Ep99: Dev Sanyal "In the Engine Room of the Transition"

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Michael Liebreich Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up, it really helps other people to find us. Cleaning up is brought to you by Capricorn Investment Group, the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich and this is Cleaning Up. My guest today is an energy thoroughbred - it's Dev Sanyal, CEO of Varo Energy Group, based in Zug, Switzerland. Before that, he had a 32-year career with BP, where he was on the Group Executive Committee responsible for gas and for clean energies. The energy transition is not just about stopping doing the old and focusing entirely on the new. It is, as it says on the tin, a transition. To hear about it, let's bring Dev Sanyal into the conversation here on Cleaning Up. So, Dev, welcome to Cleaning Up.

Dev Sanyal Thank you, Michael.

Michael LiebreichIt's always a pleasure to see you. Now, where are you calling from today?

Dev Sanyal I'm sitting right now in Zug, in Switzerland. It's actually quite an overcast day, so there's maybe a bit of rain, which is probably a good thing, given it's been a dry, hot summer.

Michael Liebreich Now, Zug is all to do with your job with Varo energy, that's not somewhere that you live. When you and I first met, you were with BP, right?

Dev Sanyal Absolutely. Some years ago…

Michael Liebreich Some years ago. You have a 30-year history with BP, but we don’t go back quite that far. But I probably met you… I'm going to guess something like 15 years ago. Remind me what you would have been doing then?

Dev Sanyal So at that point, I was actually the group treasurer of BP and running BP's finances at the time. Subsequently, I moved on to the Executive Committee of BP for 12 years and ran the natural gas business worldwide, as well as the low-carbon energy business of BP.

Michael Liebreich Right. And that's when we first really started to interact, when you started to do the low carbon activities and lead them at BP. But your job now is as CEO of Varo Energy. And what I'd like to start is actually asking you to give a thumbnail of Varo energy, because it's not a household name in the way that BP is. So, what is it that Varo does?

Dev Sanyal So as you said, Michael, I joined Varo on the 1st of January of this year, and I'm actually based full-time in Switzerland, but of course, the company has diverse operations in different parts of the world. We are essentially an integrated energy company. And what we try and do is help our customers both meet their needs for energy in terms of energy security, but we are also helping our customers decarbonise. So, we are also helping their own transition. The heart of our company is in Europe, but we've got operations elsewhere as well. So, the business essentially has got two engines, as I call it. Engine one is a conventional energies business, which is essentially midstream to downstream, all the way to the customer and consumer. And that business is all about how do we optimise it, how do we make it more efficient, how do we reliably supply our customers? At the same time, how do we increasingly decarbonise that business? And we've done a lot of work in that respect, 300,000 tons of reductions just this year, as an example, and we are operating at around 90% reliability across 50 assets. And engine two is a business that is growing. We actually have a pretty significant business in what we call sustainable energies. But we have identified five strategic pillars to grow the business - in advanced biofuels, advance biomethane (bio-LNG), in green hydrogen, in nature-based carbon solutions as well as e-mobility. So, that's what we do. And of course, at the heart of what we do is serving our customers, helping them to transition. And so, we've got what we call these customer lighthouses working with four specific sectors - process heat, aviation, wholesalers, as well as food retailers to help them decarbonise and meet their own emission targets. And of course, you can help your customers but you can also help yourself. So, we've also announced in July of this year this new strategy, which I've just articulated, and we've also announced a plan to be net-zero by 2040 for scope one, scope two and scope three.

Michael Liebreich Okay. Now there's a huge amount there, and we're going to have to unpack it because although we've got some in the audience who would have followed every word and understood it and followed it, there are also some who come from different backgrounds. And so, we're going to have to sort of break this down a little bit. You've got your engine one, which is conventional, and you've got to improve that. Also, that throws off capital. Then you've got your engine two, which is all the low-carbon, the zero-carbon and so on. But let's start with engine one. You use words and we use words like midstream and downstream… Let's really make this concrete. So, midstream is refineries. You call that manufacturing, as well, right? But it's really refineries. And what energies are we talking about? It's not coal, is it? But is it the full spectrum of fuels? Is it gas? What's your mix?

Dev Sanyal So what we don't do… I'll start there, if I may.

Michael Liebreich Yeah. That's always a good place. Make it very clear what you don't do. Exactly.

Dev Sanyal We don’t produce oil and gas - what's called the upstream. So, what we do is we process oil, as well as bio, in our own refining system. The business in engine one, what is a conventional energies business, is actually around, if you will, the slate of fossil-based fuels as well as a very, very significant position in bio-blending. So, we are actually one of the largest bio traders in Europe. So, that is our business in engine one.

Michael Liebreich How many refineries have you got, just to be very clear? You’ve got Cressier, you’ve got Bayernoil…

Dev Sanyal Basically, those are the two key manufacturing hubs. And then we have got assets, around 50 of them, where we basically store and distribute and optimise the value chain, by which I mean, make sure that we can efficiently and safely supply our customers.

