Shell Oil Has an Indefensible Position, But At Least (I Believe) It’s Trying
If I were forced to choose an oil company that I resent less than its peers, it would probably be Royal Dutch Shell. I’ll admit that my reasoning is flimsy, but here goes:
1) A few years ago, a very large Shell shareholder from South Carolina called me from out of the blue and said, “You don’t know me, but I just had an interesting experience that I thought would interest you. Your name, Craig Shields, and your company, 2GreenEnergy came up prominently today on a conference call with the executive team at Shell and its top shareholders.” Unfortunately, he couldn’t remember the context or even the substance of the discussion. I recall thinking: This can’t be good. I don’t recall ever picking on Shell specifically, but I certainly don’t write particularly flattering things about the oil companies generally. Yet somehow I left that phone call with sanguine thoughts: d’ya know, it’s vaguely possible that they were praising one of my books, a talk I gave, a blog post, or something along these lines. One never knows.
2) I’m extremely impressed with some of the viewpoints of Shell ex-CEO John Hofmeister, for instance where he explains in his book “Why We Hate the Oil Companies” how the current political environment effectively pushes candidates into one of two camps, both of which represent nonsensical solutions to our energy challenges. The political right steadfastly maintains the fiction that the world has plenty of available oil and that there are no real issues associated with continuing to burn fossil fuels. This is completely incorrect. The left somehow cannot acknowledge the fact that fossil fuels need to play a role in sustaining economic stability in the short-term, and that’s just as ridiculous.
3) I’m honestly taken by this article, in which Shell explains to the world that it’s making immediate and significant departures from “business as usual” with respect to the environment, and has made changes in policy accordingly. I normally write this stuff off as corporate bullcrap, but I somehow believe that there is some real truth here.
The problem, though, is that the oil companies are in an unwinnable and inescapable position. Shareholders, whose collective wealth in owning stock in Shell is just north of $200 billion, will not allow the company’s management to do anything that will compromise this fortune. If the senior management team thinks it’s going to endanger $200 billion, they’re going to be the ex-senior management team in one hell of a hurry.
This is an unenviable position if there ever were one, insofar as it offers no chance for victory. Here’s Shell, a hugely successful profit-oriented oil company that has made a statement that it accepts anthropogenic climate change and is modifying its policies so as to lessen its environmental impacts. On one hand, Shell is constantly reconfirming to its investors and banks that its business model remains strong: extracting and burning the last molecule of oil and gas that it can get its hands on. Simultaneously it’s telling the world that it’s environmentally conscientious and is putting on the brakes. They can’t both be true in the same sense at the same time, as Aristotle taught us with his law of noncontradiction.
When I entered this discussion of fossil fuels vs. renewable energy many years ago, I recall a friend’s asking me: Why can’t the oil companies simply rebrand themselves as “energy” companies and morph into clean energy?
I told him that he was actually asking two questions. They’ve already done the first; in fact, the oil companies have spent a fortune trying to communicate that they have always been and always will be the answer to the world’s energy needs, in whatever form that takes.
The answer to the second question is that they can’t simply morph into renewable energy, any more than IBM can start franchising home-delivery pizza stores and Dominos can start selling IT solutions. Oil companies have an extremely narrow and deep core competency: exploring for crude with incredibly advanced technology, drilling, pumping, pipelining, refining, and distributing petroleum distillates.
Yet despite all of this, for any of all of the above three reasons, I choose to believe that Shell Oil has the biggest heart. If that’s untrue, they most certainly have the best PR firm, because I totally buy it.
An excellent article Craig. You have nailed the issue right on the head. Shareholders will not let them so they are in a Catch 22 of needing more oil and gas just to keep their game going. That is in tandem with the astronomical and increasing cost and risk involved in exploration and production in new difficult areas in the Arctic and deepwater. They could have steadily metamorphosed starting maybe 10 to 15 years ago, but chose not to apart from John Browne’s ridiculous BP “Corporate Wallpaper” logo re-branding exercise about 15 years ago which was basically a huge PR scam. That was done in parallel with massive restructuring and divestment to outsourcing and look where that led. It is now probably too late and the bits and pieces of renewables the oil majors get into is just so they can show nice pictures in brochures and websites of wind turbines and solar panels for public consumption. It’s peanuts money and they are petrodollar and reserves addicts pure and simple. The potential withdrawal symptoms are getting worse as the years pass. I worked for Shell in Europe 10 years ago and we all knew that. Some hoped Shell would change first, since they are one of the better companies as you say, along with Statoil, but it’s getting too late even for The Norwegians. When Shell pulled out of a major UK offshore wind project years ago because the bottom line rate of return was not good enough, you knew it was over.
Lawrence B. Wilkerson is a retired United States Army Colonel and former chief of staff to United States Secretary of State Colin Powell. He stated the following:
“Royal Dutch Shell has done a look. They have some of the best strategists that I’ve run into (and I was a strategist in the military) in a long time, and their look says the future is a blueprint, or the future is a scramble. And they talk about how to 2075, how dwindling water resources, dwindling petroleum resources, gas and oil, and so forth are going to cause world leaders to have to either cooperate and coordinate—”blueprint”—or fight each other mercilessly for half a century or longer. Royal Dutch Shell believes it’s probably going to be the latter. They call that “scramble”. We arrive at essentially the same point in 2075, with a basket of energy sources, some of which we probably don’t even know now due to technological innovation, with different countries in the world, with different power relationships in the world; we arrive pretty much at the same place, whether it’s the blueprint scenario or the scramble scenario. There’s just under the scramble scenario a lot of blood, a lot of treasure, and a lot of dead bodies. Frankly, Royal Dutch Shell strategists, they won’t tell you this, but I believe it’s fair to say that they think the political will and the leadership won’t be here, and so we’re going to do the scramble and not the blueprint. If you’re an optimist, you can go for the blueprint.”
