Global Energy Forum
Session 1: Innovative Business Strategies in the Energy Sector
Director, Business Strategies, Global Energy Center,
Mohammed Ali Khan,
Chief Commercial Officer – O&G Middle East North Africa & Turkey,
GE Oil and Gas
Deputy Assistant Secretary for Energy Transformation,
U.S. Department of State
American Enterprise Institute
Location: Liwa Ballroom, Four Seasons, Al Maryah Island, Abu Dhabi, United Arab Emirates
Time: 3:00 p.m. Local
Date: Friday, January 13, 2017
Superior Transcriptions LLC
RANDY BELL: Hi, everybody. Welcome to a discussion on innovative business strategies in the energy sector. My name is Randy Bell. I am the director of business strategies at our Global Energy Center in Washington, and I’ve been with the Atlantic Council for about 2 ½ years.
A little bit of housekeeping I’m told I have to talk about before we get started. Please silence your phones. This session is on the record, so anything – anything you say or do will be recorded and retweeted. If you want to tweet, it’s #ACEnergyForum, is the hashtag. And what we’re going to do is we’re going to start for about 30 minutes talking to our distinguished panelists here, and then we’ll do some questions from the audience. And we’re going to be done here at 3:55 so that everyone can get to the 4:00 upstairs.
Now, the theme of the conference here is the geopolitics of the energy transformation. The purpose of this panel is to talk about what the energy transformation will mean for business and how they adapt, survive or thrive in the new environment. Of course, you know, there are a number of possible energy scenarios looking out to the future. We’ve heard about a bunch of them over the past day and a half. But we can all agree that we’re moving from hydrocarbon-dominated energy to something more along the lines of an all-of-the-above energy mix, with renewables playing a significant role in the coming years.
So, to discuss the innovative business strategies businesses must undertake to be successful in this new environment, it’s my pleasure to introduce you to the following panelists.
Down on the far end, we have Vitaly Butenko, who’s the commercial director from DTEK, which is the largest privately owned energy company in Ukraine. Now, they’re dealing in a very unusual environment, but they’ve had some very, very interesting responses to that. We have Andrew Bowman (sic; Bowen), who is a visiting scholar at the American Enterprise Institute. He’s really here in his capacity as the senior adviser to Greenmantle, which is a macroeconomic and geopolitical advisory group.
Then we have Mohammed Khan, chief commercial officer for Middle East, North Africa and Turkey at GE Oil and Gas. And then finally, because this is a policy conference, to frame the policy aspect of the energy environment and what that means for business, we have Melanie Nakagawa, who is the deputy assistant secretary for energy transformation at the U.S. State Department.
I want to begin by relaying a story that Ambassador Morningstar, who’s sitting in the back – a meeting that Ambassador Morningstar and I had a few – a year and a half ago. We were meeting with a very senior investment banker who only invested in renewable energy, and we were trying to sell him on the Atlantic Council, tell him about why the work we’re doing matters for his business, understanding Washington, understanding policy. And he told us point blank, I don’t care about Washington, I don’t care about policy, I only make investments that I think are going to be successful in almost any policy environment. And he was a really successful guy. I mean, you look at the watch on that guy; he was doing very well. So he must have had something going on in his head. He was just so smart, but didn’t care about what we do.
So, sort of a contentious way to begin, but I want to ask, sort of narrowly first, have we reached a tipping point where policy doesn’t really matter for renewables? And more broadly, what does the policy framework mean for businesses making decisions in renewables and energy more broadly? So first let’s start with Melanie, who can give us really the policy perspective on this.
MELANIE NAKAGAWA: Great. Well, thank you, and thank you to the Atlantic Council for having me here this afternoon for this great conference. I’m excited to be here. And thanks, Randy, for this terrific panel.
So, of course, being the – a government representative here and as someone who’s committed to the policy side, I just wanted to give a couple framing points about where we see the policy components based on our conversations with businesses. And I’m really excited to hear what the rest of the panel has to say this afternoon, because in part what really drives what we do is hearing from the business community where are those sticking points, where are those problems they are facing, and especially, where are those problems where governments can actually play a role, whether through a government-to-government conversation, to unstick a lot of those barriers.
In terms of renewable energy, what you said in your opening remarks, we’ve heard earlier today, is that the business case is quite clear for renewable energy; $350 billion were invested last year alone in renewable energy, reaching an all-time high. Despite low oil prices that many thought would depress investment in renewables, in fact the opposite occurred. More investment happened in renewables despite this low price on oil. And therefore, the business case is clear. But what makes the business case even more clear and more profound is, what’s the right enabling environment for that investment to flow? And that’s really the crux of where the U.S. government, where I work in the Energy Bureau at the State Department, but also other governments that we partner with, that’s really where we’ve found a lot of success in our engagement and our diplomacy efforts.
