How war in the Middle East is reshaping the energy landscape

Lindsey Hall I'm Lindsey Hall.

And I'm Esther Wheeldon.

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Welcome to All Things Sustainable, a podcast from SP Global. As your hosts, we'll dive into all the sustainability topics that are reshaping the business world.

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Join us every Friday for in depth analysis and interviews with leaders from around the globe. Together, we'll break down big sustainability headlines and cut through the jargon.

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This week I've been in Houston, Texas for Sarah Week, the big energy conference S and P Global hosts each year

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and that some call the Davos of energy.

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And with the war in the Middle east, it's quite a moment to be in an event where thousands of stakeholders from around the globe are talking about the future of energy. Saraweek is a conference that convenes government and private sector leaders from all parts of the energy ecosystem that includes the world's biggest oil and gas companies. It also includes renewable energy companies, utilities, nuclear, critical minerals, minerals finance, and increasingly technology companies that need energy to power data centers and meet growing AI demand. This conference provides useful perspective on how the energy industry is thinking about sustainability and climate change. These topics are especially pressing in the face of war with Iran. How does the current disruption impact long term sustainability strategies? To help answer these questions, I sat down with a guest who brings unique perspective. Lord John Brown. Lord Brown spent much of his career in the fossil fuel industry before starting a climate investing fund. He was group chief executive of oil and gas major British Petroleum from 1995 to 2007 and he made waves in the industry for giving a 1997 speech on climate change at Stanford University. In that speech he acknowledged the discernible human influence on the climate and he said that BP would be taking steps to control its emissions, fund continuing scientific research and develop alternative fuels. During his tenure at bp, he changed the way the company approached climate.

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In today's interview, we'll hear about the Strait of Hormuz. That's a major oil and gas shipping channel in the Middle east linking the Persian Gulf with the Gulf of Oman and the Arabian Sea. We'll also hear the term lng, which stands for liquefied natural gas.

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Today, Lord Brown is chairman and co founder of Beyond Net Zero. This is the climate investing venture of investment firm General Atlantic. And we'll hear more about that as well. Okay, let's dive into my interview where he starts with some introduction.

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Well, I'm a businessman. I'm an engineer and an author and I've spent really my professional life after my middle twenties in the energy business. In one way or another, I used to run BP. I was the CEO of BP for 13 years and I retired in 2007. And since then I've been in a variety of energies, mostly non hydrocarbon, but some hydrocarbon. For example, I set up Europe's largest independent gas business. I set up five years ago an energy fund called Beyond Net Zero, which is exactly what the label says it is. It invests to make private equity returns, but also at the same time reduce greenhouse gas emissions. And we pretty well invested the three and a half billion dollars in that fund. And it looks set, fair.

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Okay, I want to dig a lot more into Beyond Net Zero, but first, maybe just to take a step back, talk to our audience who's not here in Houston. What should they know about this saraweek conference that we're at?

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So I've been coming to saraweek for a very long time and every year is different really. It does demonstrate that the energy business moves and moves at a reasonable pace on the margin and very slowly as the bulk. And I think this year we're reminded, first of all that transitions take an enormous amount of time. Secondly, that the transitions from one sort of energy to another form of energy move with ups and downs. They have to be pragmatically adjusted to the circumstances of the day. Thirdly, we are here during a time of huge disruption in the Middle East. The Strait of Hormuz is effectively closed. Iran has taken action against a variety of other producers, LNG and oil facilities. And the world is not quite sure when all of that will comes together. So how long do we lose? Around 15 million barrels a day of production and significant amount of LNG from Iran. And what does that mean for the world in terms of growth and inflation. But it does demonstrate that energy is behind everything. And it's certainly true that you need to diversify sources of energy in order to gain some degree of energy security. So the agenda fourth year is about energy security is really top of mind about affordability because I think a lot of populations don't want to be told it's good for you. Spend more. They'd like to know how can I spend less and still have light heat mobility to keep me going. And thirdly, it is about climate. This is not dead as an issue, but it has to be blended as always with security and with affordability.

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I think that for me is really the big question.

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Right.

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This podcast is called All Things Sustainable. So we're looking at topics through a sustainability lens. How do you balance that security, affordability and sustainability triangle, if you will?

