DONG Energy: A Laboratory for Change

DONG Energy is a full-fledged, integrated energy company. Just start with its E&P unit taking care of the oil and gas exploration in the North Sea, where the company has a majority of its production today.

DONG Energy also does renewables, focusing primarily on offshore wind for which the company is a market leader.

The Danish company is also active in power generation in Denmark, where it has been swapping out coal-fired generation to biomass; meanwhile, DONG Energy is busy building natural gas generation units

DONG Energy’s CEO Anders Eldrup adds, “We are an integrated company represented in the entire value chain. Of course our stronghold is still Denmark, but we are more and more becoming a regional North - European company and we are very strong in the UK as well and are increasing our activities there quite significantly.”

Mr. Eldrup, who has headed DONG Energy for over a decade now, provided an exclusive interview to Natural Gas Europe ahead of the 2012 European Gas Conference Awards, where he has been nominated as the European gas industry’s Executive of the Year.

Given you’ve been at the head of DONG Energy now for over 10 years, you must be enjoying your position. What have been your major challenges during this time?

Certainly, and since 2001 up to now there has been at least three very significant milestones: the first one was, of course, that we had to adapt from a monopoly situation to free markets on both gas and power, and that caused very dramatic changes here.

The next big challenge was that we made a very big merger, at least according to Danish standards: we merged most of the Danish energy sector into what became DONG Energy - we did that in 2006 – and that changed the original DONG, which was only a gas company, to a full-fledged energy company. The merger was quite complicated: six companies joined together, mostly because DONG Energy bought them, which made it the consolidator, but it was quite a complicated process.

And the third thing I’ve been struggling with is to change dramatically the strategy of the company. A few years back it was primarily focused on coal in our generation and now we have turned the company very significantly and very fast towards a green policy, away from the black, in energy production. Our target is to completely abandon coal. We have made a lot of progress towards that, but there is still coal in the company. Eventually, we will completely leave coal and in the future the company will be completely based on wind, biomass and gas. That’s actually quite a new company that we are developing out of the old companies.

So I would say these three things comprise the main topics in my mind in these years.

Prior to 2001, you served in Denmark’s Ministry of Finance as Permanent Secretary. What was it like for you to make such a big change?

I was asked by the Board of DONG Energy, which is a company in which the Danish government has 76% of the shares but there is an independent board with businessmen – no people from government is in the board. The board at that time asked me to take this position and eventually I did that.

What kinds of qualities were necessary for facilitating the change at DONG Energy?

I think from my years in public service I was quite used to that when you decide on very big issues, as you do in ministries, then you must also have a very good, analytical foundation to work from. So I think this tradition of – not just making decisions, but basing them on profound analytical work – that is one of the things I have brought to DONG Energy, and which has also been very important for the success of all three of these major changes. I think it was because we did our homework before we acted.

Given DONG Energy’s diversification, how do you see the competition among different sources of energy in Europe in its efforts towards a lower carbon future?

I think the mix we have chosen -  to abolish coal, which is the most polluting – and substitute it with offshore wind, which is free of CO2, and biomass, also free of CO2, and then to some extent with gas, that is a good combination, because that is really a low CO2 way of producing energy.

At the same time we have a good mix from an operation point of view, because we know that renewables – at least wind – is rather volatile, and we need to have some production facilities also at times when there’s no wind. Therefore, gas is a very good companion to wind, because gas-fired power stations can be started up very flexibly and quickly when the wind is not there and gas can easily take over.

So in a way gas and wind are yin and yang, they are complimentary and work very well together. So that’s the way we see the world.

Members of the oil and gas community sometimes complain that there’s not a level playing field for investments given the subsidies for renewables. What are your views on the subsidization of renewables?

Renewables are subsidized. In Germany, the solar industry has been subsidized for many years; in our region, in the UK, Denmark, Germany, offshore wind is subsidized. That is needed for the time being – offshore wind is quite a new and rather immature business, only existing for around 10 years. That means that in the future when there’s a greater scale, we will be able to do it more efficiently, turbines will grow bigger, the whole installation system will increase. So it is our target as a market leader in this area that we will be able to bring down the unit costs for producing power from offshore wind significantly in the years to come, making offshore wind more and more competitive with power from gas or coal fired power stations.

How would you evaluate progress in the rest of Europe in terms of diversification and meeting climate change goals?

There’s no doubt that Europe has been leading this since the Kyoto Protocol was signed – Europe pushed for it and developed the ETS system, and I think Europe is ahead of the other regions in that respect.

Of course with the poor results in the Conference of Parties (COP) 15 and the subsequent COPs of course some of the focus on the climate issue has diminished and for the time being there’s a big focus on the financial crisis and less focus on the climate issue. From my perspective, we are quite depressed that there’s no global treaty, but I think these issues are so important to solve that it is necessary that companies and private individuals start this moving, because even if we don’t have these global treaties the problems with climate are growing worse and worse every day and it’s absolutely necessary to do something about it.

For us at DONG Energy we hope to show that it is possible to run an economically healthy company doing many of the necessary green changes, even in a situation where there are no global or general agreements about it. What I hope to be able to show is that we are going green faster than any other energy company that I know of. At the same time, we’re able to have quite a profitable business, so there’s no contradiction between going green and having a healthy economy. I hope that we can show that it is possible to combine the two.

An affluent country, Denmark has been very progressive in pursuing a low carbon future. Do you think being able to do this is the privilege of rich nations?

What I hope is that we can be sort of the test laboratory for some of the new technologies. Years back, the Danes were the pioneers when it came to wind: first onshore wind, later on offshore wind, and all of this has been pioneered in Denmark, and now it is spreading to neighboring countries. This might have been costly in the beginning but now the Danes who have specialized in this are quite strong, so from an industrial point of view it is also a significant upside.

At the same time, apart from the wind we are also trying to, both as a company and as a country, to develop and be at the forefront of a number of technologies. For instance, the way we use biomass in energy, and also the way we use household waste, finding more intelligent ways of using it. We hope we can also pioneer some of these new technologies and hopefully also develop the industries that are going to carry this forward in the future.

We would like to see ourselves as green pioneers. We are the test laboratory. After all, it’s not a very big country, but if we can make it work here, then there’s a good possibility that it can also work in some other European countries and Danish industry will get a head start if we are successful in some of these ventures. We seek to set a new agenda in many of these areas.

What would you name as your greatest achievement of 2011?

Last year one of the major achievements was that we managed to finalize our new offshore wind power in the Irish Sea, the Barrow Wind Park, which is for the time being the world’s biggest offshore wind park. We did that successfully and actually the time of construction for that park was far better than any other we have seen. The last part of this construction was a record in the speedy way it was implemented. I think it was quite encouraging in the way that we could build the biggest wind park and within budget. We showed that these efficiency gains are necessary in the future, that we are almost there because we were able to show that you could do the construction significantly faster than what we have seen before.

What are you targeting as goals for 2012?

Through the lines we have talked about earlier, we are developing and have some interesting decisions to take . One of the major decisions just ahead of us is a very big project in the E&P business on the Danish shelf, which of course is interesting for us, because we are Danes and we hope we’ll be able to start a quite interesting new project here in Denmark. It hasn’t been decided yet, but we are advanced in the preparations. So that will be a big challenge in 2012.

Learn more about DONG Energy at its website LINK    The European Gas Conference and Awards are being held 24-27 January 2012, Vienna  LINK