A Sustainable Future: Alex Grant, Equinor, on the Energy Trilemma

Is this latest energy shock a one-off event or a harbinger of more energy crises to come? Listen to Jason Mitchell discuss with Alex Grant, Equinor’s Senior Vice President of Business Development and UK Country Manager, the energy transition; the trade-offs that we may face between security of supply, price volatility and affordability; and the emerging energy technologies like blue and green hydrogen.

Recording date: 06 December 2021

Alex Grant

Alex Grant is Equinor’s Senior Vice President of Business Development Origination and Execution as well as its UK Country Manager. Alex joined Equinor from Jefferies in 2017. His background is in investment banking where he worked on M&A and financing transactions over the past 20 years in the energy sector.

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

Jason Mitchell:

Hi, everyone. Welcome back to the podcast and I hope everyone is staying well. One of the biggest themes of the last several months is energy. Energy costs to be specific and unprecedented price volatility across global energy markets, its effects have already been profound case in point more than 25 energy providers in the UK have collapsed following the recent Sur gas prices. It's opened an important discussion about just how bumpy the energy transition is going to be. And whether this energy shock is a one-off event or a harbinger of more energy crises to come, it's also pushed the notion of the energy tri to centre stage. The energy tri describes the delicate sometimes conflicting balance between decarbonization security of supply and affordability.

Jason Mitchell:

So while the urgency to decarbonize the economy is unequivocal. No one is debating that there's a powerful argument for why we need to better understand how this affects energy security, at least in the short term and what these social implications are. No one wants to see a new class of energy. Pour emerge out of this. What's also clear is that this energy transition is different from previous transitions think would coal and coal to oil. They evolved over hundreds of years as products primarily of cost competitiveness. By a contrast, this transition is largely policy driven. Sure. The falling cost curve behind renewable energy technologies is already playing a pivotal role, but it's policy that will drive the transition over the next 30 years. It's why I'm excited to have Alex Grant from EOR on the podcast. Ecuador is one of the major gas suppliers to the UK, but they also happen to be building the world's largest wind farm off its coast.

Jason Mitchell:

We talk about the energy transition, the trade-offs we may face in the efforts to decarbonize provide security of supply and price stability, and the emerging energy technologies like blue and green hydrogen Alex is EOR senior vice president of business development, origination, and execution as well as its UK country manager. Before joining EOR in 2017, Alex was at Jeffries where he focused on corporate finance and mergers and acquisitions in the energy sector. Welcome to the podcast Alex Grant. It's great to have you here and thank you so much for taking the time today.

Alex Grant:

Thanks for having me on Jason.

Jason Mitchell:

So Alex, we've got a lot to chew on. I've really been looking forward to this, this episode. I'd like to start with COP 26, which is coincidentally, where we met each other. What in your view were the most impactful announcements regarding the energy transition from COP 26?

Alex Grant:

Firstly, just a few little sorts of side comments if I may on COP 26 and the role of an energy and predominantly oil and gas company at the event, I think one big learning from me as UK country manager, part of my role was to work out how Equinor approached the event and how we engaged with it and how we attended it. And I think alongside a number of our peers, we spent a lot of time beforehand debating what it was going to be and what it wasn't going to be. And in some ways fear then and builds about our level of acceptability and acceptance at the event, even to the point where I think I wore my second-hand suit when I went for, for worry of things that might get thrown at me or put to me.

Alex Grant:

And of course when you get there, you realize it's something very, very different. Of course it's people that are very climate focused, but it's people that are wanting to engage proactively make things better across the board. And there was a, a real energy there and a real desire to engage with me and with the industry more generally, I'm not saying the engagement was all sort of happy and positive, but it was all with an intent to try and make things better rather than sort paint us or the industry as a negative in the debate. So very positively encouraged by that. And I do think it's important that whether we like certain messages coming out as a company, we have to engage with it all to understand it, to help us transition because we are determined to do so. In terms of what came out that was most important, of course, there are a large number of things that are being commented on.

Alex Grant:

To me, the key was around article six and it sounds kind of boring, but it's very important for the accounts and the legal structure to be put in place as to how we're going to measure carbon. And that goes for country level, which is where it was mostly focused, but also on a company level. At the moment, we see a lot of people in our industry and wider trying to do good things, trying to do the right things, but everyone is measuring it or interpreting it in different ways. And until we have some level of consistency across the world and then across companies and then across industry is going to be very difficult to get a sort of systematic effort to tackle the challenge.

