Shell Oil : Natural Gas Best Opportunity For Carbon Reduction

Earlier this week, Shell Oil Company President, Marvin Odum, was hosted by Climate One at the Commonwealth Club in San Francisco in an on-stage interview to discuss the subject of "Water Food and Energy." The question at hand was how can innovation, technology and policy work together toward a clean and prosperous economy? In fact though, the discussion mainly focused on Shell's position on climate change, what impact they they can have on reducing emissions, and how this all fits in with their core business - extracting fossil fuels. To be sure, little time was spent discussing water or food.

Still, the event offered insight into how one of the world's largest energy companies grapples with the thorny issues of climate change and its own operations in the Canadian tar sands and the Arctic region as well as controversial extraction practices such as hydraulic fracturing.

Here's a summary of Shell's key positions.

• On climate change: Without equivocation, Odum stated, "climate change is real and humans have an enormous impact."

• On carbon pricing: Shell supports a price on emissions and favors a cap and trade system as opposed to a carbon tax. The reason being, it's market based and the cap drives carbon emissions to a desired level.

• On climate policy: In order to get governments to pass laws on carbon pricing, success will require cooperation between business, governments and society. People need to advocate for their legislators to act.

• On actions to mitigate climate change: Shell's role in addressing climate change is to act in a way that will have the greatest impact -  the company believes its role should be driving natural gas extraction up and other fossil fuels down. Shell already produces more natural gas than oil.

• On hydraulic fracturing (fracking): In order to increase natural gas production, Shell engages in fracking and recognizes the controversy of the process - in particular the problem of methane leakage during extraction. (Leakage either negates or reduces the benefit of natural gas's lower carbon content, due to methane's more potent greenhouse effect.) Addressing this concern, Odum stated Shell is measuring such "fugitive emissions" from their own operations and will report on it in a couple of months. Shell recycles 99 percent of water used in their fracking process.

• On regulating fracking: Shell believes regulations are required but are best implemented at the state level; to wait for federal level regulations could be a ten or twenty year proposition. Shell proposes a uniform set of recommendations no matter where they seek to undertake the practice.

• On Bio-fuels: These could be part of a suite of solutions in reducing carbon emissions, but won't be a single solution on their own. Odum doesn't think bio-fuel production makes sense in the U.S. but it does in places like Brazil (where Shell invests and is a large producer) since they produce them without the use of irrigation and without competing with food crops.

• On Arctic oil drilling. Odum says they've drilled in the region before and "we know how to do this," but acknowledges that the decision to drill again is not to be taken lightly due to the sensitive environment and where the isolated location presents unique concerns. The risks aside, however, Odum indicated from a global energy perspective, the region is too important to ignore, since he says "fossil fuels will be required for quite some time," and 25 percent of likely remaining reserves are there.

• On Canadian tar sands. Shell is a major entity in developing these, having a production capacity of around 250 thousand barrels per day. Though dirtier than regular crude, Odum implied the public overestimates how much dirtier tar sands oil is, stating it's not twice as bad, but about 6 - 7 percent more carbon intensive (though Shell's website says 5 - 15 percent).

• On carbon capture: Shell has the technology to capture and store carbon and has a billion dollar investment in a carbon capture and sequestration (CCS) project in Canadian tar sands, "where there is no ROI."  (According to Shell's website, it appears this will be in place 2015). Odum told the audience CCS costs $100/tonne today.  Interestingly, Shell uses an internal price of $40/tonne of carbon in order to evaluate the impact of carbon on their projects. The distance between these numbers might suggest CCS is not economically appealing.

• On other Renewables: These were of only brief focus during the discussion with solar and wind only being mentioned as research areas.

In summary, Shell's position is pretty clear in the near term. Odum indicated that a company such as theirs has to operate on the basis of where the technical skills are and drive the objective of CO2 reduction in a way that has the most impact according to those technical capabilities. For Shell, right now they believe to achieve real carbon reductions over several decades, their best contribution is to increase the balance of natural gas over other fossil fuels.

This is probably true from a purely carbon emissions point of view - that is, providing methane leakage is mitigated from the wells. But of course, it is controversial in other ways, with aquifer contamination and seismic concerns still very much unresolved. Furthermore, although natural gas as a fuel is cleaner, it isn't a renewable and is certainly isn't carbon neutral. And importantly, now that natural gas is so plentiful and relatively cheap,  you can get a carbon reduction (good) but without fundamentally moving away from fossil fuels. Clearly, Shell will remain at its core fossil fuel business - and undeniably, the world still demands its product .

Image by Lee Jordan