Isabelle Kocher, CEO of ENGIE

Interview with Isabelle Kocher for Gaz d’aujourd’hui, January 2017

How does natural gas fit into the ENGIE group’s overall strategy to become leader of the energy transition?

As leader over the entire natural gas chain, we rely on our long-standing know-how for our global growth. Our business also means being the forerunner, delivering innovative, custom-made solutions to our customers. In addition to rolling out existing solutions on a large scale, we position ourselves as a real pioneer, at the cutting edge of tomorrow’s solutions. Along with other energy sources, natural gas is in fact an element of stability that is absolutely necessary in a low-carbon energy system. Let’s take electricity generation for instance: for it to be decarbonized, we have to replace coal in order to reduce greenhouse-gas emissions and develop renewable energy while guaranteeing network stability. Only natural gas can meet these challenges. Gas-fired power plants emit 50% less CO2 than coal-fired plants. Let me remind you that major institutions – in particular for the IEA, concerning the period up to 2040 – are forecasting an increase in natural gas consumption, giving gas a dominating place in the energy transition.

 

Last June you said: “Digital technologies are as vital as the air we breathe. They must be incorporated within every stage of the business.” How do you see the digitalization of the gas sector?

Digitalization is already on the move, both for running our production assets and for developing customer services. Today, customers are asking for greater energy efficiency. Our sector’s digitalization must absolutely bring about smart energy consumption that is more effectively controlled by consumers, with energy services being continuously adapted to meet needs. This means bringing about the need for “big data”, which must obviously be treated in an ethical way. GRDF’s Gaspar project, deploying 11 million smart meters by 2022, will boost energy efficiency, providing consumers with the key to a better understanding – and therefore better control – of their consumption in real time. Digital technologies also help to streamline the operation of our industrial assets. At GRDF, for instance, technicians working onsite use smart augmented-reality headsets to discuss issues with experts at remote locations. Another example is GRTgaz, which uses drones for certain observation missions on its grid. Not so long ago, these actions – now commonplace – belonged to the world of science fiction.

 

ENGIE is focusing on gas infrastructures even more than in the past. Why is that? Which more concrete objectives are related to this?

Gas infrastructures are a unique strength for the group. They will continue to be used for transporting and distributing natural gas, and increasingly for renewable gas. Indeed, we are used to associating transmission and distribution grids with natural gas but now biomethane is also part of the picture. Current research carried out on injecting surplus electricity transformed into hydrogen by water electrolysis – known as power-to-gas – is even creating new uses for our grids in the future. Moreover, the group’s strategy provides for increasing EBITDA [editor’s note: a company’s earnings before deductions for taxes, interest expenses, depreciation and amortization] from regulated-contracted business activities to 85% by 2018, and gas infrastructure activities clearly meet this criterion in France, Europe and the world. As European leader in natural gas, ENGIE also wants to strengthen its international presence. Even though we are already operating in most parts of the world, we want to position ourselves on major growing markets, such as Morocco, where we have tendered for infrastructure projects.

 

We are currently witnessing a reconstitution of the energy-transmission operators’ landscape in Europe. As a shareholder of GRTgaz, would you like the company to be a player on that scene?

GRTgaz is a major gas-infrastructure player and we would like the company to fully play its role as leader in this market under reconstruction. This development is necessary to avoid the marginalization of the French hub up against its competitors, and to ensure that it fulfils its role as the Atlantic interface for all of Europe. We have already contributed to the strengthening of the benchmark northeast hub, as well as the north-south hub, through increased partnerships, in particular with Fluxys and Snam. We are currently thinking about how we can go further by making GRTgaz an indispensable player in the reconstruction of the natural-gas sector in Europe, which will be particularly influenced by the return of LNG and the assertion of natural gas as the prime energy source of the energy transition. With the rapprochement between GRT and Elengy, the first step could be the creation of a combined player whose geographic situation is incomparable – at the heart of natural gas movements and bordering two seas.

“France’s methanation potential represents about 40% of current natural gas consumption”

ENGIE is a partner in the Nord Stream 2 pipeline project. What interest is there for ENGIE in building this pipeline, in a context where Russian gas-transmission infrastructures are not fully utilized?

Above all, I must remind you that ENGIE has been a partner of Gazprom – in charge of the development of this project – for more than forty years. Furthermore, the first Nord Stream project was a major industrial success and its usage rate is currently at maximum available capacity, given the restrictions imposed on Gazprom’s use of downstream pipelines. Europe’s future energy balance and the need for increased security of supply, together with a drop in natural gas production in Europe, speak in favor of a diversification of supply routes. The construction of Nord Stream 2 would help guarantee a secure additional source for Western Europe, at a competitive price, and would help increase liquidity, interconnectivity and security of supply in Europe’s natural gas markets. We are convinced that natural gas will continue to play an essential role in the European energy mix: it will guarantee security of supply and offset renewable energy’s needs for flexibility.