Michael Liebreich So you move it around, you blend it, you store it and you market it, you trade it. And what's the mix between liquids and gases?

Dev Sanyal We are predominantly a liquids business today, both in terms of what you call conventional energies, gasoline, diesel and the like, as well as the bio business, which is of course liquid-based, renewable fuel. So, that's where we are predominantly focussed. We do, you know, have a business in LPG etc., but that's relatively small in the context of what has been historically a predominantly liquids-based business.

Michael Liebreich Okay. And I think this is really useful - I find it very useful - and hopefully for the audience also. Because it's very easy for a lot of people to use words like oil companies, or gas companies, or oil and gas companies, without really understanding what the food chain looks like from exploration, development, extraction, which you don't do, through the refining, through moving around, blending it, trading it and so on. You talked about having 50 assets. That’s not offices? That's where you’re actually touching the stuff, correct?

Dev Sanyal Absolutely. Storing it, manufacturing it, trading it and distributing it.

Michael Liebreich Okay. And what is the split? Is it 50/50 conventional versus clean now? Is it 80/20? Is it 90/10? Just on any metric, volume or whatever… Just give us an idea of that.

Dev Sanyal Well, our business in what we call engine two or sustainable energies is relatively small in terms of manufacturing, in terms of the overall share of the pie. So, what we intend to do is invest in five strategic pillars which I laid out - in advanced biofuels, advanced biomethane, bio-LNG, in nature-based carbon solutions, in green hydrogen as well as e-mobility. And in the next five years, 50% of our earnings will come from those businesses. To do so, we will deploy two thirds of our capital in these new businesses. And I think what's interesting about the strategy - at least I think it is - is that it's not one of those strategies that in the year 2070, it's going to be fantastic. By which time, I don't think I'll be around, maybe you'll be around. This has got a very clear tramline in terms of the next five years, where we are essentially going to take two thirds of our capital, invest in these businesses and create 50% of our earnings in that period. And that's, I think, obviously challenging, but it's something that I feel very confident about. Not because of just feeling confident about this energy transition, but because you've actually got businesses in those five strategic pillars. What we need to do now is scale them up. So, we have, if you will, the foundations. Now the question is getting the North Star firmly in sight and prosecuting it in a way which is safe and reliable.

Michael Liebreich Okay, now, this is great, because what this is is a snapshot of something you could almost call an energy transition. Because you've got a business which is predominantly conventional, with the first beginnings of clean, and now you're going to be putting two thirds of your capital into the clean and one third, presumably, into maintaining the conventional. But let me ask you this…

Dev Sanyal Let me clarify one point, Michael. The one third is what we call sustaining capital expenditure. You do need to invest to keep your assets running safely and reliably. So, the intent here is to basically optimise the existing infrastructure. And just because of the scale of it, you do need to have capital that you deploy to keep it running at a high level of efficiency and reliability.

Michael Liebreich Right. And that's exactly the issue I was going to start probing for, because the IEA is being cited very frequently as having said we should be investing zero in fossil fuels to get to a one-and-a-half-degree future. The answer is zero investments, not one third. That's not actually what the IEA said. What they actually said is there’s no need for new investment that's not already committed or in fields that are not already developed or have been committed to in 2021, is what they actually said. But nevertheless, there are a lot of people out there saying the number on your conventional business should be zero. Don't you realise there's a climate crisis and so on… What do you say if you have somebody quite stridently putting that point to you?

Dev Sanyal Listen, I think at the end of the day we have to provide energy security, by which I mean reliable, affordable energy. At the same time, we also have to make a transition. I think what this current tragedy in the Ukraine has demonstrated is the complete asymmetry between production and consumer demand. The truth is, four countries control 50% of oil resources and 50% of gas resources. In any other industry, that would be anathema. I mean, it would not be acceptable. And yet we are here. So, the question is, how do you transition away from that narrative? I wish it was as easy, as straightforward, as telephony. When I left India as a young man to go to university in America, there were 10 million phone lines in India. And today here we are - many years later, I won’t tell you how many years – and there still 10 million phone lines in India, but there are 890 million mobile phones. That is not the energy system, where you can jump the old and just invest in the new. So, we've got to make this transition, which means in the current business, you can't just say “I'm going to just produce more energy.” Yes, you do need to provide more energy, because the world needs more energy and the transition will take some time. But you also have to look at ways and means to decarbonise it. I'll give you an example. 70% of the hydrogen in Switzerland is consumed by us, by Varo. Now, if you convert that from grey to green, that is a good example of what you can do within the existing system. We are building the largest ground-mounted solar facility in Cressier, which will commission next year. 70% at peak - between 60% to 70% at peak - of the refinery requirements will come from solar. That's another good example of what we can practically do in terms of existing assets.So, what I tell people is that it cannot be just one dimension. We have to meet the needs of more demand, 30% more demand in the next couple of decades. We have to make it more affordable, which is obviously a big subject of today. And at the same time, we have to make this transition.And that's, I think, the task ahead of us. And just to say we will provide security without any of the above doesn't work.You've got to work on all three dimensions. And that's why I actually believe repurposing the existing infrastructure is as important as building new infrastructure, because the truth is the existing infrastructure is not a stranded asset. We don’t call them refineries, by the way, we call them manufacturing hubs. Ican see, and our strategy is founded on this fundamental belief, that we will basically convert all our hubs to clean energy centres. For example, bioenergy with green hydrogen,etc. So, I think that's the way I hold it, which is don't freeze time but don't just look at one dimension, try and bring things together and make progress. But also - and this is why I think our ESG strategy and what we've laid out in terms of net-zero by 2040 is very important - it isn't a hockey stick where 2039 magically it’s going to be wonderful when I'm long-retired. So, it's how do you measure it all the way through so that we can make tangible progress on all these dimensions?

