Transcript: Energy Insiders Podcast interview with Tony Nunan

This is a lightly edited transcript of the recent Energy Insiders podcast, featuring Shell CEO, Tony Nunan, who talks about the new NSW contract, big batteries, electric vehicles, hydrogen, LNG and carbon capture.

Giles Parkinson  00:00

Tony Nunan, thank you very much for joining the Energy Insiders podcast.

Tony Nunan  00:05

Thanks for having me, Giles. Much appreciate it.

Giles Parkinson  00:07

Well, it’s great to have Shell on board here. Shell obviously is a massive company, one of the world’s biggest and it has its fingers in many energy pies, and more I’d imagine, but I guess the trigger for this conversation was the recent contract that you just renegotiated or landed or expanded with the New South Wales Government.

Basically,  an agreement to provide all their electricity for the government buildings, hospitals, police stations, schools and the likes and improve a big battery. Now, this is a substantial deal. 1.8 terawatt hours, which is about  1% I guess of the entire Australian energy market. I guess it’s a good win for Shell. I’m particularly interested to know why a big battery was such an important component of this deal.

Tony Nunan  00:54

Thanks, Giles. It, it is an important deal. And I think it extends the relationship, and the great relationship that we’ve had with the New South Wales government in providing them with their electricity needs. The process we went through was really one that I think is at the heart of, in my view, how we make the energy transition work longer term. And that is spending time with customers to really deeply understand what their demands are. And then making sure we can match a service that provides that for them. But it’s not just what are their demands today, it’s how did they want to transition their own energy usage and their own energy requirements in accordance with what we’re all trying to achieve to reach net zero through the energy transition? And so what pleases me most about that deal with New South Wales government is that itdoes that.

It provides the reliability, the security, the service that they need for all those important schools and hospitals, you know, police stations, government buildings, but it also helps to transition their demand to lower carbon sources as we go. And the battery itself was something we provided the government with multiple options for firming capacity. And their choice was to go with a battery. And we’re really pleased to be able to provide that to them and to do it with our partner Edify.

Giles Parkinson  02:09

So what is the green energy component, then with this deal, because it didn’t seem to be spelled out very much in the announcement. Does it have a minimum renewable energy contribution?

Tony Nunan  02:25

We’ve got an agreement that we put in place with the New South Wales government that provides flexibility. But of course, the key thing about batteries is that we will use them in situations where there’s excess production of power into the system. That is generally going to be when we see excess solar or wind production, that then allows us to capture that, store it, and then provide it to our customers at times when there is an excess production of renewables into the system. A

nd so whilst we’re still relying on the grid, we’re still working with the grid, battery storage helps to be able to really support that strong penetration of renewables, particularly solar and wind, and then allows us to be able to provide power back to our customers, at times when there is an excess renewables within the grid. So it’s very purposely designed to do that with the New South Wales Government. And we’re really pleased to be able to partner with them to pull together a proposal like this.

Giles Parkinson  03:16

So you’re just taking basically the average grid mixed in in this contract? And will you be adding more batteries as time goes on?

Tony Nunan  03:24

That’s our plan. So our plan is to continue to look at opportunities within the Australian market, particularly the Australian electricity market, to see where we believe that we can either provide firming capacity, or additional renewable options, but really customer led. And I think what’s key for us, and Australia is really a great example of how we want to apply our global strategy, which is working with customers to understand their demands today, their needs today, but also, and most importantly, what do they need in the future.

And by doing that, we can help them on their net zero journey. But also we can match our portfolio to provide the services that they need. And so we will continue to look at options and opportunities like this. And we want to make sure that ultimately what we’re providing is really exactly what a customer needs. And they want reliability, they want consistency, but they also want to deliver a net zero ambition, which is a key focus for all of us.

David Leitch  04:20

So Tony, I’d like to come on to Shell’s global ambition and how it relates to Shells very 15 million tonne LNG portfolio in Australia, if I’ve added it up right. But it’s great to talk about Shell energy in Australia electricity, which is the old ERM. At the time that Shell acquired ERM it was about, I don’t know 15 terawatt hours of supply. I’m just wondering how the business has gone for you since acquisition generally? Have you been able to grow sales and if you could say a little bit about what customers preference, you talked about being customer driven, my feeling is that customers are more concerned about green energy and they than they used to be. But are they prepared to pay up for it in a very slim margin business?

