Few in the corporate venturing sector have the benefit of hindsight that Jim Gable has when it comes to running a CVC. The head of Chevron Technology Ventures (CTV), the corporate venture arm of the US oil and gas major, ran the venture capital group within CTV between 2003 and 2007 when it was still a fairly new fund that was set up in 1999. He recently returned to the business, becoming president of the CVC in March this year.
Gable returns to CTV at a time of unprecedented upheaval in the energy sector. On the one hand, the push to decarbonise is the leading driver of technology investments. But, at the same time, the energy crisis is putting pressure on oil and gas companies to increase production of all forms of energy, including fossil fuels. This has created new emphasis on finding technologies that lower the carbon intensity of fuels rather than completely replacing them with non-emitting energy sources.
As vice president of Innovation and president of Technology Ventures for Chevron, Gable plays a leading role in crafting the parent’s company’s technology strategy. And given that Chevron is one of the largest oil majors in the world, he is at the heart of shaping the transition to a cleaner energy system.
Blue hydrogen is key to fast decarbonisation
Gable says the technologies he is most excited about are those that meet society’s decarbonisation targets more quickly. In other words, technologies that lower the carbon intensity of existing fossil fuels and where infrastructure doesn’t have to be built from scratch.
“The challenge with energy technology is that it is a huge industry. It takes a long time to make a dent and drive change on the scale that is needed. But, if you can look at something like carbon capture, which takes an existing chain, or product stream, and helps create a lower carbon footprint at existing supply, that will do it more quickly,” says Gable.
Blue hydrogen is a technology Gable points to as having strong decarbonisation potential in the near term. Blue hydrogen is an industry term for converting methane to hydrogen and carbon dioxide by using heat, steam and pressure. The carbon dioxide emissions generated during the process are captured and stored underground, resulting in hydrogen that produces no carbon emissions.
“We have carbon capture associated with an existing hydrocarbon-based production of hydrogen where we can capture the CO2 and sequester it and deliver a product. That is achieving success without having to switch out engines, entire supply chains, storage, delivery systems, production systems,” says Gable.
Some criticise the process for using large amounts of energy from burning natural gas, which potentially increases emissions. But Gable says such technologies will be necessary to meeting near-term carbon reduction goals. Chevron has set a variety of targets, including capturing 25m tonnes of carbon dioxide by 2030, and producing 100,000 barrels a day of renewable fuels and 150,000 tonnes a year of hydrogen, both by 2030. It has also committed to spending $8bn on lower carbon investments by 2028.
Chevron Technology Ventures invests through two main closed funds. A $100m, so-called core fund invests in technologies that improve the efficiency of its oil and gas operations. These include technologies that improve operational efficiency, digitise processes and lower the carbon intensity of operations.
A $300m future energy fund is focused on low-carbon technologies. Many have relatively shorter paths to commercialisation, such as hydrogen, industrial decarbonisation and energy storage, but Chevron does also make bets on technologies with a longer-term horizon, such as fusion energy.
The secret to great portfolio companies? Early feedback.
Coming back to lead the venturing group after a 15-year break working on the operations side of Chevron, has given Gable a clear view of what does and doesn’t work in corporate venture.
The biggest lesson he has learned is the importance of giving feedback to startups early on about whether their technology meets customer needs. Twenty years ago, the unit had more the attitude of “if you build it, they will come”, says Gable. Now, the business units give feedback early and help shape what the portfolio company is doing.
“It is very important to get early input from an end customer. It is a question of will the dog eat the dog food.”
“It is very important to get early input on a company’s commercialisation idea from an end customer. It is a question of will the dog eat the dog food. There are great entrepreneurs with a lot of passion and good ideas, but, clearly, they don’t know what the end customer needs in many cases, because they are just getting started.”
He gives the example of Svante, a portfolio company that captures carbon dioxide emissions from industrial sources. “The more we work with Svante and the DOE [Department of Energy] on a pilot, the more specific feedback they are getting on what engineers in the field want to see in that unit, how it integrates with the point source of emissions and what maintenance practices will be important for a company like Chevron to run one of those units.
“Getting that feedback as early as possible in the venture process is critical because, as we all know, you have to be flexible. It is rare for the entrepreneur when their first idea is perfect and it doesn’t need to be changed,” he says.
Giving feedback has become a skill the CVC has developed over time. Over its 23 years of operating, the corporate venturing unit has trialled 80% of its more than 140 investments. More than half of those trialled have become suppliers to Chevron.
Chevron has trialled 80% of its investments. More than half of those went on to become suppliers.
Venture capital investments are just one component of the CVC’s role. The team also do a lot of scouting of startups that may not need capital but which create a pipeline of technologies that the parent company can benefit from. “Those companies may not be a fit for investments, but they will sometimes have solutions that we can use,” says Gable.
Still digesting the Inflation Reduction Act
Clean energy technologies received a boost earlier this year when US President Joe Biden signed into law the Inflation Reduction Act of 2022, a landmark bill that pumps $369bn into climate tech. The legislation provides billions of dollars of grants and tax credits for technologies such as hydrogen and carbon capture, as well as for renewables such as wind and solar. Industry observers say the bill makes clean tech investments such as carbon capture more profitable because of the large amount of grant money and the 10-year duration of the tax credits.
Gable would not be drawn on whether he supports the bill. “We are still digesting it,” he says. “When we look at what is required to drive investment and drive change, we need a government policy that is balanced, transparent and constant through time. It is hard to invest if there is not constancy. We know we will need all forms of energy in the future, including hydrocarbons, and some of the technologies targeted by the Inflation Reduction Act. We would always hope that the best idea wins. Let the market drive the solution. If this legislation meets those criteria, that would be helpful.”
He stresses that Chevron supports a price on carbon. “That would be a constant, transparent mechanism to drive the markets to find the right solutions rather than the government coming in and picking winners and losers,” he says.
The US Congress has repeatedly failed to approve federal cap-and-trade legislation or a national carbon tax that would place a price on carbon.
“We will need all forms of energy in the future, including hydrocarbons, and especially right now because of how valuable natural gas is.”
The energy crisis in Europe resulting from Russia turning off natural gas supplies to the continent in retaliation for sanctions placed against it because of its invasion of Ukraine has led to increased profits for oil and gas companies that benefit from increased demand. Chevron is no exception. It reported a $18bn net profit in the first half of 2022, compared with $4.5bn in the same period of 2021. The increased profits were on the back on increased production and rising prices of crude oil and natural gas.
At the venture unit, the higher demand for oil and gas has put the impetus on improving the productivity and efficiency of Chevron’s core business “to meet the extreme supply needs right now,” says Gable. “We will need all forms of energy in the future, including hydrocarbons, and especially right now because of how valuable natural gas is. It is important for us to think how we continue to improve the efficiency of our core operations, and we continue to decarbonise those.”
Investing through the downturn
The energy sector is perhaps shielded more than most sectors from a potential recession given that energy supply constraints are likely to continue in the long term. The venture unit continues to consider investments across all technologies. “We look at valuations and take into account the payout of investments. But we haven’t seen an environment yet where it is worth carving back and saving capital for lower valuations in the future,” Gable says.
“We are investing right through, because we know the potential for change and the potential for economic growth in the medium and long term to be right there where it has always been,” he says.
“It is important to continue to deploy capital and move through those cycles and think about what is needed in the long term by society. That is affordable, reliable and ever-cleaner energy.”