Clean energy and energy writ large, regardless of the type of energy, requires, as many of you all know, clear, transparent, predictable environments. And that type of stability in those environments is something that we’ve dedicated our work to through our energy diplomacy work.
So an example I give is we have a taskforce with India. It’s a U.S.-India Clean Energy Finance Task Force. This government-to-government task force has an advisory group of private-sector companies, rating agencies, banks, developers, who advise us on what is it taking to get them to reach scalable deals in India, and what’s preventing them from reaching scalable deals. So at a really kind of micro level, we’re working with the Indians on three fundamental barriers to investment in India. Those who invest in India understand this. Those who invest in emerging markets probably see this as well.
The first is as basic as transactional documents, some type of predictable model bidding documents and guidelines for renewable energy deals. So we’re working with the Indians on their most recent round of bidding documents for renewable energy. The second area is how to deal with delayed payments for offtakers. In the case of India, this is a real problem, and so we’re working with them on standardized guidelines for that. And the third area was, how do you actually increase investment in something as small as rooftop solar, which there’s a 40-gigawatt goal in India to hit for solar rooftop. So they’re looking at new, innovative finance vehicles, such as a warehouse facility where you could do a green bond raise, for instance, off of.
So those three types of policy vehicles, that are innovative financial vehicles that require government intervention and government support, are areas where we’re paying attention and we’re trying to provide that support and opportunity to help these innovative business models grow in a place like India.
So that’s a bit of sort of framing remarks of how we see the policy playing a role in helping to catalyze and spur more investment in key emerging markets and key countries that are our partners.
MR. BELL: A follow-on question to that. The market is, of course, different in India as it is in the U.S. At least in the U.S., do you think renewables can compete without subsidies?
MS. NAKAGAWA: So let’s look at both the U.S. but then also globally. Last year you already saw renewables competing on an unsubsidized basis. February, this was in Chile, and then in – no, it was Peru in February, and then in August in Chile, prices that were completely competitive with fossil. So you’re seeing this in other markets that are quite rich and quite ripe for this. In the U.S. there are some subsidies still, through the production tax credit and others, but let’s not forget fossil fuels also have subsidies in the United States, and they’ve been around for many more years and several more decades. And so to think that you needed to compete on day one without subsidies, I don’t think this is an either/or question. I think this is one where there will be some, but they’re also expected to phase out in 2020 for renewables.
So, with that in mind, yes, I do see that renewables continue to become more cost-effective without subsidies, but at the same time, we have to look at the other value we get from renewables, which is also not valued concretely, which is the diversity of supply and the energy security that renewables brings to a more diversified energy portfolio.
MR. BELL: Mohammed, turning to you, where GE is the epitome of an all-of-the-above company, really doubling down on oil and gas recently but also deeply invested in renewables, energy efficiency, et cetera, what role does policy play in your business, or how does it shape your business decisions?
MOHAMMED ALI KHAN: I mean, when you look at GE, I mean, we operate in many segments. The renewable energy side is a big segment for us. And we work very closely with our customers to really understand in terms of the driving forces with regards to which direction they’re going and where they’re going to be investing. Whether it’s requirements of climate change, whether it’s cleaner fuels, these are all things that, you know, we discuss and we continue to invest and to develop our own portfolio and our own products in those areas.
If I give you some examples, I mean, on the renewables side, we have approximately around 13,000 employees that currently sit in about 40 different countries, and that’s really in the solar and the wind energy business. Onshore and offshore, we operate in many countries, and Khalid al-Falih, His Excellency Khalid al-Falih recently alluded to sort of generating, you know, 9.5 megawatts from solar and wind in Saudi Arabia. And these are, you know, things we can’t shy away from. These are things that we take on board and we continue to look at to say how do we invest in our technologies, how do we bring things closer to our customers in country, whether it’s through partnerships or whether it’s through localization, to, you know, shape how our own business needs to be structured.
And I think, you know, currently our installed base is around 370 gigawatt capacity globally, and we have 30,000 wind turbines, and 25 percent of that is hydropower. So, you know, it’s something that – policy, we keep in an eye on. You know, in this region, policy has started to become a lot more prevalent. Changes are beginning to happen. And as we see these changes, we continue to bring in, you know, from the U.S. and from Europe, you know, manufacturing capabilities and technologies to be divested and invested in countries in this region. So it does for sure form a big part of our vision.
MR. BELL: And GE wouldn’t be here if you didn’t care about policy, because in the end, this is a policy conference.
Andrew, I know you have a slightly different view of the role policy plays, particularly in the U.S., and I’d like to hear your thoughts on this.
