Big oil venture funds target green investments
Cement production has a large carbon footprint, comprising about 7 per cent of man-made CO2 emissions. Solidia Technologies is trying to change that.
The New Jersey-based start-up’s technology reduces energy usage and emissions during the cement manufacturing process, while also trapping CO2 in the finished concrete.
In its efforts to clean-up one of the planet’s dirtiest industries, Solidia turned to an even greater carbon emitter for financial backing — the oil and gas sector. It secured $20m from UK energy major’s BP’s venture capital arm among other investments.
“We’ve solved some problems with concrete that the industry has had for 50 years,” said Tom Schuler, chief executive of Solidia. But to expand, the company required investment as well as strategic direction. “BP’s not just helping us with the money, but helping us make this work . . . It’s a game of three-level chess.”
Despite funnelling tens of billions of dollars into their traditional oil and gas businesses, BP and its peers Royal Dutch Shell, Total, Chevron and Saudi Aramco are increasingly investing smaller sums in low carbon technologies and clean energy start-ups.
CB Insights’ data show the venture arms of these five groups are the most active and are on track to participate in deals worth more than $1bn in 2019. Spending has risen eight-fold between 2015 and 2018. Of these deals, clean technology investments represent a growing share, rising from just three in 2015 to 27 this year so far.
Traditionally tasked with seeking new technologies that help improve core operations, such as exploration, production and refining, these venture arms are now targeting and nurturing companies working in areas such as battery development, smart-charging for electric vehicles and carbon storage.
The energy majors see these investments as a way to make speculative bets, typically only worth a few million dollars, in areas that could become industry-changing technologies in time to come.
Meghan Sharp, who leads the Americas team for BP Ventures, said its investments spanned several “strategic” areas — digital transformation, mobility, clean energy technologies, power and carbon management.
“We really want to bring that technology in-house and deploy it into our businesses,” said Ms Sharp. “We want an ability to test and trial,” she added, saying BP’s venturing was more like leveraged research and development. “We’re not taking all the risk and putting in all the money”.
Among investments this year, BP drew funds from its $200m venture pot to invest $30m in Calysta, which transforms natural gas into protein for animal feed. Shell Ventures invested an undisclosed amount in Corvus Energy, an energy storage company and Total Ventures was part of a $60m funding round for Scoop, which helps people form car pools. Saudi Aramco invested in Daphne Technology, which utilises nanotechnology to develop a product that scrubs emissions from ships.
“Energy majors have become much more aware about energy sustainability broadly and all of them are assessing the opportunities that are out there,” said Mungo Park, chairman at Innovator Capital, which advises clean technology companies. “Their backing is valuable beyond money for both the start-up and the energy major itself.”
Mr Park said that while there were ample financial investors who were willing to back later-stage, low-risk green technologies, there was a shortage of available cash for newer companies that need more time to develop their businesses and come with higher levels of risk.
Despite these early-stage investments by energy majors, there has been huge scepticism about the willingness of big oil to provide the financial muscle to create the next generation of technologies to reduce the world’s greenhouse gas emissions, with public and political pressure growing about their role in enabling global warming.
Climate activists and investors have criticised the sector for only ploughing a fraction of its annual capital spending into low carbon research and development, in a sign of reluctance to go beyond traditional hydrocarbon businesses.
Indeed, of the 3,043 patents filed by the world’s top 25 oil and gas companies in 2018, only 8 per cent were in low carbon technologies and cleaner energies, according to data from consultancy Thunder Said.
The single-digit amount indicates energy majors are focusing their in-house activities in areas where they have proprietary knowledge. But Rob West, founder of Thunder Said, said this did not prevent them from buying companies or investing in next generation technologies through their venturing arms that could unlock “multibillion-dollar sub-industries” in years to come.
He said oil and gas should not only clean up the fossil fuels they produce, for as long as the world needs them, but also fund new energy technologies and companies in adjacent industries that will be needed in a low carbon energy system.
“Many new energies are outside the majors’ existing skill sets. The industry is moving very fast and is constellated by nimble start-ups,” said Mr West. “Big companies could use their expertise and balance sheets to provide buffers for financial losses, scale up potential winning technologies and commercialising others.”
Oil and gas companies’ venture arms differ in their approach, which can either help or hinder start-ups depending on how well they work together. Some are more hands-on or seek financial payouts quicker, others use their investments purely as learning devices. Some are keen to embed the start-ups within the companies themselves.
Husk Power Systems, which provides power to thousands of rural Indians by generating electricity using a biomass gasifier from rice husks and distributing it via mini-grids.
Husk was originally backed through Shell’s charitable foundation, before it gained further investment from its venturing arm, which led a $20m funding round last year.
“It had taken us eight years to get one mini-grid regulation done,” said Manoj Sinha, chief executive. Having an industry heavyweight on its side not only opened doors to regulators, but allowed the company to access other sources of funding. “To get a seat at the table with regulators, having Shell there makes it easier.”
Even as he said the bureaucracy of a big corporation can be cumbersome and strict policies on health and safety, for example, were costly for a small company, they have helped accelerate Husk’s expansion.
“You could either learn everything for yourself, or you could learn from a multinational company that already has best practices and have less chances of failure,” added Mr Sinha.