S+B: You are one of the very few energy leaders, particularly in utility companies, speaking out in favor of the globalization of the electric power and natural gas industries and for global energy regulation. Why is that important?
CONTI: Let us start with the goal: abundant, sustainable, and cheap energy for everybody. Across the planet, electricity is steadily available for only 2 billion people. Another 2 billion have only occasional access to it, and the remaining 2 billion do not have electricity at all. This affects the overall evolution of the global economy, and the overall welfare of the planet.
Then we must recognize that energy is, by definition, global. Local markets function only as part of a worldwide system. Something that occurs in the oil market in the Persian Gulf, or that affects coal production in Australia, can have an immediate effect here in Italy or anywhere else in the world. Thus, any move to provide 4 billion people with more energy will probably involve further globalization of the energy sector.
Then we need to take into account the realities of the industry. Energy projects require long lead times for construction, the deployment of intensive capital, and a strong commitment on the part of local governments.
Smaller energy companies cannot survive in an environment defined by these global factors. Therefore, the many locally oriented companies in the energy sector have to decide: Will they build their local presence into a global strategy? Will they consolidate themselves into larger operators? Or will they try to maintain their smaller market position and eventually be absorbed by someone else? The current evolution of the energy equation leaves no other choices.
S+B: Most power companies grew up as highly regulated local utilities. Is it plausible to expect change?
CONTI: Yes. Small utilities and power companies everywhere — from the Midwest of the United States to Europe to the Far East — face the same issues: dependence on fuels, the global project of combating climate change, and being part of an industry that has a fundamental need for scale. There may continue to be regulated markets in small communities. But the companies delivering services in just about every market will be increasingly integrated into global enterprises, superseding their former nationwide government sponsors. Already, macro-regional energy markets are forming, like Centrel in central Europe and Iberia in southwest Europe. Before long, we will have an integrated, reciprocal transnational market, in which many providers offer electric power, competing over a common global grid.
The paradox of the moment is that local regulators and local utility companies are still acting as if the world has not changed. Leaders of energy companies tend to feel that being in the cradle of stringent regulations will preserve their status as insulated, protected enterprises. Energy consumers similarly expect that local governments can preserve their access to enough energy to fulfill their needs. And governments in Europe, and in some other places, continue to think that they can maintain the dominance of their so-called national and local champions, their local energy companies.
But in my view, this is a shortsighted approach to the global energy sector. It will take very little, such as a further increase in the price of raw materials, to make the existing regulatory regimes tumble.
The New “Seven Sisters”
S+B: Why is this shift happening now? Why didn’t it happen earlier?
CONTI: There are three basic forces, all interacting. First is the growing demand for energy, caused by the accelerating needs of emerging markets. Oil is not an ordinary commodity; it’s a vital tool for economic development. Prices are scaling up to reflect that real value. People are concerned about the crude oil price; US$120 per barrel seems astronomical. But in my view, this is not true. The current price is slightly more, in real terms, than the price of oil in the 1980s. What was totally out of touch with reality was the price of $10 per barrel that we enjoyed in the late 1990s. Mineral water is still more expensive than crude oil today, but it won’t be for much longer. Other energy prices — like the price of natural gas — will also rise accordingly.