Michael Liebreich Right now, I want to come back to… You've been very clear that it's not just 2040, you've got your 2030 goals. And I want to come back and push on some of those and get to engine two, we can talk about some of the businesses on your clean energy side. But as we record this, there is this tragedy going on with the Russian invasion of Ukraine, on top of what was already a price spike.It's not correct to say it's just about Ukraine, because as we came out of COVID, there was this kind of bubble of demand, everybody who had saved up during that period started spending money, and you've got the supply chains all fractured, and so there was already a spike last year. And this has very much come to a head. And of course, as we record this, we've also got in the UK a new Prime Minister assembling her team. So, if I if we can divide things up into what would sort of… what's happening now - any advice that you would have for the incoming team- and what's happening now versus through till 2030, which is a lot easier to talk about, and then 2030 to 2040, because I think what's happening now is so front of mind and it will condition what we're going to do by 2030. Are we going to forget climate for two years and just focus on energy security? And if so, what does that look like and what would your advice be?

Dev Sanyal Well, I don't know if I'm the one to give advice, but I certainly have views which, as you know, Michael, I'll express very freely.

Michael Liebreich 30, 40 years in the energy sector, you know. I'm sorry, but you have a voice and we want to hear it, you know?

Dev Sanyal So here's what I would say. The current crisis is borne of a number of things. Number one, I would say, is a fundamental asymmetry, which I spoke about before. I mean, it is astonishing. When I started my career 32 years ago, the total market share of Russian oil in Germany was 40% and Russian gas was 45%. And here we are many semesters later and it's identical. So, the reality, of course, is that this asymmetry has, I think, been brought into sharp focus. And so, we have got to diversify. And you can't do this overnight. But if you sort of just try and keep the old gig and put a bit of Band-Aid and hope it's going to work, it doesn't. Because at some point in the future, some other nation state may decide, well, guess what, we are not going to provide as reliably as we have in the past the products that you've got to use to create everyday prosperity. So, that's the first bit I would actually emphasise. How do you diversify? Which means you've got to look at what you do today as reliably as possible. I'm very proud of our track record as a company. You know, from the start of the crisis, the 24th of February, we took a decision we would not buy Russian crude, we would not actually deal with Russian counterparties. It's a decision that I think was taken with imperfect information, but it was the right thing to do and we took it on the first day. I have to tell you, I didn't quite expect the reaction from our customers and frankly, our staff who absolutely thought it was the right thing to do. But what we have been able to do is operate our assets reliably. There's more work to be done. I don't feel complacent. So, you've got to make sure you operate assets safely and reliably. We have got to make sure we open up trading windows, creating opportunities to optimise the flow of molecules and electrons, too, by the way. And number three, we have got to make sure that we are keeping in concert with our customers’ requirements and demands so that we can be a reliable supply, which is why since the 24th of February, we have been uninterrupted in our supplies. And by the way, just as an example, one in ten litres in Germany is supplied by Varo, three in ten litres in Benelux is supplied by Varo, around the same in Switzerland, etc.., So very, very important we do that, make sure that we operate well, but don't stop there. You've got to continue the narrative around diversification, which is very important. Now, the second area that I think has been, I think, brought to sharp relief is the demand for the new has not actually been as baked in as the degradation of supply of the old. So, this is also a story of underinvestment over the course of the last, let's call it, 2015 onwards when we had a price drop in in oil prices. And the truth is that if you have a stop and start cyclicality of investments, there will be impacts,not immediately - so you think it's all okay, not tomorrow, but things are okay - but then down the road, those impacts become more and more apparent. So, I think making a consistent set of decisions and having an environment that enables consistent decisions is very important because the system is so large that, you don't feel the immediate impact, but over time you do. And we are actually in that point where… I mean, Michael, I want to forecast this. We are sitting here with inflation, which is reaching double digits. You know, for the generation who joined our industries for 15 years, they don't know what a high interest rate looks like. We do because we are a bit old, if I may be so bold to suggest that. The second is we have had massive supply chain disruptions because the entire mantra of ‘just in time’, which we celebrated, has kind of been challenged, no doubt about it. And the globalisation of the last three decades has been challenged. Number three, we've had obviously, this terrible tragedy of the Russian invasion of the Ukraine. And number four, we've also had behind us a massive pandemic which has created dislocations in the labour market. And I just don't mean dislocations in the sense of the way economists talk about it, even mind-sets, with the great resignation, things like that. So, all these things have come together at the same time. And that's why I think what we need to kind of address is how do we get to fundamentally a diversification and investment cycle that enables us consistently to create a more stable situation of equilibrium, if you will?

