← CERAWeek Podcast with Atul Arya
CERAWeek Podcast with Atul Arya
Marsh & Oliver Wyman on Why Energy Risk Is Now a Boardroom Issue
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Foreign.
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Welcome to the Sarawik Podcast, where the world's energy leaders and innovators share insights on the future of energy, technology and climate. I am Atul Arya, Chief Energy Strategist at S and P Global. In each episode, we dive into the critical issues and bold ideas shaping our energy future. So let's get started. Hello, everyone. Welcome back to Sarabic Podcast. My name is Atul Arya. I'm chief Energy Strategist at S and P Global. And today we are going to hear from two leading experts from a global professional services firm bringing together capabilities across risk, reinsurance and capital, people and investments, and management consulting. Within this context, we are going to focus on energy and natural resources in that broad context. So for joining me for this conversation today are Nick Studer, Vice Chair of Marsh and President and CEO of Oliver Wyman, and Mark Pellerin, Global and America's Head of Energy and Natural Resources at Oliver Wyman. So, Nick and Mark, welcome to Sarabik Podcast.
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Thank you very much for having us.
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B
So let's start with the introduction to Oliver Wyman. What do you do and what's your connection with the energy industry? Nick, may we start with you? Yeah.
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A
So thank you for the question, thank you for the context. I also just, even before we dive in, just want to note as we are talking in the run up to saraweek, which I'm sure is going to be particularly interesting given the current context in the Middle East. This is an industry where our people are operating in Harle's way often. And I think this is very much at the forefront of our minds. And many of our colleagues across the region working with energy clients, but nowhere near as close to the front line of harm as many energy players are. We try to be of the industries which we advise rather than just separate from them. And so our thoughts are with our clients and their people. Very difficult time. So who is Oliver Wyman? Oliver Wyman is the youngest for now, the smallest but also the fastest growing of the four global multi specialist strategy advice teams. We also are unique in that we're part of Marsh. We're a business of Marsh and we lead with strategy, but we also draw on the deep risk, reinsurance, capital and people strengths of the wider Marsh family. There are 8,000 of us in Oliver Wyman, but there are 95,000 of us across the Marsh businesses. And our objective within Oliver Wyman is to really support clients in their transformative moment, the moments when their industry, that company, faces a real change in direction. For whatever reason it might be driven by external Factors. It might be driven by changing customer needs, it might be driven by a deal, it might be driven by a need to really change the performance trajectory of the firm. But given the nature of the industry, the energy sector has been a big contributor to the transformative moment work we've done over the years. So that maybe start to put Oliver Wyman into context. But I'm sure Mark will give us more details.
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Yeah, Mark, get us a bit more.
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Yeah, yeah. And specific to energy tool like this is such a global industry. Right. And so for us, that really does start with having proximity to some of the most important critical energy markets in the world. So I'm here in Houston and look forward to seeing you in Houston in a few weeks. But we've got a large presence in New York, in London, in Munich, in Singapore, in Western Australia and Perth and Dubai and Riyadh are very, very important, as Nick said, high growth markets for us as well, I would say as well. You asked about our connectivity. We're very much connected and we very much see ourselves as an extension of a management team.
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Right.
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Our clients are some of the largest, most influential corporations, but we work in both private and public markets. And as we work as an extension of their teams, less and less it's about having the idea or the strategy or kind of the most certain decision, but rather it's how we partner with different industry participants to make this a reality and have the results of these growth initiatives show up. From an enterprise value perspective, I might end like quick fun fact. Oil and gas today accounts for roughly 3.5% of the S&P 500. From a market cap perspective, industry punches above its weight and we take a lot of pride there because the free cash flow generation, these very same companies represents almost double when you add it all together. So we're having a major impact for all industry participants, all stakeholders and also the investor community.
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Energy is so critical to everything we do and we are seeing that right now in the current world situation. Nick, I want to come back to you and give us your view on the current macro conditions in energy. The demand for all types of energy reach new highs in 2025 and we don't see any kind of plateauing. How do you see that?
