returns. Shell is bringing together all the businesses it has acquired, from battery storage and electric vehicle charging to gas and renewable power generation, to provide what it hopes will be better offers for customers. Incumbent utilities’ large market shares can also often create opportunities for disruption.
Total, which last year bought Paris-based power supplier Direct Energie, sees EDF’s 80 per cent share of the French retail market as a tempting target. “We think this market share of EDF will be more and more eroded, and we are ideally placed to benefit,” Mr Sauquet said. “Every month we are gaining market share.” Not so fast, say the incumbent utilities.
What they do may appear unimpressive to the oil companies, but they do have many decades of experience at it, particularly in dealing with retail customers. Mr Conn describes Shell as “a very worthy competitor”, and said he was not surprised that oil companies want to enter the electricity market.
However, he added: “It isn’t easy to manage customer books that are huge, and get billing accurate, and be trusted to go into people’s homes to install equipment and maintain it. Some of these are quite big asks. So I think they’re going to run up against some pretty big challenges.”
The oil companies are expecting what are, by the standards of the energy industry, relatively quick results.
Shell suggests 30 per cent of its business could be in electricity by the mid-2030s. It does not have long to master those new skills.
ft.com |
