Creating a dedicated gas and power business

Dietmar Siersdorfer, CEO, Siemens Middle East and UAE talks exclusively to Pipeline Magazine’s Nadia Saleem about adapting to the evolving power landscape in the region by spinning off its gas and power business

 

Investors have reacted positively to the announcement of the spin off for the Gas and Power business. Could you tell us what is your vision for the energy business in the medium to long-term for the Middle East?

Globally, energy consumption will double between now and 2050 and the Middle East market will reflect this growth. We are seeing a big shift in the composition of the electricity generation landscape, as until recently the trend has been very fossil-focused and very centralised. Today, we are focusing more on natural gas as a feedstock for power generation, and there are of course growing volumes of renewable energy coming into the mix.

We are well placed to contribute technology and expertise to this evolving energy mix, and it’s certainly our intention to continue supporting the region’s transition to a more sustainable energy future.

The decentralised power market is also picking up and, looking further ahead, this shift towards increasingly renewable, distributed energy generation creates additional growth in technology areas such as energy storage solutions. We’ve got a great example of this, in our Dubai-based hydrogen energy storage pilot project, in partnership with DEWA and Expo 2020 Dubai.

This will store solar energy generated in Dubai as hydrogen, which then has the potential to be used as fuel for cars or power plants. We also see that the transition to decentralised electricity generation produces growth potential in transmission. Decentralised power requires tight network control, and there is great potential for us to participate in bringing together all these energy systems, integrating them into the grid in a professional way.

These are exciting growth possibilities for the future, and our new Gas and Power organisation has the opportunity to participate in – and help drive forward - the changing composition of the Middle East’s energy market. We also see growth in oil and gas in the coming years.

Exploration until 2030 and peak oil and gas between 2030 and 2040 gives us a good growth perspective in the next 15 years, and we will also begin to see a shift in the use of oil from being used in central power stations, into other domains. Petrochemicals is a good example.

The Gulf is seeing increasing investment in the downstream business, such as ADNOC’s expansion of the Ruwais refining and petrochemicals complex in Abu Dhabi. ADNOC plans to invest $44.9 billion along with its partners over five years to expand its downstream operations, and this type of region-wide industrial expansion is a great opportunity for us to participate in long-term, sustainable economic growth.

Beni Suef power plant in Egypt, one of three 4.8GW plants built by Siemens to boost the country’s power generation capacity

What was the biggest motivating factor for this decision?

It’s all about focus, speed and adaptability. Spinning off the Gas and Power business will give us the freedom and agility to concentrate on the very specific – and fast-changing – requirements of our markets and customers.

The new company will comprise the company’s oil and gas, conventional power generation, power transmission and related service businesses, and will have independence and more entrepreneurial freedom. We intend for it to create a powerful pure play in the energy and electricity sector, enabling us to be faster and more innovative, and to provide an optimised range of offerings from a single source.

In addition, Siemens AG plans to contribute its majority stake in the market-leading renewable energies company SGRE – currently 59 per cent – to Gas and Power. By focusing on energy, which we see as a long-term growth market, we are also better able to create long-term value for those seeking to invest in a pure play ‘energy company’. We’re convinced that this strategic decision will be positive for all participants and enable long-term value creation for customers, employees and shareholders.

 

What will be the impact of the planned cost cuts at Siemens on the growth plans? How do the two strategies reconcile?

An organisation like Siemens must always adapt to the needs of the market, and we expect efficiency improvements to cut costs by some EUR2.2 billion by 2023. In the same timeframe, our planned growth is expected to create some 20,500 new jobs, with a net increase of some 10,000 jobs. As our business has evolved over the last 170 years, so it continues to.

Market demand requires adaptation, and when there is slowdown in one area there are great opportunities in others. The underlying growth for Siemens is intact, and it’s all part of the same strategy: Vision 2020+. This focuses our company to make it faster and more flexible, and aims to lay the foundation for long-term sustainable growth in key markets – like the Middle East – from a position of strength.

 

Where do you see the strongest growth for Siemens’ energy business for this year and the next?

In the mid-term, we see growth potential in some specific markets in the region. In Iraq, for example, where there is a deficit in electricity generation and transmission, we see great potential to contribute. Countries like Libya and Kuwait both need upgrades to their electrical systems, and here we can add real value.