Michael Liebreich Absolutely. And I think what you've just described, I call it the four horsemen of the apocalypse, which all hit in 2021, 2022. You've got the pandemic, you've got inflation, you've got the Russian invasion of Ukraine, and you still got you've still got the climate crisis. And, you know, if you look at what's been happening in Pakistan, you look at the heat waves in India and so on, it's all happening. And I guess what's really challenging is that you're still solving this multivariate problem, you can't just say it's now all back to energy security. I want to ask you about one thing, though. You mentioned the falling off of investment. This is the transition, right. We're talking a transition where you've got one third investment in the old and two thirds, you're moving into the new. But then last week, I had on this show Bill McKibben, who is as close as it comes to the father of the divestment movement.He’s an elder statesman of ‘no more investment in fossil’. And in some ways - I actually challenged him as well - is responsible for the pushback against investment in fossil. If he was here on this call with us, what would you say to him?

Dev SanyalI think we can’t go overnight from one narrative to another.It's not like, as I said earlier, telephony where you can go from fixed lines to mobile phones. I think this transition requires a complete re-plumbing. I think the IEA has got it probably right, $2 trillion every year for the next decade and $5 trillion every year beyond that. You can debate the numbers, but this is a significant sum of money required. And if it happens too quickly, there's no financial capacity to do that, number one, but I also don't think the money will be spent as wisely. So, you know, 2 trillion is a hell of a lot compared to, if you will, an oil and gas investment cycle over the last decade of, let's call it anything between 300 to $500 billion a year. So, it's a huge stimulus, if you will. Now, there are things that are happening that will stimulate it further, like the Inflation Reduction Act, which I think is actually going to be good in terms of diversification. But I think my own response would be, I wish it would be done as soon as possible. You know, I fundamentally believe in the energy transition. I think it's important. I believe there's a massive business opportunity, I think it’s the right thing to do and society needs it and demanded and wants it. But the question, of course, is how do we do it in a responsible fashion so that we don't have a situation where people are left behind?Which is why I'm so passionate about, as you can sense - and you know this, Michael, you and I know each other well - about the repurposing of existing infrastructure.I want to not just repurpose infrastructure; I want to retrain because the same skills will be required. Go to a bio refinery, it's the same skill, the only difference is hydrocarbons don’t flow through it. So, we've got to look at this from multi dimensions, which is how do we provide the energy the world needs in the way that it wants? How do we help people in their own transition from one set of skills to another set of skills? And how do we actually do this in a cost-effective way, use existing assets rather than waste money by creating a whole bunch of new assets which require steel and land and everything else.Do it in a lot more of an efficient fashion. It doesn't mean we can repurpose everything. It doesn't mean that repurposing is the only panacea.But I think there's been a fascination in the last decade - I don't know if you agree with me - but I think there's been a fascination with building the new. And because it's kind of cool to go and do a ribbon cutting ceremony for a brand new shiny asset. I think the next decade is… my own bet, and that's a bet we're making as a company, is that it'll be both repurposing the existing while also building the new.Now, I think one thing we do need to do is make sure we've got the right signals for that investment climate.Sudden changes in investment legislation don't help, because it detracts from investor confidence. Things like the Inflation Reduction Act, which actually kind of incentivise creative production, are fantastic. I personally believe it's also easy sometimes to incentivise consumption. That's probably a wrong thing. In fact, if you look at the latest poll I looked at in the UK - there are so many polls these days - but 70% said they'd be up for actually reducing their own energy consumption over the course of this winter. Now, worryingly, 23% said they would have no access to heating in the winter, which is not good. You only have to go to Japan this summer, since Fukushima and you will see that the temperatures in offices are 24 degrees for a reason, because of conservation.  