ANDREW BOWEN: I think we’re certainly going to see a shift in policy. And I think one is – to bear in mind is for – probably for the president-elect is, how do we both get jobs in America and how do we make the United States more competitive? I think President Obama has made a lot of strides on climate change and focusing on a lot of countries outside the United States, but I think the moment now is to look at how do we bring jobs in Texas and Pennsylvania and throughout parts of the country that were arguably neglected for the past eight years.
And one part of that, I think, is rebalancing these regulations and bringing in back what actually first and foremost creates jobs, and that is, frankly, while renewables can play a certain role in parts of the country, I think we also need to pull back regulations on oil and gas, which have been overly constrictive. And that is something where I think is – with the new policy, new priorities, I think is a step.
I do think renewables still have a role. If you look at wind, wind is probably the most competitive. Solar, it’s still hard to see the business case for solar in the United States. I think we can look at kind of places like Texas, where wind is as competitive, but in the larger scheme of things, I think the next year or so or two years is really going to be – is how do we rebalance those so that we both can – we can really address where the United States can be most competitive. So you take the Keystone Pipeline, which really was a boon for Canada more so than for the United States. And we have to seriously think about – I think that is probably the priority for the United States, the broader question of where that intersection between business and policy, whether or not renewables can exist on their own.
I think certainly, as you said, that we have the subsidies through 2020. I think that there’s parts of the Paris climate change agreement that probably will stick. I think that Rex Tillerson said yesterday that he had a view that parts of it should stay. And if you look at the president-elect’s daughter, Ivanka Trump, I think climate change is a priority of hers. So I think it is this balancing of how do we have sustainable growth in the United States that keeps the United States competitive, unlike, I think, the balance currently, which has been too much focused on not really, at times, America’s long-term interests.
MR. BELL: I want to give Melanie a chance to respond to this because you have two different perspectives. And Melanie is, until next Friday, a representative of the U.S. government, and so I’d to hear your response. But Andrew, I would also like to come back to your thoughts on Saudi at some point because Mohammed did talk about Vision 2030, which is another area where I know you have some expertise.
MS. NAKAGAWA: Sure. You know, of course this isn’t – won’t be an exciting panel unless there’s some disagreement on the panel, and so I think I will play that role because there is some disagreement here. I mean, one is – and it’s a key part of what this president, the current president, has done over the past eight years, and also in renewable energy. I mean, you’re looking at – I know you mentioned Keystone Pipeline, and I’m not sure if you meant that in terms of job creation, but through the studies that are very publicly available, you know, in total that’s 41 jobs created. And then just last year alone, 750,000 jobs were created in the renewable energy space in the United States. And so renewable energy does create jobs, and significant amount of jobs in the United States, and we’ve got a good track record to show that. And you look at fossil fuel and the coal industry, which doesn’t make creating as many jobs nearly at that same rate as renewables. And that’s just the data and the facts that we have on hand to date.
And so I’m quite bullish on the importance of renewables as it plays in terms of job creation, wind manufacturing jobs. And I agree, I mean, if you’re looking at job creation in what we do well, manufacturing, you can bring that back and a lot of that can come back in terms of wind and solar, especially in the United States. And that’s already – we’ve seen that already to date.
And then just to – you know, in terms of oil and gas and where we’ve been, the largest boom in oil and gas under the United States has happened in the last five years alone, or last eight years, rather, from 5 million barrels a day up to, at the peak, 9.4 million barrels a day. And so, again, you know, there probably are some restrictive regulations out there, but those may actually be occurring at the state level, not the federal level. I think that’s a key distinction to be made, as well, as we think about what the next four years look like and where those regulations fall and where the restrictions have been that have caused some of these constraints in our growth and the potential to go forward.
But at the end of the day, you know, again, I do encompass an all-of-the-above strategy in terms of let all the energies compete and see what comes out on top. And as you’re seeing globally, and also in the United States, when offered the opportunity to look at more energy-secure resources and those that are home grown and don’t rely on imports, oftentimes countries that we’re working with globally, they choose the home-grown resources, which tend to be wind, solar, geothermal and tidal or wave and other types of energies like that. So we’ve really been interested in at least presenting all of the options to any country we’re working with and letting them choose which way to go forward. But as we mentioned at the top of this conversation, as costs of renewables continue to decline and become more cost competitive, countries often end up choosing that option. So thanks for that.
MR. BELL: Andrew, anything?
MR. BOWEN: My point on the Keystone Pipeline was not that it was a job boom creator; it is that it, frankly, benefits Canada more than the United States. So I think that like looking at kind of initiatives in oil and gas, that it should be more focused on what really does. And similarly on renewables, if they can be cost-effective and job creating, that’s a good thing. But you look at, like, how do you restart parts of the American economy, I think it’s the job focus; well, I personally felt the Keystone Pipeline was a waste of time.
