there are many indications that this is nothing more than rhetoric.
In its most recent Sustainability Report (2016), Shell makes clear
where its priorities
for growth lie: deep sea oil and gas, and chemical products.
According to Shell, these will be the future ‘cash engines’ of
the company, starting in 2020. Shell has great expectations in this
period for shale (oil and gas from shale formations, whose climate
benefits when compared to coal are dubious,
due to methane leakage), natural gas and new energies.
are reflected in recent mega-investments:
2011: Shell built
largest floating natural gas processing plant, the Prelude, to
extract natural gas from the seafloor and liquefy it instantly so
that tankers can load it at sea. Shell wants to build many more
floating platforms to make gas production possible in places that
were previously inaccessible. Cost of the first model: between 10 and
13 billion dollars.
BG Group for over 64 billion euros, the largest purchase ever
made by a Dutch company. BG Group’s business is exploration and
drilling for gas and oil. The company is one of the world’s largest
operators in LNG, liquefied natural gas. Shell views LNG as a
relatively clean fuel for the transition from fossil fuels to the
renewable energy era. But an analysis
by Down to Earth [Milieudefensie’s bimonthly magazine]
revealed that to be a myth.
2016: Over the
next five years, Shell is investing 10 billion dollars in Brazil,
mainly for exploration and extraction of deep-sea oil.
2017 and 2020, Shell
will be investing 1.2 billion dollars (300 million dollars per
year) to expand its Argentine shale gas and oil drilling activities
in Vaca Muerta, the largest shale oil and gas field in Argentina.
Australia has invested 50
billion dollars in LNG projects in the last five years.
It is doubtful
whether these investments can be reconciled with the goals of the
Paris Agreement. This issue cannot be resolved at the company level
only: if Shell’s competitors were to immediately halt their fossil
fuel activities, that would just leave more room for Shell to make
even greater investments in fossil fuel energy. It is however
possible to calculate how much room ‘Paris’ offers for the oil
and gas sector as a whole.
It was agreed in
Paris at the end of 2015 that the average global temperature rise
must remain well below 2 degrees Celsius. Efforts have focused on
limiting the rise to 1.5 degrees. This ceiling gives climate
scientists the chance to calculate the maximum amount of CO2 that can
be emitted without exceeding the limits.
The size of the
carbon budget has been calculated by the IPCC for
the period after 2011. In the 2 degree scenario, this comes to 1000
Gton CO2 and in the 1.5 degree scenario it is 550 Gton. If we keep to
this ‘budget’, there is a 66 per cent chance that we can remain
under a temperature rise of less than 2 degrees, while for the 1.5
degree scenario, the chance is 50 per cent.
organisation Oil Change International (OCI) and a large number of
NGOs worked this out further in the report, The
Sky’s Limit. The report took 2016 as starting point for the
remaining carbon budget, when the carbon budget calculated by the
IPCC has already been partly used up. For the 2 degree scenario, 843
Gton still remains; for the 1.5 degree scenario, that is 393 Gton.
OCI compared this
carbon budget with proven and probable global oil and gas reserves,
plus proven coal reserves. A database from the authoritative Rystad
Energy services was used for this calculation. Proven reserves have a
90 per cent chance of being extracted; for probable reserves the
chance is 50 per cent.
The result was
sobering: CO2 emissions from oil and gas fields that are now in
production or under construction (locations where wells are completed
or nearly completed, pipelines laid and the processing installations,
transport modes and terminals have been completed), with CO2
emissions of 942 Gton, already exceed the 1.5 and 2 degree Paris
goals by 100 Gton. The present level of production must thus be cut
back and there is no room left for any new production.
The conclusion is
that there simply is no room for Shell’s recent billions in gas and
oil investments. These would increase the proven and probable global
oil and gas reserves, and would ultimately contribute to further
exceeding the carbon budget.
Initiative (CTI) has calculated what the carbon budget means for the
reserves of all the energy giants. CTI has figured that 77 billion
euros of Shell’s investments are in so-called stranded assets:
investments that are worthless if Shell takes the carbon budget (or
in other words: the Paris Agreement) seriously. At the moment, this
figure is probably lower, because Shell recently sold some of its
assets (this was necessary to ease the large debt incurred by its
acquisition of the BG Group). But CTI’s sobering conclusion is that
all of Shell’s and the BG Group’s investments in LNG projects
would be unusable
in the 2 degree scenario.
investments increase the risk of what is referred to as carbon
lock-in. New infrastructure construction for oil and gas has a
horizon of approximately 40 years, and in the long term this would
undermine achievement of the Paris climate goals.
Shell views it
Shell looks at it
differently. In Shell’s opinion, the carbon budget has no
consequences for the company’s activities. In 2014, Shell sent a
letter to its shareholders, telling them they needn’t worry about
stranded assets risks. Shell accepts that there is a large chance
that the 2 degree limit will be exceeded.
In 2016, Shell
published for the first time a company scenario in which the world
would achieve the 2 degree climate agreement goal – A better
life with a healthy planet: pathways to net-zero. But this
scenario did not lead to a new investment strategy that is compatible
with net-zero emissions. Shell wrote: ‘(…) we have no immediate
plans to move to a net-zero emissions portfolio over our investment
horizon of 10-20 years.’ Shell emphasised that the demand for oil
and gas will continue to rise, due to the increasing global
population. Shell’s analysis of the risks of possibly overvaluing
its reserves is limited to oil fields that are already producing and
projects that are nearly ready for production – it disregards
investments in new reserves.
Time is running
out for Shell. If Shell is to take climate issues seriously and
exhibit real leadership, it has no choice but to make a complete
reversal and move towards renewable energy, to stop investing in
exploration to exploit fossil fuel reserves, and to write off its
recent investments in deep-sea oil and gas and shales as losses.