Sustainable development and our business strategy

Shell’s latest Strategic Energy Scenarios show that climate change is an urgent challenge. Is the world moving fast enough to address it?
The scenarios show it will be tough but that much can be done to manage GHG emissions – if the world takes co-ordinated, large-scale action soon. December 2007’s Bali Declaration demonstrated that the USA, China and India are willing to play an active part in the existing process for setting an international policy framework for addressing climate change. Now concrete plans are needed. At least the world realises it is a problem. I no longer hear governments saying ‘Let’s study it for five more years and not do anything.’

So what would you most like governments to do?
I want them to read our ‘Scramble’ scenario. If they don’t like it – which they won’t – then they should read our ‘Blueprints’ scenario and act. No one country or sector can do it alone. We all have an important role to play, but at this stage, government action is most critical. They should set international policies to lower all GHG emissions, including CO₂, without distorting competition. For this, we need to have a price for emitting CO₂ and realistic credible targets covering emission reductions, renewable energy use and energy efficiency measures.

What is Shell doing to accelerate the transformation you describe?
We are continuously improving energy efficiency in our operations and we are developing technologies to reduce CO₂ emissions. These are two of our most important contributions. That is why we are stepping up our research and development efforts into second-generation biofuels, fuels and lubricants that improve fuel efficiency, and CO₂ capture and storage (CCS). CCS is still in the early stages of development and there are practical hurdles to overcome, so more demonstration projects are urgently needed. If governments and industry move fast, we could start seeing a material amount of CO₂ being captured and stored by around 2020.

Advocacy is another important part of our contribution. We are calling openly for bold changes to the energy system, not just waiting to see what happens. I’m writing more newspaper editorials on energy policy than ever before – a sign of the urgency I attach to this. I’m using our new scenarios with government leaders around the world to underline the need for action. And I spend a great deal of time building coalitions for change and working with groups that help advise governments on policy, like the World Business Council for Sustainable Development and the European Round Table of industrial leaders.

How do you reconcile the need for emission reductions with Shell’s business strategy, which includes a heavier reliance on more CO₂-intensive resources like oil sands?
We believe unconventional oil and gas, like oil sands, will be needed to keep energy supplies secure and we are committed to finding responsible ways to develop them. Both our scenarios indicate that a supply crunch for conventional sources could appear around 2015. Greater efficiency, biofuels and other renewables will help, but won’t be enough on their own.

Frankly, energy security and CO₂ are so important that I don’t think the market will be left to decide. Governments will reassert control over the energy mix in the coming years to influence how much nuclear energy, coal, oil and gas will be used; how people will improve efforts to conserve energy; whether CCS is used widely to reduce emissions; what role oil sands should play, and so on.

Shell has targets to reduce CO₂ emissions until 2010 but not beyond. Why?
Because voluntary targets by a handful of companies just won’t work. Government policies are needed to reduce emissions across the entire economy without distorting competition. After 2010 we will take a different, and I believe more effective, approach to targets by focusing on individual operations. We want most of our assets to rank among the top 25% of performers on CO₂ emissions compared to similar oil and gas facilities run by other energy companies. That is a clear, sensible and effective benchmark to aim for.

By aiming to be in the top quarter, couldn’t you win a race that sends us, collectively, in the wrong direction?
Asset level targets are only one part of the story. They help us improve our operational performance. The larger, portfolio questions – about which types of energy to invest in and how much – will be shaped by the policy frameworks we have been talking about.

Talking about portfolio choices, has your perspective on investment in renewable energy changed with the advent of $100 oil?
High oil prices create an umbrella for developing renewables. We have increased our spending on transport biofuels – particularly second-generation ones that don’t compete with food for land and water resources. It plays to our strengths as a company with 100 years’ experience in providing high quality transport fuels. With better biofuels, everyone is still in the discovery and development phase – where brains count the most. We are working to move on to deployment. We think we can build a sustainably-sourced, commercial-scale biofuels business, that can eventually operate without subsidies.

Operating conditions in Nigeria remained very difficult in 2007. Do you see any light at the end of the tunnel?
I have enormous respect for our people there, who are working under exceptionally difficult conditions. Our offshore operations performed well last year and the production capacity of our liquefied natural gas joint venture expanded. However, onshore, in the Niger Delta, the security situation and funding challenges clearly remain serious. Limited access to our facilities meant almost half a million barrels of oil and gas remained out of production and it was impossible to make much progress on our programme to end continuous flaring. So, do I see any light? We are in discussions with government and others about security. Our first priority remains keeping our people safe. I am also hopeful about our discussions with the government to establish new ways of funding oil and gas activities.

With growing competition for resources and the rise of national oil companies, is Shell’s commitment to sustainability a competitive advantage or disadvantage?
It’s absolutely an advantage. Sustainable development is an even bigger entry ticket than in the past. I’m convinced that acting responsibly is the key to the door to do the more difficult projects that companies like Shell are naturally driven to. For me it is obvious that sustainable development issues like CO₂ are good entrepreneurial opportunities for our firm, not threats to be feared. And I see it as an important part of my role as a leader to remind Shell people of the business opportunities to be gained from providing responsible energy, that it can be a genuine source of differentiation from our competitors.

Are you content with Shell’s sustainability performance in 2007? And what do you plan to do differently in 2008?
I’m never content. It isn’t my job. Or my nature. I am encouraged to see our safety performance improve in 2007, but more effort is needed until we eliminate all incidents and fatalities. I think our sustainability performance overall continued to improve. I realise you can’t judge progress on the overall sustainability agenda in a single year but you can set milestones. So, I hope that in the coming year we will be actively involved in at least one CCS project – not just studying its feasibility but actually starting to develop it. I also hope that by the end of 2008, the messages of our ‘Blueprints’ scenario will have been widely taken on board.