Tony Nunan  05:10

Yeah, Thanks, David. So you’re right, the Shell energy business that we run in Australia today is largely the ERM business that we acquired in 2019. It was a great business, we were really, really pleased to be able to join with the talented team that existed in the ERM, and bring them into the Shell organisation, and to work with them on how we can continue the great market development that they did. The service focus that they’ve got for their customers, and to be honest, they had done an extraordinary job in doing that, and then also leverage the scale capability and portfolio of Shell to bring the two together. I’ve personally been really pleased with that progress, I’ve been really pleased with the continued focus of that business on ensuring that it runs as a viable profitable business and continues to build it’s both customer portfolio and also really strong indeed, customer relationships. So that has been something that we’ve  been intent on working hard with the with the Shell energy team to deliver.

But it also sets an example for how these things can be done on a global level. And that’s a great contribution that we can make here in Australia to our global business. The second part of your question on customer demand, absolutely we are increasingly seeing customers who are  continuing to look for lower carbon solutions in their power. And that’s not just lower carbon because of grid intensity or ensuring that we link it directly to renewable supply. It’s also looking at the efficiency of their own power use. And what the Shell energy team do really well is that they not only look at how can we tailor the electricity supply component to meet where they want to go as a customer, but also work with them on their own efficiency in electricity use, because it’s a combination of those things that are going to help us moving forward. And doing that together, I think is a  real strength of that business.

David Leitch  07:06

Sure. I mean, I get as a financial analyst all the general corporate motherhood statements, if I could say so. And I appreciate that you’re using Shell in Australia as a global model, or ERM. Just generally on the electricity market, I mean, we see falling wholesale power prices, you are retailer, so in one sense, you don’t care. But on the other hand it might make everyone very jealous of market share and things could get competitive. Are you able to actually comment on the competitiveness sort of intensity at the moment versus how it has been?

Tony Nunan  07:44

Oh it’s difficult to say definitively that there’s been a substantial change in competitiveness. But what I would say is that competition is a great thing. It’s a great thing for consumers, it’s a great thing for market participants, and hopefully it will also drive a more efficient market longer term. It is, you’re right, that there has been a significant reduction in wholesale prices.

It has created some challenges within the energy sector. And I think what we’ve got to really keep a close eye on is that investments continue to keep up with what’s going to be needed longer term. But competition in the market and in the electricity sector is only a good thing for consumers. And for us, we welcome it. And we’re not only welcome it here, but we welcome that in the way that we do business across all of our sectors.

Giles Parkinson  08:33

I know that David is busting to ask a question about LNG, I’m just gonna stick one last question about the electricity market here. When you did buy ERM Shell talked about sort of being in a position to challenge the incumbent retailers, the big Gen-tailers in Australia by the end of the decade. So the Origins, The AGLs, the Energy Australia’s of the world. Is that still your intention? And given that people like Shell and Telstra that we see are also entering the market, how different is the market going to look in 10 or 20 years time than what it does now?

Tony Nunan  09:02

Yeah, this is actually one of the things I’m sure that occupies the minds of not only the three of us on this podcast, but I’m sure everyone that’s listening in, and also people who are just general energy consumers, is what will it look like and how will we get there? I think a big part of that is going to be really driven by more of a customer pull through, as opposed to just the energy suppliers providing the direct products.

I think there’ll be a lot more customer interaction that drives the demand, and a lot more of a responsiveness in the way that the suppliers of energy deliver that into their customers. And so competition within that market will change and also the interaction between a consumer and their energy provider will change as well. They’re all good things. And I think that seeing that happening and seeing that evolve is  both good for consumers. But I also hope that what’s really important for us, it’s going to be good as well for the energy system.

