Oil companies: Future perfect or Carbon-dated?

There can be no doubt that the products provided by oil companies are essential for today’s economy, what about the prosperity of the future? Are huge oil corporations blindly grabbing the Earth’s non-renewable resources as fast as possible for maximum short-term profit, or are serious thought and investment being put into the lower emission alternatives that may provide the income and power of the future? Helen André spoke to Robert Kleiburg, Vice President of Strategy and Planning at Shell Renewables to find out how one company in particular is planning for the future.

Oil companies need to start to think about the alternatives to hydrocarbons 
        (courtesy DOE)

Oil companies need to start to think about the alternatives to hydrocarbons (courtesy DOE)

Both BP and Shell see solar power as potentially profitable (courtesy 
Wind power is also seen as potentially profitable (courtesy NREL)
For Shell, energy from biomass fuel is still in the development/ evaluation 
        phase (courtesy NREL)
Oil companies are surrounded by negative publicity. The current favourite whipping boy of the environmental movement is Esso, known as ExxonMobil in the US, the largest oil company in the world, and widely regarded in environmental circles has having been one of the main drivers behind the United States’ withdrawal from the Kyoto Protocol. Even British Petroleum (BP), which re-branded itself last year as being ‘beyond petroleum’, with a bright green and yellow sun-shaped logo designed to combine BP’s green image and its status as world leader in solar power, was not immune from criticism when its detractors claimed that the company had spent more on the rebranding exercise than on solar power in the whole of the previous year.

Another company which has faced international criticism is the Royal Dutch/Shell Group. However, although still smarting from the negative publicity surrounding accusations of human rights violations and environmental destruction in Nigeria, Shell stands out as an oil company with an eye on more than just the petroleum bottom line. A brief look a the company’s website or annual report shows that alternative sources of energy appear to be regarded by the company as more than an aside, hidden away on the back pages, with subsidiary companies such as Shell Hydrogen, Shell Gas (LPG) and Shell Renewables. The reason behind this is simple, says Kleiburg. “We see ourselves as an energy company rather than an oil company,” he says.

Shell is carrying out work with a number of ‘alternative’ energy sources, including biomass, geothermal, hydrogen, wave and tidal energy, and hydropower, which, on the whole, are in the development or evaluation phase. “We do, out of all renewables, focus predominantly on wind and solar, and that is because we see those to be the ones that are closest to being competitive in the short term, and they have paying customers that are prepared to buy electricity from renewable sources of energy,” said Kleiburg. Sometimes customers pay a premium, he explained, and sometimes there is government money available in order to help stimulate the technologies in the early phases of their development.

In his capacity as Co-Chair of the G8’s Renewable Energy Task Force, Sir Mark Moody-Stuart, former Chairman of the Committee of Managing Directors at Shell, has even gone so far as to recommend that G8 countries should work together on expanding their domestic renewable energy markets in order to drive down costs for developing nations for whom renewable energy is potentially an even more important source of power than for wealthy nations (see related story).

Although Shell’s solar business is not yet profitable, it is expected to produce a positive cash flow by 2004, says Kleiburg. Wind energy is a much smaller business, and is currently only active in the UK, Germany and the US, with a total installed capacity of around 60MW. However, when the US facility at Rock River begins operations, it’s expected to be profitable right from the start, says Kleiburg.
"We see ourselves as an energy company rather than an oil company."

Despite this, in reality renewable sources of energy are still only a small portion of Shell’s activities. “What we have said is that we will invest about half a billion dollars in new energy technology over the next five years, depending on the profitability of those projects,” said Kleiburg. “If you compare that to our investments in total as a group, it’s around about 12 to 13 billion,” he admits. “The thing to recognise is that our oil and gas and petrochemical business [has been] operating for much much longer timeframes. In oil we have a history of about a hundred years, and it’s a very big global business, whereas the renewable business is still relatively small. Although half a billion to a billion may not sound much if you compare it to other investments, it is actually a significant sum of money if you compare it to the size of the renewable industry at present.”

"The thing to recognise is that our oil and gas and petrochemical business [has been] operating for much much longer timeframes."
The renewables future, however, looks decidedly rosy, points out Kleiburg. “Generally, our scenarios predict that renewables are becoming more and more important,” he says. Governments, such as in UK and the rest of Europe are setting targets for themselves to increase renewables in their energy portfolios, he points out. “That’s where we see a role for ourselves, to grow with the markets in the solar photovoltaics industry and to increase our market share in the wind industry.”