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Yeah, we don't see any kind of plateauing either. We see the peak a long way off and I think, I'm sure we'll talk later on about the transition and some of those things. It's fascinating to me how policymakers can aim to do what they need to do, but Ultimately, raw demand and the need to solve business problems is what drives that need. I think the more interesting characteristic to us, and we've been doing quite a lot of deep study on it in the run up to Sarah week, is the nature of volatility of that demand and of pricing and of supply. Ultimately, what we see as a structurally more volatile world for energy because it's more integrated between oil, gas, power, geopolitics, infrastructure, weather events and shocks. Shocks are energy, shocks are existential. Now, it's not like the traders and the hedges. You have to worry about it. It's CEOs and CFOs across the activity chain, not just the energy companies, but the users, the whole system. So I think that makes it hard. I think C suite leaders are dealing with what I call an everything everywhere all at once. They're investing for growth, but they also need to be spending time cutting costs to fund the growth, particularly in systems and AI. And they're having to invest more than ever before in resilience and in risk management. And so I think at some level the fact that demand will continue to rise is at least an underpinning of future planning. But we think we're in a structurally more volatile world.
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Yeah, I mean, great point. And as you say, infrastructure is so important. Energy is all about electrons and molecules and you need infrastructure to move them around the world. Mark, your perspective on this?
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Yeah, Nick hit on it right. In terms of structural volatility. And we're really looking forward to sharing that deep study and research. At zero week, we're going to release our report on risk regimes and really look forward to that platform and digging into some of the risks that Nick was mentioning. The other one there though is just like how nonlinear prices are right now in the market and a lot of front of the curve volatility, a tool, but not much has changed. When you look 3, 6, 12 even months beyond. I would say though, something feels a little different this time around. And I think the general public, but all of us tend to look at what is gas trading at the pump, right in times of inflation, in times of uncertainty, and what feels different this time. And what I would expect us to see is that's less and less the metric, right. It's more what is the price at the meter and this just importance of electricity as part of the energy additions that are being made in the broader longer term transition. So I do think we got to pay a lot more attention to.
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Let's stay with power and with you, Mark, and talk about the Power demand for data centers. I always come back to this phrase irrational exuberance. Are we seeing that? Do you see that the supply will outpace the demand here?
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Yeah, yeah. Look, I'm Canadian, so I'm an optimist. I'm American in many ways as well because my kids were born here and, and so I believe in abundance. Right. And so I think abundance of energy is a really good thing. I'm also a sports guy at Tool and we talk a lot about in sports like the best ability is availability. I think that translates really appropriately to the energy markets more broadly, but to what we're seeing in terms of data center development. Look, bubbles are always a concern, right. But I do feel in the moment we're far more supply constrained. And at Marsh we're working very hard to just analyze the overall capital required to accelerate the development of these data centers. And it's very clear to us that power is more of the gating factor for that build and power and generation in itself, for example on a 1 gigawatt plant only represents roughly 10% of the overarching capex spent. So I think we're looking at these things as real assets, location and especially kind of what's going to be possible or even required behind the meter. The piso I would like to hit on here and I'm sure this will be a hot topic at zero week. But just as the role of the hyperscalers more broadly. Right. In buying and selling electrons. But I would expect them to continue to put their balance sheets to work atul this includes deploying contingent capital letters of credit, providing assurances over the long term for the build of this capacity and also possibly funding the interconnectiveness that's required to the grid.
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Just before you answer Nick, I would like for you to touch on this kind of the risk management aspect of the whole thing. Right. Because you have a unique capability within your ecosystem of Marsh and Oliver Wyman, you see the front end, but they also are like the back end. And so tell us a little bit about how you put it all together. Not just the demand part, but how do you managing the risk, which kind of Mark alluded to as well.