 

At the end of October, ENGIE announced the signing of an agreement with Ukrtransgaz for natural gas transmission and storage, and the creation of a subsidiary in Ukraine. Could you tell us what ENGIE’s ambitions are in that country and what are the terms of the agreement?

Since 2015, ENGIE has been the main western supplier of natural gas in Ukraine, supplying 3.5 billion cubic meters, or 10% of its annual consumption. In that way, we are contributing to the diversification and security of supply for that country, the largest market in Eastern Europe. Last summer, ENGIE also created a subsidiary, ENGIE Energy Management Ukraine, whose goal is to develop a foundation of sustainable and profitable business activities for major industrial customers, on the natural gas wholesale market and the electricity trading market. Furthermore, we signed an agreement with Ukrtransgaz at the end of October. For us, those markets are part of a long-term dynamic approach for our activity in Ukraine and more generally on energy markets that are being liberalized. These successes in Ukraine perfectly show our ambition to be a benchmark “midstreamer” in Europe.

 

Last September you declared: “It is no longer a crazy dream to imagine that someday the entire energy world will be decarbonized, natural gas included.” When do you expect this gas decarbonization to be achieved? What is your vision of tomorrow’s “decarbonized gas” (biomethane, synthesis gas produced via power-to-gas)? How important is this challenge for ENGIE and what is the group’s policy in that area?

Green gas is a crucial factor for achieving the energy transition, in the same way as natural gas is its mainstay. Out of the various scenarios for dividing greenhouse gas emissions by a factor of four, the most ambitious one – as in the Ademe or Negawatt scenario – relies massively on “decarbonized gas”. This means gas that doesn’t come from the subsoil but from methanation, which recycles carbon that is already in circulation. The potential for methanation in France represents about 40% of the country’s current natural gas consumption. Making gas “greener” is already underway, with more than twenty sites injecting biomethane into the GRDF and GRTgaz grids, without any need for changing current gas infrastructures.We are going from a logic of natural gas to one of a gas vector. Through its Energy Transition Act, France set itself a goal of 10% renewable gas by 2030. This step is important as it marks the determination of public authorities to develop the sector.

ENGIE is the current leader on this market segment and certainly intends to hold onto its lead role, especially by developing key partnerships to grow the sector, and by putting its efforts into R&D on what is known as 2nd-, or even 3rd–generation biomethane. In particular, the group has built the Gaya research platform, which will enter service at the start of 2017. The tool constitutes a major step in the deployment of the sector for producing biomethane via gasification of dry and woody biomass – generally known as 2nd-generation biomethane – which has a large potential.

We are also highly involved in green hydrogen, the other renewable gas that has a promising future. By transforming surplus electricity into hydrogen through water electrolysis, we are creating a green gas vector for storing electricity, with a large number of possible uses in the fields of industrial hydrogen, mobility, and power-to-gas. For several years now, ENGIE has been running the “GRHYD” project in Dunkirk. This pilot project is been carried out in close cooperation with the local authority and will test H2 injection into the natural gas distribution grid. In Fos, GRTgaz is coordinating the “Jupiter 1000” project, which is bringing together many partners and will test injection into the transmission grid. ENGIE is also a partner in more than 11 of the prizewinning projects in the Territoires hydrogène [“Hydrogen Regions”] call for projects, launched by French public authorities.

As you can see, all these “building bricks” show ENGIE’s commitment in the field of green hydrogen. We are convinced about its strategic interest as it helps to speed up the transition to an energy world that emits less CO2, in both centralized and distributed ways. Through its capacity to be stored and transported, this green gas is an excellent growth factor for intermittent renewable gas sources and can facilitate the rollout of green mobility. No one can say exactly when these technologies will be economically viable but we are convinced of the importance of these developments for two reasons: the first is that the technologies meet real needs and are pivotal for making a new energy world possible; the second is that we are now in a world where technological progress is extremely fast.

“In our view, the LNG market will remain oversupplied for several years; so it is vital to come up with new types of dedicated uses.”

In a world context where LNG is abundant, what are the projects being carried out by ENGIE, which has the third largest LNG portfolio in the world? And what changes are planned for the coming years?

The global LNG market is undergoing many changes. The two main factors that have had an impact on the market are production and maritime transportation overcapacity, and the erosion of prices differentials among the major regional markets. However, LNG remains a key factor of diversification and security of supply. ENGIE is a leading player in LNG: we are actively involved in this sector and are adapting to the new context that I just mentioned, by showing flexibility and agility. We have had many commercial successes over the past months, which are a testimony to the importance of LNG in our strategy and to the expertise of our teams. We signed large LNG delivery contracts with major partners: the American company AES for supplying Panama, the Chinese company Beijing Gas, and in Turkey, where we are providing a floating regasification structure so that this country can create a new LNG import terminal.