We’ve got to make sure that we’re able to translate changes in buyer or consumer demands, what they’re after in their services, but we do it in a way where we keep an eye on on the energy system as a whole, that it continues to meet the needs of customers. I think for us, so in terms of ambition, Shell energy, it is focused on business and industrial customers and we continue to do that today. But we will always look for opportunities to be able to serve customers, not just in the business and industrial sector, but also more broadly across the country. And we will look at opportunities to do that and we’ll continue to find what we think where we can add the most value for our customers and then go after that.

David Leitch  10:50

So Tony, in preparing for this interview, I read a lot of documents, including some of the Shell global strategy documents from a month or two ago, and tried to put them in the context of Shell Australia, which has a large, as I said, LNG portfolio. Interests in two or three major projects. And I think that Shell globally sees LNG and gas as a big fuel in meeting global decarbonisation, which I don’t quite understand, because gas itself is the third biggest contributor to carbon emissions, but let’s put that to one side. On the other hand I heard Peter Coleman, the outgoing CEO of Woodside, your partner in the northwest shelf, talking about no more big LNG projects are going to get done in Australia. I just wondered in what your sort of thinking personally is, or as the head of Shell Australia, about the role of LNG specifically in Australia going forward and gas more generally.

Tony Nunan  11:57

Yeah, Thanks David.  As it turns out, I think this week, we were 120 years in the country. So Shells been operating and supplying energy to our customers for 120 years. And so our story in Australia is one that I’m very proud of, but it’s also a story of transition. You know, we started with importing kerosene. We were very large refiners of oil products here in Australia. We had interestsin coal and over time we’ve actually exited those positions, and our portfolio today in Australia is LNG, and we’ve got a really significant LNG portfolio, as you pointed out. And then increasingly, our investments in renewables, in battery storage and in the electricity system.

On LNG, so we do see LNG as both a really, really important fuel source to help support the energy transition. And we also see increasing demand for that product as we move out into the the late 20s and also into the 30s. Why do we see that as being as being an important fuel? It’s because it provides customers, particularly customers in Asia, with an opportunity to be able to transition from coal to electricity, it’s to coal to LNG or to gas for electricity services, and then helps that continued decarbonisation all the way to to net zero. And we see that demand as being an important one. And I’m actually really pleased that our portfolio here in Australia contributes to that, and helps that transition as it goes.

David Leitch  13:31

And I’ll just ask one more question, then hand back to Giles. Generally speaking, when I look at the strategy of the oil majors from sitting at my desk here in Lindfield, it seems that they are looking atmways they can use their existing skill base. One of them seems to be in moving into hydrogen generally. And that could be green or brown hydrogen, and another one is to use their offshore drilling technology capabilities to move into offshore wind. I’m just wondering how Shell thinks about those two things? I mean, offshore wind in Japan could be a very big business as could ammonia or hydrogen production and exports. How is Shelly thinking about those?

Tony Nunan  14:17

Yeah, well, you’re spot on. We do see that there are skills and capability that we have today that lend themselves to the transition as we go through in the next decades, the decades in front of us. Clearly the capability we’ve got around LNG supports the capability needed for a large scale export hydrogen industry. And that’s not just for us in Shell globally. I actually think that’s a really important thing we can’t lose sight of this as a country. You know, Australia has, it is currently the largest exporter of LNG. We have immense capability and talent in this country that supports that industry. The world will need to find a zero carbon fuel source for the future.

So the things that we can electrify will require molecules to be able to power them. And we’re thinking things like, you know, really heavy, heavy transport, certain types of industrial sectors. Export of hydrogen is going to be an important thing for us as a country. And I think we’ve got the skills and capability to be able to do that. So that is a clear one. But the other ones you mentioned are also important. We have really significant offshore wind developments, particularly in Europe that we are both developing as part of a company but we’re also making sure that we off take from, and then likewise, I think the other one that you didn’t mention, which is really important from a technological perspective, and is critical to be able to support the transition, is carbon capture and storage. And that is a technology we have, we have really deep capability in understanding geological structures, understanding reservoir dynamics, finding the appropriate reservoirs for co2 storage, and in doing that safely.