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Yeah, look, it's a great question. So I think that this is a huge surge of complex interconnected infrastructure investing. I'm a bit less worried about the is there going to be an oversupply question for the energy industry? I think it's a very valid question for the hyperscaler. But if you think about where the sources of funding are Coming from this, a lot of it is balance sheet, it's P and I expenditure. It might be a big risk for the digital infrastructure players. But to answer your question about risk, these are huge high value projects with all sorts of incredibly complex risk requiring high degrees of structuring, syndication of the risks, the creation of facilities, all sorts of different players playing in the stack. So it's an enormous both opportunity and need for the risk management and the financing community. And I think there is a question there as to whether we get overbuilt. But if you think about the energy problem piece of it, a lot of this is having to be behind the grid because connections are too slow, too hard to get. And I find it interesting that at the time when public policy has perhaps been tilting away from renewables, actually if you're looking for cheap and quick to assemble energy sources, actually that's been a surge in solar and some of these renewables as well, of course of SSMR interest in SMRs. So I don't know. I think we're excited by the innovation. I'm not an expert on the chip design side. I do think that the capacity is playing ahead of current demand needs. It's playing towards far more complex processing environments as we move towards potential artificial general intelligence. So we may find we have a surplus of data centers in the future. But from an energy perspective, I think that's just future grid connections and there
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are other things we can do with energy. I should just point out for our audience, Nick and Martin, we are going to have quite a lot of discussion about chips. We are getting a number of hyperscalers, but also chip companies, the likes of Nvidia and AMD to tell us what is going to happen because they're also worried about this whole efficiency play like everybody else.
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Right from the energy player too. I mean natural players in the energy industry.
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Now let's focus on the electrification for a minute. Mark. So what is constraining that? Can we get electrification and everything? What is the constraints? For example, how important is the role of transmission infrastructure?
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I think directionally that's correct. Right. In terms of electrification, the challenge is there's no like single switch to flip to get there. If we take stock in where we are today and certainly the progress made. Right. If we think about passenger vehicles, this has been happening, albeit at a slower rate and some of the issues there are around charging and end of life disposal of batteries. When we think about heavy transportation and electrification, this is working best or has the prospect to work best in more of the Return to base fleets that last mile delivery. But you're dealing with very heavy batteries on board that need to comply with DOT and other regulation. And if we keep moving forward quickly, you think about buildings and certainly heat pumps are economical in many places. It's around delivering in times of peak demand. And certainly battery storage is going to be really important. Grid scale battery storage is going to be really important for us to continue making this transition. I think we also have to consider sometimes start talking a little too much about the Americas. Right. But we got to think about this globally as well and where energy demand is poised to come from. Because in emerging economies, right. I think what we saw certainly in the phone telecommunications space is like fewer poles and wires, right. These weren't landlines. They bypassed our more developed age infrastructure. So I think again back to batteries. Even in developed markets with the aging grid infrastructure that we have, I think is really important. And finally, like again I'm, I always go back to capital markets and say hey, what's the market telling us? What can we see? How rational is it? But, but I think we're also starting to see, and I don't think it's just temporary, the premium in terms of enterprise value multiples on the electron based companies versus the hydrocarbon companies as well. And so I'm going to be tracking that very carefully and seeing where the market sees long term growth.
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Nick, do you want to add your perspective on electrification?
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I think just to try a couple of things, I think we touched on AI. I do think that when it comes to electrification, AI is not only a demand driver, it's a system optimizer.
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Of course.
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And if you think about workforce productivity and electrification is a binding constraint. But AI is helping with AI labeled predictive maintenance with automated inspections with all these kind of things. So we are able to also stretch the existing system further as we electrify more.
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Actually one of the things we're going to talk about to your point Nick is at Sarah, is AI to solve AI's power demand. How can AI be a tool to do that? Let's come back to energy transition for a minute. And back to you, Mark. From my perspective today there are really two bankable technologies which are solar PV and wind, mostly onshore wind. So which ones do you agree on that first of all? And which ones do you see as being on the path to bankability by say by 2030? Mark?