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Well, I think we've been doing that over history. If you look at a reasonable time scale for what is a very long term industry, the energy industry, you take the last 30, 35 years, you can see that modern renewables, which is wind and solar now with battery storage, which is an intimate part of that, has really quite changed. 35 years ago it was 0% of the world energy supply. Now it's 10% of final energy demand. So things have changed a lot. And the role of nuclear has been up and down. The role of coal has stayed fairly constant, although people would wish it away. But actually you can't wish things away, you have to substitute them. And that is what I think we are in the business of doing. Can we find energy sources which are intra marginal to existing energy sources and at the same time reduce greenhouse gas emissions? So I think that's all very possible. Renewables have done it. Nuclear is set to try with small modular reactors. Geothermal is having renaissance, probably more complicated ways of recovering heat. And hydro is having a go. But there are other technologies as well on the horizon which I think will make a dramatic difference to the energy mix. Oil and gas will be around for a long time. So there are two things that you can do with oil and gas. One is when you burn them, recover the green greenhouse gases, primarily carbon dioxide, and don't let them go into the atmosphere. But you have to do it at a cost, which is sensible. And that is happening today. That's very, very important. And secondly, you need to find other sources of energy that actually are much cheaper than hydrocarbons. And that's beginning. Clearly renewables has done that. They're intra marginal to the price of kerosene, for example, in a lot of sub Saharan Africa. So people are very excited about having solar. It's cheaper for them. But also the new technologies of converting what the world has gigantic amounts of, which is biomass, into something which is really useful, like a fuel that can be used in existing infrastructure. So replacing kerosene or gasoline and to do that at very low cost. Finally, I will add a third. One thing about crude oil is it's actually useless unless it's out processed, refined. And refineries take a lot of energy because they work at high pressure and high temperature. A lot of people working on how do we get the temperature and pressure down. So converting crude oil into a product is actually more sustainable than it used to be.

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And talk to me about what you hear from your former BP colleagues and your former oil and gas colleagues when it comes to the topic of climate and the energy transition. What kind of conversations do you have at a conference like this?

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So I think a lot of the conversations are about what you might call sticking to things that you're good at. Corporate strategy always comes back to this, what are you good at? What you have, which is a moat around you so you can defend your position. And many companies are doing just that. It's not just the oil and gas companies. I noticed this thing to the CEO of Ford the other day, that their moat is heavy duty vehicles. Can they make them electric at a total price to the consumer? That is a cost to them, that is competitive with China and that's where you have to focus. So similarly for oil and gas companies, they're focused on what they're good at, which is oil and gas and refining and marketing. And can they do that in a way which is always driving efficiency and driving more efficient use of harbour? And can they leave almost the rest of it, renewables, electric, supply and demand and planning thereof, to other people who are better at it? I think there have been plenty of people who are really good at the general management of electricity. They're called utilities. And so they know they've had a much bigger history and depth than the oil and gas companies. So I think oil and gas companies are going back to what they're really good at.

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And how do you think about that with your sustainability hat on?

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Well, I think that there have to be many players. So there are many players and many solutionists. In the end, we have to remember, remember this, that in the private sector, and I'm not talking about governments, in the private sector, all investments have to make a return, otherwise surely they cannot be sustainable. They have to last, which means they have to have the support of people who provide the capital and they have to be able to generate enough net profit that allows them to sort of survive and create the next year and the many years. So sustainability for me is very clearly how do you keep the business in great shape going forward? And number one is how profitable can it be now? You have to do it in a way which incorporates all the stakeholders around you, whether that's local community, as I think the data center developers have found out. It's not always obvious to people that a data center, which is great for AI and things like that, is really good for a town around where the data center is being built, partly because water has to be conserved and space needs to be used properly. So stakeholders are very important for everybody. Oil and gas in particular. I spent a lot of money, life Running bp, worrying about all the stakeholders, and that includes, incidentally, the attitudes and drives of the team. That was bp. They want to be respected, they want to have a sense of place in the community, which means they have to do good things for communities.

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We had a chance to talk a little bit about this at a dinner that I chaired last night. You were one of the panelists and the, the dinner title was Sustainability and Pragmatism. For anyone who couldn't be in the audience here in Houston, what should they know about how you think about this buzzword pragmatism we keep hearing?

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Well, I think it's about time and place. Something is possible in some times and places and other things are not. To get something done, you have to bring people along with you. That requires adjusting how you do things and when you do them without actually losing the plot. So I think keeping your values in place, fair dealing, where you don't cut corners, being safe and all these sorts of things, as well as keeping an eye on your purpose, which is being sustainable, which includes bringing along the stakeholders, those things direct how you can do the business from time to time. It's a bit like playing a piano. There are loud notes and there are soft notes and after all, a piece of music can't be beautiful just with loud notes. It has to have contrast, and that is true for business. You have to have contrast. Don't lose the plot though. Always remember the score. It's just that we go through different patterns in the score.

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I like this musical analogy. So we've talked about some of the near term disruption that we're facing in the Middle East. How do you see that impacting long term sustainability strategies?

