Inside Energy Episode 1: Defining the Energy Transition

4 August 2022

We have been involved in energy investing for 30+ years, and we see the Energy Transition as another phase of energy evolution. We also recognise that there is a lot of confusion as to what the transition actually means in terms of investment opportunities, strategies, sustainability, and global differences in energy demand.

We are delighted to share the first episode of our new series, Inside Energy. Episode One sees Frazer Blyth ask Tom Sikorski and Fiorella Barbato what Energy Transition means to them, and how can we capitalise on this shift in energy sentiment. We hope you find it informative!

Full Transcript:

Frazer Blyth – Director of Investor Relations & Marketing: Welcome to Bluewater’s first in the series of inside energy chats with some of our deal team. So, energy transition, everybody’s talking about it, what does it actually mean? So, I thought I’d bring some of the deal guys here, they’re right in the middle of this, and have a chat
with them about what energy transition means to them.

Fiorella Barbato – Associate: Usually energy transition is always linked to reducing the temperature of the planet because it’s too high and it keeps rising but actually, we also need to think about the effect that it has on humans now. It’s something more near-term rather than long-term for me.

Tom Sikorski – Founding Partner: Well to me, there are a number of new concepts around energy relating to decarbonization and a certain environmental push. To me, the roots of energy transition or inefficiency, if you improve a process and can save energy that’s efficiency. It also happens to save a whole host of other things energy has been over produced. People design systems for access and use not for optimization, the more innovative thing is to use technology and innovation to make those processes and products more efficient. In the limit conservation is the purest form of energy efficiency and that’s where it actually gets kind of exciting and interesting.

Frazer Blyth – Director of Investor Relations & Marketing: If we’re all going to move to a more sustainable, more efficient use of energy – how do we make that happen, how do we enable that?

Fiorella Barbato – Associate:  You will need a whole new set of infrastructure. Part of these will have to be of course investments in digitalization and you need a decentralized energy with multiple renewable sources. Actually, understanding what’s the supply and what’s the demand to generate enough for everyone because of course wind doesn’t always blow.

Frazer Blyth – Director of Investor Relations & Marketing:  Tom, You and I talk many years about global supply and demand and the balance, renewables coming on as Fiorella says “when the wind doesn’t blow”. Where do you see the balance being of energy for the next 20 30 years?

Tom Sikorski – Founding Partner: 80 plus percent of our energy has been generated with hydrocarbons. Everyone acknowledges it should be lower. In the process of going lower, everybody wants access and wants ready usage. Oftentimes, they don’t want to pay for it, as we accelerate you run into a conflict, is it clean and cheap? or cheap and clean? if you want cheap and clean then you don’t have a subsidy. Things stand on their own two feet, and you transition slower way. If you want to push toward clean first and cheap second you need subsidies and regulation and intent and that creates dislocation and that really is where we are right now, because people are more distributed that they want distributed access. But as a result, we haven’t really invested in the conventional side and so the prices are skyrocketing and so, how far and how much price do we want to tolerate for a clean solution? That is inherently the question. From an investment standpoint, it’s very tricky because for conventional sources you have cash flow that is now accelerating as we run into some confrontations. With transition, you have new technologies they’re really hard to evaluate with metrics and so forth you look at trends or revenue and so forth but they’re bleeding cash. Therein lies the rub of how we prioritize that and move toward it. Some of it has an impact element but some of it needs to be rooted in in some fairly fundamental cash flows.

Frazer Blyth – Director of Investor Relations & Marketing:  Okay Fiorella, energy transition, I mean is it two years, is it five years? How long is this going to take?

Fiorella Barbato – Associate: Becoming net zero in two years for me is like an overnight change which is not going to happen. We need to get to net zero as soon as possible making the right investments in the right technology but of course also looking at return side of the investment clearly.

Tom Sikorski – Founding Partner: As fast as you can and still be pragmatic and make money.

Frazer Blyth – Director of Investor Relations & Marketing:  We’re talking about energy efficiencies here. Where does oil and gas fit into this?

Tom Sikorski – Founding Partner: Where we, from an investment standpoint can do quite well, is to take a conventional supply chain business and transition that from a conventional to a new. As an example, Galileo has one of the best small-scale compression units in the world. Historically, they have produced, consolidated, or compressed natural gas. They’ve used that to go to the wellhead and create LNG. That application allows oil and gas operators to take what was historically flared gas and turn it into fuel so that is a perfect example of a circular application. You’re taking waste gas which is either CO2 or methane and converting it into fuel.

Frazer Blyth – Director of Investor Relations & Marketing:  Guys, we’re investors. How do we invest into projects that are going to give returns an impact? How
do we do that?

Fiorella Barbato – Associate: Well, it’s going to be a different kind of investment. Most likely because those will be all new technologies that we haven’t probably seen yet, and we will need to educate ourselves first on all these new technologies but at the same time we still need to remember that we’re here to make a return. So clearly, we’re going to look at both sides, if the technology makes sense how the market is going to evolve, and we will have to take a view on that. I think that all these new technologies, whatever is new brings a higher risk so we will just need to assess well what is that risk and understand if we can actually manage it.

Frazer Blyth – Director of Investor Relations & Marketing:  All these sorts of technologies that are emerging in the marketplace, how are you guys seeing them?

Fiorella Barbato – Associate: We do a lot of research internally. We try to understand what is changing, but instead of understanding what changed until now we’re trying to look into the future. What is going to change and of course where we should invest.

Tom Sikorski – Founding Partner: What we’ve always tried to do is drive domain knowledge into our everyday. So, we read a lot of research. We almost want for our young people for them to be experts in two or three sectors or sub sectors. In energy transition we need to evaluate the viability of a solution use that domain knowledge to make better bets.

Frazer Blyth – Director of Investor Relations & Marketing:  Fiorella, finally you know as an energy investor, energy transition, does it give you opportunities? Is there an exciting future ahead?

Fiorella Barbato – Associate: There’s a need to decarbonize. This will lead to so many new opportunities. So much capital raised, we have to be sure that we will be the first one to know and we also have to be sure that we really understand the risks that we’re taking.

Tom Sikorski – Founding Partner: Set the strategy, define people’s roles, drive domain knowledge, and push your investment focus that way.

 Fiorella Barbato – Associate: Similarly, we need to have a good management because you can have the best technology but without a good management it’s not worth much. And I think that what we’re really good at here at Bluewater is choosing the right people for our portfolio companies.

Frazer Blyth – Director of Investor Relations & Marketing:  Okay, guys listen, that’s been super! Thanks very much for your time today. I think the insights are really good and I’ll let you back to work.

Tom Sikorski – Founding Partner: Bye Frazer!

Frazer Blyth – Director of Investor Relations & Marketing: Bye Tom!

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