So I must admit, you know, one of the things that the challenge as we talk about this sort of transition is that we can often get caught in a concern that there’s some sort of a negative impact, or it’s going to create this sort of existential threat. Whereas what you just outlined then David is absolutely the opportunity that sits within it, both for us as a company, So that’s Shell globally, but I think really importantly, for us, as a country. You know, Australia should see tremendous opportunity through the transition and our job is to make sure we get our lions share of it, because that’s our great competitive advantage.

Giles Parkinson  16:30

What sort of projects does Shell have in those offshore wind and green hydrogen, do they have anything specific in Australia? 

Tony Nunan  16:37

Not specific in Australia. So we don’t have offshore wind interest in Australia. We’ve done an incredible amount of work on hydrogen. It’s not a new product for us. It’s not a new industry for us. We’ve actually been selling hydrogen to customers for decades around the world. We have, you know, deep understanding of hydrogen, and what makes it work. We’ve looked very closely at hydrogen opportunities in Australia, we will keep looking very closely at hydrogen opportunities in Australia. And I think that the thing we focus on is how do we make sure that we deliver products that our customers are after.

And so on the one hand that’s continuing to support increased domestic demand for hydrogen. But then using that increased domestic demand to be able to build the scale we need for export. And again, for a country of 25 million people being able to to not only supply what we need here, but continuing to export is important.

Giles Parkinson  17:32

You talk about the transition to net zero emissions, you talk about the opportunities. Shell has also been involved in this landmark court case in the Netherlands, where a court found, fought by a climate group, complaining that Shell was basically not taking it seriously enough. You talk about the opportunities and I think all the scientists and even the IAEA say that the opportunities are there, but we must transition really, really quickly. How does Shell play its role, and this is a tricky question, given the pressure that comes from court cases, such as the ones in the Netherlands, and the fact that it’s not really good enough just to get to net zero emissions by 2050, that’s really the bare minimum that’s needed, what we needed now, is an accelerated transition over the next 10 years.

Tony Nunan  18:23

So it is a tricky question, but I actually think it’s the most important one. And we as a company have a really important role to play in that. And this this debate, I think, like many debates, they’re often defined by the extremes of a debate. And so on one extreme there’s a view that that potentially we could just stop our reliance on hydrocarbon based energy today. And if we did that it would force the transition and we would get there very, very quickly.

The other extreme is a more passive one, which is one where, you know, energy suppliers just say, hey, look, we just provided what our customers need, if they buy it, we produce it and off we go. I actually think the solution sits in between those. And that solution is one where we recognise the sentiment of urgency. And I think that the decision that you refer to is another example of the sentiment of urgency. And we use that to work with our customers, to be able to start to help them on their journey. And it’s not good enough for us to be passive in that. I think what we’ve got to do is to be able to provide them with the products that help them to transition.

You know, that’s a really, really key role that we play in that. And we’ve got to do it together with governments around the world, governments here in Australia, but also with our partners and customers. But there’s absolutely no doubt that a company like us with our scale, the role that we play is incredibly important in that, and the key focus is it’s got to be urgent. You know, there’s alignment on the direction that we’re going in, there’s alignment on getting to net zero. And your points right, the real debate at the moment is how quickly can we get there.

David Leitch  20:02

And so Tony, I’d like to come back to one micro issue, only partly because I think your original background is in land science, and recently there was a sanction of the Arrow project to produce up to, I think it’s something like 90 petajoules a year of gas from the Surat basin, in what I seem to remember is relatively shallow depth, or good agricultural land. I’m just wondering how the community up there feels about that? I expect you to  have some background in, you know, whether people feel better or worse these days about coal seam gas wells in farmland?

Tony Nunan  20:39

This is a really important issue for me personally, both because of my background as you mentioned, David, but also, because of the experience that I’ve had over the last decade or so, in particular the time that I ran QGC, which is our large onshore gas business and LNG project in Queensland. I must admit I have been really pleased with the journey that we’ve been on with our land holders.