MR. BELL: Let’s go to Vitaly, whose company is in one of the hardest positions I can imagine, working in Ukraine, trying to meet European standards for climate targets in the context of a conflict with Russia and having a lot of coal.
Vitaly, can you tell us how you think about this set of sort of super-challenges?
VITALY BUTENKO: Yes. While we do enjoy listening to the heated discussions about the policy, for us the question of innovative business strategies is more existential in nature.
MR. BELL: Yes.
MR. BUTENKO: And that’s because of the three basic modalities that we have to deal with on a daily basis in determining how to manage the company and where we go forward. Those are the national energy security issue and the war conflict in the east of Ukraine. The second one deals with the sustainable energy portfolio mix, and primarily dealing with what is the future for fossil fuel-based power generation, which is the core business of DTEK Energy. And the last, but not least, of course, is the questions dealing with the new technologies, disruptive and game changing, which today, as we see, are basically rewriting the code for competitive matrix for the entire sector.
Now, to understand the context of DTEK, I’ll just give a couple of – make a couple of points about the structure of the energy sector in Ukraine. Basically you have about 50, 55 percent nuclear power generation, 35 (percent) is the thermal power generation, which is the coal-based, and the remainder goes to the hydro and renewables. Now, while the traditional view with regards to Ukraine energy security is – views as the issue vis-à-vis Russia in terms of the gas supply, as what we have observed over the past three years – that the coal as the energy commodity has become much more prominent in the way that it has an impact for the energy security; the reason being that half of the coal mines, which in Ukraine are used as a fuel for the thermal power generation, are located in the conflict zone. So, when the hostilities has begun, they effectually became inaccessible for a period of time. That means about 50 percent of the thermal generation has been running out of fuel.
Alternative supply sources would be, again, Russia, but clearly, that’s not the option given the nature of the conflict. And the only other places where you can bring that coal – that’s an anthracite type of coal – is South Africa or Australia. And those are the limited sources because of logistical bottlenecks.
So for the company – and we represent approximately 75 percent of the thermal power generation – the issue that we have to deal with, how do you ensure the supply of fuel for our own thermal power plants, particularly in view of the winter coming. In fact, we had a great deal of help from the task force which was put by the American government, and they came down to Kiev. We worked very closely with them in order to put an emergency plan. Ukraine has been lucky for a couple of years going through the fairly mild winter and it gave us some breathing room.
Now, the second modality is the question of – and it’s sort of more on the midterm to long term, is the question of what is a sustainable energy portfolio mix. You know, geopolitical necessities pertinent to Ukrainian power sector aside, we have no illusion as to the quite obscure and grim nature for our future for the fossil fuel-based energy portfolio. So, for us strategically, it’s a challenge to figure out how do we tap dance across the bridge from our current energy mix, which is heavily skewed towards the coal-fired generation, to a more sustainable, renewable-based portfolio. And that decision for us translated into the strategic initiative such as specific targets to increase the share of the renewable portfolio within our generation mix to up to 20 percent.
Now, we’re tied a little bit with the limits that are set by Ukraine in terms of what levels it has to achieve in order to comply with the environmental requirements from the EU, but based on the McKinsey strategic forecast, we will probably need to increase our renewable capacity up to 1.8 thousand megawatts from 200, which is represented by the wind power generation which exists today. And that our strategic aim is to capture up to 50 percent of the renewable power generation over the next 10 years in Ukraine, a challenge which can be realized through the quite aggressive greenfield efforts. And we intend to pursue that going forward.
And the last, but not least, is the question of the new technologies, that our business has to figure out how do you bring them into your day-to-day business operations. New technologies, they present on the one hand an additional transformational leverage which hopefully we will be able to capture through the innovative strategies across the lines, because clearly that the convergence that we’re seeing today of digital and physical innovations in our industry, it pushes the playing-field level to the territories where I would say the last man in is the first man out. And this is something that we ought to also make part of our strategic thinking.
MR. BELL: We’re talking a lot about renewables, innovation that’s driven – innovative business strategies as driven by renewables and that technological change, but there’s also a lot going on in oil and gas. The traditional oil and gas sector, there’s a lot of room for innovation there, and GE has just announced a big merger and there are opportunities there. And I’d like, Mohammed, if you’d like to talk about that, what you see the future for business in oil and gas looks like.
MR. KHAN: You know, I think when you look and the oil and gas industry, it’s very common knowledge that, you know, it’s been going through very difficult times. And I think it’s very important for us to review our own business model and evolve as things sort of change. The announcements on the 31st of October for the integration or merger with Baker Hughes really allows the oil and gas business from GE to become a full-stream business. You know, we operate typically as a technology and service provider. We offered services across the oil and gas business, but we missed the drilling and completion piece of the business. And Baker Hughes really completes that, and we do now refer to ourselves, and we will do in the future, as a full-stream organization.
