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A gas station in the street of Alberto Aguilera, in Madrid, gives a small sample of what the future may be. Customers can collect Amazon shipments or high-end cooking ingredients, drop their shared hybrid car or drink a café con leche while they wait for their electric vehicle to load up. Although normal gasoline cars are welcome, Repsol, the Spanish oil company that operates the station, has been preparing for the worldwide transformation in energy consumption in the face of abandoning the use of dirtier fuels. The picture has forced big oil companies to rethink their business. Electric power will be one of the major engines of the new low carbon business models for all large energy companies, Repsol Chairman Antonio Brufau told the Financial Times. Electricity will account for most of the growth of primary energy, he added. Repsol and European rivals such as Royal Dutch Shell and Total are making acquisitions of electric power companies - looking for assets ranging from power generation to electric vehicle charging points - trying to replicate the existing model in the oil business , which ranges from drilling rigs to gasoline pumps. Oil companies have seen entry into the electricity supply market to consumers, hitherto dominated by electric utilities, as a step towards future growth. Its like insurance for these companies. No one knows how the energy transition will unfold or at what speed, said Tom Heggarty of the utility and renewable energy division of consulting firm Wood Mackenzie. BP, in its long-term energy outlook for 2040, predicts that almost 70% of the increase in primary energy consumption will come from the power sector, with demand for electricity growing triple that of other types of energy. Electric vehicles make up a small fraction of the worlds car fleet today, but the segment is growing at a fast pace, with stand-alone cars and travel sharing boosting the trend. As oil is so linked to mobility, it is more exposed to changes in consumption, Brufau said. We need to figure out how were going to manage this. Repsols strategy has led it to invest in a network of fast charging points for electric cars and to create, with South Koreas Kia, a joint venture in Madrid to share 500 hybrid vehicles. It also paid 750 million euros for Spanish gas and hydroelectric power assets Viesgo. Shell also expanded its gas business following the acquisition of BG for $ 50 billion. It bought British utility First Utility in February, giving it first-hand access to retail electricity consumers, and New Motion, one of the largest electric vehicle charging companies in Europe. Maarten Wetselaar, head of gas integration and new energy at Shell, said switching cars to power will sustain the energy transition. In Shells case, gas will not only replace coal and become more dominant in electricity generation, but will also provide a backup system for renewable sources on cloudy or windless days. As the share of electricity usage in total energy consumption is increasing, Wetselaar says Shell will need to play a part in it if it wants to continue to be big. Some shareholders have supported this new focus on the energy transition. They fear that spending on long-term oil projects may prove to be deficient and are concerned about the sectors impact on greenhouse gas emissions and global warming. European groups such as Total, Shell, Equinor, BP and Eni have been promoting more investments in low carbon gas assets than US, Chinese and Russian rivals, according to environmental group CDP study. Among 24 companies evaluated, the major European oil companies are among the best prepared for the transition to a low carbon economy. It is not yet clear, however, which is the best route to success. Some investors want oil companies to manage declining business by focusing more on generating cash than on investing in electricity. Finding, developing, producing, and transporting hydrocarbon molecules is fundamentally different from generating and transmitting electrons, said Nick Stansbury, head of commodities analysis at Legal & General Investment Management. Does the gas and oil industry need to turn into something that looks more clearly to a utility company to keep its business safe for the future? [The] answer is probably no. The change, however, is in progress. Although Total said it was allergic to the word electricity concessionaire, it is developing a retail electricity business in France. It bought US solar energy company SunPower, energy supplier Lampiris, battery specialist Saft and stake in renewable energy group Eren. This year it acquired French electricity retailer Direct Energie for 1.4 billion euros. The transactions allowed him to set up a portfolio of gas-fired and renewable sources. As global power generation is rapidly changing towards a more competitive market, Philippe Sauquet, head of the gas, renewable energy and electricity business at Total, says the company will benefit. We have no advantages or assets outdated in this field. We can be more efficient. We can offer better prices. Unlike traditional energy utilities that have a single facet of relationship with consumers as providers of electricity, Sauquet believes large oil companies want multiple interactions. Although electrons should be seen as a new commodity, the way you supply them should not, Sauquet said. We can make more money from value-added services, from smart meters to monitor consumption and lower bills to electric vehicle chargers. Some industry analysts, however, say there are big differences between getting into an adjoining business - how to set up charging points for electric vehicles in existing gas stations - and entering areas where they are not big competitors, such as electricity generation. Danish wind power giant Orsted or Spains Iberdrola may be much better able to create clean energy projects than oil companies. In turn, analyzing data on how and when consumers use electricity is a domain that leans much more to the side of technology groups like Google or Microsoft. Finding out how to sell electricity profitably is a crucial point, particularly given the history of the industry that has lost billions of dollars in its first transition to renewable energy. BP had to make a long withdrawal after a major initiative in the production of solar modules in the 2000s when it followed the motto Beyond Oil. |