In our view, the LNG market will remain oversupplied for several years; so it is vital to come up with new types of dedicated uses, and we are already working on it. From this viewpoint, small-scale LNG has a development potential as an energy source that can be developed to isolated industrial companies, which has been offered by our LNGeneration subsidiary since 2013; it is also used as fuel for trucks, and river and sea transportation. Those are the areas of the future where ENGIE is making large investments, areas that we believe in a lot. For example, GNVert, our subsidiary specializing in the distribution of alternative fuel, has already installed and is operating four LNG stations in France, and is taking part in a bioLNG pilot.

 

Actually, last October you announced a partnership with the maritime company CMA CGM for LNG as a maritime fuel. What is ENGIE’s policy in this area?

In 2014, we signed an agreement with Mitsubishi and NYK for the development of the LNG maritime fuel market, via supply by sea. We have just taken delivery of ENGIE Zeebrugge, the first vessel in the world to be devoted specifically to this activity, which will go into operation very shortly at, and from, the Belgian port, for supplying ships powered by natural gas. The cooperation agreement I signed with CMA CGM last October is representative of the movement that is taking place: we are working with this leader in maritime transportation on a study for a bunkering vessel to be adapted for the LNG-powered container ships that the transporter is working on. We have seen that these pioneering, sustainable projects are becoming increasing popular and our teams have all the skills and expertise necessary for succeeding with them, either alone or with partners. Given the strengths of LNG (environmental, economic, speed of implementation, etc.), faster development of its use as a motor fuel would be desirable. Moreover, AFG [French Gas Association] has made a few recommendations on the topic. The International Maritime Organization recently ruled in favor of a significant reduction in the sulfur content of maritime fuel, to be implemented from 2020. This decision is a step in the right direction as it will speed up the replacement of fuel oil by LNG for ship propulsion.

“Green mobility is a crucial driver of the energy transition and is one of our strategic growth areas. It is essential to promote the use of alternative fuel in France and throughout Europe.”

ENGIE has decided to invest 100 million euros by 2020 in the installation of compressed natural gas (CNG) and liquefied natural gas (LNG) stations in Europe. Is this a time-limited operation aimed at facilitating the startup of the sector or the first step in a sustainable investment policy? In more general terms, what are ENGIE’s objectives and policy for sustainable mobility?

Today, the transportation sector still represents 23% of global CO2 emissions and more than 30% in Europe, as it is 95% dependent on oil. Green mobility is a crucial driver of the energy transition and is one of our strategic growth areas. It is essential to promote the use of alternative fuel in France and throughout Europe. ENGIE has already been leader of this market in France for several years and its GNVert subsidiary is providing mature solutions with natural gas for vehicles (NGV fuel) – the leading alternative fuel in the world – and LNG fuel, as a complement to electrical, urban mobility for light vehicles. We intend to develop sustainable mobility – which emits less CO2, pollutes less and is more fluid – in towns and cities, where three out of four people will live by 2050, as well as for the flow of goods over long distances. In 2016, this intention was borne out by our decision to invest 100 million euros by 2020 in the installation of CNG and LNG stations in Europe for heavy goods vehicles.

Over and above gas-based mobility, ENGIE is also developing individual and collective electrical mobility, and hydrogen mobility. So last September, we took a capital stake in Symbio FCell, pioneer of the fuel cell and inventor of the first range extender for hybrid electric-hydrogen vehicles. In 2016 alone, in Luxembourg and the Netherlands we were chosen with our local partners to provide more than 5,000 charging points for electric vehicles, bringing up to 9,000 the number of charging points deployed by the group in Europe over the past few years.

Over and above the installation of terminals, which will take place over several years, we are also providing related services: the management, processing and analysis of data to optimize the use of the charging network. This is also where we find big data, whose processing provides us with numerous possibilities. Indeed, green mobility requires an overall view. We are working with towns, cities and regions, providing them with tools such as digital platforms to make the network traffic more fluid, and urban planning consultancy services. In order to become leader in providing green mobility solutions, the group is investing in new technologies and global, cross-sector partnerships. So the recent acquisition of Siradel, a specialist in 3D modeling, allows us to provide all sorts of services depending on the needs expressed by our customers: we are embarked on a process of co-construction with our customers.

 

Does ENGIE intend to invest in new gas-fired power plants? If so, where?

In its three-year plan – started at the beginning of last year – ENGIE decided to invest mainly in the generation of electricity with low CO2 emissions. This explains why it decided it would no longer launch any coal-fired projects, would strengthen the development of renewables, and would continue to develop the generation of electricity using natural gas, which remains a growth market, especially for replacing coal-fired plants. In France, the group operates four combined cycle gas turbine (CCGT) plants: DK6 in Dunkirk and Montoir-de-Bretagne, as well as Cycofos and Combigolfe in Fos-Cavaou. This is a tremendous tool for peak electricity production. We recently announced that we had won a contract of around 500 million euros for the construction of a gas-fired power plant in Saudi Arabia with a capacity of more than 1,300 megawatts.