Jason Mitchell:

Yeah, it was a, I completely agree. It was good to see the Paris rule book finally closed. I I'm wondering though that as an energy company or someone sort of representing the, that industry, what was your reaction or what was the collective reaction when you saw particularly so much news flow or announcements about the shift by finance and as well by, by in some cases, countries, and multi-lateral development banks away from largely coal and unabated fossil fuel projects?

Alex Grant:

I think that was one of the big things that came out overall. I mean, one of my observations was there was a lot on the supply side and from where we could see a lot less on the demand side in terms of shifting the mix and our belief at least is that you need to have both. So they were all very welcome in terms of the, the packages and, and policies introduced. But I think unless you have something that man on what fuels people are going to use and how flexibly they can demand that it does sort of set the scene for perhaps some difficult times ahead. And I think that's one observation I'd have, as you mentioned at the front, you know, I have two roles at Equinor. One is on the business development, but one is as UK country manager and over the last year in that UK country manager role it involves amongst other things, a lot of interaction with government here in the UK and in the energy space, that sort of triangle of things that are important in energy.

Alex Grant:

So it's energy security, price and decarbonization. The point of that triangle over the last year has been decarbonization. That is the topic that various ministers or bodies have wanted to talk about on top of everything else, of course, leading up to COP, not least. But with the recent price increases, especially on the gas side energy security and price seem to have risen above and the near-term problems of price and security are outweighing the longer term problems of decarbonization.

Jason Mitchell:

And I was sort of wondering how best to enter this conversation again, through one of those three points, decarbonization, price, and or security. And I do want to cover all of them, but I actually found a recent essay in the Atlantic by Daniel Yergin, quite interesting. This came out over the last week titled why the energy transition will be so complicated. It's kind of a splash of cold water. And I think a necessary one in terms of how we think about this energy transition. It's not going to be necessarily linear or smooth. It's going to be disruptive on many different counts, but Yergin asks in that article some incredibly relevant questions. And I kind of want to put them you, I'm curious about how you respond to them. He asks, for instance, quote, is this energy shock a one off resulting from a unique conjunction of circumstances or is it the first of what will be several crises resulting from straining too hard to bring 2050 carbon reduction goals rapidly forward, potentially prematurely choking off investment in hydrocarbons, thus triggering future shocks. And it might actually be worth for the audience, maybe painting the picture of all the price volatility that we've seen over the last several months.

Alex Grant:

That's a very difficult question of course, but maybe the best way to do it is around gas, gas in Europe and here in the UK because it's been something that's been very close to what I've been looking at over the last weeks and months. So gas prices of course have risen extremely high orders of magnitude from where they were in the summer. And we didn't predict it. I don't think many in the market did. Yes we maybe thought there might be a tighter winter, but the levels that we've seen been a big surprise to us as they have been to the whole market, why have they come? You can read literature and there's all sorts of factors. Now, given in hindsight, from lack of wind, to lack of investment on the gas side, to, as you say, investments being choked on the upstream to Russia, to potential for a colder winter to lack of storage.

Alex Grant:

And I'm sure these all have various parts to play, but I think what is clear is that there is a lack of flexibility in the system, which adds a premium or a risk premium to the prices that we see on screen. And at the think that lack of flexibility is something we need to be very cognisant of. As we look at how we manage this transition, you could apply it to oil as well, but if we stick with gas, one of the problems in our mind certainly is not the propagation of wind. Yes, wind is inflexible, but we need to push out more, wind, more wind, but we need to recognise that it's an inflexible provider of energy and what needs to come alongside is flexible sources and increasingly decarbonized flexible sources that could be batteries. Of course, if that comes and that might progress over time.

Alex Grant:

And that is the key in our mind to hydrogen, the value of hydrogen is not just the value of the molecule. Much value is in the flexibility that that molecule or electron can offer vis-a-vi the inflexible sources. And those two things need to push together flexible supplies of decarbonised energy together with the more established, mature inflexible supplies coming to the demand side. Whereas I came to earlier, that is, again, what the demand side is about. It's not just the reduction in demand or fossil fuels or for carbonised energy. It's also whatever we can do to moderate that demand. So it can provide some of the ability to match the inflexibility of some of the decarbonized supply sources, for example, the heat and buildings strategy. For example, as people always talk about, you know, maybe you can charge your cars at different times of the day. That type of thing is all important to try and moderate some of the demand to meet the supply rather than our old system where you would change supply to meet whatever the demand curve was.

