GCV’s Tom Whitehouse and Kaloyan Andonov spoke to Geert van de Wouw, managing director of Shell Technology Ventures, the corporate venturing unit of oil and gas major Royal Dutch Shell, about the unit’s focus on industry-relevant technologies that lead to cost reductions or making assets more resilient, and how hurricane Harvey in Houston and low oil prices highlight the importance of such capabilities.
How were your colleagues at Shell Technology Ventures in Houston affected by hurricane Harvey? Is life and work getting back to normal there?
Several of my team members were closed in for more than a week and the office has been closed for two weeks to deal with clean-up. So the hurricane has had a significant impact and there is a lot of rebuilding to do. Houston is going to be in recovery mode for a long time but we continue to be committed to Houston and our venture activities in this great city.
What will be Harvey’s long-term impact, if any, on your venturing priorities? Resilient infrastructure is going to be required by all hurricane-prone regions and by the oil and gas companies that work there. Does this filter down to venturing?
The hurricane has not materially changed our venturing focus, as asset surveillance and monitoring is already a focus area for investing to us. Overall, the biggest positive impact in the technology sector will be on technologies that can make assets more resilient to extreme weather and unplanned events.
Given that Shell is leading GCV’s first event in Houston, tell us about the Houston and Texan VC industry. What does Texas have that is unique?
Houston is the oil and gas capital of the world – full stop. Therefore oil and gas and digital entrepreneurs with relevance to oil and gas are flocking there, both to Houston and to Austin. It is the logical centre for innovation and entrepreneurship in energy. We think that in the future it is also going to be a centre of renewable innovation, building on the existing infrastructure of tested entrepreneurs and VCs in the energy domain, plus the presence of all major energy companies, suppliers and vendors in the Houston ecosystem.
How transferable are skills from hydrocarbon to renewables?
Oil and gas people know how energy works. They understand that, unlike pure digital plays, commercialisation of new technologies or business models in the energy industry takes more time and can be very capital intensive. Energy is a truly global industry. It touches on everybody’s lives in profound ways.
The good news is that the energy majors know very well how to scale, how to commercialise technology in a conservative industry. And we are increasingly seeing companies that are as appealing to the oil and gas sector as they are to renewables. For example, we invested in Maana, a big data solution for us and other players in oil and gas. But their knowledge and capabilities are equally applicable to the renewable energy domain or our retail business. We are going to see more and more crossover between the renewables and hydrocarbon-dominated sectors.
Another nice example is Glasspoint, the concentrated solar-for-steam company which is currently building a world-class solar plant at our joint venture PDO in Oman. There, we use the power of the sun for steam injection in the oil fields to enhance recovery from these fields.
Give us another example.
Three years ago, we invested in Veros Systems, an Austin-based company that uses software to monitor the reliability and energy efficiency of electrically-powered rotating equipment. We currently use their solutions on Perdido, an offshore platform in the Gulf of Mexico. Shell also has large customers of its lubricants business that want to monitor the behaviour of their equipment, which we lubricate and service. Veros does that but it also serves several other industries, such as wind power, automotive and food manufacturing.
You are in your sixth year of leading the venture strategy at Shell. How has the venturing strategy evolved over this period?
In several ways. We are more thematic in terms of our investment approach today than we were six years ago. Rather than looking for solutions that Shell business units want today, we now try to find themes within which we believe there are interesting and potentially disruptive technologies and business models being trialled by startups. And when there are crossovers between these themes and the needs of our business lines, that is where exciting things happen.
While deployment in our assets remain key, we try to balance between investing in domains immediately adjacent to our existing businesses and investing in more radical and potentially more disruptive technologies and business models that we can implement longer-term, or that have the potential to become new businesses to Shell. In practical terms, we now have a more global presence. We used to be based just in the Netherlands and Houston, but now we also have a presence in San Francisco, Boston and London. We are planning to establish a presence in Shanghai.
What has not changed?
In oil and gas, we have always been focused on reducing cost. We have an ongoing cost challenge in the “lower for longer” environment. This means that technologies have to be able to substantially reduce costs for us to be interested. Regardless of whether oil prices may go up – or not – in the future, the “lower for longer” philosophy is a really helpful guide to us.
In order to remain competitive, a relentless focus on cost-reducing technologies and business models is required, and STV can play a pivotal role in sourcing these. This could be the cost of acquiring seismic data, drilling and stimulating wells, production and processing. There simply has to be a meaningful impact on cost or we are not interested. And this is not just in capital expenditures, but in operational expenditures too. We need to monitor the health of our assets. For example, we invested last year in Roscole, a Finnish imaging technology business that enables us to detect fouling and scaling in our pipes so that we can tailor our cleaning campaigns and save operational costs.
Is cost a driving factor in your investments in renewables?
With the ever-reducing costs of energy from solar and wind, cost is clearly important for innovations in renewables, connected customers and smart mobility. In renewables, we want to invest in the best startups active within the investment themes that we focus on for investing. We are looking for new technologies and business models that have the potential to become substantial suppliers or partners to Shell in our new energy business. In selective cases, they may become substantial new businesses in Shell through an acquisition.
Venturing will help us better understand how the renewable energy value chain will evolve over the coming five to 10 years. By spotting disruptive trends early and understanding who is investing in what and why, we gain better insights into what the winning technologies and business models will be in the future. Unlike in oil and gas, it is a lot harder to blueprint ourselves through the future in renewables, as there are more uncertainties associated with the maturation of this relatively young industry. At this stage, it is unclear who the winners are going to be.
How is the “lower for longer” oil price informing your venturing strategy? Can venturing save the industry?
The oil and gas industry does not need to be saved. Fossil fuels are here for decades. Today, electricity accounts for only 20% of total energy demand. This will increase with the electrification of our societies, including auto-mobility, but still the fact is that hydrocarbons are a part of the future, whether people like it or not. The contribution venturing can make is on cost. As oil and gas majors we have to get better at commercialising the technologies we invest in and making sure they get deployed in our business to reduce costs. This will include the removal of hurdles that have become deeply rooted in our ways of working in oil and gas.
GCV data shows that corporate VCs from outside the energy industry are beginning to venture more actively in energy. In particular, we are seeing investors traditionally seen as software specialists, such as Intel and Microsoft, becoming more active. What are the implications of this? Does this point to the increasing digitisation of energy?
It underlines the profound change happening in the energy industry, in which we are participating and are shaping. In fact, this is great, as we are always looking for credible co-investors for the ventures we invest in. Having more corporates around the table that take a long-term view and have the balance sheet to invest long-term is great.
For example, we have already co-invested with tech-giants like Google and Intel, and there will be likely more to follow. We are also making LP – or fund-of-funds investments – in financial VCs. For example, we have invested in G2VP, a kind of spin-off from Kleiner Perkins Caufield & Byers, which has a great thesis on the convergence of renewables and digital in the energy domain. We have also backed Autotech Ventures, a specialist on smart mobility, automotive, transport and logistics. This helps us understand and see dealflow that could be relevant to Shell. We might also co-invest with some of our LPs.
You have had a busy summer, closing two deals in August, including Innowatts, a Texan digital energy platform. What is its strategic relevance to Shell?
Innowatts combines and aggregates data into meaningful intelligence for customers of utility services. If you connect that with our investment in Sense, a Boston-based home energy management business, Shell begins to get a much fuller picture of energy behaviours with our key customers.
