Energy Infrastructure: Getting New Supply to Market Faster

Panelist & Context

• Panelists: Mark Florian (First Reserve), Rick Grafton (Graftone Asset Management), Charlotte Phillips (Xenon Capital Partners), and Gerd Vandevoe (Shell Technology Ventures).
• Session Focus: Infrastructure challenges, global energy trends, regulatory hurdles, and investment outlooks for the next 20–30 years.
• Investment Horizon: While the session framed long-term trends, Rick Grafton noted that most CEOs focus on 5–10 year horizons due to uncertainty beyond that period.

Macro Energy Trends (20–30 Year Outlook)

• Global Investment Need: The OECD estimates a $37 trillion requirement for new energy infrastructure investment through 2035.
• Renewables Share: Renewables are projected to account for 60% of new global power generation, driving massive construction activity.
• Cost Parity Trajectory: The cost curve for renewables is dropping (solar panels falling 20–30% annually), potentially reaching grid parity in specific regions within 5–10 years.
• Distributed Generation Shift: As distributed energy (e.g., rooftop solar) becomes cost-competitive, utilities face the risk of losing high-margin customers to self-generation.
• Storage Imperative: Storage technology (batteries, pumped hydro, compressed air, hydrogen) is identified as a critical, yet currently expensive, frontier for enabling renewable integration.
• Demographic Pressure: The world population is projected to reach 9 billion by 2050, with 75% living in cities, creating demand for 2 billion more cars and 2/3 to 100% more energy.
• Energy Security: Gerd Vandevoe (Shell) posits that hydrocarbons and renewables must coexist rather than compete, as the world needs access to "every molecule of energy" to meet demand.

Infrastructure & Pipeline Dynamics

• North American Bottlenecks: Rapid supply growth in the US (Bakken Shale) and Canada (Oil Sands) has outpaced midstream infrastructure, creating significant price differentials.
• Rail as Substitute: If the Keystone Pipeline is not approved, shifting 800,000 barrels/day requires 15 trains with 1,000 railcars each; rail is currently being expanded as a flexible alternative despite higher CO2 emissions and safety risks.
• New Pipeline Approvals: Since the Keystone debate began, 15 other pipelines have been approved, projected to produce 4.4 million barrels of crude daily.
• Wellhead Infrastructure: In the Bakken Shale, lack of local infrastructure currently forces water transport by truck and gas flaring; pipelines are being proposed to move oil, gas, and water, reducing costs by $5–6 per barrel.
• Eurasian Political Risks: Pipeline construction in Eurasia is heavily constrained by political friction; Russia views China as a "complicated partner," slowing East-to-China gas exports despite Siberian reserves.
• Transit Country Leverage: Countries acting as transit routes (e.g., Ukraine) hold significant bargaining power over energy supplies to Europe.
• LNG Growth: Shell and the panel anticipate a major role for Liquefied Natural Gas (LNG) and mini-LNG projects to serve regional markets where large pipelines are not feasible.
• Arctic Challenges: Drilling in the Arctic faces prohibitive economic and environmental hurdles due to short seasons, high costs, and sensitive ecosystems.

Regulatory & Political Environment

• Regulatory Fragmentation: The US regulatory landscape is described as a "patchwork" where state-by-state variance creates investment risk; Canada faces delays from First Nations, environmental groups, and federal/provincial disputes.
• Spanish Precedent: Spain's rollback of renewable feed-in tariffs caused bankruptcies among developers, highlighting the risk of unstable regulatory subsidies.
• Canada Delays: The Northern Gateway pipeline project took 30 years to reach its current status; Canada loses $25 billion annually in potential tax revenue due to export bottlenecks.
• Russia vs. Civil Society: While authoritarian regulation (e.g., in Russia) can accelerate construction once a decision is made, it often bypasses environmental safeguards, leading to issues like illegal logging and poaching along access roads.
• Environmental Opposition: Projects face increasing hurdles from diverse stakeholders, including hang glider lobbies (a cited California project stopper) and local communities.

Market Economics & Commodity Prices

• Break-Even Points: Unconventional light oil projects generally require oil prices above $80–100 per barrel to be economic; natural gas prices below $3/MMBtu currently trigger a switch back to coal power generation.
• North American Self-Sufficiency: Panelists dispute the feasibility of US energy independence; US production is ~6.5 million barrels/day with ~15 million usage, requiring an additional 8.5 million barrels to be met by imports or massive unconventional production which faces rapid decline rates (60–80% in the first year).
• Coal Outlook: Coal accounts for 50–60% of US electricity but faces decommissioning of 50–60 gigawatts over the next 3–5 years due to aging infrastructure and regulation, unless gas prices rise significantly.
• Biofuels Future: Second-generation biofuels (using non-food waste like agricultural chips) are viewed as having a future, though development timelines are long; Shell invests in this but views it as region-specific (e.g., sugarcane in Brazil).
• Coal Exports: Powder River Basin coal is already being exported to Europe and Asia as the US domestic market declines due to cheap gas.

Specific Asset & Regional Discussions

• California Monterey Shale: Considered a significant but politically uncertain resource; access depends on California's willingness to permit drilling, similar to the Permian Basin.
• Canadian Oil Sands: Heavy crude from the Oil Sands remains viable but requires dilution (condensate) for pipeline transport; the influx of light Bakken crude is not seen as a detriment but rather a driver to find new markets for Canadian heavy crude.
• African Infrastructure: Experts urge transparent governance and reinvestment of oil revenues into electrical infrastructure to prevent brownouts and corruption, citing Russia's 2014 Sochi Olympics failures as a warning.
• Grid Resilience: Post-Hurricane Sandy, the reliability of Combined Heat and Power (CHP) plants was highlighted; burying transmission lines is deemed a critical long-term regulatory mandate to prevent storm-related blackouts.
• Battery Investment Status: No panelist had yet invested in a standalone battery project, citing the inability to predict the "winning" technology and the need for pilot testing to prove business models.