You know, the new company is being established a Baker Hughes – Baker Hughes, a GE company. You know, having the ability to do drilling evaluation to completion production really allows us to cut across all those segments of – you know, when you think of big customers like Adnoc or Saudi Aramco, you know, they want to see somebody come in to provide a full-solution offering. And working with them to be able to assess all those areas across whether it’s upstream, midstream or downstream, with this merger really is going to allow us to be able to do that.
MR. BELL: Why do you think this is important right now?
MR. KHAN: You know, when you think of, you know, other companies, when you think of other oil and gas companies, mainly they’re really focused in different segments. They’re really the upstream businesses like the likes of, you know, Halliburton, the likes of FMC. For us, timing was extremely important for us to take the opportunity to ensure that we are positioned to be in a very competitive position for ourselves against these types of companies. And I think it’s extremely important for us, as customers look to companies out there, rather than having to go shopping out there to see, you know, how many companies can provide and they’re speaking to so many different companies, this is prime time for us to be able to come in and say we have an offering that’s going to fulfill the requirements of all your needs.
And so, you know, they are looking at minimizing their own expenditure. And, you know, with the addition of Baker to our portfolio, it also adds a very significant benefit when it comes to the digital side of the business.
MR. BELL: Right.
MR. KHAN: So I think – I mean, I can talk more on the digital side of the business if required, but I think that’s a real leverage that we have.
MR. BELL: I really do want to come back to the digital side, but first I want to talk about what Andrew does, which is advising companies on investment, particularly in what we think of as disrupters in the energy industry. What are you thinking about as the possible disruptions, the smaller startups that could really change things in this business? And how do you advise people to invest in those types of companies?
MR. BOWEN: This may be a brief note on that, though, but I do think you look at kind of like nuclear technology, and I think that the UAE has actually done quite a decent job on that; I think the United States, still a ways to go. I think certainly nuclear is a potential disrupter. I think that you look at other ones, I’m still a little bit – I’m generally a little bit skeptical, still, on renewables in general as disrupters. I certainly think they create jobs. They certainly – whether the costs, and even you look at, say, using solar in Saudi Arabia, which is kind of – it’s a little bit of a wedding cake addition when Mission 2030 talks about renewables, because frankly, the Saudi government’s not as terribly committed to that and I don’t think they’ll meet those targets. And as you look at, like, the cost of actually using solar in Saudi, a lot of – it’s also a water issue. And I think that – and you already have water issues with Saudi already. And so I’m a little bit kind of, on the disrupters of renewables, probably nuclear is probably the one that I’d say has the most potential.
MR. BELL: Melanie, as the DAS for energy transformation, what do you think about disrupters? What are they going to do in the next five, 10 years?
MS. NAKAGAWA: So the ones that come to mind would be storage, in particular. I see that, you know, the current battery storage and what’s happening in storage writ large, you have – Morocco’s going to be a good testbed for that with Noor 1, 2 and 3, their concentrated solar projects coming on line. Noor 1 is already on line. But I see advancements in storage that could really be a disrupter in terms of how you balance the grid and how you create balancing systems for renewable energy so that you don’t have a traditional model of baseload power with – as Andrew said, you know, because the wedding – the icing on the cake being renewables, that sort of fluffy top that can fluctuate while you still have baseload power generation. That model is starting to shift. You see utilities starting to address that shift.
In the United States you see utilities – two types of utilities, those, you know, with an incumbent mentality trying to avoid the change that could be coming, and then those that are embracing the change that’s coming, look at distributed models and different types of minigrid systems and others like that and seeing that there’s a value chain in those types of models and trying to embrace that, as well as – there was an Edison Electric Institute, which is the largest sort of utility association with the United States, forming a partnership with an accelerator called 1776, and that partnership was really a way to look at the fact that these – using your smartphone, the NES metering and the Opowers of the world, the idea of sort of customer-based self-choosing and selection of energy providers, that type of optionality due to new technologies and new data services is – could be competition to the traditional utility model. And so now you’re starting to see some of these utilities trying to embrace that change, partner with these startups, figure out what these startups are offering to customers that they themselves cannot offer or should be offering to ensure their customer base.
So, you know, I’m not picking winners or losers here, but I do think there are some advancements in storage. I think the precipitous drop in solar and wind will continue, so really those outliers, to me, is potentially things on solar – on storage, and then likely where we’re going on autonomous vehicles and mobility and what’s going to happen with the way we think about ride sharing, Uber, Didi in China, you know, that type of car sharing. Does that displace public transportation? Does that complement public transportation? Does that put people who would be walking or riding bicycles into vehicles? But those types of questions I think are worth asking.