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This is, I think, the sixth gigantic disruption I've been through in the oil and gas business in my career, which goes back to the late 60s. And I think it reminds us again that energy security requires diversity of sources and supply chains. And those things which are most secure are the things that happen close to where you live, where you have real control. So I think it will remind us again that we have to think about the energy mix and we have to think about whether we pay for energy security in a more explicit way. There are things that every country can do, as is evidenced for example, by China, which has built such a gigantic amount of renewables, because it's there in China and it's under their control and I'm sure they will build more and more all over the world. People will look at that. With advances in storage, it becomes less of a concern. Not no concern, but less of a concern for intermittency on the grid. But there's also additions for nuclear, which has come down as a share of global energy provision. So that's probably going to go back up and all sorts of new things. I'm very interested in energy security saying use what you have within your country. And in some countries they that means, for example, really using biomass in a way which makes sense, not just burning it or just converting in a very primitive way into ethanol, but actually to really think how we can convert it using new technologies invented by AI acting as a scientist, along with chemistry, quantum chemistry, how we can create all organic catalysts, enzymes which are not known to nature, that can actually change biomass into real usable fuels. Incidentally, that means that they're going to deploy the carbon that's already been used and not adding more carbon to the activities that we do. So just one example of a technology which could be be great for the future.

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Can you tell me what should our audience understand about the Beyond Net Zero investment strategy?

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We're a private equity fund, we're in the growth equity business. We support companies that are going to grow and we do it with no trade off between two things. One is returns, which we expect private equity returns, so net at least a couple of times the money you give us. And we also reduce greenhouse gas emissions, mostly aligned with science based targets when they were current. We've now gone beyond that, but it effectively does the same thing, a positive negative contribution, if you will, to the amount of greenhouse gases that are emitted. And we have effectively done this for the entire life of the fund with no trade off. We have great returns, great impact on the climate and the two things go together. In order to do that, we have to invest in things which are good for the energy transition, that improve efficiency, improve decarbonization, align ourselves with the circular economy. And I think that's one of the more interesting things is people, they're not good at using waste. And then we have mountains, for example, of tyres. And the more we use high energy automobiles, the more rubber is left on the road, so more tyres are then used. So we are the second largest, I think tyre reprocessor in the United States and we really do reprocess them, making sure we're very careful with the carbon emissions. We use the rubber to make floor covering both externally for playgrounds and internally for places like basketball stadiums. And this means there's no net addition to carbon. So plenty of examples like that that we invest in and these are all Things which add to sustainability, but they also add to value growth and therefore employment and therefore good communities.

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Is this a controversial idea in your space that you can do both things, that you don't have to have a trade off?

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Yes. I mean, I think in the end the proof is in the results. And if the results are okay, then this is not spin, this is not coloration, it's a fact. And I think a lot of the world, starting from with the idea that you really have to do things that appeal to people. You can't go and say to people, I tell you what, we're going to be sustainable. And what you have to do is stop using gasoline, or what you have to do is stop eating this food or that food, or stop using clothing made of artificial fibers. People will say, well, thank you very much for that information. Let me just carry on and have a life. And when that's applied to the Global south, it can really create disaster because there's not a lot of things people can do. If you ask them to do less, it's not a winning way. So we have to do things in line with what people do. Speak into the flow of the world, not against the flow of the world, and use technology and brains to create sustainability for the future.

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What you're describing goes back to this idea of pragmatism and being tied to real world outcomes.

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Yes, it is. In the end, even businesses have electorates. They're called customers. And when you ask the customers, they have to support businesses and vote yes, otherwise the business is not going to be in business for very long. So. But it's not just the stakeholders, it's the customers. And what you're offering customers has to appeal to customers on the long term.

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Our audience, as I mentioned, is all over the world. We have listeners on six continents. Many of them are sustainability or climate specialists and many of them are feeling discouraged by some of the recent pushback that we've seen on climate and sustainability. What's your message to them from your vantage point point?

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Well, again, my message to all of them is don't lose the plot. We need sustainable companies, we really do. Otherwise they won't be enduring as the world keeps changing. I think be careful to equate sustainability with, for example, corporate social responsibility. That didn't work. It got decoupled from the line. There weren't enough people thinking about sales and marketing and production and manufacturing. They were thinking about corporate social responsibility. The same is true with esg. ESG can get into a box ticking exercise. It can get divorced from the reality of business. Sustainability is about the reality of business. It needs to be deeply coupled in the specific way a business works, not in a generic way. And I think that's really important. That's where a lot of things can be developed. If people have choices on what they can do, sometimes doing it in a way which is better for the future is cheaper than doing it for better for today. And I think having a dialogue with them creates a very exciting opportunity.

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Well, thank you so much for sharing your time with me and your perspective with our global audience.

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It's a great pleasure. Thank you.

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So today we heard how war in the Middle east is reshaping the way people think about the energy trilemma of energy security, affordability and sustainability. At saraweek, the big focus was energy security, and that requires diversity of sources and supply chains, which means a rethink of the energy mix in many parts of the world. Former BP CEO turned climate investor Lord Brown said you can't look at climate in a vacuum. It has to be blended with security and with affordability. And he noted that businesses have to be both profitable and incorporate the needs of stakeholders. That includes employees, customers and local communities. And while this is a balancing act that businesses have to manage, he described Beyond NAT0's investment thesis that you can get returns and have a positive impact on the climate without trade offs. We'll be back in upcoming episodes covering these topics and with more interviews from Sarah Week to help understand what's ahead for energy and sustainability. So please stay tuned.

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