Shell: The Impact of Climate Change on an Oil Major
The oil and gas industry is probably one of the largest contributors to the greenhouse gas (GHG) emissions across the globe. No wonder climate change voices are impacting this industry as well. Shell, being one of the industry leaders, was recently in the news — all for the wrong reasons. The arrival of Shell's new Arctic drilling vessel, the Polar Pioneer, a semi-submersible offshore drilling rig, was greeted by large numbers of environmental protesters paddling kayaks in Elliott Bay. But, has Shell learnt a lesson? Is it shifting its focus from traditional oil and gas to sustainable energy sources and clean technologies?
None of the issues has divided the public quite like climate change. Many dismiss notions of “global warming” and the idea that human-driven activity can impact weather on a global scale. Despite the debate surrounding its origins, climate change is occurring, and does affect many industries. The oil and gas industry is dominated by seven publicly owned oil and gas companies, also called Big Oil, Oil Majors or Supermajors — Shell being one of them.
Royal Dutch Shell, commonly known as Shell, is an Anglo-Dutch multinational oil and gas company headquartered in the Netherlands and incorporated in the United Kingdom. t has operations in over 90 countries, produces around 3.7 million barrels of oil equivalent per day and has 44,000 service stations worldwide. It is the fifth-largest company in the world measured by 2015/16 revenues (and the largest based in Europe). It is involved in exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading. It has minor renewable energy activities in the form of biofuels, solar and wind. It also has a modest but growing presence in Carbon Capture and Storage (CCS) space, storing CO2 emissions from the industrial sectors of the economy.
Per the Institutional Investors Group on Climate Change (IIGCC), energy-related activities contribute to about 70% of global GHG emissions. About 60% of those energy-related emissions are a result of oil and gas industry activities, mainly attributable to the dependence on fossil fuel production.
I, having worked in the oil and gas industry for the past 5 years — hopping from one oil rig to another — have observed the amount of Greenhouse Gases (GHG) the industry generates, exposing the industry to federal and international regulations. The Environmental Protection Agency (EPA) in the US has put in place plans to reduce GHG emissions and is moving the nation toward a cleaner power policy. This has forced drilling companies (including Shell) to develop new technologies and practices that comply with these rules. Government regulations aside, climate change will still impact future industry practices.
Impact on Rigs
International Business Times explains that increasing temperatures means the number of days above 95 degrees Fahrenheit will increase from the past 30-year average of 39 days to 60 days by mid-century. By 2100, that number is expected to grow to 114 days. The increase in harsh conditions might impact production, as consistent exposure could affect worker safety.
Impact on Infrastructure
Scorching conditions aren’t the only changes rigs would have to bear: Rising sea levels mean that the Gulf Coast will see its shoreline disappear by as much as two feet by mid-century. The rest of the Southeast will likely see higher sea levels, and will also see intensifying hurricanes. The Southeast and Gulf is home to many of the nation’s pipelines; intensifying flooding and winds could result in infrastructure damage and severely disrupt oil distribution.
What’s Being Done by Shell
Assessing the significant implications of climate change, oil and gas companies (including Shell) are taking steps to reduce their contributions to climate change. A key role for Shell is to find ways to provide much more energy with less carbon dioxide. Shell is a supporter of CO2 reducing technologies, making sustainable energy efforts across four areas: biofuels, carbon capture and storage, energy efficiency and natural gas.
Shell’s natural gas businesses give governments the option to reduce emissions from electricity, by replacing coal. Shell is now also present in the wind energy space, with over 1,000 megawatts of capacity. Shell has also invested heavily in the lowest-carbon biofuel, through its Raízen joint venture with Cosan in Brazil, and it continues to explore second-generation biofuels options. More recently Shell has piloted several projects to bring liquefied natural gas (LNG) to shipping and trucking customers and, in 2015, it announced the first nationwide hydrogen-electric fuel network in Germany.
