The past decade has been incredibly eventful for those trying to operate and invest in the energy industry, whether that’s oil and gas, power or services.
As the first year in a new decade draws to a close, the Houston Business Journal asked its panel of energy leaders to draw on the experiences of the past and look forward at what might come in the next era of energy. The industry is in the midst of confronting a new presidential administration in the U.S., global concerns about climate change, and rapidly evolving technology.
HBJ hosted the State of Energy: Next Gen panel online on Dec. 3.
Panelists
- John Berger — chairman, president and CEO, Sunnova Energy International Inc. (NYSE: NOVA)
- Tony Chovanec — senior vice president, Enterprise Products Partners LP (NYSE: EPD)
- Meghan Leggitt — principal, White Deer Energy
- Moderator: Scott Nyquist — director-emeritus, senior advisor, McKinsey & Co.
How has the shale revolution affected your business?
Chovanec: I never dreamed that I would see what we’ve seen over the past 10 years. The price of (oil and gas) commodities worldwide is less than half of what it was 10 years ago. All of them are in abundance. When we think about the impact on the average American and people around the world, we calculate that energy savings, looking from 2009 to today, are somewhere around $3.5 trillion.
We’ve seen what Covid-19 has done to U.S. production in the last six to eight months, so what do you see happening to production going forward?
Chovanec: The world wants U.S. energy, period, end of story. The world does not want to be reliant on the Russians and the Middle East any longer. When we have those calls from our international customers, the message is always the same — we’re in it for the long run, and we believe the U.S. is and that enterprise is. So I’m telling you, overarching, that’s what we’re hearing.
How has the residential solar business evolved over the past decade?
Berger: Ten years, we might as well be talking about the 1800s in my business. I would tell you that 10 years ago — I was in another solar business — we were buying solar panels for $5.50 per watt. What are we doing that at today? We started about four years ago buying at 25 cents per watt. With tariffs, it’s moved up to 35 cents to 40 cents per watt. That’s a very dramatic cost reduction. It’s the same thing in storage: we’re seeing a rapid decrease in price, well north of 30% per annum decreases. The innovation has been far faster than I’d thought, and the cost reductions have been extremely fast. We continue to see more and more of that happening.
Clearly, we see the driver of dealing with climate change is a tailwind for us, but at the end of the day, it’s mostly about technology. I think that with the kinds of changes we’ll see in my business and the broader energy business, the impact on Houston just over the next two years — certainly five years and absolutely 10 years — will be as dramatic as the shale revolution, and I would predict far more so.
What has changed in the past 10 years? And what kinds of opportunities do you see going forward?
Leggitt: Over the last 10 years, our first two funds have been more focused on the traditional energy side. Early on, we were growth capital to service companies that just needed more equipment to meet the demands of the shale revolution. We pivoted in 2014 and 2015 to be growth providers to those companies as they looked to develop products and services to streamline and enhance shale production.
At the same time, we extended into the downstream and industrials supply chain. We had a thesis that U.S. production would continue to grow. That production would need to be refined, processed, stored or exported, and the facilities that existed at that point were under maintained and needed more services to keep up with the extra production.
Where do I think we’ll go in the next 10 years? I think our portfolio will be more balanced. As we look at it, the International Energy Agency sustainable development scenario where global CO2 emissions decrease by 50%, which is probably the best-case scenario from the standpoint of emissions and the worst case from the standpoint of fossil fuels. Even in that scenario, 58% of energy consumption is made up of fossil fuels. We think traditional energy is still going to have a role for a very long time.
How do you see the focus by the upcoming Biden administration on climate change affecting your business?
Berger: We’ve done quite well under a president that was not, shall we say, enthusiastically supporting what I do. So when you get somebody in who even just says good things every once in a while about what you do, that matters, and that’s really encouraging. It encourages people to be serious about it, to put capital to work.
When you look at the fund flows, that’s going to start having a meaningful impact on the ramp-up of the industry because all that capital is going to work in quick fashion to innovate faster than we’ve seen before. We’re going to see a greater tailwind. It’s an S-curve, so now the question is just how steep is that curve. I think it’s probably steeper at this point than most would realize.
When you think about all the different technologies in which to invest, and you talk to investors out there, what kinds of investments are they most excited about?
Leggitt: It runs the gamut. That’s why we think it’s important to put all of them in one portfolio. A lot of our competitors are raising specific funds to focus on each vertical, but we think they really fit well together in one portfolio where they can play off each other.
Oil field services has a high beta — if oil prices go to $120 because of geopolitical unrest in the middle east, you’re going to have high beta on the traditional energy side. Without a doubt, the new energy side has tons of tailwinds. Then you have the industrial sector around the world that provides you with that safe cash flow business.
When you put them all together, it makes a great portfolio. We think over time, we’ll prove that this kind of combined portfolio makes sense from a risk and reward standpoint.
How do we need to think about the next generation of energy in Houston?
Berger: The biggest thing that would help the Houston community is to embrace all that we have discussed here today. We are the oil and gas capital of the world. We’ve got to keep that title, but let’s make it the energy capital of the world. I think it’s important to embrace everything about energy and own it all. What Meghan just outlined about portfolio balancing, that’s the way we should think about it from a community standpoint as well. It’s the best for the community. It’s the best for job creation, wealth creation and quality of life here. Have an outgoing, welcoming personality — don’t winnow yourself to just oil and gas and start taking pot shots at other parts of the energy industry.
The point is, we need to get that message out. We’ve got a marketing issue, and we need to change that. We need to bring everybody together and say, “We’re open for business, whatever it is.”
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