Jason Mitchell:

So I'm going to push back on those two questions that you composed, because I think the very high level view is this, you know, that, that observation from [unclear], you know, the transitions that we've seen from wood coal from coal to oil have spanned centuries. So the question is, is it your expectation that the energy transition is going to be inherently volatile, bumpy, whatever you want to call it. If we try and compress it over the next 20 to 30 years.

Alex Grant:

I think any transition is going to have its ups and downs and some bumps. But I think key to it is to try and recognize why those bumps might come and how do we minimize and mitigate them. And that is through this flexibility point to try and build out the flexibility. One of the problems, for example, we have our wind farm docker bank and we have a fixed off take on that. Whenever reproduce electricity. I forget the exact number. I think it's 54 pounds per kilo hour. And that is often compared in the market to say, this is not a subsidy look it's equal to the average electricity price. So we're only getting a guaranteed price equal to what the average price do we get if we were just merchant, but it is actually a big subsidy because it guarantees us a price when the wind is blowing, which is when we produce our electricity or will produce our electricity from Docker bank.

Alex Grant:

Actually, what is, will be much more valuable electricity in the future is when the sun is not shining or when the wind is not blowing. That's very hard to quantify in a cost. If you had hydrogen, for example, that costs two times more or three times more than a wind alternative juicing electricity, is that expensive or not. If you just compare it to the absolute LCOE or you know, cost of production, of course it is. If you recognise that that hydrogen or electricity produced from hydrogen will be producing at the times when we really need it, when prices are high, perhaps it is not. And if we can squeeze how much is needed in those points to smaller levels and have an abundance when wind is blowing or sun is shining, that energy system will be something that can be at a level of expense that can be accepted, socialized and taken by countries and by society.

Jason Mitchell:

I I'd like to stay on this UK example, because you mentioned the Docker bank wind farm, which will be in several years, the world's largest wind farm. I found it quite interesting that the UK grid only a few days ago is you a supply warning or technically called a capacity market notice. And it's only December with gas storage levels across Europe, running well below the norm as we head into what feels like much colder months than normal. How do you capacity plan and capacity build around these short-term supply issues?

Alex Grant:

Yeah. So firstly, let me just get a little bit excited if I may around Docker Bank, as you said, it will be the world's biggest wind farm. When it's on stream it's 2.4 gigawatts in the first two phases, 3.6 gigs with a third phase potential to go even bigger and with our partners se renewables and E and I, it really is something that we're very excited about just to give you a, a little fun stat. I think one spin of the turbines is enough to power a home for two days of one turbine. So these are real mammoth massive things. And the technology and size are just increasing almost by the week or by the month we see new and bigger capacities and potential for power output. So there's a long way to go in terms of improvements in power output.

Alex Grant:

And we that's before we even come to for loading offshore, which has benefits of not just higher wind speeds, but actually positioning where there's different wind patterns as well. Coming back to this problem of only producing when all the winds blowing at the same time. But moving on to your question on the intermit question or situation, I think it's, it's less for a company to do that. And I think it's more for a, a government or a country to see the overall energy system and then set the regulations and processes to match what some of the challenges are. I think the UK has been at the forefront of this and it should actually be applauded, not just for the ambitions it's set, but now for some of the detail, it's starting to put into place to try and address some of these challenges, big success story on the build out of UK.

Alex Grant:

Wind can go a lot further in targets to do so, but then recognizing that the periods where wind is not blowing, how do you decarbonize that part of the sector or how do you make sure that there is enough economic incentive that people build supply capacity to provide energy at those times? And that comes in different forms. One of course is the capacity mechanism, which has been in place for some time to try and encourage and have payments for just being ready to be on the system. But moving more to the decarbonized side, it is, as I mentioned previously, one of the big advantages of hydrogen its hydrogen in its role as being a store of energy, not just a provider of molecules or, or energy and the UK has set clear hydrogen targets. It is now picked to clusters as it calls them that it is going to push forward to try iron develop both in areas where there is heavy industry in the Northwest of England and then around east coast, cluster hum side T side region and putting in place that mechanisms and the mechanisms for emitters to use the carbon capture or use the hydrogen that is produced and be able to do that in an, in an economic way is the hard work that has now started.