Conclusion
The Oil and Gas industry is in the spotlight in the battle over climate change. Since about half of the industry’s value lies in untapped reserves or future production, this creates a discord in company priorities. Thus, the GHG emissions will significantly impact the industry’s operations over the next few decades. Companies have acknowledged the threat, and have started adjusting their operations and priorities. However, the need for the industry to work with governments to develop comprehensive plans is more important than ever. Shell, an industry leader with a focus towards shifting priorities towards sustainable energy sources, needs to play its part by investing heavily in renewables and carbon capture technologies. After all, climate change is playing the long-term, and what we do now will influence its final move a century from now. (769 words)
References:
- Article Logo picture from shell.com website: http://www.shell.com/about-us/what-we-do/_jcr_content/pagePromo/image.img.800.jpeg/1452002868313/engineer-in-red-uniform-with-yellow-hard-hat-by-marsb-platform-construction.jpeg, accessed in November 2016
- http://keystoneenergytools.com/blog/how-will-climate-change-affect-the-oil–gas-industry-1, accessed in November 2016
- Shell page on Wikipedia: https://en.wikipedia.org/wiki/Royal_Dutch_Shell, accessed in November 2016
- Big Oil page on Wikipedia: https://en.wikipedia.org/wiki/Big_Oil, accessed in November 2016
- Shell website: http://www.shell.com/sustainability/environment/climate-change.html, accessed in November 2016
- Oil Rig photograph: http://www.oilandgaspeople.com/news/images/newsimage-1-north-sea-oil-rig-014-2.jpg, accessed in November 2016
Thanks for bringing up this interesting topic, EK. However, from my past project experience with Shell China, I believe in their strategy till 2030, fossil fuels will continue to be absolutely dominant, and their leadership management team pay less attention to their renewable energy portfolio. Although from the CSR report and news, Shell, and of course many other conglomerates, try to deliver the positive message that they’re environmentally responsible, it’s still important to change the mind of their leadership team to put full emphasize on saving energy.
Coming from the Middle East, where most of our economy depends on oil and gas, I have great affinity to this topic. As per your numbers above, more than 40% of global GHG emission is caused by oil & gas industry activities. It is interesting because Shell and other oil & gas firms become both the major cause and the victim of climate change. Oil & gas companies are therefore really incentivized to find alternative sustainable solutions to break this vicious cycle. However, although Shell is one of the biggest players in the world, it cannot solve the issue on its own. This creates a prisoner’s dilemma where all players should move in the same direction together to avoid having one player losing heavily and one player gaining all the value. I can understand why Shell is struggling between the short term and long term benefits, especially in regions with high pressure from an economy very dependent on oil & gas.
EK,
Thank you for writing such an interesting post. I commented on a similar post about ExxonMobil (https://d3.harvard.edu/platform-rctom/submission/exxonmobil-fueling-climate-change/) posing the question of whether Shell (or Exxon, BP, or Chevron) should really shift its focus towards renewable energy solutions? I completely agree that oil and gas producers should look to minimize their GHG emissions from a corporate perspective, but should they fundamentally change the nature of their business (I would include natural gas production as part of their core business)? Society will always require some level of oil and gas (even if the transportation and power industries move towards green energy solutions, as I’m sure you’re even more aware than I am, many important chemicals and materials require oil-based raw materials or by-products from the refining process) so should companies like Shell not continue to focus on E&P and resource assessment in the most environmentally-friendly manner and allow more nimble clean energy businesses to invest in alternative energy solutions? I guess from your experience working at an oil and gas company, how successful do you really think they would be in the market if they shifted focus towards clean energy solutions (excluding natural gas)? To add to the complexity, I assume state-owned companies such as Saudi Aramco and Gazprom would likely continue their acquisition of strategic reserves to the extent companies in the private sector scale back.
Thanks very much!
Jess
EK,
Thank you for this thoughtful and insightful post. Your experience clearly makes you an expert on this subject. I’m curious to know how Shell has communicated the risk of climate change to its shareholders and how big of a risk they view sustainable energy to their untapped oil reserve investments? If Shell has so much money tied up in fossil fuel reserve investments how committed can they be to creating renewable energy sources which would cannibalize and devalue these untapped reserve assets? They seem to be stuck between a rock and a hard place, where the world is demanding reform, but they are actually pretty heavily invested in a future that still relies heavily on fossil fuels.