In this episode, Frazer Blyth speaks to Founding Partner Graeme Sword and Vice President Prem Sohal about what it means for industry and investment strategies. Their discussion touches on issues ranging from the future model of global energy hubs to the fundamental role of technological development.
Frazer Blyth – Director of Investor Relations & Marketing: All right guys! Welcome. This is our second in our series of inside energy. Today I’m going to ask you guys about really staying relevant in the age of energy transition. What does that mean for global gas hubs? What does it mean for industry in general? Main theme I’d love to discuss is energy hubs. We all know energy hub’s key to be in the world: Singapore, Stavanger, Aberdeen, Dubai. You know. Are these still relevant in today’s new energy transition?
Graeme Sword – Founding Partner: Well, they’re partially relevant. The hub was developed, based on where supply was coming from and that was the North Sea. So, you developed a hub in Aberdeen and a hub in Stavanger, Gulf Mexico, developed a hub in in Houston and then in Asia. And those hubs then develop a life of their own, supply chains, centres of expertise, centres of excellence. So, the hubs are quite well established. The opposite is true with energy transition. There’s no hub because it’s demand driven, it’s not supply driven. Everybody wants cleaner energy. We all want cheaper energy. We all want different sources of energy and as we go on this journey through to renewable energy that can come from everywhere. It doesn’t have to be from a specific oil field. Everywhere in the world has the ability to produce new energy and so those hubs are going to spring up, but I think we are going to have to be much more adaptable and chase the opportunities much more widely. Conventional energy or new energy, it’s a global market, the world consumes energy. And the challenge as an investor is – we don’t want to just have the best business in a particular market because it’s a globally competitive market for capital.
Frazer Blyth – Director of Investor Relations & Marketing: Guys, can I ask you about the future mix of energy. How is that going to affect where energy comes from, distributed, etc.?
Prem Sohal – Vice President: So, I think what’s clear, is that in the future the energy mix will be more diverse. You won’t have it dominated as it has been in the past by just a few energy sources. You know not only do you have wind solar adding to nuclear hydro, oil and gas which will still be part of the mix. But you also have energy reduction initiatives and investments going on around the world.
Graeme Sword – NG Partner: We’re going to go through a period of change and for an investor that’s a great opportunity if we call this correctly. There’s going to be new business models. There’s going to be new markets, there’s going to be new solutions that we don’t even know about yet and we’ve not even seen. Hubs make it quite easy to develop a network and a knowledge of a particular sub sector. Energy transition is going to break that model and that’s both intimidating and exciting.
Frazer Blyth – Director of Investor Relations & Marketing: Prem, you’ve done a bit travel recently looking at some new technologies that are coming to the marketplace. Could you maybe give me a bit of an insight into some of the things you’re seeing that’s going to affect this transition?
Prem Sohal – Vice President: A lot of the solutions that are being sold for energy transition are standardized bits of kit that are being made by someone in one country standardized as much as possible and then plugged into largely electrical systems globally. What that means is you don’t have what you used to have in the oil and gas industry, which is incredibly specialist bits of kit being made for particular fields and the requirement for that interaction between supplier and customer to the same extent. That really plays into this theme of the global hubs – being a lot more spread out there, being a lot more options for hubs to develop in new places.
Graeme Sword – NG Partner: If you’re in wind, you’re going to have certain places that have excess wind kind of supply and it’s going to use them. Scotland’s a good example. It’s got now going through a wind licensing round that’s going to result in a wind supply chain getting built in Scotland. That should develop a centre of expertise around offshore wind, they won’t be to the same degree, but you might get kind of knowledge clusters I would say.
Frazer Blyth – Director of Investor Relations & Marketing: But if it’s distributed electricity that’s going to require far less infra than distributed oil and gas, correct?