Jason Mitchell:

So I think you've kind of illustrated how you build long term capacity, fixed capacity, at least through a place like Docker bank and the merits of hydrogen. But again, one thing that I want to come back and touch on is this sort of feels like sort of fragile period that we are in for one to two to three to, I don't know how many kinds of years, which sort of points to the role of natural gas, you know, natural gas plays such a central, but often unacknowledged role in people's lives. How do you see natural gases as a transitional fuel for power generation? How do you see it as effectively a useful stop gap? What are the policy incentives to build that kind of short-term capacity? Because it was my understanding that one of the reasons that there is a supply shortage among many other reasons, is those incentives aren't very strong/

Alex Grant:

Yeah. So I don't think there have been huge amounts of policy incentives for natural gas. And I don't necessarily think of course that's a bad thing, as you say, it has got to the point where the system is tight in the UK. And if you think about what's happened, the advance of renewables specifically offshore wind has been able to do so on the back of the incumbent flexibility that is already in the system. But if that incumbent flexibility, namely natural gas has not been invested into the same extent as wind becomes a bigger and bigger part and renewables in general of the energy mix, there is less, that's been historically developed to fall back on the biggest cure for that is high prices, as they say, the biggest cure for high prices is high prices themselves because that encourage investment or encourage alternatives, whether it be on the renewable side or on the electricity storage side.

Alex Grant:

I think one of the interesting questions I've kind of asked myself recently is what does these high prices for gas mean for gas? The unconventional wisdom would say that it will accelerate the transition away from gas, maybe no bad thing because it's a more expensive alternative. And it encourages investments in, in other alternatives and makes the decarbonized alternatives relatively much more competitive. You can talk about, oh, we reduce wind costs, sell COEs by 10% or forecast 20% per year or over the next two years or three years. But compared to doubling the cost of the or fuel side or tripling on a relative basis, that's a much bigger relative improvement for renewables, but perversely, there is an argument as well that says that it may assist in gas in the near to medium term because politically it has made the politicians and the sort of government as a whole realize its importance.

Alex Grant:

And back to the comment I made on the triangle before suddenly security of supply and price are the big issues of the day with the long term, one of decarbonization being not at the top anymore only I would argue on a par the key for this transition to make sure that it's not too bumpy because if political will faults that obviously will be a very bad thing. The key to the transition is in making sure it's not too bumpy is to have much flexibility as possible to be used as little as needed. So build out as much decarbonized, less flexible supply as possible, but keep the flexibility in the system. But then of course that flexibility hopefully never needed to be used or very little still needs to have a mechanism in play to justify the investment in it. And that is the regulatory structure that needs to be set up around starting first, if needs be with natural gas or carbonized flexible sources, but of course moving more and more to decarbonized, flexible sources be that to blue hydrogen through natural gas, be it green, hydrogen or batteries

Jason Mitchell:

In intuitively high gas prices creates a high ceiling. And it's good for more investments in renewables. Is it actually, especially during this kind of price volatility that we're seeing?

Alex Grant:

So intuitively yes, apart from the point I mentioned, if you look at most renewables projects in the UK, at least on the big offshore plants are fixed offtake contracts, then high prices don't matter. You just get your price for whenever you produce, but recently, and more and more they're moving to merchant. So we've got merchant plants in the Netherlands. I think there was the first announced in Germany last week or last month.

Jason Mitchell:

And apologies but merchant is what, spot prices?

Alex Grant:

Merchant is basically spot prices. So the whole wind industry across Europe has been built up on you get your lease and then you fix an offtake with a credit worthy. Offtaker often underpinned by government in Europe, at least like PPA, a PPA or a contract for difference in the UK, but similar type situation. And that allows you to do a few things. One, it allows you to have very good foresight in what your revenue line is going to be. That helps you raise a lot of finance against it at relatively low rates, especially in the world or in, at the moment and allows you to have a relatively low financing cost development in the future. That will move more and more towards a merchant model where you build a wind farm. You take your chances on the electricity price. Now you are much more likely to take your chances on the electricity price. If the electricity price is double or trouble compared to where it is now. So I think it will give people a lot more confidence. It certainly gives us a lot more confidence today as of a few months ago, when we're looking at the potential economics of these merchant plants and doing ones in the UK or in Europe.