MR. BELL: Mohammed, this, I think, goes directly to what GE is doing. In the U.S., at least, they’re branding themselves almost as a startup, except that, you know, you’ve been around forever and you’re enormous. How do you think about, you know, innovation, new ideas, new technologies in a large company? And how do you integrate new ideas into something that’s a behemoth?
MR. KHAN: You know, GE’s a 128-year company, and, you know, we’ve transitioned ourselves and transformed ourselves now to be one of the first digital industrial companies. And that’s one area where we’ve invested heavily, especially in the U.S. I mean, San Ramon, we have our facility there which is very much invested in, you know, research and development specifically on the digital side of the business.
When you think of especially in the industrial side of the business – I mean, people talk Google, people talk, you know, other internet companies, but when you think on the industrial side of the business, it’s extremely important for companies, and industrial companies, to know the (operating ?) mechanisms of their assets. And what we’ve done, if you think about, you know, the spend that we’ve incurred over the last three years, we spent about $1 billion purely on this side of the business, on the digital side of the business. And we’ve developed partnerships with, you know, startup companies. One of them late last year was a company called Paradigm, where we created a joint venture with them. And it was really developing applications to, rather than – when you look at a facility where they have multiple wells, the customers typically assess on a well-by-well basis how efficient they are, how they’re running, whether they’re – you know, in order to also look at reduced down time.
This application actually links all these wells together and provides the relevant data and information really for them to strike a balance between, you know – across the different wells in terms of how we can make sure that we’re performing to the best base case that they need to be performing at. So that’s – you know, that’s one sort of area we continue to develop in.
Another area Melanie mentioned was – you know, data storage, data capacity is becoming a big thing. And we built a platform which we refer to as the Predix Cloud. It’s an industrial platform whereby all of this data is being captured. And when you think of, you know, data, there’s going to be around 25 billion things connected by 2020 to the internet of things. When you think of data specifically on the industrial segments of our business, you know, our Turbomachinery Solutions business in totality actually generates as much data as 1.6 billion Facebook users that are out there. So you can imagine the amount of data that is out there that needs to be captured. This allows for us to capture that data, but then we’re generating applications to make sure that we can drive the right application to understand what does that data mean for our customers and how they can utilize that data to the best of their ability.
MR. BELL: Digitization is, you know, a huge benefit for the energy industry, but at the same time, as they’re talking about upstairs right now, it does bring new risks. We were all talking earlier about cybersecurity and the risk that that brings and what that does for your business strategy.
Let’s go to Vitaly on that topic, because you’re living that in a very intense way in Ukraine.
MR. BUTENKO: Yes. Before I comment on the question, I want to add. There’s another area, and I think it’s a big thing particularly for the markets like Ukraine, with quite a heavy legacy of the former Soviet energy system, is the energy efficiency, because the economy is highly inefficient. And the opportunities in energy efficiency, it’s similar to the Klondike back the Gold Rush times. And the relative barriers to entry are quite low, in a way, that if there is a new disrupter technology, a new innovative technology which improves the energy efficiencies on the micro level, on the retail level, on the macro level, they would be very easily implemented or relatively easily implemented, and it can really shift the balance within the limits of one energy sector.
But going back to the very important point of the security, clearly if you move down the road of digitalization, then clearly you are immediately exposed to the cyber tech, cyber-risks, as recent events of a political nature have shown us. In Ukraine, there were several instances of large hacker’s attack on the infrastructure, on the grid infrastructure, which resulted in a total shutdown on the power supply to the whole region. I will not be speculating on the source of those attacks. Given the proximity to other neighbors, clearly there was a reason to believe they were originating.
Now, the nature – as security experts, we also ask American government to help us to investigate it – the nature was it’s more of a testing as to what could be done, but it presented a serious issue because in a moment notice, the country can lose half of its grid, with all the subsequent consequences. If you put it in the context of the harsh winter period, that presents a problem.
So the cybersecurity, I think it’s a first point that has to be addressed and be answered. And in our approach, while very proactively we’re pursuing digitalization and digital technologies implementing, but not until we make sure that all the checks and balances and securities are in place, the most robust ones, because you can – with innovation you can get, you know, very good results on the value-added chain, which could be immediately lost, which could be quickly lost should the address of securities – (inaudible).
So in the territory and the market where we’re operating, I think this is your A, before B, C, D follows.
MR. BELL: Melanie, from a policy perspective, cyber and energy.
