Green midstreamer powers ahead

Unique green capabilities and a ‘glocal’ strategy are behind the firm’s strong performance in this year’s Energy Risk Commodity Rankings, believes Mircea Caratas, chief commercial officer, ENGIE Global Energy Management

The national lockdowns of 2020 caused unprecedented disruption for energy suppliers and industrials, leaving huge uncertainty about their future. To survive this period without defaulting on energy contracts, many relied on their working relationships with larger producers and suppliers.

“What firms needed was flexibility around contracts to help them through,” said Mircea Caratas, chief commercial officer at ENGIE Global Energy Management (GEM). The combination of ENGIE’s global scale and deep local presence enabled the midstreamer to offer a range of bespoke solutions, which – in many cases – helped its customers remain afloat during this difficult time. Working closely with clients to understand their individual needs took the client relationship to a new level, Caratas added. 

He believes this client-centric approach was much appreciated by clients and is one of the main reasons behind ENGIE’s strong performance in the 2021 Energy Risk Commodity Rankings. The firm ranked as the top dealer in power overall, up from third place last year, and retained its overall first place in natural gas. It also registered first or second places in all of the local gas and power hubs covered by the survey, as well as ranking second in liquefied natural gas (LNG), and gas options and structured business. 

Energy Risk discussed the firm’s success in the 2021 Commodity Rankings with Caratas, and the strategies informing ENGIE’s approach to gas and power trading in Europe. 

 

Energy Risk: In this year’s Energy Risk Commodity Rankings, ENGIE Global Markets registered in every European power category. Do you have a strategy of expansion into local European power markets?

Mircea Caratas: This year, we’ve been guided by two main principles: the strategy of the group – which has clearly focused on renewables and green infrastructure – and the strategy of GEM, which, beginning in the fourth quarter of 2019, decentralised the trading franchise to focus on having a deep local presence. So, in addition to having a presence in Houston, Mexico, Singapore and Australia, we’ve built up a number of local national franchises in Europe. These mainly include the UK, Germany, Italy, Spain, Romania, Poland, France and Belgium. 

As a business, we are developing a local and global (‘glocal’) identity. This global reach with local presence not only makes it possible to observe the local markets, but enables us to develop the business according to our clients’ needs. We understand and can be responsive to individual market nuances. 

This is not necessarily a natural step for a trading franchise where the culture is usually to centralise risk. But we understood that, with advances in technology, we’re able to see positions and understand risk better by being close to the individual markets. Being close to our clients gives us a detailed understanding of their pain points, of the local regulation and of the local constraints and opportunities. This is something that has great value and we believe it’s one of the main reasons we performed well as a business and, as a consequence, in the Commodity Rankings this year.

 

Energy Risk: What were the main challenges you and your clients faced last year? 

Mircea Caratas: It was a very challenging time personally and professionally across all industry sectors. For us, business continuity was a huge challenge. Like everyone, we had to completely redesign our systems and processes – how we function – in just two weeks. The result was seamless for the business and for our clients; it was a huge success for us.

Doing this well has enabled us to remain close to our clients, which were experiencing huge disruption and price volatility. Most of them had no visibility into their future consumption and production. Many clients faced difficulties fulfilling offtake obligations in their contracts, for example. We were able to respond in a timely manner, helping them adjust their forecasts and giving them as much flexibility as possible. Having a large, global portfolio gave us flexibility to adjust the consumption curves from all the industrial sites we had. The fact we were able to find that flexibility and adapt continuously to their needs meant we could avoid pushing them into any sort of default situation. On the physical gas and power supply side we didn’t have any credit events with our clients. We were able to manage everything within the existing contracts. I think this was much appreciated and took us to another level of relationship with them where we became a partner.

 

Energy Risk: In this year’s Commodity Rankings you ranked either first or second in all of the European gas hubs covered by the survey, and second in Henry Hub. You rose a place from last year to take first place in options and structured business, and shot into second place in LNG. What has your strategy in gas been? 

Mircea Caratas: Having strong commercial positions upstream and downstream and being a midstreamer with an LNG capacity is key to our success in this space. We see LNG as the link between all the local gas markets and it’s making gas global. Being present in the US, the Asia-Pacific region (Apac) and Europe with long-term contracts with national gas producers and a strong portfolio of clients creates a unique position. We were able to extract value from this last year, which was also reflected in the structured business results. 

Energy Risk: How did your continuing commitment to being green play out last year? 