Michael Liebreich But when you when you talk about 70% in the UK… Something like that would actually say that we should be nationalising energy companies. And if not that, then we should be applying a windfall tax to companies that are enjoying what they would consider, what a lot of people would consider to be excess returns resulting from the Russian invasion of Ukraine and these other sorts of temporary and very extreme situations. I mean, your own refinery margins, I'll bet right now, are they at record highs? I suspect they will be right?

Dev Sanyal Well, I think what is very important is to basically be clear about what do you do with that money. And if you're going to reinvest it, as we are doing, in creating new forms of energy, creating, if you will, more energy, full stop. That actually will help abate the current challenge we are facing.

Michael Liebreich But not immediately, Dev. It won't immediately, because whatever you take out of the business now - and that that enables you to take a final investment decision on the stuff we’re going to get onto and talk about in your engine two - but that's not going to come online for two, three, four years. And people are really suffering today. So, they would say, take those profits away from you and help people who are perhaps not going to be able to run their heating this winter. How do you answer that?

Dev Sanyal Listen, I mean, it's a very difficult situation. The cost of living crisis - and it is a crisis - is real, because we are still experiencing all those factors. You called it the four horsemen of the apocalypse. I think the question, therefore, is how do you deal with not only the present but also how to get out of the present? And that means there needs to be investments. The only way out of this is producing more energy and actually creating more diversification. And creating the signals that basically stop it, would be, I think, probably not the right thing to do from my vantage point, because I actually believe if we can create the conditions for certainty, and conditions where the money gets invested in the future, then we will undoubtedly get more energy and we'll have more diversified energy, which is going to be good for the consumer and good for the absolute level of price, etc. Now what do you do with the present? The governments will have many options ahead of them. I sort of like this idea of making sure that it's very directed assistance because quite frankly, I don't need that assistance. So how do you make sure it's very directed. And those are things politicians will look at, absolutely. But the worst thing we could do is just get focussed on today because we'll never get out of this crisis, and we need to get out of this trough, and that takes time.I wish, Michael, trust me, I wish we could do this sooner. I mean, we've been very aggressive - five years to build up these new businesses - but we actually have conviction that we can do that, and the conviction is based on a number of things. We believe that customers want it and customers absolutely want it in our neighbourhood. Number two, governments have to help incentivise it.I mean, just look at what's happened to the UK with offshore wind. It was not developed by just great engineering. You also develop by incentives, that created the scale which now has resulted in a virtuous cycle.So, let's say, for example, America, etc. And then I think you do need at the same time, a consistent level of investments, not a stop and start. We've seen this, you know, Peterhead in the UK with CCS, stop and start what did that do? Actually, nothing good came out of it other than some good engineering designs. So, we've got to create that stable environment for that investment to be sown so that we can reap the benefits in the future.

Michael Liebreich Right. And you know, you know, I'm pushing you, but I've also spent a big chunk of the last 20 years tracking stop-start policy. In the US, there was the stop-start policy on production tax credits, and we saw it. I remember the charts we produced where every year where there was a production tax credit, there would be lots of wind and then there'd be none, and then there'd be lots and then there'd be none. And of course, then the other example is Spain, where there was a retroactive, in a sense, nationalisation of profits from renewable energy producers and it probably harvested a few billion for the government, but it resulted in a ten-year investment drought, when investors shunned Spain and the Mediterranean countries for investment because they said, “well, we don't know what's safe.” So, you know, you're preaching to the converted, but you understand I wanted to push you because the audience hasn't had the same scar tissue that we've been tracking. I promised to let you talk about 2030 and beyond, 2040, and let's get on to that. So, you've got your net zero scopes, one, two, and then three. Remind us which ones by which year? And then we'll get onto your engine two.

Dev Sanyal So on scope one and scope two, we'll be reducing it by 40% in the next eight years, and we'll be net zero by 2040. We will reduce carbon intensity for scope three by 15% in the next eight years, and we will be net zero by 2040. Now, one thing that I want to be very clear about: I am not saying there will be no hydrocarbons in the energy mix. There will be, but we probably will not be participating in that in any significant way because we actually want to build, at scale, our engine two businesses in renewable and sustainable energies and repurpose our existing business in conventional energies.

Michael Liebreich But can I ask you about that, because one way to achieve that… You've mentioned repurposing a lot, but is there a hidden piece that is ‘and the bits we can't repurpose, we're just going to sell’because a lot of oil and gas companies, when you look at their plans for net zero, they sound marvellous, but then you probe and you push and you do the numbers and you say, do you know what, there is no way they can achieve that other than by selling. And of course, if somebody else buys, who may be a private equity player, not publicly quoted, not facing the same scrutiny, we've achieved nothing.