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Yeah, I think I largely agree with what you're saying, but I think in today's market there is a question mark when it comes to bankability. Right. And increasingly we aren't seeing blanket type assumptions around funding. And oftentimes I would say bankability really needs to be be created versus just assumed. And why is that? Right. You're we're dealing with permits and in some cases like longer durations to becoming cashflow positive. We're talking about the need for levels of contingent capital insurance that if the capacity was there, perhaps the risk wasn't as well known or certainly more complex in today's market. And then the offtake agreements. Right. And what is being committed to and the credit worthiness of those counterparties. So for me, I like to think of this in an oversimplified way in the cool kind of two by two matrix a tool. You've got what's available and you've got what's scalable and I think your positioning is correct. But I do see in the not yet available potentially scalable in five, 10 years. We talk a lot about nuclear and S cars. I think in the not there yet and question marks around scalability. We keep coming back to batteries, we keep coming back to CCUs. And then some of the things that I do think are readily available aren't necessarily as economical or available. And we think about renewables even more broadly without the storage and biofuels, alternative fuels. And for us, I know we'll talk about transition, but we've always believed in a commercially smart transition. Even if it's going to take longer, it's going to be more durable and we do believe that profitability and sustainability really need to coexist.
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Nick, any thoughts on this?
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I would just say that I think inevitably insurability is a prerequisite for bankability. But probably in some of the technologies that Mark's talking about, the other factors come up.
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I think this is a really interesting thing which I'm hoping you and your colleagues will bring to Sarah Wick is because you are looking at, as I said earlier, also the different aspect of it's not just about technology but can you put projects together and then that requires bankability and also it's a risk mitigation dimension of the projects, isn't it? So Nick, let's talk a little bit about kind of transition in the eyes of the big oil and gas who are a big part of Saravi and I come from that background. I feel like the oil and gas companies are rethinking their view on energy transition and reducing their capex. What are you seeing in the marketplace?
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Yeah, certainly seeing that. And we're seeing that because the markets punished those that spent more and rewarded those that spent less. And I think it reflects changing approach to the energy transition, but one that was much, much needed. There's a question about Marcus to whether the transition has stalled. I think we see quite the opposite. I think investment last year was at a record high. It's just becoming much more regionally skewed and the kind of standard needs around the affordability, the security and the availability of power arsenal sacrosanct. Mark talked about the commercially smart transition. I've always felt that there needed to be complementarity between the old and the new systems and a recognition that the existing hydrocarbon based approaches are going to be with us for a long time and are needed. So I think that too many public policymakers actually, particularly in the UK where I'm currently sitting, but also some companies have taken a bit of an all or nothing approach. And actually I think it needs to be much less binary, much more sequence. I don't see it as a brown versus green question. I think there are lots of shades in between and we talked about bankability just now. There has to be capital, discipline and ultimately I think it's quite hard because the whole energy industry operates in this kind of gray zone. But the market tends to operate and value it in black and white.
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That's right, Mark.
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Yeah, I just, I couldn't agree more with Nick on this but maybe on a kind of point of self reflection in this industry, right. Is that I think we can sometimes be quite polarizing. Is it good, is it bad? I think obviously politics, regulation. But I would just say again, upon self reflection, like as an industry we've got to get better at operating in what I'll call the gray zone. When we talked about this kind of structural volatility, we've seen this even in the core hydrocarbon side, right. A few years ago at Tool we saw just under 5% of US refining capacity get pulled out of the market. And now refineries are prized assets trading at incredible multiples in high demand. Some of the highest margin activity for these companies. So again, I do think we can learn from the past and even learn from our core business and how that translates forward. And I would just caution us to. I catch myself sometimes. But let's not talk about what's dead, let's talk about maybe what's deferred when it comes to the broader energy transition. And I think this industry will continue to evolve and prosper in the ways we design it.
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I think you're making a really important point to reiterate that for our audience that we will need both the sort of what we call the traditional oil and gas industry as well as the power industry and everything in between in the energy value chain for any kind of transition. Because everybody has a role to play. It's just we are seeing a bit of ups and downs, but it's not a black and white situation, as both of you are pointing out. Let's switch gears for a couple of more questions before we end. So, Nick, one of the things of course you do is risk management. I'm just kind of surprised a little bit that adaptation doesn't seem to be a priority when there is so much risk of physical asset. Look at all the fires and the floods and everything we have experienced just in the last year.