One alternative to Shell’s approach to new sources of energy is to dismiss them as irrelevant to today’s energy markets, as some oil companies appear to be doing. This could be a mistake, believes Kleiburg, comparing this attitude to that of the US railway companies in the middle of the last century. “They thought that they were in the business of driving rail stock from one side of the country to the other,” so that when the aeroplanes began to run commercial passenger services, the rail companies never saw them as competition, he said. But over the last 50 or 60 years, mass transport of passengers by plane from the East to the West Coast has developed and the railway companies have been left out of this new market, he explained. “And I think that you can see a similar dynamic play-out in the future where if you see yourself as a hydrocarbon company, it will be alright for the short to medium term. In the long term it could be that the scene changes quite dramatically. If you don’t see yourself as an energy company, you may be left out.”

As well as the interest in alternative forms of energy, last year Shell also launched the Shell Foundation, a charity aimed at helping non-profit organisations to carry out sustainable energy, youth and community projects. Shell is keen to point out that the Foundation has been established in order to support projects that they believe that they can help, rather than being part of a public relations stunt. Another oil company that carries out environmental and community projects is Petroleum Development Oman, a largely government-owned company – although around a third is owned by Shell. The company carries out a range of schemes for the benefit of the local community, such as drilling and maintaining water wells, and transporting water to remote areas, the provision of roads and electricity to certain areas, and working in conjunction with government ministries and local authorities on projects such as reef restoration. The company is also keen to clean up its own act, such as through reducing smoky flares, and ISO 14001 certification.

"Generally, our scenarios predict that renewables are becoming more and more important."

One oil company has even turned energy efficiency, and thus environmental sustainability, into a business. Chevron Energy Solutions was created when the Chevron Corporation in the United States, purchased an energy services company, and is designed to provide businesses with advice on increasing energy efficiency, cutting energy costs and reducing the complexity associated with energy markets. One example of Chevron Energy Solutions’ activities is the development of energy profiles for businesses based on past and present energy use. The service includes a Bill Error Identification and Resolution System, which commonly Chevron Energy Solutions claims delivers immediate savings of 0.5% to 2.0% of a company’s total energy bill, with one such study revealing that a business was being overcharged by US$26,000.

Not only is Shell apparently producing a concerted effort to develop a more environmentally and socially acceptable business, but the organisation is also doing everything it can to tell its shareholders and the general public about it. The company’s ‘Tell Shell’ facility, which includes a discussion forum on Shell’s website, allows the general public to post messages about and to Shell, many of which are accompanied by a reply from a relevant Shell employee. The section even includes some remarkably damming criticisms from the company’s detractors, such as comments that the company has invested the bulk of its renewables budget in countries that the company knows will allow it to carry out its oil activities without too much hindrance from taxation, and is ignoring countries that have already had their natural resources ‘raped’ by Shell. However, criticism is not something to shy away from, says Kleiburg, who, in his previous post at Shell was responsible for the company’s response to climate change, and so is used to having to respond to ‘Tell Shell’ comments. “I think it is very rewarding to see that sometimes people can be quite aggressive or cynical and write to the ‘Tell Shell’ facility, and probably never expect to get an answer back from anyone,” he said. Often, after a couple of exchanges of messages with a correspondent he would begin to receive more positive and even congratulatory communications. “Sometimes large corporations can be seen as almost impenetrable – I think that when they see that there are normal people working in those large offices, it helps to establish a relationship with people in the real world,” he says.

However, at the end of the day, Shell is still a business, and as such needs to make money. When asked what he would say to those who believe that Shell Renewables is nothing more than a public relations exercise, Kleiburg points out that what he and his colleagues are trying to produce is a business that is both sustainable environmentally and economically, and answerable to the needs of its shareholders as well as the broader stakeholder community. “It is something that we are sincerely working on every day,” he says. “And if people doubt our sincerity then it’s very hard to refute that, but I know myself that the people that work in this team are very dedicated to make it all work.”

"If you don't see yourself as an energy company, you may be left out."



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