Dr. Gavin Kretzschmar, professor of Finance and Management Control Department
The energy sector has become one of the strongest sectors due to the growing energy needs of emerging economies like China and India, and it offers good job opportunities. EADA has detected an increase in the demand for executives specialized in energy and has created various training programs in this area. The main challenge that the sector is facing at the moment is the combination of diminishing resources and increasing consumption. Technological improvements in the field of renewable energies will be key.
Let us start by talking about the importance of the energy sector in finance. What role does the energy sector play in the global economy?
Before the financial crisis started, six or seven of the top ten companies in the world were banks and maybe one or two were oil and gas companies. At present, none of those banks are in the top ten: not HSBC, not RBS, not City Group… Now in that list you can find the Bank of China and four energy companies. So things have changed and big energy companies like Shell or Total have become the biggest companies in the world. This is happening because energy is a real asset, not a financial asset, and it is needed to grow an economy more than financing is, in many ways. Since the emergence of China and India in the 2000’s, with close to 2 billion and 1.2 billion inhabitants respectively, energy consumption has been growing. So suddenly, energy is the number one asset in the world.
“Considering the great job opportunities that exist in the energy sector, EADA has created two streams for students that want to work in it”
Is the energy sector inevitably linked to finance, considering that both are substantially globalized sectors?
It is linked to finance but 70% of energy is owned by what we call national oil companies (NOCs), which means Saudi Aramco in Saudi Arabia, Abu Dhabi National Oil Company (ADNOC) or CPC Corporation in China. It is amazing that 70% of global resources are owned by national companies. The other 30% is, of course, linked to finance, every project needs finance. But this 70% is almost more important than finance because it is impossible to grow China or India without energy. So energy is almost above finance, it has become the number one of the global commodities.
What employment opportunities currently exist in the energy sector?
First of all, the countries that hold the oil need people who they can employ. Venezuela, Brazil and Mexico have oil, so they need people who understand the oil business because otherwise they are going to lose their national asset. The same happens in Russia, in the Middle East, in Saudi Arabia, in Malaysia, in Australia… all of these countries need people who understand the oil business. And, of course, private companies that are investing in the energy sector like BP, Total, Repsol or Petrobras also need professionals.
What kind of professional profiles are needed and how do you train EADA’s students to work in the energy sector?
Considering the great job opportunities that exist in this sector, EADA has created two streams for students that want to work in it. For those students that have work experience we have set up an MBA stream specialized in energy, and for those students without working experience we have set up a Master in Finance specialized in commodities. During these programs, we give students a complete grounding in the financial part of the energy sector. Here in EADA we are not focusing on the subsurface, we are not experts in taking oil out of the ground, that is engineers’ work. We are training people to understand this business so we teach them to make investment decisions: which assets to buy, where in the world to buy them and how to finance them using the banks.
EADA also offers an MBA along with PricewaterhouseCoopers (PwC). Which profile is this program designed for?
It is an MBA for executives of energy companies. We realized that there was not a master in energy for executives, so we created this one. We train the executives of PwC’s clients, which are companies of the energy sector operating in Central Asia. We teach them how to make the right decisions on the assets and, at the same time, we teach them how to speak to the capital markets in Madrid, in London, in New York. This MBA is unique and it provides a high level training, we are speaking to the decision makers. There is one big Chinese company, whose name I can’t reveal, who is using us to train their executives. And there is an exploration company in Kazakhstan who is also doing this.
“The whole debate now in the energy sector is what we call the energy mix: fossil fuels and renewable energies”
And how is this MBA linked to the other training programs specialized in energy?
This MBA for executives is taught on the ground in Central Asia and it is connected to the programs we have here in Barcelona because EADA offers internships in PwC’s companies. Thus, students of the MBA stream specialized in energy and the ones taking the Master in Finance get to connect with the executives we are educating on the other side.
What is the future of the energy sector? Given that fossil fuels are finite, is renewable energy the future?
There is big pressure here. The energy sector is the number one sector for the future, but oil and gas are not so important because they are finite. The whole debate now, in the energy sector, is what we call the energy mix: fossil fuels and renewable energies. At present, 90% of the energy we consume comes from fossil fuels: we use gas at home, petrol for the cars, etc. So changing the percentage of this mix is essential. Europe has realized it, and China too. Spain, for example, could go for solar energy because it has a lot of sunlight hours.
But how can this change be made? The Spanish government is not committed to renewable energies.
The Spanish government is not going for renewable energies at the moment because they are still relying on extraction. They support traditional companies like Gas Natural Fenosa or Repsol. The challenge for us is to change this mix, and it means an economic change. The government doesn’t like to implement expensive policies, so they are not going to make a policy that suddenly increases the price of everything by 50% because we are changing to solar power. This kind of energies are more expensive because we still don’t have the infrastructure we need, plus oil and gas can be stored in a barrel but sunlight is gone when the sun sets, so we have a storage issue. As batteries improve and storage facilities improve, we will have much cleaner energy. This is the challenge.
“We teach students to make investment decisions: which assets to buy, where in the world to buy them and how to finance them using the banks”
Should governments play the main role in making this change?
Of course they have to play the main role in making it possible. But the Kyoto Protocol, for example, has never been signed by the biggest energy consumer in the world, which is the USA. So there are still big political challenges as well as economic ones.
In Spain, the socialist government provided some support to new technologies to encourage clean energy production. Thus, the renewable energy sector managed to become key and investing here was a good deal. But the current government withdrew the aid, and investors have not made the expected profit. Is it logical that a country without fossil fuel reserves and a high energy dependence on other countries legislates penalizing renewable energy? What consequences will this have?
It is going to have immediate consequences. This is the problem with policies not based on economic criteria but on politics. Politicians make a policy and then suddenly small businesses start to create solar panels, wind turbines, etc. And then, politicians take away the subsidy. It may not seem logical, but the problem is that the sector is not necessarily employing people directly. It is highly capital intensive, so they are not getting its benefits. That is why they are making really short term policy decisions with long term effects for Spain. China is investing a lot in such technologies and they have a lot of policies in this field. So they are growing and growing. They are investing more than anyone else in the world in this area, their plan is to be the leaders of this sector.
“China is investing more than anyone else in the world in renewable energies; its plan is to be the leader of this sector”
The main objective of the financial sector is profit, and this is linked to growth. How can this be combined with the increasing need/demand for sustainability?
Fossil fuels are decreasing but at the same time energy demand is going up. So the industry has to solve the combination of dimini-shing resources and increasing consumption. The big challenge for the future is to develop a new technology, and that is what we are doing now.
But how do you link this with sustainability? The alternative doesn’t have to be necessarily sustainable.
Sustainability policy needs to have a plan beyond the decreasing resources. Gas is considered to be more clean than coal, and of course it is, so now the world is focusing on gas instead of oil. That is why fracking is growing so fast. The problem is that we are in the area in the world where fracking has the worst consequences. Europe has a lot of gas but high population densities, so fracking is dangerous here. But why is Poland taking fracking when the rest of Europe is not? Because they desperately want the money. There is still risk for the people, but they need the money more. The rest of Europe would not accept that, we consider the risk much more important than the money.