"Cross border competition" of energy companies began to become the New normal


In the context of accelerated energy transformation, "cross-border competition" has begun to become the New normal. The business of oil companies and traditional utility companies is increasingly intersecting and overlapping, and positive competition seems inevitable.

In recent years, I have repeatedly heard a voice in the industry that many investors are starting to view oil and gas companies as utility companies.

Generally speaking, compared to many public utilities (such as electricity, gas, water supply, etc.) that have natural monopoly properties, the degree of marketization and commercialization of oil and natural gas is generally higher. Moreover, over the past many years, the business interfaces of these two types of companies have been generally clear, with each basically having a "well water does not harm the river" (except for some product supply relationships that may exist upstream and downstream of the industry chain, such as the natural gas of oil companies becoming the power generation raw material of utility companies), making it theoretically difficult to compare these two major categories of companies together.

If we have to talk about the similarities between oil companies and public utility companies, I think the first thing is that both types of companies are in the category of big energy services (water supply, power supply, oil supply, gas supply, heating, and even future hydrogen supply are all "big energy" supply).

Secondly, it may be that the dividend returns of oil companies are relatively stable, comparable to the dividend performance of public utility companies over the long term. Due to government regulation of the businesses engaged in by many public utility companies, they have always had relatively fixed investment returns (around 6% -10% in most countries), and dividend returns are also relatively stable. And multinational oil companies have always attached great importance to shareholder returns.

From the performance in recent years, the dividend returns of super oil giants are even better than those of some well-known utility companies. For example, according to the 2017 annual report of E.ON, the dividend per share of the company in 2016 decreased by as much as 80% compared with 2012. RWE only paid 5 million euros symbolically in 2015 and 2016, a decrease of nearly 100% compared with 615 million euros in 2013 and 2014, and its dividend performance has been greatly inferior to that of oil giants.

However, in the context of accelerated energy transformation, "cross-border competition" seems to be beginning to become the New normal. Especially, "re electrification" is increasingly seen as the core of future energy transformation, and the transition to electricity has become a consensus among many oil companies. This field has long been regarded as the "territory" of traditional power utility giants.

Under the trend of transitioning to electricity, the businesses of oil companies and traditional utility companies are increasingly intersecting and overlapping, and positive competition seems inevitable.

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