Oil companies are rearranging and fine tuning their alternative energy assets to determine which ones they want to pursue for pilot demonstration projects and eventual commercialization, an industry consultant believes.
Arthur Hanna, industry managing director of Acccenture’s energy practice in London, said oil companies completed what he calls the investigative stage—reviewing new technologies and new energy sources in the search for alternates to fossil fuels.
“When you look back 2-3 years, we saw many in the oil and gas industry investigating energy alternatives in the new energy space,” Hanna said. “With the exception of one or two, we saw most of the majors putting together programs looking at biofuels and looking at other substitute sources of energy such as wind or solar.”
During that period, companies considered a wide range of alternative energy options.
“I think what you are seeing now is a move from the investigative to the pilot stage of developing new energy businesses,” Hanna said. “Oil companies are getting ready for full-scale ramp-up into some of the businesses that they have decided to move into.”
Some oil companies are discarding certain alternate energy assets as they decide which ones they intend to concentrate upon for the medium to longer term.
“Instead of a broad-based portfolio, we now have companies starting to focus on a few types of assets,” Hanna said.
Investment decisions
BP PLC in early November announced a decision that it would not invest in the UK’s wind energy sector as planned but instead will focus on US wind projects.
The company said it remains committed to investing in a range of renewable energy worldwide.
Regarding carbon capture and storage (CCS), BP pulled out of bidding to build a demonstration CCS project in the UK. BP still plans to build demonstration CCS plants in Abu Dhabi and California through its Hydrogen Energy joint venture with Rio Tinto.
BP also plans to close its solar photovoltaic cells and panels factory in Sydney, Australia, by Mar. 31, 2009, because it wants to concentrate on larger-scale ventures, noting modern solar PV manufacturing plants are much larger than the Sydney plant.
Regarding biofuels, Hanna said BP has made some joint venture investments in Brazil that give it exposure to the agricultural side of the biofuels value chain. “The extension of their businesses into sourcing sugarcane has been a development,” he said. “In addition we have also seen a number of developments by a number of oil companies in their investment in second-generation biofuels.”
Biofuels and government policy
Hanna said it’s difficult to say which alternative energy sources ultimately are going to be a winner or a loser because alternative energy remains associated with government policy and government incentives.
“Some of the argument for BP moving investment to the US was that some people felt that the way the US government incentivizes wind now makes this market a better bet for a number of the wind providers compared with other parts of the world,” Hanna said.
“What you are seeing now is a move from the investigative to the pilot stage of developing new energy businesses. Oil companies are getting ready for full-scale ramp-up into some of the businesses that they have decided to move into.”
—Arthur Hanna, managing director of Accenture’s energy practice, London
Meanwhile, the emergence of alternative energy assets remains subject to change, partially because of the economy.
“When the recession bites, which it will do in the next 3-6 months, we are likely to see government responses to that,” Hanna said. “Not just in terms of what they are doing in response to the turmoil in the financial markets, but we’re likely to see governments announcing investment programs to stimulate demand locally.
“That investment creates jobs, which is obviously what they are looking to do…but it can be an investment into the future as well,” Hanna said. “We are seeing a number of governments getting ready for infrastructure investment announcements. It will be interesting to see if some of this investment is channeled into…the alternative energy industry.” Meanwhile, oil companies are making strategic choices about their alternative energy options based upon where they see their competitive advantages and also based upon different government incentives.
“For example, StatoilHydro has a history of investment in carbon sequestration,” Hanna said. “Because of this legacy, we would assume they have some potential advantage in their knowledge around this key technology of the future.”
NOCs involved
National oil companies are looking at alternative energy. In January, Abu Dhabi announced it will invest $15 billion in the Masdar Initiative, which will focus on developing and commercializing renewable, alternative, and sustainable energy.
Masdar is driven by the Abu Dhabi Future Energy Co., which the government of Abu Dhabi owns through the Mubadala Development Co. Masdar acquired 20% interest in the London Array, a 1,000 MW wind project to be built off the UK. Masdar got its stake from Germany’s E.On.
E.On and Denmark’s Dong Energy became 50-50 partners in the project after Royal Dutch Shell dropped out. E.On retains a 30% stake in the offshore wind farm.
Meanwhile, Chinese companies are investing in biofuels. Ching National Petroleum Corp. and Sinopec dominate ethanol distribution and the retail network, a trend expected to continue, Accenture said in its biofuels study (OGJ, Sept. 22, 2008, p. 44).
“We definitely see the NOCs moving into the space,” Hanna said. “The NOCs are not shy of moving forward into their area. They recognize that this is going to be part of the new energy fuels mix.”