Jason Mitchell:

I want to talk a little bit more about the security supply issue. I remember when I was looking at the energy complex a number of years ago, I started to kind of understand the energy paradigm. And like you said, it was sort of security supply. I remember another, it seemed like kind of saying in the energy and industry was quality buyers find quality sellers, particularly now with high gas prices, how that is changing as the energy transition moves towards renewable, at least in the short term, because that energy paradigm has been uprooted in some sense, right? Sort of your suppliers now are increasingly Russia, but I guess you're finding this sort of change and, and increasing dependency, at least in the short term, as you make this transition to, I guess you could say less reliable suppliers where those arrangements are increasingly politicized. I mean only look at the news one to two weeks ago with, BEUs talking about sort of the gas supply into Europe. How do you think about this changing kind of your political energy dynamic?

Alex Grant:

Yeah, so I mean a point on Russia, I think, which you refer to of course there is more politics when your energy comes from further away, I would make the point that Russia has been quite a reliable supplier of energy to Europe, even through some very difficult and very amazing times in history. It's been a reliable supplier, but I tell your point that, you know, there is more geopolitics when you get your energy from sources further away. From our perspective, I work for a Norwegian company. The key focus of the company is being a reliable supplier to its customers. And perhaps that the importance of that has gone up, which of course is good for us when it being our, one of our main focuses and being a, a lower and lower CO2 footprint of the energy that we provide easy to say with our wind farms, et cetera, more difficult of course, with our oil.

Alex Grant:

And, but we still spend a lot of time, for example, electrifying a number of the fields that we have on the nor and continental shelf, which powered from green electricity, from Norway to reduce the carbon footprint of the product. So from a purely selfish perspective, I suppose, as these two things become more important in terms of security supply and the carbon footprint of what's supplied. We're trying to position ourselves to be the most secure and the lowest carbon supplier of product. But over time, of course, gas should be a lower part of that mix. And that, again comes back to the other side, which is the demand side or the continued build out of the sum of the less flexible renewable sources. Yeah.

Jason Mitchell:

You've been on both sides of the table in a sense on the investment side as a banker and now on the corporate side of the energy table. And I'm wondering, how do you think about energy investor expectations? It seems over the last half decade, we've seen just this tremendous shift in business models and branding as an example, EOR itself was previously called state oil or Ted was energy, London energy was London petroleum. Do you think investors broadly speaking from your interaction with, are they simply too impatient to invest across the energy transition? That's a broad statement. And I know there are a lot of different types of investors. I, you know, PE and public markets, I guess I'm probably being a bit more specific to public markets.

Alex Grant:

I don't think they're being too impatient. I think you know, the investors are the onus of these companies, including ourselves and, you know, we listen to them a lot in terms of what they are looking for and what they're requiring. And they're making very clear via lots of different ways, not just the public letters you hear about or the public descriptions of policy, but also frankly, just looking at valuations, comparative valuations of those C these who are Don TEDS that you reference versus some of the more pure EMPS. So, you know, in terms of, are they being too impatient or not? I kind of look at it a different way, which is, this is where we see our investors wanting to move this by the way is also where we see our employees wanting to move. And this is where we see society wanting to move.

Alex Grant:

So all things add up to trying to move and accelerate quicker, but trying to ensure within that, that we do keep some security of supply and there aren't too many bumps on the road bumps on the road. My fear is that that will reduce the drive smoother road, hopefully may means we can drive there quicker. So we kind of look at it in that context where everything aligns. I think one interesting thing. So I was in Houston last week and just come back to this bumps on the road analogy got in and out just really before Omicron has sort of reared its head and there very interesting is the first time I've been into the US for it, a COVID hit and toured around, met with a lot of companies, peers, independents some utilities banks, private equity, and there is a general perception over there that supply is being constrained by shareholders in terms of valuations and not equity markets being difficult by banks not financing as much, even by sort of some of the other high yield, private equity, many less private equity companies, of course, driven by their LPs, looking to invest particularly in the upstream and a conclusion from that, that without any movement on the demand side, there are going to be big spikes in the future.

Alex Grant:

That was a general conclusion across the board. From my perspective, I don't fault that logic, whether it comes true or not, I don't know, but I don't fault that logic. I can see that pattern happening. What I found interesting is then the conclusion that came after that, which was one of, and then society and governments will realise how important the energy companies are, how important keeping people out of fuel poverty, keeping inflation down, increasing GDP, driving the growth engine, how important energy companies are to that. Then they'll come to realize that simply cutting off the supply is not the right way to go. And that side of the argument, I find more difficult. I can see that logic as well, but I can also see the logic the other way, which is at that time, there are those high prices then society and stakeholders can be looking and saying, not only are things not moving fast enough, but we also have difficulties in our economy.

