Big Oil to Cleantech: We're Coming

Oil Majors Testing Clean Energy Waters

Written by Brian Hicks
Posted July 2, 2009

While attending the Renewable Energy Finance Forum Wall Street last week, I was almost surprised to see an entire discussion dedicated to how Big Oil plans on entering the cleantech business.

The talk was led by Don Paul, Executive Director of the University of Southern California Energy Institute.

In his former life, Mr. Paul was the Vice President and Chief Technology Officer at Chevron. He knows a thing or two about the oil business. And his presentation was right to the point.

The first bullet on his outline was: Why the global majors will be players in renewable energy. I'd like to share some of his insights here.

Why Big Oil Will Enter the Renewable Energy Market

Mr. Paul laid out five clear reasons why Big Oil will pursue clean energy opportunities.

  1. They have global reach and scale

  2. Strong balance sheets and cash flow

  3. Technical, business, and market capabilities

  4. Infrastructure, land, and supply chain management

  5. Patience and longevity

In a sentence, Big Oil has enough cash, credit, know-how, and steel in place to pursue multiple clean technologies in numerous geographic markets—even if it takes years. And it probably will, because the majors need to walk a fine line between becoming cleantech companies and ensuring they exploit increasingly scarce oil for all it's worth.

That's why Big Oil's coming to cleantech.

How Big Oil Will Enter the Renewable Energy Market

This was another five bullet set.

First, of course, they're going to use renewable energy to produce oil, freeing up more natural gas to send to market. (Insight: this means Big Oil thinks nat gas will be more expensive than renewables.) The possibilities here have a broad range, from offshore solar powered platforms to wind turbines next to Texas oil rigs.

I guess there's no power like clean power to produce, well, oil.

Second is what Paul calls "adaptive re-use for production and manufacturing assets." In English that means putting wind turbines or utility scale solar on their dying, or soon to be dead, oil fields.

Third is by integrating power infrastructures. Read: We are salivating over the natural gas back-up opportunities (and that's why we're not going to burn it to produce oil).

Fourth should probably be number one. It's geothermal development, which is a natural fit for companies with decades of drilling experience and huge land holdings. In fact, oil companies are already involved in geothermal on a large scale.

Lastly is integrating infrastructures for biofuels, also a glove-fit for Big Oil. There are already increasing ethanol blend rates required by law. And though biofuels still make some people cringe, once we nail down successful enzymes for cellulosic and feedstocks for biodiesel (algae?), the market should blossom nicely once again.

Big Oil can leverage their infrastructure ownership and know-how to seamlessly enter this market. And they already are.

Real Life Examples

In the face of continued criticism of renewables by the uniformed, I find it reassuring to know that even the sworn enemy of cleantech is finally coming around. Big Oil's plan to enter these markets should be the final piece of tape on naysayer's mouths.

And it's not about carbon or altruism in any way, shape or form. It's about profits and a major energy transition—plain and simple.

It's why Valero is using clean energy to power a refinery. According to the Wall Street Journal, "Valero Energy Corp., which has the capacity to process more crude than any other U.S. refiner, recently installed 33 windmills to supply a refinery here with green electricity to produce gasoline and diesel."

The WSJ also pronounced, "The marriage is one of convenience."

It's also why Big Oil is scooping up biofuel assets that now have a recession discount.

Valero just bought seven Midwestern ethanol plants from now-bankrupt VeraSun. Marathon Oil has taken large stakes in two ethanol plants with a capacity of a million gallons each. Sunoco bought one, too. And just like that, Big Oil controls 7% of total U.S. ethanol capacity.

Yes, after a long abstention, Big Oil is finally coming to the cleantech party. It was only a matter of time, and it's a huge affirmation for those of us with skin in the game.

But be warned, they're going to do this Big Oil style, on their terms. That means employing patience, looking for high returns, and only pursuing projects with guaranteed payoffs—hence buying ethanol assets for pennies on the dollar.

So don't expect Big Oil to start producing thin film solar or trying to improve wind turbine design. But appreciate that they're finally coming to the table and the incredible validity it brings to clean energy.