The world’s six leading oil and gas companies, collectively known as the “supermajors,” face a conundrum. They are cash-rich, sitting on reserves of $5 billion–$20 billion each, but their revenues are stagnating as global oil prices remain well under $50 per barrel and show no signs of climbing anytime soon.
So, while their balance sheets remain healthy for now, it’s becoming obvious that diversifying away from a solely petroleum focus might be a good long-term strategy. Total, a supermajor based in Paris, acquired leading stationary battery maker Saft Groupe for $1.1 billion in May, a month after it created a gas, renewables and power division with the stated intent to become a top renewable power-generation and trading company within 20 years.
The Saft Groupe purchase is not the oil giant’s first move toward a new business model. In 2011, Total paid $1.3 billion for a 60-percent stake in San Jose, Calif.-based SunPower, a global top-10 integrated solar manufacturer and developer. It has investments in energy-storage startups Aquion Energy (sodium-ion batteries), EnerVault (flow batteries) and Stem (energy storage and control). However, the Saft Groupe purchase is a bold move, because the company is an industry leader with an especially strong foothold in the European market.
Cosmin Laslau, a senior analyst with Lux Research, authored a new report, “Superpower Darwinism: What Big Oil Can and Cannot Do About Total’s Billion-Dollar Battery Move.”
“Initially, Total’s approach was to invest in bleeding-edge companies,” Laslau said. “What they found, first-hand, is how difficult it is to bring some of these next-gen technologies to market. It was time to make an investment in an incumbent.”
Total isn’t alone in startup investments. The other supermajors (BP, Chevron, ConocoPhillips, Exxon Mobil and Royal Dutch Shell) all have venture-capital divisions investing in new technologies, but these generally remain focused on incremental technology improvements within oil and gas.
“It’s just making what they do already more efficient,” Laslau said.
Total’s recent acquisitions, on the other hand, indicate an obvious strategy to develop a “broad and logical portfolio in advanced energy.”
The pairing of SunPower’s PV expertise and Saft Groupe’s lithium-ion battery- manufacturing capabilities could create a European version of a recently announced U.S. merger, the combination of Tesla Motors and SolarCity.
Though better known for its installation and development business largely based on acting as a third-party project financer, SolarCity is about to leap into photovoltaic (PV) panel manufacturing in a very big way. Two years ago, the company purchased PV innovator Silevo, which had developed a high-efficiency panel design it called “Triex.” A factory designed to produce enough of these panels per year to generate up to a gigawatt of electricity is scheduled to open in Buffalo, N.Y., in 2017.
Tesla, itself, of course, has its own battery Gigafactory set to commence operations next year, and Laslau sees the production capability of this new facility as a potential market-changer that may have pushed Saft Groupe toward the partnership with Total. Competing against a price advantage such manufacturing scale could force other companies to up their game or get out of the storage business.
“If you were a lithium-ion company or a solar developer, and you had a limited amount of capital to invest, that would have been fine [several years ago],” Laslau said. “But, now, the stakes have been raised. Having a strong parent like Total could help.”
Total’s move could be a sign of how the energy market is evolving away from an emphasis on fossil fuels and toward a mix of renewables and storage. U.S. Secretary of Energy Ernest Moniz has said he is confident the U.S. grid and power system would be completely “decarbonized”—without use of nuclear energy—by the middle of this century. Moniz sees energy storage becoming both more efficient and affordable, making it possible for widespread use to balance out intermittency issues common to solar and wind technologies.
There could be an adapt-or-die moment coming for petroleum producers. The U.S. Energy Information Administration’s “International Energy Outlook 2016” forecasts primarily petroleum-based liquid fuels’ share of total world energy consumption to drop to 30 percent by 2040, down from 2012’s 33 percent.
To Laslau, such predictions only emphasize the important role storage, among other advanced energy technologies, should be playing in the supermajors’ acquisition plans, during this time he calls “energy Darwinism.”
“The more astute players in this space realize that, long-term, their revenues will be threatened and declining,” he said. “They can be a passive player, or they can try to be very early to make that shift. If they were to wait another five to 10 years, these companies would become much more expensive.”