RAISE THE DRILLING RIGS...

I see climate change as a real global challenge, which is also generating new business opportunities. Grasping these will be key to Shell’s "licence to grow."

- Jeroen van der Veer, 2001 Committee of Managing Directors Royal Dutch Shell

One of Royal Dutch Shell’s first exposures in the modern debate on global warming came in December 1989, when it was reported that company engineers were building their North Sea oil and gas rigs higher off the sea. They were planning to raise them six feet above the threat of possible rising oceans. After all, offshore rigs were long-term investments, slated to be operating 40-to-50 years in some cases, some expected to last through 2050. So spending the $32 million per rig to build them a little higher above the ocean to keep them pumping would be a good investment as far as Shell could see. Yet the "raising-of-the-rigs" story is also a metaphor for Shell’s approach to global warming as a corporation. For dealing with the "greenhouse crisis" — if it can be called that in Shell’s view — boils down essentially to a strategy of management and adaptation. Carbon dioxide and methane, two of the greenhouse gases believed to account for the lion’s share of industrial global warming, are a direct result of fossil fuel extraction, transport, and combustion. Each of these gases does its greenhouse handiwork — trapping heat — not just in one day, but rather over long periods of time.

The Shell Strategy
Shell has made no secret about what its plans are for the future, or how it tends to deal with global warming. Shell is operating under a premise that atmospheric CO-2 will stabilize in the future — some-time after 2020-2030, after the peak CO-2 period has passed. That’s when CO-2 levels will be just over twice the pre-industrial level, and close to a target proposed by the European Union. Under that umbrella, Shell sees a lot of room and a good deal of time to maneuver as an energy business; reconfigured somewhat, of course, but still a prosperous and major business. Obviously, Shell does not see itself fading away because of global warming.

On one level, Shell has a greenhouse gas strategy that appears very reasonable and commendable. The strategy consists of reducing carbon and other GHG emissions, while still going forward with its oil and gas development. It is a management strategy, a business strategy, and a public relations strategy all rolled into one. First, Shell will manage its own carbon balance sheet, producing more fossil fuels while reducing inefficiencies and carbon emissions, whether through new technologies or cleaning up obvious leaks and losses. For example, shedding coal or oil shale in favor of more natural gas can buy more carbon maneuvering room for a time. And for Shell, as shown earlier in Chapter 9, gas is the big ticket item. Second, Shell will en-gage in highly visible efforts, investing in renewables, preaching sustainability, selling efficiency services to others, showing the public it is working hard to make technological progress, engaging stakeholders, and pushing other industrial segments with lots of talk about hydrogen economies and new kinds of automobiles and power plants. Out on the landscape, meanwhile, there will be more gas-fired power plants and cleaner air. This will create the impression, and the reality on one level, that things are improving. Reductions in local air pollution and smog, for example, might occur in any number of places with more natural gas-fired power plants. Below is a newspaper ad Shell ran a few years ago, typical of telling its story to the public about how it’s reducing greenhouse gas emissions, selling "cleaner" fuels, improving efficiencies, and finding solutions:

Cloud the Issue or Clear the Air? The issue of global warming has given rise to heated debate. Is the burning of fossil fuels and increased concen-tration of carbon dioxide in the air a serious threat or just a lot of hot air?

Shell believes that action needs to be taken now, both by companies and their customers. So last year, we renewed our commitment not only to meet the agreed Kyoto targets to reduce greenhouse gas emissions, but to exceed them. We’re working to increase the provision of cleaner burning natural gas and encouraging the use of lower-carbon fuels for homes and transport. It’s all part of our commitment to sustainable development, balancing economic progress with environmental care and social responsibility. Solutions to the future won’t come easily, particularly in today’s business climate, but you can’t find them if you don’t keep looking. We welcome your input. Please contact us on the Internet at www.shell.com or email us at tell-shell@si.shell.com, or write to us at: ‘The Profits & Principles Debate’, Shell International Ltd, Shell Centre, London SE1 7NA UK.

Third, Shell will be moving toward renewable energy businesses, buying up small companies and initiating projects in wind development and solar applications. Who can fault a company with these commitments? And no question, Shell is becoming a player in these industries, and will make money along the way, as it should. In fact, by November 2000, Shell officials were insisting their move into renewables was strictly business. "We are now involved in major en-ergy projects involving wind and biomass," explained Aidan Murphy, vice president of Shell International, "but I can assure you this has nothing to do with altruism. We see this as a whole new field in which to develop a thriving business for many years to come. Capital is not the problem, it’s the lack of ideas and imagination." Adds Robert Kleiburg, vice president of strategy and planning for Shell Renewables: "Our customers want energy, and they don’t necessarily care if that’s from oil, gas, coal or renewables. So as an energy company, if we are active on the various technologies around, we stand a better chance of strategically ‘being there’ when those technologies take off." But make no mistake about it: Shell is still committed to fossil fuels for a very long time. The company obviously has a huge sunk investment in its oil and gas infrastructure. This "embedded capital" is committed essentially to the production of more greenhouse gases — yes, more methane perhaps than CO-2, but GHGs nonetheless. And Shell’s public reports on its oil and gas leases; its licenses, contracts, and partnerships all show the company extending its fossil infrastruc-ture well into the future, country-by-country. In Germany, "production licenses are for up to 50 years, renewable until depletion of the field." In the Netherlands, Shell’s "onshore concessions are not currently limited in time but the duration of the offshore licenses vary with the estimated production period — normally a period of 15 to 45 years."

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