Dev Sanyal I can only speak about my own company. Our plans are not to sell. I mean, of course, if there’s some underperforming asset, retail asset here or there, we may say, okay, we don't need that because the game of retail has changed. But I mean, fundamentally, our business strategy, which we laid out on the 4th of July, is all about keeping our existing 50 assets and actually repurposing them for the future. And, you know, I personally do agree with you. The idea that if you sell it, it would be good for the company, but not good for the world, if indeed our target is to move towards decarbonisation. But that's not for me to comment on. Our strategy, and we've got conviction on this, based on our assets and the nature of the markets we operate in, where we believe we can actually convert our facilities and therefore, you know, generally reduce the carbon to net-zero by 2040.

Michael Liebreich There are potentially some quite difficult decisions. So, one might be somebody, offers to buy one of your refineries to keep running it with hydrocarbons, with fossil fuels. Does that mean you would say no, even if that might look like a very attractive deal versus doing something else, doing the clean version of repurposing?

Dev Sanyal Well, I mean, fundamentally, we think our assets, our manufacturing hubs are actually going to be vital to creating value. So, you know, if we actually believed that those assets would be better served as hydrocarbon assets beyond 2040, then we probably would have had a different strategy. So, we actually believe there is a massive opportunity. We are in the process of – at Bayernoil, for example - putting in a green electrolyser, for green hydrogen, 125 megawatts going up to 800. We are in the process of putting in a pre-treatment unit for bioenergy in our asset in Cressier. I mean, we believe we can build scale in these business, and to build scale… Scale is very important for us. Scale is incredibly important. And you know this, Michael, I spent a lot of time in this area in my career. I actually believe this is not some nice, niche LVMH product, which serves a few select niche customers. We've got to build scale to reduce cost and to make it more and more affordable. That's the winning ticket. And therefore, we believe that we can build scale in these businesses by both repurposing but also building the new. There are two other points, if I may, on that. I also believe, you know, when you think about the history of our industry over 100 years - and you know this extremely well, but just for your viewers and listeners - there was a sort of very John Rockefeller-like integrated model approach. So, refineries tended to be near the production source and near industrial clusters. That's the way it was. And so, what we absolutely believe, as we build these businesses in existing infrastructure, we have the benefit of the ecosystem which we can leverage. I mean, think of it, if I am taking 70% of my hydrogen demand in Switzerland, converting that to green… Well, guess what? I've got the scale now to supply power, to supply industry, etc.And I think that's a very important point. The second point I'd also make is that the current turmoil in the labour market that you've seen and frankly the political discourse, are borne out of a three-decade trend where some parts of society got left behind, with globalisation. And I think there has to be an opportunity here to reskill people and to give them new opportunities. I mean, when you go back in time in the UK, the coal mines got shut. But what happened to the coal miners? So, we've got to think about ways to kind of create that the social cohesion. But it's also a, frankly, great business opportunity because I need the engineers, I need people who understand high-tech manufacturing, I need people who understand high risk industries and they have those skills and those men and women will be incredibly important as we start building out these businesses in the future on these platforms.

Michael Liebreich And one of those businesses is nature-based carbon. And that, of course, leads us into just this one thing I have to probe. We'll talk about the other in a moment… But to what extent are you going to rely on offsets to say, well, you know, we tried all these other businesses, they didn't scale, we do what we can, but we're hoping to plant trees, and that will enable us to continue doing what we, frankly, have always done, which is hydrocarbons. Is that a small part? A medium part? A big part? Is that any part of how you think about it?

Dev Sanyal We’re building this business for our customers, not for ourselves. You know, and let me explain that a bit more. So, we actually think that offsets, which are certified, which are genuine, in nature-based carbon solutions as we call them, are part of the mix. I don't think they're going to be, and they cannot be, 100% of the mix. That would be illogical and frankly, would not actually, pass any kind of test at the water cooler, so to speak. But let's call it around 10% of the mix, perhaps, as a part of the transition, perhaps. So, what we are doing is we’re building this business to basically provide a service to our customers. So, we think by 2030, 1 gigaton of CO2, will be saved through this mechanism. Our ambition is around 50 million tonnes, in our strategy over the next few years, by 2026. And effectively, what we are seeking to do is provide this in a suite of things that we provide to our customers. We have this concept of customer lighthouses and the idea is not the old idea, which is let's just sell more to the customer. The question is how do we help them meet their own transition needs? And 97% of the customers we serve in my markets have got some form of net-zero commitments.Now, the question is, and we believe, you know, because of our nimbleness, because of entrepreneurship, because of the ways we do things, we can try and blend together their bio requirements, the hydrogen requirements, as well as some offsets to help them in this pathway. So, I see it in that context. It’s not really a business we are building for ourselves. It's a business we are building to provide the customers with a suite of options as they think about decarbonisation.

Michael Liebreich Okay, that's very clear. Thank you. So, we've talked a little bit about the green hydrogen, of your five pillars in engine two. We talked a little bit about the green hydrogen, we talked about the nature-based solutions. That leaves e-mobility, biogas and biofuels.And I think we don't have a huge amount of time, but do you want to touch on… I'm particularly interested in the biogas and the biofuels piece, do you want to talk about those three?