Alex Grant:

And by the way, these energy companies are also making supersized profits at the same time. And that being the dynamic rather than the one portrayed by a lot of people I met when I was in the us. And I think that is another reason why making sure these bumps in the road don't come too much. We've got to try and keep things stable and move towards this sort of accelerated path rather than a stop-start. We as a company that provides the UK with 40 percent of its gas, don't think that these high gas prices are good for Equinor, for the UK and certainly not good for the overall transition and decarbonisation.

Jason Mitchell:

It's interesting about sort of markets. I mean, I find as a similar kind of thread out of this conversation is that, you know, you find that sustainability investors responsible. I, they worry a lot that during the energy transition, many of these very dirty carbon intensive assets, coal assets for instance, are being divested or they're, they're falling into sometimes non-listed companies or private equity, hands, private hands where there's very little, it's almost sometimes no transparency. And there a lot of sort of, I think, disappointment or sort of frustration with how to engage with companies and sort of drive more progress. But I do wonder, and I'm kind of curious about your opinion. I sort of think isn't this a sign that we're seeing the later stage of energy capitalism, where these assets are in some ways trading like high yield debt and the fact that they falling into private hands means that they effectively can no longer be securitised.

Alex Grant:

Yes. I think it's a, it's a great question. And you know, how does energy capitalism relate to decarbonisation? I'm not an expert on this area, but I read about BHP's coal sale to an Indonesian company. And you know, prior to that, and I've been reading about a lot of the lobbying and persuasion by shareholders and stakeholders that they should be divesting of their coal assets and moving to much towards a company, you know, providing roles for the green transition. And then off the back of that transaction. If you read the statement by, I forget the name of the company or the, the family that's sought it, but they see those coal assets as a springboard for further growth. And here is one of the dilemmas of the transition and the energy industry that, yes, it's probably in the long term made BHP more robust and delivered on what their shareholders have wanted in the short term, but also arguably it's made the planet a worse place because a new steward of those assets perhaps has a larger growth agenda than they do. And this dilemma is hard to grapple with. If you take the view that supply is going to be cut and finance, et cetera, is going to squeeze it so hard that coal will go how to business anyway, then perhaps divesting. And then these assets dying is right. But if you take the view that companies who want to pursue growth more, may slow down the speed at which the transition happens. It's a massive dilemma. And, you know, you can of course the analogy to oil and gas as well.

Jason Mitchell:

Let's actually change lanes and talk about hydrogen blue and green hydrogen. There's a degree of scepticism out there around hydrogen and, and how fast it can ramp. So the fact that you are optimistic is actually quite interesting. What makes it a game changer? Is it because it's effectively a global market get from the outset, which is different from let's say wind or solar, which are more localized or is it the potential it can have on transport and shipping? What is it?

Alex Grant:

So a few pieces in there. I mean, let's talk about the problem with hydrogen. First foremost, there are a few challenges, but one of the key problems in is that there is no market. So not only are we trying to create new products on the production side, but also need in parallel to develop the markets that we use at the current hydrogen market for grey hydrogen is very small. And the uses that we see for it in a decarbonized world are much more significant, but we have to build the demand and the supply side at the same time. I think it is wrong to compare the cost of hydrogen, just on the absolute cost of producing a molecule of it. If we compare that to a molecule or an electron of electricity produced from wind versus an electron produced from a hydrogen power plant, it is a wrong comparison just to compare the two.

Alex Grant:

What we have to recognize is the value in the fact that the one from hydrogen can be used at any point. And it should only really be used at least when it comes to electricity, when the wind is not blowing or when the sun is not shining or when batteries are not discharging, it's a long term battery, if you like. And then the other pieces where things can't be electrified. So heavy industry, the hard to abate sectors there, you have a decarbonized fuel in hydrogen that can make those industries or power those industries, but the cost is undoubted higher. And for blue hydrogen, it will always be higher than gas almost by definition. If you like, if you use gas to create hydrogen, to create energy, versus just using gas, to create the energy with the losses, that the system where you com have an intermediate conversion entails, it is going to be more expensive. Green hydrogen. On the other hand, theoretically could be cheaper than gas. And indeed we forecast, it will be at some point with cost reductions, but that will not be forced quite some time, though, in our mind, blue hydrogen is a transition to the final transition. That makes sense.