Mircea Caratas: Being close to the client is important, but what is also key and appreciated by clients is our commitment to the net zero carbon transition. We have around 100 gigawatts (GW) of power production capacity, of which around 30% is renewables. Every year we add around 3GW of renewables capacity. We intend to add nearly 50GW by 2030, which will bring to 60% the renewable share in our total production capacity. We are in the top five when it comes to firms that are developing corporate power purchase agreements (PPAs) globally. Our goal is to be the outright leader in corporate PPAs by 2030. 

It will be the actions of our clients that determine how soon we reach these goals, and we could see an acceleration in line with the accelerated sustainability plans at many corporates now. During the national lockdowns there was an increase in sustainability consciousness in general, and there’s now a huge emphasis on ‘going green’. When clients voted in the Commodity Rankings, I’m sure many were thinking of our capacity to deliver green energy.  

This is not an easy thing to do. It’s one thing to want to meet a client’s green energy requirements and another to actually deliver on it, especially as their green requirements are becoming more specific. More and more firms want their green energy from a specific green source and to avoid any risk of greenwashing. This means we need to be able to access project developers and co-develop with them – whether that’s renewable power projects or green gas such as biogas. We also need to be able to offtake the energy as it is produced, and to deliver in line with the consumer’s need, which will not be the same as the production profile, particularly in the power market. Then you need to risk-manage the difference, which is not easy. You need to be a specialist in physical supply but also in risk management and you need the right contracts in place. 

We’re not only active in PPAs for firms wanting electricity generated through renewables, but also in other markets such as green gas, hydrogen and biomass. We have several ways to help our clients decarbonise their consumption. 

PPAs are perhaps the most straightforward. But we’re also strongly focusing on gas greening, placing ourselves in the biomethane market, for example. Our group has set the target to produce 4 terrawatt hours (TWh) of biomethane by 2030 in France, which will make up 10% of the market at that time. 

Another market we’ve become involved in is hydrogen. It’s a very hot topic at the moment and will certainly be much more scalable than biogas. We signed an important partnership in February with Equinor around low-carbon hydrogen produced from natural gas with carbon capture and storage. Together, we’re investigating the potential of its development in Belgium, the Netherlands and France, and we’re involving our clients throughout the process. 

We have the ambition to market 30TWh of hydrogen by 2030. We’re also looking at projects we can develop with clients that enable them to transform, on their own sites, piped natural gas into hydrogen that can be used in their industrial processes.

Additionally, we have a global franchise in biomass and we are part of the Sustainable Biomass Program, aimed at setting high standards for responsibly sourced and delivered biomass. We’re developing this business in five locations worldwide, and we’re involved in supply, conversion projects and investments in the upstream. We’re in the top three players in Apac, and we trade two million tons of biomass globally per year.

By broadening the range of our decarbonisation solutions, we aim to meet clients’ specific needs and help them move to net zero in a competitive way. We can propose an array of different solutions depending on the goals and individual situation of the client. For example, if a firm is close to a harbour and their industrial process allows it, it might be that using biomass to replace coal is the best green solution for them. We believe developing and building up a strategy always starts with the client’s need. Developing PPAs is good, but clients need reliable supply and flexibility, which is why we believe gas is so important. Until large-scale battery storage is developed, we cannot have 100% renewables. And, all the time. we are trying to raise the greenness of the gas being used, using origin-proven gas or biogas, for example. 

 

Energy Risk: In the Commodity Rankings you had a strong performance in the European Union Emissions Trading Scheme (EU ETS) category this year. How important is this market to you and where does it sit within your green strategy?

Mircea Caratas: Activity in emissions is very important to us. While we’re active in the EU ETS – and we trade guarantee-of-origin certificates as part of our global offering of low-carbon or net zero solutions, we also trade white certificates relating to energy efficiency. This may seem strange for a utility to say, but the best energy is the energy you save. By investing in new machines, and just by rethinking processes, industrials can reduce their energy consumption by 30%. This is a big saving and also reduces their carbon footprint.

To develop this business, we bought CertiNergy&Solutions in 2019, a pioneer in energy efficiency consulting and European leader of this sector. By adding around 170 experts in white-certificate trading to our energy management business in France and in Italy, we have been able to truly boost this activity. 

And, to continuously simplify market access to our clients in the most reliable and transparent way, we’ve recently added these white certificates to our digital market access platform, EGMA, along with the range of environmental certificates we trade. 

To conclude, as we can see, the energy markets are in a historical transformation as they engage in the race to net zero; and the solution is not one but many. We need to develop integrated, complex, customised and competitive offers along the chain to enable our clients to transition smoothly and competitively, and we need to keep our leadership position to best support them.

 

See the full Energy Risk Commodity Rankings 2021 results 

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