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Article

Jean-Michel Gauthier: from the oil industry to the Energy Transition

Jean-Michel Gauthier began his career in the oil industry before switching to consulting. Having spent a total of 30 years in international energy, he now shares his expertise by training leaders from all sectors in energy-transition issues. Jean-Michel is affiliate professor in the finance department at HEC Paris, where he holds the Energy & Finance Chair sponsored by Société Générale.

Jean-Michel Gauthier Energy Transition

What kind of assignments did you carry out as a consultant?

I spent 15 years in consulting, helping companies with the financial impact of various energy scenarios and energy prices. The challenge was to find a balance between the different perspectives: the markets, investments and climate.

In addition, I advised major public stakeholders about their energy issues, including the French Ministry of Economy and Finance and the Ministry of Defense. I also worked for the European Commission on opening up the markets to competition, and for the Japanese government on nuclear regulations.

Why is energy transition now included in corporate performance indicators and even in HEC’s academic programs?

The leaders of the World Economic Forum in Davos identified climate risk as the greatest and most far-reaching threat to the global economy for the third year in a row. That applies to all companies and all countries. Energy is the first sector to be affected, and it’s going through an unprecedented transformation, with decentralization, decarbonization and digitalization. It is the duty of managers across the board to learn about the challenges of the energy transition. 

The leaders of the World Economic Forum in Davos identified climate risk as the greatest and most far-reaching threat to the global economy for the third year in a row. That applies to all companies and all countries. It is the duty of managers across the board to learn about the challenges of the energy transition.

The consequences of this shift, which has been forced on us by climate change, are economic and financial: no company can afford to ignore climate or energy criteria in their decision-making. The impact is also geopolitical: the priority isn’t to hold mineral, oil or gas rights anymore – it’s about owning low-carbon technologies.

My courses at HEC Paris are aimed at Grande Ecole students, whether they’re considering a career in energy or not. They’re also intended for managers, junior or senior, who are taking a course as part of the executive education program or MBA with the aim of moving towards an executive career.

The priority isn’t to hold mineral, oil or gas rights anymore – it’s about owning low-carbon technologies.

HEC Paris is unique in that it follows a dual approach, with cross-functional modules, Professions (strategy, finance, etc.) and Industries (energy, aerospace, etc.) that meet learners' demands and lead to certificates. The courses are tailored to suit new professions in booming industries, and can be short (18 hours) or long (100 hours).

The project is backed by HEC’s dean, Peter Todd, and its goals are as follows: to promote HEC Paris’s excellence as a world-class management school; to showcase our expertise in sectors such as energy or luxury (or "design"); and to highlight HEC Paris’s ability to offer its own "vision" about the challenges of tomorrow, generating and sharing value, and the price mechanisms of resources.

Energy Transition ©leowolfert-AdobeStock
"No company can afford to ignore climate or energy criteria in their decision-making". Photo ©leowolfert-AdobeStock

What does research contribute to the professional sector?

Companies naturally do their own research: banks, for example, or insurance companies and consulting firms for their clients. But they also need input from academic research that analyzes or models market developments and tests new business models under laboratory conditions, so to speak. And that’s exactly what the energy and finance chair does, sponsored by Société Générale.

My students benefit from my operational experience as well as my contacts in the world of business. We all work on the major, internationally-recognized databases (World Bank, IMF, OPEC, IEA, etc.) with the invaluable help of the HEC library staff.

Why does the energy revolution concern everyone, and not just the energy companies?

On the energy revolution

To understand the need for solid expertise in the field of energy and climate – which has to be as solid as finance and management skills – we have to keep in mind two major transformations. Between 1990 and 2000, the natural resources markets – known as commodities (gas, electricity, etc.) – became increasingly regionalized or even globalized.

Demand from emerging countries such as China and India caused prices to skyrocket. As a result, business leaders had to protect themselves against the financial risks associated with their exposure to global markets. They also had to develop trading skills, including the much talked about derivative contracts. In short, they had to learn about the globalization of markets.

smart sustainable city ©jamesteohart-AdobeStock
"Everyone – the local council, companies small or big, or even homeowners who’ve got a roof – is becoming responsible for producing and trading energy". Photo ©jamesteohart-AdobeStock

Then a second energy revolution occurred, driven by the growing recognition of the climate problems and public policies in support of the “3 Ds”: decarbonization, decentralization and digitalization.

The energy model that has prevailed since the Second World War is based on huge production units, large-capacity power plants and long, high-voltage power lines that supply energy to big consumption centers. But the current decentralization trend is breaking up this model, giving precedence to small solar collectors on the roofs of houses, as well as storage units and local production units financed by innovative or participative ventures. This is completely reconfiguring the entire balance of the energy sector. 

Everyone is becoming responsible for producing and trading energy.

If I'm a supermarket manager, for instance, I can buy electricity from my traditional suppliers or I can go to the markets. But I can also install solar panels on the roof of my store, and even become a self-producer or sell my production surplus to my neighbors. In other words, I can become an energy company! 

Everyone – the local council, companies small or big, or even homeowners who’ve got a roof – is becoming responsible for producing and trading energy. Eventually, they’ll be able to do without the major electricity companies. The entire economy and all actors are concerned.

What’s more, digitalization is making it easier to identify everyone's energy needs in real time. It makes it possible to adjust supply more precisely and avoid unnecessary infrastructure and capacity projects, the financing of which is a heavy burden for local authorities. Smart grids are the digital networks that will be created for this purpose.

Old and new energy players

Historically, the world's largest capitalizations, or the companies at the top of the world's major stock market indexes (the Dow Jones, FT 100, CAC40, etc.), have always been oil companies, infrastructure providers for energy firms (Exxon, Shell, Total, General Electric, etc.), or banks that financed the energy sector. 

Today, the five largest global capitalizations are all digital companies: Google, Apple, Facebook, Amazon and Microsoft. In the future, the main energy players may not even be energy companies but will come from the world of telecoms, IT, infrastructure management, retail or transport.

In the future, the main energy players may not even be energy companies but will come from the world of telecoms, IT, infrastructure management, retail or transport.

In parallel, energy companies will be compelled to diversify their offer to include flow management (energy, broadband, etc.), services to individuals and user-friendliness – a lifestyle, in short.

 

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