Energy and Finance Conference
Energy Industry professionals, Economists and Finance professionals of Academia assembled in Houston to look at “Energy Finance and the Energy Transition,” a conference convened by the University of Houston on May 19-May 20, 2023, at the Marriott Marquis Houston.
Covering finance, economics, markets and energy, through the academic and industry panels there were some interesting topics for everybody. You may want to skip down to see which topics interest you.
Academics and professionals asked and tried to answer questions like:
- What is the energy industry doing to help achieve the goals of the energy transition?
- How do we get finance for energy projects?
- What does electrification really mean for the grid and for costs?
- How to organize electricity markets: including or excluding capacity?
- How do we measure the effectiveness of shareholder activism?
- How can finance mechanisms help us reach net zero carbon?
- How can we have the energy transition be just for developing countries?
It was organized by the Federal Reserve Bank of Dallas and the Department of Finance, Bauer College of Business. So, it was mostly about “finance” but was also about economics and energy, so there was a mixture of economists, banking/finance professionals and academics and energy professionals. It was led with an introduction which was quite interesting about “price discovery”.
The format was mostly academic sessions where researchers went over their papers and a third-party did a discussion on the paper/presentation (doing their take on it).
The first “academic session” was about investments, carbon schemes or taxes and lending, all in regards ESG and through the lens of making net zero targets.
Energy Transition and Energy Industry Action
Next was an industry panel with Greg Bean, University of Houston; Vicki Hollub, CEO Occidental Petroleum; Helen Currie, Chief Economist ConocoPhillips; Dan Pickering, Pickering Energy Partners.
Ms. Hollub spoke about Oxy’s focus on reducing CO2 and sequestering it into oil reserves, plus using CO2 to increase recovery of oil, called EOR or Enhanced Oil Recovery which means more energy, and reaching a “net zero” barrel of oil. When speaking of energy access, she made some interesting points, that we can’t make this transition unaffordable because it leaves a lot of people behind. She touched on energy policy, when looking broadly at this energy transition, it doesn’t really have a plan. We really need something like a project with a project manager following a real plan, and you discover without oil and gas, you’ll never get there. So, it’s a truth that must be faced.
Hellen Currie, Chief Economist from ConocoPhillips was next and she pointed out also that we must have reliable, sustainable energy that is viable. She could imagine in the future still that at least half of energy would still come from oil and gas [80% of energy now]. She briefly mentioned some people think $80 is the sweet spot for oil, where it is enough to be viable, etc. And asked a key question: “How do we de-risk the industry?” Heads of state or ministers of treasury basically saying that oil and gas will be necessary [rather than promising to reduce the industry’s ability to drill or basically survive, I imagine] would boost investor confidence. That flowed on quite well to the next panelist.
Dan Pickering of Pickering Energy Partners spoke of the offshore investment and that to make these big investments you need about 7 years to get it operational and 20 years of running. So, for investments and investors you have to be able to guarantee 27 years of needing and wanting this.
Essentially all panelists agreed that this is why we find the buybacks and bringing debt down, “fiscal discipline,” because the larger and longer the investment, with current risk and regulatory environment, that’s basically the signal regulators are giving these companies.
In speaking about energy companies and their future direction, an interesting thing Dan Pickering pointed out is that Oil and Gas companies are really good at big Capital Expenditure projects like CO2 capture. There are a lot of new people in Hydrogen and Renewables, it’s a company specific decision, but definitely companies will try to use their expertise to go forward and find their direction. He also thought the definition of energy and energy transition will converge in the future and perhaps not be so separate like fossil fuels and renewables. Finally, the way it will go will depend on being viable/sustainable financially.
There were other great industry people there to give their contributions, such as Shree Vikas, Director, Market Intelligence & Business Analysis at ConocoPhillips and Jason Sweeney, Vice President, Business Development at Southern Star Central Gas Pipeline. And being that industry, economists and financial professionals converged, several knew and were interested in GPCM and Gas4Power, RBAC’s market simulation tools for gas and power.
Shareholder Activism, Energy and ESG
The next academic session included investment activism and whether buying shares to have a voice or exiting/divestment and how that related to share price and whether that changed the company’s actions or behavior was looked at with a paper on activism. There was further talk about financial risk and tools to reduce carbon emissions and what might be effective.
Keynote Speech and Energy Capital of the World
Bobby Tudor, Artemis Energy Partners gave the keynote speech to end the first day and wrapped it up quite well speaking of energy finance, and included a plug for Houston, being the energy capital of the world and for good reason. He described the “Greater Houston Partnership” and who is involved and encouraged attendees to look into it. The partnership also co-sponsored last year’s Houston Africa Energy Summit.
Another interesting point brought up, about risk, was that companies with petroleum reserves basically ready to go, will be in a better position because they will be able to still serve a future market where there is still demand, and prices will be high for that amount [for example, industry or diesel or areas where it is hard to electrify, etc.]. Another point they did make was that disincentives to the industry will increase prices today and in the future.
Electricity Markets and the Energy Transition
Saturday, 20 May 2023, the academic session was about electricity markets. The first really looked at what electrification would really take, what would it cost and how realistic we are being. Here’s a quote from the first session’s paper:
“While a zero-carbon grid remains a distant prospect, there are many positive trends to consider. First, CO2 emissions in the U.S. power sector have declined by 36 percent since 2005. Most of this reduction is due to coal production being supplanted by natural gas, but utility-scale renewable generation has grown from 2 percent to nearly 12 percent of total US electricity.”
The second talked more about how markets either include or exclude capacity in the market pricing/structure and how the regulated versus unregulated markets work. It also talked about reliability and putting a price on that. So, for example, in Texas, the highest price it can go up to, to bring power in is $9000. Described elsewhere:
“ERCOT’s $9,000 price cap is the highest such cap in the nation. The System Wide Offer Cap stood at $1,000 per megawatt hour during the early years of deregulation, in 2012 it increased to $3,000, to $5,000 in 2013, to $7,000 in 2014 and finally to $9,000 in June of 2015.”
New England has something similar but also has a penalty for non-performance and had not issued fines on this until recently. And the possibility of bankrupting some power plants could also be an unintended consequence.
Facing the Energy Transition, but Justly
Finally, there was an industry panel on the energy transition with moderator, David Rapson, UC Davis and Federal Reserve Bank of Dallas who spoke on electricity markets and panelists: Jim Gable, Chevron; Joseph Powell, Energy Transition Institute, University of Houston [formerly chief scientist at Shell]; Burhan Koç, ENGIE North America.
Jim Gable, President of Chevron Technology Ventures and Vice-President Innovation was moving more along the line of what big companies can bring to the table for the energy transition. Joseph Powell, former chief scientist Shell spoke more on getting to net zero through adoption of renewables like solar and wind. Burhan spoke more on how Engie is going all in on renewables and how people should face the problem directly and his message was basically that if you embraced it, the worst that could happen was things cost a bit more, but the environmental improvement would be worth it. Jim Gable said that it may be a bit more to us, but the developing world could be totally out of reach and far too expensive. So, there were different views, and energy access was certainly where Jim Gable was taking it for the developing world which agreed with Vicki Hollub, CEO of Oxy, from yesterday’s panel. We don’t want to leave people behind, or there isn’t a real transition.