The reason why I’m so pleased with it is that they have given us the greatest gift along the way, and that’s feedback when we don’t get things right. And what’s pleased me as a company, we’ve been able to hear that and respond. And so the relationship that we have, particularly for the QGC business, and the 1000s of landholders that we interact with daily, is one where there’s respect, there’s recognition of both how we work together, and also a desire to deliver the best for a region. And so I look at the western downs and I see a diversified economy, one which has a very, very strong agricultural sector, one that now has a strong gas sector. And off the back of that, and a lot of investment in transmission infrastructure that’s also allowed significant investments in solar and renewable energy and wind.

Those, all of those benefits that flow through communities and regional economies, that off the back of the support that comes from land holders, who host us on their land. And our job is to make sure that we deeply respect that and continue to respect it.

So that’s been a hell of a journey and one that personally means a lot to me. So Arrow is, as you mentioned, it’s a joint venture company that we own 50% of as Shell with our partners, CNBC. They are going through another large scale development. I’ve seen the same approach of, you know, working with land holders to ensure that we’re able to deliver coexistence on their land. And it’s got to be matched for their land type. And you mentioned the good quality agricultural land. That country really needs a very purposeful design. And a really clear, you know, plan to work with landholders on how you both ensure that the agricultural production is maximised. And you can allow for the development of the coal seam gas business that goes with it.

So it’s a really, really important thing for us, for Arrow and for the industry. And it’s something that not for a second do we ever take for granted. It’s just fundamental for our businesses that we do that well.

Giles Parkinson  23:04

Can I ask about electric vehicles and the transition to electric vehicles? We’re not seeing it happen very fast in Australia, but certainly quickening pace overseas. What’s your short and long term strategy there? We see the Shell signs about everywhere now, service stations. Are you looking for ways to transition those to become large electric vehicle charging stations or fuel cell hydrogen refuelling stations? Are you just going to pack up your bags and wait for the EV charging stations to pop up in hotels and restaurants and things like that? What’s your immediate tasks there? And what’s your longer and much longer term strategy?

Tony Nunan  23:44

I think it speaks to the concept of being able to provide the options for customers to transition and absolutely fast charging for EV vehicles is one of those. It’s something that we’ve invested heavily in across our portfolio globally. And it’s certainly something that we look closely at here in Australia, one with our partners.

So the service station network in Australia is owned by a company called Viva. And they’ve got a brand licence agreement with us and we work very, very closely with them. I know that’s something that they’re looking at closely as well. So we do see increasing demand for fast charging and EV services. You mentioned hydrogen as well. That is something that we do sell directly to car owners, car users in other markets around the world.

So Europe, Germany is strong, the US and places like that. Again, we see that as being expertise that we’re capable of deploying. Where we start to see the market demand come forward. And my hope is that as a country, we do start seeing that those transitions of individual buyers ,and it’s a tough call, you know, when you’re buying a vehicle of some description, to make the decision to transition to either EVs or hydrogen. But where that happens, we’ve got to make sure that we support our customers to do so.

Giles Parkinson  25:01

Have you made the transition yourself?  Is the company making a transition?

Tony Nunan  25:05

We’ve got many, many of our employees who have. I’m actually in a probably not dissimilar to a lot of people, my wife, and I’ve got four young kids, I shouldn’t say young, high school and primary school, they’ll be disappointed that I called them young,  four young kids, which means that our choice of vehicle requires size and scale. And so what I’m certainly hoping for is that we end up with, with EV’s that that will suit my family’s needs. And I reckon that will be coming pretty soon. And I must admit that something I’m really hopeful for, because there’ll be a lot of other people like me, and my wife, who will be waiting for that as an option to be able to transition as well.

Giles Parkinson  25:41

We’ll put you down,

David Leitch  25:43

I’d agree with you. I think the lack of models is one of the things that..

Tony Nunan  25:50

it’s not a win for me by any stretch of the imagination. I think it’s just the point. When we talk about this broader transition, it’s actually individual decisions that drive it. And I think over time, the more option that a consumer has, the better it will be, because we’ll be able to take advantage of options that are are lower carbon and move us faster.

