World Resource Institute

Public-Private Understanding Creates a Strong Foundation for a Sustainable Energy Future

By Elizabeth Cheney, Vice President - Safety, Environment, and Sustainable Development, Upstream Americas, Shell

Question Eight: How can national-level governments learn from the private sector and encourage investment and decision making to promote the public good in a changing climate?

The author explains how Shell actively encourages governments to help build an understanding of today's energy reality, the facts around future supply and demand, and the need for a framework within which companies can work. She describes Shell’s experience that sustainable development works best when it is thoroughly integrated into the company’s business decisions at the very earliest opportunity. The paper then gives examples of what this means in practice for company policy and operations.

Climate change is one of our world’s greatest universal challenges. The task of providing the world with more energy, but less CO2, poses enormous technological, environmental and social hurdles.

Shell was one of the first energy companies to acknowledge the threat of climate change, to call for action by governments, our industry and energy users – and to take action ourselves. For Shell, that means developing and delivering energy in responsible ways to meet global needs.

This is no easy task. Global energy demand is accelerating and, when global economies recover, will resume its pre-recession growth curve as emerging nations raise their citizens’ living standards. Existing and developing energy sources will struggle to keep up with demand. Very simply, we will need all of the energy we can produce – from oil and gas, to coal, nuclear, and alternatives and renewables. This continuing increased energy use will put more stress on the environment – a factor we must address.

The world is starting a shift toward a lower-carbon energy future. However, this is an undertaking of immense scale and expense. And it will take decades to get there – a reality we must acknowledge and accept.

Shell Scenarios Present Possible Future Paths

For almost half a century, Shell has been developing and using scenarios to gain a deeper understanding of global developments and the world’s energy supply. Scenarios are not forecasts or predictions but rather plausible alternative views of what the future might look like.

At Shell, we use scenarios to think about those aspects of the future where there is most uncertainty – or to discover those aspects we should be most concerned about – and to explore ways these might unfold. Scenarios help us to make crucial choices in uncertain times as we grapple with tough energy and environmental issues.

We currently envision two possible energy scenarios to 2050, which we call Scramble and Blueprints. Scramble is driven by fears over energy security leading to a scramble for resources and late reaction to environmental stresses. Blueprints reflects better anticipation of energy supply security and environmental issues, with coalitions emerging to lead in addressing these, resulting in a more stable energy system with better environmental outcomes.

Shell believes both scenarios are plausible and companies like ours can sustain business in either case. In 2008, Shell broke with tradition by stating a preference for Blueprints as a more sustainable model for society. We actively encourage governments to help build an understanding of today's energy reality, the facts around future supply and demand, and the need for a framework within which companies can work.

Sustainable Development is Critical to Shell License to Operate

Against a backdrop of global energy demand and supply issues, environmental challenges and our scenarios with varied outcomes, Shell takes responsibility to care about the communities where we operate and to work with others to ensure our natural resources and environment are managed carefully to benefit both current and future generations.

For many years, Shell has been firmly focused on sustainable development – helping to meet the world’s growing energy needs in economically, socially and environmentally responsible ways. Since 1997, we have voluntarily reported our environmental and social performance in the Shell Sustainability Report.

Sustainable development is at the core of everything we do – it is a critical element of every business decision we make because it aligns with our values and brings us closer to our customers, employees and neighbors. It reduces our operating and financial risk, promotes efficiency improvements in our operations and creates profitable new business opportunities for the future.

The business case for sustainable development is sound and clear. We find that sustainable development works best when it is thoroughly integrated into our business decisions at the very earliest opportunity. This means that health, safety, security, environmental and social performance each factor significantly into our business plans and decisions. And that is critical if we are to meet the complex challenges ahead in the most effective and responsible ways.

In practice, we aim to share benefits and reduce impacts through the choice of projects we invest in, improving the way we run our operations and making better products. This requires balancing short- and long-term interests and integrating economic, environmental and social considerations into business decision-making – including working to reduce our CO2 emissions and continuing to build relationships with stakeholders.

How we work above ground is as important as how we do beneath. Our license to operate and grow depends to a great extent on how successfully we address the thoughts and concerns of society around us. And that begins with getting to know the communities in which we work – listening to, learning from and working collaboratively with community members on what is important to their lives, their economies and their environments. Our stakeholders say, “Involve us,” and we do. By listening to them and working hard to meet their expectations, we can achieve outcomes that are better for their communities and for Shell.

For example, a Shell team at the Pinedale Anticline in Wyoming – where Shell produces 350 million cubic feet of natural gas a day – paid special attention to a great horned owl awaiting the birth of her chicks just 75 feet off the edge of Shell’s operations. Owls fall under the Migratory Bird Treaty Act, making it a federal violation if they are disrupted while nesting or caring for small chicks, so the Pinedale team took measures to ensure a successful delivery.

After reviewing our development plans with the Bureau of Land Management, the Shell Pinedale team reduced lighting from the rig shining directly toward the nest and noise during times when the nocturnal bird was resting. The goal was to develop natural gas resources while working to protect the wildlife that is so important to this community and Wyoming, including two new baby great horned owls. Goal achieved.

Also in Pinedale, Shell and many other oil and gas production companies use hydraulic fracturing technology to unlock previously inaccessible natural gas resources trapped in shale and sand formations beneath vast areas of the United States. In some states, controversy, misunderstanding and confusion over this technology have created a divide between energy companies and environmental groups – pitting community concerns about water quality against those of service companies anxious to protect information they consider proprietary and competitive.

This issue has spurred discussion of possible federal regulation over hydraulic fracturing technology. Because Shell believes that communities and states know their own geology and needs best, we engaged with local officials and the State of Wyoming to find viable solutions to these concerns. Then Wyoming Governor Dave Freudenthal brought together a coalition of interests, including regulators, energy professionals, environmentalists and community leaders, and personally shepherded the process of gathering expertise and public input in a transparent way.

