Bursting the Carbon Bubble: Shell insists fossil fuel reserves won't be 'stranded'

Royal Dutch Shell has dismissed claims that its proven oil and gas reserves will become unusable as a result of climate change regulation; maintaining the view that fossil fuels will continue to play a major role in the global energy system through to 2050 and beyond.

Shell is holding its annual AGM in Amsterdam today (20 May)

Shell is holding its annual AGM in Amsterdam today (20 May)

Environmental experts believe Shell is particularly at risk of entering the 'Carbon Bubble'; as a company that is 'overvalued' by the financial markets due to having large fossil fuel assets and high-carbon projects in the pipeline.

But the energy multinational, which is holding its AGM in Amsterdam today (20 May), has written a punchy letter to shareholders, claiming the Carbon Bubble concept is 'alarmist' and accusing critics of trivialising the issue. The best way to avoid dangerous climate change is to invest in carbon capture and storage technology, the firm says.

"The [Carbon Bubble] methodology has significant gaps, not least a failure to acknowledge the significant projected growth in energy demand, the role of CCS, natural gas, bioenergy and energy efficiency measures," writes Shell's executive vice president for investor relations Dr JJ Traynor.

"Energy demand growth, in our view, will lead to fossil fuels continuing to play a major role in the energy system - accounting for 40-60% of energy supply in 2050 and beyond, for example. The huge investment required to provide energy is expected to require high energy prices, and not the drastic price drop envisaged for hydrocarbons in the Carbon Bubble concept.

"A fundamental transition of the energy system will be needed but that will take considerably longer than some alarmist interpretations of the unburnable carbon issue would have the public believe. Shell is focused on finding real solutions based on current energy realities to the widely acknowledged and real threat of climate change."

Traynor goes on to highlight that Shell is 'actively managing its CO2 footprint' through growing its natural gas business and by investing in low-carbon bio-fuels and CCS.

Confidence trick

However, the firm's latest Sustainability Report shows that direct greenhouse gas emissions from the facilities it operates rose from 72 million tonnes in 2012 to 73 million tonnes in 2013, on a CO2-equivalent basis. Shell's investments in tar sands are currently five times more carbon-intense than normal gas and while 80 per cent of its fossil fuel reserves are deemed 'unburnable'.

Campaigners and activist investor groups are therefore now calling on Shell to end its 'dangerous addiction to oil'.

Friends of the Earth climate campaigner Asad Rehman said: "By ignoring the carbon bubble, Shell is pulling a bigger confidence trick than those who brought down the financial system - they are trying pass off a losing situation as being a sound financial investment to their investors. 

"If it continues to downplay the carbon bubble, Shell jeopardises ordinary peoples' hard-earned pension pots and leaves billions of people facing devastating climate change.

"It's time for Shell investors to wake up and switch their investments to clean energy that will create jobs and benefit the planet."

Climate objectives

A spokesperson for Carbon Tracker, the CO2 measurement and modeling organisation, added: "Shell does not explain how it is solving the contradiction between the predictions of high oil demand and its acceptance of the need to address climate change. Carbon Tracker argues that high-cost production and growing oil demand assumptions are inconsistent with a more resilient global economy and stable global climate." 

Geert Ritsema, head of the energy and natural resources campaign at Dutch environmental; organisation Milieudefensie, said: "Shell may not decide to take the two-degree limit seriously, but the rest of the world does.

"The Netherlands, the EU, the G8 and the UN have all set this as official climate objective. And because global reserves of fossil fuels are five-times too large, Shell will have to write off the most expensive and most CO2 intensive reserves first.

"If shareholders are to prevent their shares becoming worthless in the near future, they need to call on Shell now to stop its strategy that one-sidedly aims at investing in unconventional fuels."

Infographic: Shell's Carbon Bubble

To coincide with this response, Milieudefensie released the following infographic to demonstrate the CO2 intensity of Shell reserves.

Yesterday, edie reported that Shell is calling for more co-operation and collaboration within cities to build resilience to growing pressures on global energy, food and water systems. The oil giant is keen to alert policymakers and business leaders to what it calls the 'stress nexus' - the deep interdependence of the world's energy, water and food - which is set to heighten in the face of rapid urbanisation. 

Shell's letter to shareholders, which was sent last Friday (16 May), can be viewed here.

Luke Nicholls


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