Dev Sanyal I'll do it very quickly. E-mobility, when I joined Varo… Before you join, you know, you don't really meet anybody, other than your board as a CEO… So, once I was announced, I got the opportunity to go on listening tour, if I may call it that. And the team spoke to me about this fintech company in mobility, and I'm thinking, why do we have a fintech company in mobility? Well, actually, what we do is, through a company called E-Flux, we actually have the software that enables long-distance hauliers to have an ease of payments for their energy needs. But it also then gives us a unique window to understand their requirements for bio. It gives us a unique window in understanding their requirements as they electrify for power. And basically, it allows us to try and bring together options that they can use as solutions for their own needs, be it - it's probably all the above - for their costs, for their carbon, as well as for their optimisation of their fleet. So, that's what we're doing. What we are not doing is building a business where we've got 10,000 retail outlets that we're going to put each order in... It's a good business - for someone else. So, one of the things we've been very clear about… I don't often go to the former Prime Minister of the UK, Theresa May, but I think she had a very good line about global citizens. She said they’re citizens of everywhere but citizens of nowhere. So, what we don't want to be is a company that does everything. So, our strategy is actually a strategy which is designed to make choice. And we've made these choices on these five strategic pillars. So, you know, I was involved, as you know, Michael, from our own history, in building or being a part of a team that helped build a very large - in fact, the world's largest - solar developer. I was involved in offshore wind, onshore wind. These are great businesses.

Michael Liebreich This would be Lightsource BP.

Dev Sanyal But the truth is, we don't have, as Varo - we have the expression that we use in our company - the right to win. But we do have a right to win in these five areas based on what is our very focused strategy.

Michael Liebreich Right. That's very interesting. And in fact, I find the whole area of freight and how we're going to do clean freight, fascinating, and I didn't realise that was what E-Flux is doing and I'll take a look at it. But just do biogas and biofuels,because they have fallen a bit out of favour. And in fact, around the time when we first started to work together on all of this stuff, BP was investing in ethanol in Brazil and we had the second-generation ethanol kind of boom and everybody got excited. And now biofuels and sustainable airline fuels are having a bit of a comeback. What is your take on those two remaining of your five pillars?

Dev Sanyal So I think one of the things that I did say in the very beginning, and I need to emphasise this again and again, we are investing in advanced biofuels. In other words, we believe that the opportunity area for us, and I want to use a bit of technical jargon, 2G, second generation biofuels, is all about actually taking waste and agricultural residue, not impacting the food cycle.So, it's not about crop, it’s not about intermediates. It's actually about taking waste and converting that into useful heat, light and mobility. So the bio market in biofuels in Europe will be a $70 billion market in the next few years. We want to build that business, so we are also very active in building out our business in sustainable aviationfields. It's one of those hard-to-decarbonise sectors, we're working and you'll see some announcements, working with some of our customers on that. And the scale we are looking at, 250,000 tonnes for our plant, will actually result in, I think, the equivalent of 4000 flights between Heathrow and JFK being absolutely clean.Similarly, I think what we are doing, in biomethane and bioLNG, is looking to build businesses which are using effectively non-crop feedstock. So, we've got, which is not in the public domain, an agreement on crude fatty acids from Finland, we’ve done a deal with a fantastic company called Taaleri in fintoil. We're building the feedstock which we can then deploy into biomethane, bioLNG. Again, very important, we think the potential of what we've laid out in terms of the business, has the potential of basically resulting in 400,000 clean homes in the next five years. And again, that becomes a bit more vivid in people’s understanding of what we are trying to do. So, we want to help build those businesses. We think we've got the skillset around not only those businesses, but also around how we optimise it - feedstock, trading, manufacturing, reliable manufacturing, and also, of course, building out the appropriate set of distribution channels. So, you know, it's one terawatt hours is what we're talking about, which is what, 110 million cubes, is what we are building out in the biogas business. And again, very importantly, looking at existing infrastructure. I mean, don't forget some of these businesses, what I like about them is… This a transition, but the truth is that even the bio business is never going to move the dial 100%. But if you move the dial 10% and you can use existing engines, for example, in transportation, but you're clean, and you're not actually impacting the food cycle or the crop cycle, then actually you're creating a business that's well worth investing in.

Michael Liebreich Can I ask a hypothetical question? Supposing capital was more constrained?I mean, you've got your plan, you're going to be investing three and a half billion dollars, I believe it is, between now and 2026. So, it's kind of around $1,000,000,000. And we've talked about all the conditions. Supposing capital was a bit more constrained - my hypothetical question - and you had to choose between bio and hydrogen? Which would you choose?

Dev Sanyal I think the business of hydrogen will be very important in terms of own usage in the next five years.Five years beyond that?

