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Published: May 24, 2011
 / Summer 2011 / Issue 63

 
 

Will Your Next Electric Company Be a Global Oil Enterprise?

Taking the Next Step

Some oil companies will be reluctant to become super-energy majors because their past experiences in the power sector have been mixed. But others may make the leap successfully — if they can devise an effective strategy and line up the appropriate assets and capabilities. To assess whether exposure to power markets makes strategic and economic sense for them, oil companies need to develop a deep understanding of a number of key questions, such as:

Is the structure of the gas portfolio such that exposure to electric power markets can increase its value by capturing the spark spread and increasing flexibility to optimize profitability between power and gas markets?

Can sufficient materiality be reached quickly enough to really make a difference to the market and to warrant the effort and risks of diversification into power?

Which geographies have the right fundamentals in their power markets in terms of the potential spark spread, the evolution of the generation mix, and the regulatory environment? How would these geographies match the super-energy major’s current and desired asset and market footprints?

Is investing in independent power-production assets the best option, or would a partnership model provide more value and benefits with a lower risk profile?

What are attractive propositions for utilities that want to form partnerships with oil and gas majors?

Clearly, becoming a super-energy major will not be the right path for every oil and gas company. But all energy companies need to adapt to the changing dynamics and constraints of the world’s markets. If the growth of electric vehicles, the impact of climate change, the availability of natural gas, and the growth in energy demand all take place in line with expectations, the oil and gas companies will be called upon to change. The super-energy majors will be those that lead the way — and profit accordingly.

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Author Profiles:

  • Viren Doshi is a senior partner with Booz & Company based in Paris. He leads the firm’s global energy, chemicals, and utilities practice.
  • Robert Oushoorn is a principal with Booz & Company based in Amsterdam. He focuses on international gas and power markets as a member of the firm’s energy, chemicals, and utilities practice.
  • Robert Famulok is a senior research analyst with Booz & Company based in Düsseldorf, specializing in utilities.
  • Also contributing to this article was Booz & Company Principal Adrian del Maestro.
 
 
 
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