Graeme provided deep insight into the energy investment landscape with consideration of how private equity investors are being impacted by the energy transition, and subsequently how the energy sector is being impacted by the choices of those investors. Generally, there has been a conscious shift in positioning from Oil and Gas investment to a broader energy mix with continued focus on supply chain, where skills and track record lie. This shift from fossil fuels to new energy is providing excellent opportunities, as well as presenting new challenges in the investment landscape.
The market is bifurcating between conventional energy and energy transition investing and the negative sentiment associated with the Oil and Gas sector has impacted investment significantly. In Graeme’s opinion, conventional energy would have had a better chance of withstanding a downturn in performance, or a negative sentiment, but both of these factors for a prolonged period has pushed investment flow into the energy transition and newer energies. For example, this year only £1 Billion has been raised for conventional energy private equity, a huge decrease on previous years. Across the past decade conventional energy received nearly three times as much as investment compared to newer energies, however this has reduced to a trickle of investment with capital being allocated more frequently away from traditional Oil and Gas resources. More than 60% of investors in private equity have rejected funds in traditional energy during the past 12 months, particularly on environmental grounds. Increasingly, this influence is being fuelled by social pressures, with less environmentally detrimental sectors such as software visibly more attractive to parties with vested interest.
Graeme observed that Oil and Gas still has a significant role to play in any future energy mix projections. However, companies and investors will need to adapt to survive and thrive. Any industry restructuring at such a pace creates opportunity. To aid the energy transition, the more solutions and new sources of capital the better. Reallocation of funds is pushing the narrative that Oil and Gas is “bad”, and renewables are inherently “good”. Broadly, individuals are refusing to invest in areas of hydrocarbon exposure and this generates alternative problems. The demonisation of Oil and Gas could detriment development of new technologies, as well as lead to increasing energy poverty. It is absolutely essential to provide clean energy which is at an attainable level of affordability. The goal is both, not energy being clean or affordable independently.
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FWB Park Brown
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