Michael Liebreich Just to be clear what that means for our listeners, this is replacing grey i.e. dirty, polluting, emitting hydrogen, particularly in Cressier, presumably? And replacing that with some form of clean hydrogen, right?

Dev Sanyal Again, I mean, the theme here is nature-based. So, if you think strategy, there's a big sort of theme around nature, bio, green, hydrogen, nature-based carbon solutions. So basically, the bio business for us is going to be a good business in terms of our own usage. That will give us the scale that allows us to then sort of go to industry, to power e-mobility, depending on how that evolves. And I know you've got various views on that, but let's see. But I think the first question is not… it goes back to my own mind-set, my team's mind-set. We will see what happens in 2070, 2050, but what can we do now? Well, we could do a lot with our existing infrastructure, and then that gives options for the future. The bio business is different. The business is the here and now today, and I think we can invest in that and actually create scale in that business to serve our customers because demand is very much out there. The question is going to be, how do you build it at a scale in the right geographies, leveraging, if you will, the incentives to do so? And I think that becomes a financeable proposition. Listen, you know, you talk about finance… Look at the offshore wind business: by having a CFD, what the UK government gave was price certainty to the producer. It also created a financing stream.

Michael Liebreich Yeah.

Dev Sanyal And I think that's the idea that we need to get after.

Michael Liebreich And my last question is about finance, and it is a question around returns, because this has been a perennial issue. And, you know, you've lived it when you were at BP, and I'm interested to know where it's getting to now. Do you have to give up returns?Is this a financial compromise? Is this, the glory days of energy are over because you can no longer do oil and gas and dump this pollutant into the into the planet; that's over, and we just have to accept that this is now lower-margin… we can try and de-risk, we can do clever things, but fundamentally, the glory days of energy are over, and any investors who are looking for that are going to find themselves fundamentally disappointed. Is that true? Is that what's happening, or is something else happening?

Dev Sanyal What we have said is that as we build out these businesses, we will maintain across the group 15% returns. So, we have actually said…

Michael Liebreich And this is return on capital? This is not return on sales, return on capital?

Dev Sanyal. Return on capital employed. So, what we're basically saying is that having a new brand new business where you tank margins and you tank returns, that's not going to be a winning proposition. So, we believe there is opportunity for us to do so in these five areas, where we've got, as I said, a track record and some skill set that we can deploy. And so, 15% is what we are committed to delivering across the portfolio. So, the very idea that we're going to build quantity by degrading quality is not in line with our strategy.Now, are the returns characteristics of this business different from existing hydrocarbons? You bet. Look at the cyclicality we have right now, look at the VIX, the volatility index, of hydrocarbons versus other forms of energy. It is a lot higher, and the reason it's a lot higher is because it is highly concentrated in the hands of producers. We've got to change it. If you’re sitting in our neighbourhood, maybe as early today… Europe is going to always be in need of energy. And the question is, can it produce more domestic energy and can it diversify more resources? If it can, I think we will see this episode as - and I really hope this is the case - the point of departure from the past. And that's what we're all trying to do, using this current narrative, which is borne out of incredible sadness and tragedy.How do we then create strength as we move forward? And that is, I think, what's ahead of us. And I think this is one of those, cliché though it may sound, one of those watershed moments for the world of energy. And I hope the choices we make today as individuals, as companies, as governments, as societies, can actually result in a future that is a lot more diverse, a lot more inclusive of different forms of energies, and frankly, providing what the world actually needs, which is clean, affordable and secure energy.

Michael Liebreich Clean, affordable, secure energy. I mean, I could listen to you for days, but sadly, we are out of time. Thank you very, very much. I think that's been an incredibly insightful tour of what it means, what the transition means - not just the clean bit, not just what we want to do and what we don't want to do, but actually how we get from A to B. And I hope the audience will really appreciate it, so I thank you for your time today.

Dev Sanyal Well, Michael, thank you. And thank you, actually, for what you've done for our industry, because I think you've been pushing over many decades, and I think the things you've been pushing on are finally coming together in a very, very good way and I hope in a very good way. I think it is actually a very good way. So, thanks for leading the thinking. You're a pioneer. And here we are following your footsteps and hopefully we can do something with it.

Michael Liebreich You're much too kind, but it's a pleasure spending a little bit of time with you nevertheless. Thank you so much.

Dev Sanyal Thank you, Michael.

Michael Liebreich So that was Dev Sanyal, CEO of Varo Energy Group and 32-year veteran of BP. My guest next week is Dr. Jennifer Holmgren, CEO of LanzaTech, a world leader in taking flows of waste carbon of various sorts and turning them into high value biofuels. Please join me this time next week for a conversation with Dr. Jennifer Holmgren. Cleaning Up is brought to you by Capricorn Investment Group, the Liebreich Foundation and the Gilardini Foundation.