Prem Sohal – Vice President: if you do it right. But the risk and the opportunity are, how do you get that either distributed in the case of, for example rooftop solar, or concentrated in the case of the large offshore fields, wind fields. How do you get that energy that’s flowing in a completely new direction to the customers who are actually going to be using it in new ways. So, those customers might not be having the same energy use in the past because they might be charging an electric car that triples their electricity use for example.
Frazer Blyth – Director of Investor Relations & Marketing: Okay, you guys are both investors. Opportunities as good as the old days Graham?
Graeme Sword – NG Partner: Very, very different. Oil and gas is a very structured industry. What we’re looking at now – is a sector that’s quite difficult to define. How big is the oil and gas market? We would tell you it’s a hundred million barrels a day and this is where it’s coming from. You ask us the size the energy transition market and we look at each other. The next thing is how do you define the energy transition market as well. It means different things to different people. I think this is quite exciting and energizing because we’re looking at companies with new business models. It’s causing us to evaluate our own business model. How do we source opportunities; how can we then reduce risk and execute those the best possible way with the most efficient capital structure and then how do we add value to help those companies grow faster. I think execution is a skill that we can take. We know supply-demand, which is key. We know energy, which is key. We know the big energy players and we know the supply chain and the capex opec. So, there’s a lot of what we do is relevant, and I think that’s relevant to the execution phase. How can we build companies that are going to allow us to move from a hydrocarbon-based economy too much broader based kind of energy supply chain fast.
Prem Sohal – Vice President: Also, you know when it comes to managing companies and having experienced headwinds in a sector, we also have quite a lot of experience and that’s something that is actually valued and crucial. You know when it comes to drawing up documents, drawing up shareholders agreement, that experience we have inside the firm is invaluable.
Frazer Blyth – Director of Investor Relations & Marketing: Okay! And listen, you’ve both kind of hinted around the word technology how much is technology going to affect the transition? Is it a key part of it? and is that where we’re investing?
Prem Sohal – Vice President: It’s essential.
Graeme Sword – NG Partner: There’s a lot of opportunities and there’s a lot of capital. Once we see which are winning, I think that’s the point at which we want to come in when the technology has been proven we will take the risk on the market and our ability to grow these companies faster than anybody else. Grow fast help companies manage risk and put in place the right capital structure to allow them to do that.
Frazer Blyth – Director of Investor Relations & Marketing: Are you seeing a lot of deals in this space?
Prem Sohal – Vice President: So, deal flow and energy transition for the whole time I’ve been here has been five to ten times what we see in traditional markets. There’s just so many innovative companies out there. Our existing network has provided us with quite a lot.
Frazer Blyth – Director of Investor Relations & Marketing: How are you growing your investment team around all this?
Graeme Sword – NG Partner: Energy transition is how do we move hydrocarbon to renewables and the transition bit is new business models, new technologies that we’ve talked about, new ways of working and better use of data. The faster they happen and the faster we accelerate kind of sustainable sources of energy.
Frazer Blyth – Director of Investor Relations & Marketing: The fundamentals of global supply and demand are key to all of this.
Graeme Sword – NG Partner: I think we can see what’s happening in the current European and UK gas markets at the moment. If we don’t manage it properly. Perversely, not investing in hydrocarbons could slow down the energy transition because if we look at what’s happening a lot of the bigger providers of capital into energy transition and new energy are the big oil companies that are taking circlex cash flow from oil and gas and redeploying it into to new businesses. We need more of that, not less and so turning off the taps for oil and gas it is going to cause an energy market crisis. What we’re looking to do here as we transition our strategy, and we see more of these opportunities as first and foremost these have to be good investments and then we would like them to have a positive and sustainable impact. Of course, we would, we’re absolutely convinced we can do both. We’re not giving up return to have more sustainable investments.
Prem Sohal – Vice President: And I think that’s what the energy transition needs. If people can’t make money in energy transition, then they won’t invest in it.
Frazer Blyth – Director of Investor Relations & Marketing: Guys, that’s been absolutely super. I really appreciate your insights, different views there, but thank you very much for your time today.