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Yeah, it's insanity, to be honest, that it's not a high priority. And it frustrates me every day. I talked earlier on about how we're in an everything everywhere, all at once world with the need to invest for growth, with the need to cut costs, but also the need to invest in resilience. And I think people still psychologically treat climate risks as an event which can have a negative impact on your asset. And both sides of that are wrong. The first thing is it's not just an event anymore. It's the whole operating environment. It's a higher volume of activities. But even when there isn't a severe weather event, it's higher heat, it's high humidity, it's corrosion, it's all of that. And then the focus on the assets is also incorrect because it doesn't really matter if your plant floods or doesn't flood if the whole system around it is broken and the asset is stranded. So we have three quarters of companies reporting losses or disruptions from extreme weather. This has to be a critical part of managing the energy system and energy infrastructure. And it's a holistic question which I think increasingly is not something to be handled only by the risk manager or the insurance buyer. It is a balance sheet.
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Yes.
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It's a CFO issue. It's a financing and bankability issue.
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This probably an inappropriate analogy, but I'm picturing the frog and the boiling water analogy, Nick, and what you're describing I couldn't agree more with. It's gradual, right? It's gradual decline. And we're going to release our large loss report at Marsh, which really dives in to the hundred largest losses in the industry in a few weeks. And to compound that risk. You asked about risk before a tool are just the aging assets that we have as well. Right. And it's not like we can lift and shift these assets, but we can certainly rethink how we're designing and building long term assets for the future.
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Thanks to you and others who are coming to Sarah, we are going to have a much more, I feel, robust discussion about risk management. We'll have conversations around resilience because that's the flip side of it. Right. So we need to think about in a holistic way, as both of you are saying. So the last question and I'm going to start with you, Mark. First. Our theme for this year is convergence for competition. So which one are you going to look for at Sarawake?
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Atul. We are so grateful again this year, right. To be made a foundational sponsor. So big thank you to you and Dan and Jamie and Lou and Roger and we couldn't agree more. This is the Davos of energy. Now I won't totally avoid your question though, because in my opinion, I do think this is a year of conflict as well. And as we operate in this gray zone, it's not about everyone seeing the future in the same way, but it's about us working together to make this industry great. I do believe the industry is undervalued. I do believe I'll add another see this kind of compounding growth in this industry and how do we do that is important. But I am going to be paying extra attention to leadership. And I think this is a time where business as usual is important, but it's not what's going to get us to where we need to go. And I do think we've got a great opportunity. C suite executives, public private markets, really stepping up beyond the quality of assets. It is about the quality of leadership and I'm confident we're going to see that at zero week this year.
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That's right. So you are not taking sides, but Nick, you have to take sides. Convergence or competition? I'm just kidding you.
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I'm going to chuck in a few more Cs.
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Mark.
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I need conflict. I quite like the sound of complementarity earlier on the transition. It's not green or brown, it's olive and khaki and all the colors in between. But I do think even in competition, Mark alluded to collaboration. I think we've seen this in many industries over time, particularly those that are undergoing profound change. You get people who are competing with each other, but also in each other's supply chains are also collaborating in some places too. So I think at the moment though. This is a competition of technologies. It's a competition of ideas. It's a geopolitical competition. I think competition is going to be the prevailing trend.
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Very good. I'm very much looking forward to meeting both of you and your colleagues in Houston in a few weeks. But Nick Studer and Mark Pederin, thank you very much for joining us for this sarawik podcast.
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Thank you for having us. Thank you, Atul.
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Thank you for joining us on the sarahvik podcast to stay connected with the ideas driving change across energy and technology. Subscribe, share and rate this episode. It helps us get the word out. Let's continue having impactful conversations. I'm Atul Arya. Until the next time, the saraweek Podcast with Atul Arya is brought to you by saraweek, the world's premier energy conference. Be part of the conversations moving the world of Energy Forward 3-23-27, 2026 in Houston. Discover more@saraweek.com.