MS. NAKAGAWA: So I think Vitaly did a great job of explaining how that’s, you know, first and foremost from the business perspective. And then from a policy perspective, it’s really interesting because over the past several years, not only the U.S. government, but other governments have done this as well. They’ve seen the advancement of cybersecurity not only on the national security agenda but the foreign policy agenda. So in the U.S. government, the State Department, we have three people that are leads for different aspects of cyber policy and cyber coordination, whether it’s Global Connect, the broadband initiative to connect the world to the internet, or you have other issues of hard cybersecurity issues and questions there, a broader coordination.
And so on the cyber piece, the nexus of cyber and energy security is one now that our bureau here in the Energy Resources Bureau is starting to take a closer look at. But it’s fundamental to a lot of these conversations. And it’s both an opportunity and a challenge. On the challenge side, Vitaly did an excellent job explaining where the challenges lay with cyberthreats and cybersecurity risks, but on the opportunity side, you also have – in the United States we’re a real leader when it comes to smart metering and smart devices. We have over 60 million smart devices and smart metering within the United States, making us a global leader. And therefore, that experience we have on data privacy but also cybersecurity and hardening of the cybersecurity sort of hardware, if you will, around that has been something that we’ve learned from.
And so one of the things we’re doing now from a diplomatic perspective is exchanging best practices with other countries. As countries want to move towards more of these smart system, cloud-based systems, whether it’s the GE Predix software as well, making sure that – you know, the “A” for us is ensuring that the right policies and regulatory environments are there in countries to ensure that the greatest security can be achieved in any of the countries where these technologies are starting to break ground or enter into the market before the technology actually arrives and you’re trying to piece that together at the same time as you’re trying to deploy new technologies. That’s really where we’ve been seeing the nexus.
MR. BELL: Fantastic.
We have a few minutes left, so I’d like to open this up for questions from the audience. We have a mic runner in the back. If you have any questions, raise your hand, and state your name and affiliation, and make sure it’s a question. (Pause.) Looks like we all now can go and move forward with our successful business strategies for the next 20 years, that everyone here has all the answers. I’d like to then, if there are no questions here – we have someone in the back. Great.
Q: Majid Al-Suwaidi. I’m the consul general of the UAE in New York and familiar with some of the energy issues, just to help the questions, maybe.
MR. BELL: Appreciate that.
Q: I recently visited Facebook, who were looking at innovative ways to finance renewable energy technologies, and one of the things that I was wondering was, how do we encourage more of those sort of nontraditional actors to participate in this space and to bring forth sort of innovative sources of finance, both for renewable energy technologies but also in traditional energy. Something that I saw today earlier in the presentation by the IEA, carbon capture and storage is a technology I’m interested in but never seems to get a lot of support for implementation. How can we get nontraditional actors to get behind some of these technologies and promote their development?
MR. BELL: Melanie.
MS. NAKAGAWA: Just to kick off the response to that. I’m glad you went to visit Facebook. I can give you a couple other places too, when you’re there, to talk to, because you’re starting to see not only Facebook, which their whole fundamental model is to get people connected to the internet, which requires access to energy, but a company like Microsoft actually has an energy access team and an initiative because they had an initiative to connect a certain number of people to Microsoft’s vehicles but then realized very quickly that the first impediment was the fact that over a billion people don’t have access to any electricity at all, and then on top of that, another billion have very limited access, meaning maybe an hour a day or two hours a day.
So, if Microsoft’s going to achieve their goals, they first – their plan A, to use Vitaly’s terminology, is to get people connected to an energy resource. So they’re actually starting to make investments into the off-grid energy access space to areas before the grid gets there, because like cellphone technology, you’re seeing this leapfrogging, and you’re going to see that in the off-grid space as well. So, you know, Google, Microsoft, even companies like Booz-Allen, the U.S. State Department has partnered with many of these companies in the off-grid conversation to help figure out what are some of these technological innovations that can happen that we can help provide some of the connective tissue to the players and the countries who could actually deploy these types of solutions.
Just to round that out on CCS, you mentioned carbon capture storage, you’re looking at – it’s a question, I think a good question because over the past year and a half, the U.S. government, with several other countries, have garnered a lot of effort around something called mission innovation. And then that was also partnered with a private sector coalition called the Breakthrough Energy Coalition. Mission innovation in their models includes CCS. That one of the types of technologies that they could be financing and doing research and development for is CCS because it is one of those technologies that requires a lot more global concerted, orchestrated effort but, like you mentioned, hasn’t necessarily received as much as is needed to really break through to that next stage of commercialization at scale that’s required.
So I would take a look at, you know, where does mission innovation go going forward, where does CCS and those types of globally coordinated efforts, and how does that help advance the ball forward on these critical technologies. I think as a silo it’s been very difficult and that’s really why you started to see this globalized effort around the world on different types of technology catalyzing efforts.