David Leitch  26:09

Yes, I mean, I must say I look in Europe, which is the leader here, I guess. And then there’s the question of how much attention to pay to Europe as opposed to paying to China, that sort of perpetual debate on nearly everything to do with energy in Australia. But you know, the new kind of like vehicle emission standards that they’re putting in place, something six I think it is, and so I’ve seen a couple of car companies recently, Nissen was one that just as they can’t develop for that and develop for electric vehicles and develop for hydrogen, they have to make investment choices and for Nissan seemed like it was going to be electric vehicles. But anyhow, that’s all in the future.

Tony Nunan  26:46

It is. Yeah. Again, it’s another example that there’s a lot of work that’s got to sit behind us providing choice and options for end users. The more that we do that together again, I think the better outcomes we’ll get.

Giles Parkinson  27:02

Can I just ask about a couple of other transactions that you’ve done over the last 12 to 18 months? One was the purchase of a share stake in ESCO Pacific, which is a large scale solar farm developer in Australia, and also the purchase, which is the global purchase, or European purchase on the Sonnen battery.

So I guess my first question is about you’re building the game Gangarri solar farm at the moment in Queensland, and that’s had a few issues there, particularly with contractors and squabbles and one subcontractor going belly up and into administration and it got a bit messy there for a while. So my first question is very briefly on Gangarri, is that all sorted now? To what are your plans for more solar farms in Australia? And are you in the right Sector? Is it going to be solor as is, as David has written quite eloquently today, the big, the bigger deal might be in wind?

Tony Nunan  27:52

Yes. So I’ll go through each of them. Gangarri, so for those listeners, Gangarri is a solar project that we’re building in Central Queensland. It’s an important project for us. And really two reasons. One is it helps us to decarbonize our existing businesses. It actually is built off the back of, and geographically is built with, a large upstream gas business, which is the QGC business in Queensland. So it helps us to decarbonize that which is actually a large electricity user. But it also helps because it’s grid connected, it’s helping to reduce the co2 intensity of the the Australian grid, to the east coast grid.

So both things really been important for us. But it’s also a project and we’ve got significant project delivery experience here in Australia through all of our, well both our history over over time, but also in particular over the last decade or so with our LNG projects. From time to time those projects can have some hiccups along the way and we have seen that with Gangarri, and I think you touched on it well Giles, about the challenges that we’ve had along the way. We have focused really heavily on how we ensure that we safely deliver that project, and we do it in the right way for the end users ultimately, but along the way, our contractors in the community. And so I have been pleased that we’ve made progress there. The thing for me is we have high expectations, and we have high standards.

My expectation is that we will continue to focus heavily on the delivery of that project and to make it a success. So it’s got my attention is the short summary. In terms of where we go? So in terms of investments in solar, clearly, Gangarri is a clear Shell built project. We have ESCO Pacific, which we have a 49% share in, that’s really important because we see solar development as being an important option in supplying renewable power into the grid into the future. And it will, and I think that what you’re alluding to with David, there will be multiple technological solutions as we go. Solar will be one of them, it won’t be the only one of them. And we see ESCO as been great opportunity to identify projects that will add value, are right for customers, are right for the grid, and then allows us to be able to invest in those.

More broadly, so we see, you know, we actually look at multiple opportunities, we don’t just look at solar, we don’t just look at wind, we’ll look at the whole suite of those as we go. But I will say that I think Australia is an attractive destination, if we can get the energy system itself right for the long term. Because if we can really ensure that the renewables are met with appropriate firming, and that firming is appropriately valued, I think the investment will lead to the lowest carbon electricity grid that we can get. And in a strange way, that’s our great contribution on a global scale is to show how you can set up an electricity grid that has a very, very, very high penetration of renewables, has the reliability that we need and delivers for customers. And we’ve got a better opportunity here than a lot of countries on Earth.

David Leitch  31:00

I think that’s right. I think Tony we’ve taken up, unless Giles has more questions, we can, all we always have more questions, but we’ve taken up a lot of your lot of your time, and it’s been very insightful to hear a little bit about how Shell is thinking. You guys are big, powerful global voice. And so I just want to say thanks for taking the time.

Tony Nunan  31:21

Thanks, David. Thanks Giles. I really appreciate it.

Giles Parkinson  31:24

Thank you very much.