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‘The Future of Energy’; Frontier Energy Network in Conversation

with the IFC and EY

‘The Future of Energy’; Frontier Energy Network in Conversation with the IFC and EY

‘The Future of Energy’; Frontier Energy Network in Conversation with the IFC and EY
Olivier Mussat, Head of Global Energy of the IFC, part of the World Bank Group joined Tabrez Khan of EY, talking on the topic of ‘The Future of Energy’ with Frontier Energy Network.

Olivier Mussat highlighted the importance of energy in daily life (electricity) and the impact of low oil price in particular on developing countries who are dependant on oil for energy; coupled with power utilities who seeing a serious drop off in demand. The energy system is stressed on all sides, says Mussat. The IFC works along the entire energy spectrum, covering transmission, distribution, gas-to-power, LNG, utilities and renewable, all the way down to offshore wind and IT innovation and are committed to pioneering energy generation in emerging markets and he is well positioned to comment. What is notable is the increase in investments in renewables in the IFC portfolio, which according to Mussat, mirror the trend of RE growth.

Mussat says that Covid has exacerbated existing trends for energy companies and since ‘peak Covid’ pure-play renewable companies stocks have more than doubled versus pure play oil explorers. Equinor, the lowest hydrocarbon producer with the lowest CO2 footprint amongst all of the majors, has managed to stay relatively stable but this does not compare to the gains seen on the market by the pure renewable plays.

What is the cause for this? We have seen a dramatic shift in the energy sector. Renewable energy generation is now cheaper than hydrocarbons, when it generates having fallen in cost by over 60% in the last decade. Technological progress and storage will be key to fully displace hydrocarbons

Mussat thinks that gas will keep the edge, at least in the next decade, until energy storage is improved. The advantage of gas is a low upfront capex, and batteries are still expensive. Until now it has been acceptable to loose money on renewables, funded by a lot of free money (subsidies) and it was a race to the bottom. Mussat, says however, that at the bottom there is very little buffer for returns, and when demand drops off and utilities do not get paid, there is not much room left.

We are seeing a transformation that has not happened since the invention of electricity and it is happening all around the value chain. We are looking at a brand new business model and the jury is very much out on who will be the winners. One thing is for certain, Mussat says, there will be a growth in need for energy in the future.

Tabrez Khan spoke on deconstructing the role of oil & gas in the energy transition and EY’s view on fuelling the future and what scenarios we can see playing out in the short, medium and long term with regards to the mix between oil & gas and renewables. Khan talks of climate concerns and consumer behaviour being the drivers of change, around oil & gas and perception of it. Decarbonisation, digitisation, decentralisation, electrification, efficiency and emerging markets are all disruptors to the energy landscape. Consumers today have much more choice of where to get their energy from and are increasingly making responsible choices.

The developed world and the developing world, have a massive gap between aspirations for economic growth, their ability to growth their economies and the energy in density that is required to grow their economies. According to Khan, the variables that can impact demand and returns on energy are EV’s, energy efficiency, renewable energy and future of renewables and how gas and renewables will work together. The gas and renewables interchange is a major question for the Future of Energy and a major interplay that needs to work well in the future.

Tabrez presented four future scenarios of the energy landscape, all with varying degrees of rate of change in the future of energy depending on consumer attitudes, technological advances. However he maintains that oil & gas will remain an important part of the energy mix in the immediate and medium term. Khan concluded with how oil & gas companies win the transition competition, which according to Khan, must include maintaining a licence to operate, high grading portfolios, optimising cost and capital efficiencies, optimising profit from molecules moving through the value chain and recruiting, maintaining and motivating a workforce with the appropriate competencies and making innovation work in a corporate environment. These are unsettling, yet exciting times.

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