Over the years, oil and clean-tech have had a love-hate relationship. When investing in clean-tech took off roughly 10 years ago, it professed to hate oil and promised to banish it from the energy future. After the financial crisis, this flipped to love, as more-mature clean-tech businesses realised they could make money in the oil industry –which showed no signs whatsoever of banishment – by offering operational efficiencies in, for example, energy used in extraction and wastewater treatment.
The Global Cleantech 100, a list of the most promising companies published by the Cleantech Group, reported that “over 15% of the Global Cleantech 100 companies are providing services to oil and gas companies”.
At the time this list was compiled, the oil price decline had not begun, clean-tech’s love for big oil seemed requited and a successful long-term relationship looked likely. Not only had clean-tech given up on the hopeless task of trying to defeat oil, but oil had also acknowledged its need for clean-tech, most notably when Middle Eastern petro-economies realised that using solar power at home would free up more oil and gas for export. This created a market for solar that is comparable to Europe’s, where solar growth has declined.
Glasspoint Solar, the US solar enhanced oil recovery (EOR) technology business, is a good example of a solar company whose growth is almost entirely driven by Middle East markets. It uses solar power to replace gas as the energy source to create the steam used to force oil and gas to the surface. Its investors include Shell Technology Ventures. Shell is using Glasspoint in EOR projects in Oman.
But this long-term relationship now looks threatened by declining oil prices. Less exploration activity will reduce demand for equipment and technology, which will certainly have a knock-on effect further down the clean-tech supply chain. With margins squeezed, the fear stalking clean-tech is that oil and gas corporate venture capital will retreat. A bigger knock-on effect is simply that the lower the price of energy, the less the need to use it efficiently in all industries.
But there are several reasons why I believe clean-tech can survive the oil price decline – and that is on top of the likely rebound in oil prices I expect later this year.
Declining oil prices are a challenge that clean-tech can meet and beat if it can prove itself by reducing operational expenses. In other words, the clean technology will prosper with lower oil prices if it can reduce costs and thereby protect the oil industry’s margins.
“But what about the initial capital expenditure hit?” I hear you ask. However impressive clean-tech’s medium and long-term savings might be, you still need to spend money on its installation, which could get an oil and gas finance director fired right now. Such challenges call for deep-pocketed investors and a little financial innovation.
Oman State General Reserve Fund co-invested with Shell in Glasspoint’s $53m September C round. Oman’s sovereign wealth fund is therefore providing the capital required to help Glasspoint help Oman reduce its dependence on gas for EOR, increasing its margins in a new period of low oil and gas prices.
The moral of the story could be that we need to think beyond global oil prices to look more closely at regional opportunities. We also need to think afresh about clean innovation that is not going to live or die according to the short-term price of oil.
Next month I wll be writing about 3D printing, which is accelerating materials innovation that looks disruptive, whatever the oil price. 3D printing and advanced materials will be the subject of the next London Environmental Investment Forum programme. Let me know if you would like to be involved.