Dorothy Thompson, Chair of Tullow Oil, argues that developing countries have a right to drill for oil, warns of the risk of underinvestment by oil companies during the energy transition, and discusses the challenges facing renewables.
Dorothy Thompson has served as Chair of Tullow Oil since July 2018. She previously spent 12 years as CEO of the international power and energy trading company Drax Group, served as vice president of the global power generation company InterGen Services, and has experience in development banking and the chemicals industry.
Underinvestment in oil risks price shocks – with global ramifications
“I am new to the oil and gas industry and some things have really struck me. Firstly, unlike a lot of other industries, after you have made a big upfront capital investment to enable oil production, you need to continue investing in drilling and exploration to sustain it. Secondly, if there ends up being more demand than supply, there are very severe price shocks.
Therefore, unless the oil and gas industry continues to invest as we go through the energy transition, the chances of a serious price shock and then an economic shock on a more global scale are quite high. We all want to reduce our use of fossil fuels, but many people outside the oil industry do not understand that if companies do not act responsibly by continuing to invest, there is a potential for far more serious disruption.”
E&Ps that diversify into renewables enter a dramatically different industry
“Going into renewables might be an attractive strategy for E&P companies, but the industries are dramatically different. The level of expertise needed to be successful in the E&P industry is pronounced, be it engineering and operational expertise to extract oil from below the seabed or the ability to manage a commodity product in a global market. That is completely different to the electricity industry, which uses other technologies. Because electricity is very hard to store, moreover, markets are local or at best interconnected.
There are of course many examples of companies diversifying successfully into what could be considered connected industries. However, expertise in the E&P sector would not necessarily translate into the skill base needed for renewables or the electricity market. Hence that diversification has to be a very clear strategic decision. So while I don’t think it is right for all E&P companies to turn into renewable companies, E&Ps do need to think very carefully about how to mitigate our emissions and our wider impact on the environment. In my view, mitigation will play a key role in ensuring that E&Ps have a long-term future beyond the next 20 years.”
We underestimate the challenges facing renewables
“There are many markets where renewable alternatives are cost-competitive with fossil fuels. However, storing electricity in a cost-effective way remains a challenge. Apart from geothermal and hydro, which have a limited scope, the large-scale renewables are intermittent but we as consumers want our electricity instantly. In many markets this has not been a problem because old fossil-fuel generators run at part of their capacity, so they can respond. In order to significantly increase the share of renewables in the global electricity mix, this needs to be solved.
Battery technology has become much cheaper and better, but having something that can respond for half an hour or two hours is very different to having something that can support, say, two days without wind or sun, which in many places is not uncommon. Renewables are the future, but we underestimate some of the challenges ahead.”
Developing countries have the right to benefit from their natural resources
“If handled properly, the development of natural resources can be a route to helping poor countries develop their economies and lift the welfare of their people. Crucially, this needs to be done responsibly, meaning that the revenues paid to host governments are fair and transparent and that host communities benefit. To deny developing countries this opportunity is wrong.
This also relates to the transition to a low-carbon world. Developing countries’ use of energy is very low – in Ghana, per capita consumption of oil is a tenth of that in the UK and a twenty-fifth of that in the US. The challenge is not just in finding ways to reduce energy use but also in having a fair balance in consumption.”
Diversity – in all its forms – remains a big challenge
“From what I have seen from the oil sector so far, the task of achieving diversity is enormous, although there is a real belief in its benefits. Until as late as the 1990s, no accommodation for women was available at offshore operations in the UK. Even today, it is estimated that under 2-3% of engineering and operational roles in the sector are held by women. Diversity is of course not only about gender but that is quite often an indicator of the challenge.
Change has to come both from the top and bottom. It starts with having a corporate culture, supported by the board, that really believes diversity is good. This should use a broad definition of diversity – around the board table, for example, it is very important to have diversity not only in terms of gender or skill base but also in individual characters and ways of thinking.”
Safety is an overlooked ESG issue
“I have always been surprised that investors show very little interest in safety. As ESG issues move up the agenda, there should be greater attention on safety because it is central to the wellbeing of both the workforce and the communities around operations. At the moment, there is only scrutiny when things go wrong. When companies drive it as a key part of their strategy, investors will start taking interest in it because they see it as an important part of the forward momentum of a company.”