There is also great demand in Saudi Arabia, and in countries with perhaps more complex geopolitics, like Syria. It’s important to remember that the Middle East encompasses a great spectrum of needs; not every country is the same.

While some are ready for a highly digitalised energy system, others need to establish a solid energy foundation first, on which to build sustainable growth. Our intention is to make sure we are supporting with the right expertise and the right technology for these individual needs.

 

How is Siemens positioned to tackle the challenges in the power market?

We’re very well positioned. As I said earlier there are challenges, such as a diversifying energy mix and greater focus on decentralisation, but these are all a natural part of progress. We have been working in the Middle East for a long time and are a local company in many markets for decades – I believe this longevity is essential if you are to provide real value. It gives us an intrinsic knowledge of what is required to fuel long-term growth and stability in individual markets, whether it’s building new generation capacity or preparing a country’s grid for digitalisation.

I’m also very proud of our ability to electrify countries. This is a real differentiator for Siemens, and our partnership with Egypt is a great example. The fast-track completion of the three largest power plants in the world has transformed the country’s energy system, boosting power generation capacity by more than 40 percent and supplying electricity to more than 40 million people. This is also the intention behind our proposal for Iraq: to provide infrastructure that fuels sustainable development for society and economy.

How important is the Middle East region for the group and for the Gas and Power business? What is your outlook for the region?

The Middle East continues to be an important market for Siemens, and particularly so for gas and power. Gas and Power is a significant share of business here in the region for Siemens, and as I’ve outlined, we see tremendous growth potential across this and our other businesses. More broadly, the trend towards economic diversification in the region is generating huge potential in other businesses. Manufacturing and logistics, for example, are both rapidly growing in the Middle East and we are well positioned to contribute both physical and digital technologies to support this diversification.

 

For Siemens, what is the significance of the agreement with Iraq to help the country develop its power infrastructure?

Our agreement with the Ministry of Electricity in Iraq is hugely significant. Signed earlier this year, it enables us to begin the execution of a roadmap which includes short, medium and long-term plans to meet the reconstruction goals of Iraq and support the country’s economic development. The three contracts signed for Phase 1 of the roadmap include the EPC construction of a 500 megawatt gas-fi red power plant in Zubaidiya, the upgrade of 40 gas turbines with upstream cooling systems, and the installation of 13 132-kilovolt substations, with 34 transformers across the country. As early as next year, we could add up to 1,100 megawatts to Iraq’s grid, which would be a huge transformation and a great step forward for the country.

We must always remember that projects like these are ultimately about people. I fully believe that a business has to serve society, otherwise there is no reason for it to exist. This is our opportunity to enrich the lives of millions of Iraqis. Electrification is the bedrock of social stability and economic prosperity, and everyone in Iraq deserves access to reliable, affordable electricity, 24 hours a day, seven days a week. One day I would like to look back and be proud that we helped to lay the foundations of a New Iraq. We’ve made a commitment to the Iraqi people, and we will deliver on it.

 

Siemens has also committed to support Iraq in the healthcare, education and training areas. Is this a model that we will see replicated in other markets?

This is how we operate in all the countries we work in. You can’t properly benefit society and economy unless you’re an active part of both. You have to give back. A country like Iraq needs more than just power infrastructure; it needs a development partner and that responsibility goes far beyond technology.

Our projects will create jobs, so education and training are essential to develop a highly-skilled, local talent pool, which in turn will help fuel sustainable economic growth. And we have to think long-term. Digitalisation is changing the way we live and work. The jobs of the future will not be the same as they are today, so skills must be adapted. Software grants are a great way to empower young students with the digital skills they will need to build the future of their country, and universities in Iraq will now be able to use our technology to do just that.

Similarly, access to healthcare is a challenge in Iraq, especially in remote areas, and I’m pleased we are able to contribute to the solution with a smart health clinic, with the potential to treat up to 10,000 patients a year. Across the region we are also supporting the digital transformation with further software grants worth around $300 million, which will go to universities in UAE, Egypt and Saudi Arabia. Almost 4,000 students will gain experience with our Digital Industries technology, learning skills that will be instrumental in the future development of their countries.