Jason Mitchell:

No, that does so blue and then green. And what kind of development cycles have you heard of when it comes to blue and then ultimately green? So

Alex Grant:

The technology is not difficult, so it's not about developing some brand new in conventional technology. So that side of things is just normal planning cycles for building big projects. The difficulty is the regulation that comes around it. There is no market at the moment a market needs to be created. And how quickly will that market come? That is predicting how quickly various governments or countries put in place the relevant regulation. But if things go well, middle of this decade, you could be seeing a substantial hydrogen production in markets, but really predicting up quickly, regulation comes out of governments. It's not something I'm expert on.

Jason Mitchell:

So Alex, last question, the energy space has seen an incredible amount of inconsistency in the scope of ambition and in reporting when it comes to climate plants, what I found is that most of the European energy companies report and set targets that are pretty ambitious. You know, they sort of span scope one scope, two scope three, while us energy companies generally avoid scope three emissions and and tend to give well recognized underpowered climate transition plans. The question I'd like to ask is how do you get your head around scope three emissions, particularly as an energy company?

Alex Grant:

So it is difficult to report on accurately and that provides difficulties. We have set a 2050 net zero ambition, as you mentioned for scope three. And the scope three part of it is much more difficult because a lot is out with our control. What assumptions do we make for how people can use our products and that methodology, and those thoughts are developing, but they need to develop as an industry rather than just as individual companies scope one and two is much simpler. I'll come back to scope three scope one and two is much simpler. There are things that we are in control of, and there are things we can fully analyse from the bottom up or how we can reduce and minimise them. One observation I'd make on that is I think one of the great successes of Equinor is if I asked your average employee here, whether it be a driller to an economist, to a geologist, to someone sat in head office, what is our scope, one operated, carbon intensity, all could tell you the vast majority of people could tell you what it is and have knowledge of what it's made up of.

Alex Grant:

And I think that's important because they're not necessarily big grand schemes that reduce these in a stroke of a pen. A lot of the work that needs to be done on this, if be reducing methane emissions it's through or bottom-up engineering or measurement, if it be reducing CO2 emissions, it's changing valves or changing the engineering process to reduce the energy and then CO2 use. So it needs to sort of be built up bottom up in everyone and be part of the design and and thinking whether it be around developing a new project, whether it be around drilling a well, whether it be around making economic investments and that bottom-up piece, I think it's kind of into the culture of Equinor. I don't know how much it's into the culture of a lot of other companies in the sector, but that has to come because it's great to just state it on strategic slides, how we'll get it from 15 to 10 or from 10 kilos per BOE to eight or whatever it may be.

Alex Grant:

But if the only way you end up doing that in the end is by selling them and getting it off your balance sheet, but onto someone else's, then you haven't really done much for the planet. So that's on scope one and two on scope three. I think it is hard. We just need to find a consistent methodology, which is one that's agreed across. And this comes back to where we started Jason on article six, which is until we found a way to measure these things. It's very difficult to see how systematically the world will get there. My kind of analogy is that, you know, we're in a world where no one pays tax, but the world degrees it's morally the right thing to do to pay tax and businesses decide they're going to lead. They're going to be at the forefront of this across countries.

Alex Grant:

And they're all going to work to pay some tax, but they're all allowed to use their own accounting methods to calculate how much tax they pay. You know, you'll come to some very different answers and not, I'm sure answers that favour the companies when they're calculating albeit a voluntary tax in this scenario. And there's something quite similar about the accounting in carbon. So the key first is that it's done at a country level, and that's why there's great progress, but a company is not a country. And so then it needs to be brought down and rules and reputable arbitrators measure as sort of your big four equivalence of those rules be established. And I think there was a lot of progress in that regard and COP, you know, fortunate, or unfortunately, depending who you are. I think accountants and lawyers are going to be vital to the energy transition out going forward.

Jason Mitchell:

That that is definitely true. well, this is a great way to end this. So it's been fascinating to discuss the energy transition, the trade-offs that we may increasingly face between that triangle of decarbonisation, price and security supply and the emerging energy tech like blue and green hydrogen. So I'd really like to thank you for your time and insights. I'm Jason Mitchell, co-head of responsible investment at man group here today with Alex Grant, Equinor senior vice president of business development, origination and execution, as well as Equinor's UK country manager, many thanks for joining us on a sustainable future. And I hope you'll on our next podcast episode. Thanks so much, Alex. Really appreciate this.

Alex Grant:

Thank you for having me.