Following an interview with Shell CEO Jeroen van der Veer, the Guardian journalist George Monbiot recently wrote an article accusing oil companies of trying to throw a thin, green camouflage net of insignificant expenditures in renewable energy sources over their CO2-spewing oil and gas activities. Is this so, or are these activities signs of probing and positioning for the future – exactly the kind of R&D-based leadership necessary to take us to a future based on ultra low CO2 energy sources?
I think to answer that question we have to stand back and look at the framework to the question, namely the global energy system of today. Al Gore coined the phrase “an inconvenient truth” to describe the fact of global warming and the expectation that it will, if unchecked, cause drastic climate and oceanic system changes in a time scale to which humanity will not be able to adapt. What he didn’t describe is the fact that the global energy system is a mass of highly inconvenient truths.
Let’s just look at three of these, which are key to our current topic: firstly, coal is making a massive comeback. It is just about the biggest single energy source today, is the fastest growing over the last five years, and represents some 70 per cent of all fossil fuels on the planet. Rapidly growing economies in India and China have great concerns about securing their energy needs and have lots of coal, so they use it. The problem is that coal as a source of electricity emits two to three times as much carbon dioxide as natural gas. Thus natural gas is a low-CO2 fuel by comparison, and a key part of the short term response to combating growth in CO2 emmissions.
Secondly, the privately owned, so called “oil super-majors"—companies like Shell and BP—are in fact not super majors at all. While their balance sheets, market caps, and bottom lines make them very large in comparison to companies in other sectors, the energy sector is not like other sectors: it is vast, and largely owned directly by governments or through their ownership of National Oil Companies (NOCs). The five largest private oil and gas companies own only a small percentage of the world’s oil and gas production and reserves. The vast majority of the revenue they generate ends up (quite rightly) with host governments through tax, other forms of revenue sharing and investment.
Without investment, oil and gas companies would rapidly grind to a halt. Shareholders are at the end of the list and, of course, look for a decent return – but these owners are, well, largely us, through investment and pension funds. It is convenient for many to point to “fat-cats” as the eminences grises behind the oil and gas industry, but it is essentially “the man in the street”, in the form of institutional investors and governments.
My third and final “inconvenient truth” is the problem of so-called peak oil. Many believe that we are approaching the point of the world’s highest ever oil production, probably around the 100 million barrels-per-day level. They believe that oil prices will spiral up at that point as production will start declining, and they may well be right; but they are emphatically not right to conclude that we are “running out of oil." There are vast reserves of conventional oil remaining, and most basins which began producing in the 1960s will probably have more to produce in future than already has been produced.
The global energy challenge is a mass of inconvenient truths, which many of our detractors have only a vague awareness of or choose to selectively ignore. But what can you draw from these facts presented? The most important is that the private oil and gas companies are not in control of the global energy system: governments are, directly and through the ownership of NOCs such as Gazprom. All serious commentators recognise this – even Monbiot, who writes: “on this issue Jeroen van der Veer and I agree; oil companies should not seek to determine a country’s energy mix, that is for the government to decide.”
The private oil companies are grappling with a “trilemma”, trying to respond to the increasing need for security of cheap energy supply; addressing the challenge of global warming; and trying to maintain a return to shareholders. It is economic naivety in the extreme to agree to argue that the companies should destroy their value on a large scale by entering alone into large marginal, loss-leading projects without government redirection of the energy mix and a level playing field for carbon-pricing. But they have the expertise, the R&D capability to lead, to demonstrate and to generate ideas that persuade governments to change policy. That is exactly what we are trying to do, and those hurling accusations of “green washing” would do better to push for a government that has the courage to change and price carbon properly.
The longer we go on hoping that private oil and gas companies will go away and leave the field, thinking that this will magically allow the unfettered expansion of renewables, the more the CO2 challenge will grow. The time is now for a deep objective assessment of the world’s most complex activity: the energy business. We cannot afford selective or weak thinking, or dilettantism.
David Loughman is a managing director at A/S Norske Shell