MR. BELL: Mohammed, I saw you scribbling a whole bunch of thoughts down. Do you want to respond as well?
MR. KHAN: Yeah, sure. I mean, when you’ve got players like Microsoft out there, you know, and then you’ve got someone, big industrial company like GE, in this day and age now it only makes sense to have some type of arrangement between both parties, and we do. We have an agreement between both parties to continue to develop on the software side.
Now, you mentioned, you know, Facebook and financing. You know, this is something where, you know, GE has played a significant part when it comes to financing on the capital side of the business. I know we divested a lot of the business already. But we continue to invest and finance projects, you know, with our relationships on ECAs, to support, and we can close that gap based on the countries that we currently operate in. You know, I’ll give you an example. In Iraq we agreed to a three-year deferred LC, right? That’s not something a lot of companies do. You know, you’re operating in countries where it’s very limited liquidity, but because of the fact that we have experience on the ground there, we’ve worked with a lot of financing agencies before and never had any issues, you know, a company like Microsoft are willing to partner with us to continue developing those, where we take certain amounts of risk and they continue to take their own type of risk. You know, there’s a marry between the two companies which really is beneficial when it comes to the end user on these things.
MR. BELL: Andrew, I saw you also thinking hard about this. Did you have some thoughts?
MR. BUTENKO: Generally, I think those are good points. I wasn’t – I’m OK.
MR. BELL: You’re OK.
We’re just about out of time. I can take one more question if there is one. Right there.
And this will close it. So thank you. Grab the microphone.
Q: Yes. So I’ll introduce myself. Patrick Allman-Ward, Dana Gas.
Just before lunch we had Fatih Birol talking to us about energy future, and it’s clear that the hydrocarbons are going to play an important role for the foreseeable future. So it’s going to be an and/and world, not an either/or world. So, in that context, I really wanted to ask the panel what they thought of some of the initiatives that seem to be coming forwards from central banks to classify hydrocarbons as stranded assets and to essentially legislate or regulate to essentially request those companies in the oil and gas space to, essentially on an annual basis, write a going-concern proviso in their annual reports. Do you have – I’d just like to see some kind of feedback on what the panel feels about those sorts of initiatives.
MR. BELL: Who wants to comment? Do we have anyone? Anyone want to comment? Mohammed?
MR. KHAN: Yeah. I mean, it’s a type of proviso written in these (subsequent ?) agreements, I guess it’s a tough one. You know, hydrocarbons for sure is going to be a big area for us as we, you know, partner, and I’ll give you an example. In Turkey we have some significant projects whereby, you know, financing is becoming a big play to support those key projects on strategic pipelines. We’ve never had specifically any issues in relation to bringing sort of export credit agency agreements in place, whether it’s through SACE or whether it’s through UKIF or whether it’s through COFACE. I guess the fact that we have broad manufacturing capabilities allows us to, you know, leverage these financing tools and capabilities that are out there.
On the hydrocarbon side, I think it’s – you know, it’s not something we’ve been specifically asked or tasked to do, but for sure it’s something that, you know, we will, I guess, envision that we’ll face in the coming future. And if there are going to be challenges in regards to addressing those when it comes to financing, I guess we’ll have to address it at that point in time.
MR. BELL: Does anyone else want to comment on that? Let’s – anyone want to have a last word here? Vitaly?
MR. BUTENKO: Well, we, from the point of view of dealing with our challenges, one of the things that we try to find a way to make it work is the initiatives, policy initiatives, technological initiatives, financing, other issues. How do you make them work in the context of evolving geopolitical story which doesn’t have a resolution, whether it’s on political or geopolitical, economical level? Now, we don’t have the luxury of, you know, taking five and waiting for things to clear up. But at the same time – and it is paramount for us – that those are the advances, policy or otherwise. They have to be integrated – for a company of our size, have to be integrated in our strategic thinking going forward, because sooner or later – and we always remain the optimist – the integration with the global technological and power grid, so to speak, you know, will happen; and to the extent that we can be prepared for that without sacrificing the ongoing leverage that we try to create, sometimes not using the most sensible policy initiatives, is something that is at the core of our operational and strategic imperative.
MR. BELL: I think that’s actually a great place to end, because you really are managing some of the hardest situations in the world, that really are innovating and thriving in a very, very difficult situation.
So thank you all for joining us. I want to thank all of our panelists here for bringing their really unique and interesting perspectives.
There’s another panel that’s going to start upstairs at 4:00. It’s on the U.S. climate and energy policies following the election. So some things we talked about here, but perhaps in more detail. That should be very interesting.
So thank you all for joining us, and I hope to see you upstairs in a few minutes. (Applause.)