Oil giants pile into energy storage

This five-year chart of Brent crude prices shows the pain oil companies have been experiencing since mid-2014... and why they might be looking to diversify into energy storage.

This five-year chart of Brent crude prices shows the pain oil companies have been experiencing since mid-2014… and why they might be looking to diversify into energy storage (chart: CNBC).

By Jason Deign

The last week has seen two Big Oil firms move into energy storage as continuing low prices for crude force petroleum sector players to diversify.

On Monday the French oil giant Total announced a friendly takeover of Saft Groupe, which specialises in batteries for the transport, industry and defence sectors.

The €950m purchase represents a 38.3% premium on Saft’s share price on the close of business the Friday before the announcement. It is also 41.9% above Saft’s weighted average share price over the previous six months, Total said.

“The acquisition of Saft is part of Total’s ambition to accelerate its development in the fields of renewable energy and electricity, initiated in 2011 with the acquisition of SunPower,” said Patrick Pouyanné, Total’s chairman and CEO.

“It will notably allow us to complement our portfolio with electricity storage solutions, a key component of the future growth of renewable energy.”

Tie-up with FuelCell Energy

Last Thursday, meanwhile, the US supermajor ExxonMobil unveiled a tie-up with Nasdaq listed FuelCell Energy, to “pursue novel technology in power plant carbon dioxide capture through a new application of carbonate fuel cells.”

ExxonMobil said two years of lab tests had demonstrated that using carbonate fuel cells along with natural gas-fired power generation could capture carbon dioxide more efficiently than existing scrubber technology.

“The potential breakthrough comes from an increase in electrical output using the fuel cells, which generate power, compared to a nearly equivalent decrease in electricity using conventional technology,” said the company.

“The resulting net benefit has the potential to substantially reduce costs associated with carbon capture for natural gas-fired power generation, compared to the expected costs associated with conventional technology.”

The moves by ExxonMobil and Total come three months after Norway’s state-owned oil and gas giant, Statoil, trumpeted a $200m, four-to-seven-year investment in energy storage, renewables, efficiency and smart grids.

Attractive and ambitious companies

The funding, to be administered through a new spinoff called Statoil Energy Ventures, will be directed at “attractive and ambitious companies” that could “contribute to shaping the future of energy,” the oil company said

“The transition to a low carbon society creates business opportunities and Statoil aims to drive profitable growth within this space,” said Irene Rummelhoff, Statoil’s executive vice president for New Energy Solutions, in a press note.

Profitable growth is very much a target for oil companies right now.

For the last year and a half crude prices have languished at around $50 a barrel, around half of the amount oil firms were getting at the beginning of 2014, as a result of moves by Saudi Arabia to flood the market.

So far, most petroleum companies have been treading water while awaiting a price upswing and a return to former profits.

Sacrificing oil profits

Recent reports have indicated that Saudi Arabia’s policy of sacrificing oil profits for gains in market share could continue for some time, however.

Against this backdrop, oil supermajors appear to be waking up to the need to diversify quickly in order to preserve profitability.

On the surface, other types of energy production would seem a good fit for oil companies’ expertise and business models.

However, by the end of 2014 most oil companies, bar Total, had divested almost all of their renewable energy operations, despite companies such as BP, Chevron and Royal Dutch Shell having built up early leaderships in solar.

The motives for this retreat are said to range from cash pressures to lack of understanding of renewables.

Core business under threat

With Big Oil’s core business increasingly under threat, though, it is hard to see how the supermajors can fight their way back into a renewable industry now sewn up by companies the size of SolarCity (in solar) or Siemens (wind).

The one remaining niche is energy storage. For oil companies on the lookout for a quick diversification opportunity, energy storage has the advantage of still being dominated by cash-hungry startups with massive growth potential.

In addition, the battery industry is closely allied to transportation, which could be seen as a neat crossover play for petrol firms.

Last but not least, Tesla has shown how the electric vehicle-energy storage combination could fire up shareholders, which might be a handy trick for supermajors to have up their sleeves as the oil price slump continues.

In any event, it seems likely that the energy storage tie-ups seen so far will not be the last to come from the oil and gas industry.

 

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