Out of this came policy that includes the most robust set of hydraulic fracturing rules in the country, covering both how operators may conduct hydraulic fracturing and how they must report to the state what they are doing. The policy addresses community concerns and meets environmental thresholds – in fact, it exceeds all other thresholds set anywhere else up to that point. And it is policy that oil and gas companies can work with. A win-win situation.

Around the world, Shell has partnered with Wetlands International (WI), a science-based global organization that works to sustain and restore wetlands and their resources through scientific analyses and its own experience in global and national conservation programs. In 2009, WI helped Shell assess the sustainability of biofuels production in South America, Africa and Southeast Asia and also worked with us on a study of the impact of pipeline infrastructure on Arctic permafrost and tundra. Together, we plan further research in this area to develop actual operation guidelines.

Shell Brazil has been funding a humpback whale monitoring program since 2002 to help scientists learn more about whales and the ways we can help protect them. An international team of scientists studies the whales’ behavior – how they travel, what water conditions they prefer and where they feed in the western South Atlantic Ocean. The study results will help the Brazilian Institute of Environment and Renewable Natural Resources and the Brazilian Ministry of Environment establish environmental and conservation management strategies to guide Brazil’s fishing, oil and gas and other industries.

These are just a few examples of how sustainable development factors prominently into Shell operations today. But how will global societies meet future energy demands while respecting the environment and effectively managing CO2 emissions?

Carbon Capture and Storage Holds Great Promise

Shell sees great potential in carbon capture and storage, or CCS, a process that uses proven technologies to capture, transport, inject, store and monitor CO2 in geological formations deep underground. CCS is the most suitable technology for big stationary emitters like power stations and industrial installations.

Shell is involved in a number of research and demonstration projects around the world to test a range of CCS technologies. For instance, Shell’s Pernis refinery in Rotterdam, the Netherlands, already captures a stream of about 400,000 tons of pure carbon dioxide per year and pipes it to greenhouses to boost the growth of tomatoes in the summer. A smaller amount is transported by truck to the soft drink industry to add fizz to drinks.

With partners, we are building one of the world’s most advanced CCS test centers at Mongstad on Norway’s southwest coast. We are also part of the Australian Otway project to demonstrate the safety of storing CO2. This project has started injecting 100,000 tons of CO2 into a depleted gas reservoir more than a mile underground near Melbourne, Australia.

At the Gorgon LNG project, also in Australia, in which Shell has a 25 percent stake, we have plans to develop the world’s largest CCS project. It will capture and store nearly 4 million tons a year of CO2 produced with the natural gas, which is equivalent to the annual emissions of about 700,000 cars.

Shell’s Quest project in Canada would capture and store more than a million tons of CO2 from our Scotford Upgrader, near Edmonton, Alberta, where we process oil sands bitumen. The Quest project could be instrumental in helping produce important oil sands resources with less CO2.

For CCS to fulfill its potential, we will need many more projects. However, such projects don’t bring in revenues. And without carbon pricing, there are no early customers to bring down the cost. So public policy and financial support are needed to help the technology to take off, just as the nuclear power industry required government backing in the beginning. CCS projects must be eligible for carbon allowances under any climate policy.

Government Can Learn from the Private Sector

Industry cannot solve energy and climate issues alone. We need market-based policies that will ensure that those solutions that are fastest and lowest cost to implement are used first, and that care is taken not to selectively support energy technologies that may not deliver needed results.

The roles of government and business are clear – government sets the framework for addressing energy and climate change through public policy, regulations and incentive and support mechanisms. Business, in large part, innovates, develops and deploys the technologies that best meet energy demands while reducing CO2 emissions.

So, it is important that government listens to and works with business, which has the know-how and experience to help government make decisions based on practicality, feasibility and long-term policy goals.

To set workable, realistic policies and regulations, government would benefit from a more thorough understanding of how the energy industry works and the vital contribution it makes to global economies. This includes understanding the enormous costs, immense infrastructure, large workforce, long lead times, cutting-edge technology and constant innovation required to safely and responsibly discover, develop and deliver energy around the world.

For example, Shell’s Perdido Development is the world’s deepest offshore oil drilling and production platform, moored in 8,000 feet of water in the Gulf of Mexico. When Shell acquired the ultra-deepwater leases for Perdido in 1996, the technology to develop them didn’t exist. Shell purchased the leases in up to 10,000 feet of water at a time when the industry’s capability was barely 3,000 feet. Engineers had to design for the higher crushing pressures at these depths and environmental forces such as storm-driven waves and hurricane-force winds. The Perdido project is distinguished by its many technical achievements and industry firsts and required a partnership investment in the range of $3 billion and a global industry workforce of approximately 12,000 people. In March 2010, fourteen years after leasing, Perdido produced its first oil and natural gas.

And that is just one of the many offshore and onshore projects needed to provide the massive volumes of oil and gas that the world consumes every day.

Industry contributions to employment and economic well-being are equally impressive. According to the American Petroleum Institute, the oil and gas industry supports 9.2 million American jobs and adds more than $1 trillion to the U.S. economy, or 7.5 percent of the nation’s wealth. This makes the industry one of the largest employers in the nation, with some of the highest paying jobs – about two times the national average. In addition, one out of every five dollars spent in the U.S. supporting “green” jobs comes from investments made by the oil and natural gas industry.

In the U.S., the oil and gas industry provides energy security, improves the balance of trade figures, creates jobs and generates federal revenue. Government can best provide support by working collaboratively with the industry and creating policies founded on an appreciation for and understanding of the complexities involved in responsibly meeting energy demands.