Shell has no choice but to bow to pressures from the UK investors group holding $300 B in assets.The Resolution put forth by this investor group is calling for greater transparency about climate risk. Shell’s VP of Investor Relations is calling for the Board to approve the Resolution at the upcoming Shell Board meeting It’s a step in the right direction and long overdue but will likely not shift things dramatically. Hopefully it will get other oil companies to follow suit. Read the details on Reuters. http://www.reuters.com/article/2015/01/29/climatechange-investor-shell-idUSL1N0V82IE20150129
Craig, sorry to contradict, but a few of your statements do not hold water, probably because you have accepted what is regarded as common wisdom, but which is incorrect. There are ways that the oil companies can get out of their dilemma, retain profitability, and become good global citizens. The trouble is that they have been looking in the wrong places, have made predictably bad calls on which technologies and markets to pursue, and have not developed the systems by which to triage effectively new ideas. They have simply not been sufficiently imaginative or enterprising. Like most business leviathans, they have become set in their ways. They need to develop competing ‘skunkworks’ and ‘searchworks’.
We do need to move progressively away from burning fossil fuels, particularly from those that are most polluting and global warming. But there are enough extractable and relatively non-polluting methane clathrates to cover a transition period of several decades. Moreover, these ought to be extracted before global warming vents them into the atmosphere with catastrophic results.
We will always require organic raw materials to produce our fuels and products. However, the refineries of tomorrow will be biorefineries that typically will make use of technologies that are now on offer, are under development, or are under patent application. All Shell needs to do is to widen its concepts of what constitutes its drilling, pumping, refining, chemical conversion, product marketing and distribution competencies, then build on them and the new methods to develop the upcoming bioeconomy.
The last major change in the rules of capitalism is said to be Lincoln freeing the slaves. We likely need a President soon or today with as much foresight to change the rules of capitalism to promote or require SUN based energy rather than fossil based energy. Really easy to understand, likely rather difficult to implement. The conversation starts here.
Mr. Stout.
Shell Oil is the one petroleum company that I refuse to buy gasoline from. While all the major oil companies will stop at almost nothing to obtain new oil reserves, Shell is the most egregious. The event that made this blatantly clear occurred in the mid 1990s in the Niger River Delta of Africa. Ken Saro-Wiwa, a leader of the Ogoni people lived on ancestral land that Shell coveted for its oil deposits. Saro-Wiwa had successfully organized opposition within Niger to thwart Shell’s efforts. Shell sponsored a coup which overthrew the government of NIger and the new leaders arrested Saro-Wiwa and sever other Ogoni leaders. After a kangaroo court found them guilty of bogus charges, they were hanged. Shell started drilling immediately after.This can all be verified with a search of the internet and Wikipedia. The Saro-Wiwa family sued Shell and their representative in Niger, Brian Anderson, in the U.S. Court system and Shell settled the case before it went to trial by paying the families of the activists a paltry $15 million.
In response to Carl Watkins comment, the country is Nigeria not Niger.
Some years ago I spoke with the UK head of Shell at a function and challenged him on the climate issue and transitioning to renewables. He stated the stated the shareholders would not allow it as they were focussed on short term profits, as has been noted earlier in this thread. Therefore the key change now is to focus on strengthening the global fossil fuel divestment campaign, so that share value drops and changing to renewables, or the bio-refinery actions suggested above becomes the only way to maintain any profit. Now is a good time with oil prices low and profits and exploration investment both dropping.
Craig, as always, (I can say ‘as always’ since I’ve known him for over 45 years.) presents a rational and even treatment of the current energy usage/production situation. But no matter how awful a “big oil company” seems, one thing is clear: One cannot get food to the market without physically transporting it, and the way modern civilizations do this is by gasoline- or diesel-powered vehicles. Frankly, mass-starvation looms just beyond a horizon in which the left (as Craig points out) accomplishes their precious pipe dream and puts all oil companies out of business. The left never mentions how the millions of “big oil” employees worldwide will fare if that were to actually happen. And almost nobody is able to pierce the wall of hatred the left has erected, along with their media fellow travelers, to make sure consumers are aware that government’s “share” of pump prices is, per gallon, two-to-three times as much as the oil companies make in profits.
It’s a funny thing about the laws of supply-and-demand: Like the law of gravity, they cannot ever be broken. Modern markets will adopt electric vehicles (Adopt them? Hell, man, they’ll DEMAND them.) when those markets see a clear economic benefit to doing so. Not an environmental benefit; not a pollution-control benefit; not a political benefit, but a dollars-and-cents benefit. That’s the entire reason why cars exist in the first place: They’re better than horses and shoe leather in every practical way. (That’s why airliners are overcrowded and the “Twentieth Century Limited” and “Capitol Limited” aren’t.) But, I digress.
Few people are willing, or able, to utterly divest themselves of their own human self-interests. Case in point: One of my dearest lady friends from Syracuse U., who is now a successful attorney, was an anti-big oil protest leader on campus way before it was fashionable. This nice Jewish girl despised the oil companies more than she did I.G. Farben and Heinrich Himmler. Back when Carter was president, in her mind gasoline and Zyklon-B were one-in-the-same. Her passion for “social justice” (whatever THAT is) led her to law school and a successful practice as south Florida’s petite Don Quixote. Recently, the subject of falling oil prices came up; she said not one word about $2./gal. gasoline cutting into oil company profits, which I expected to hear from her. It turned out that she had several positions in mutual funds which, in turn, had major investments in those same oil companies. In her maturing judgment, “big oil” is not now as “evil” as it was back on campus in 1979. As was once observed by my FCC attorney, “Principles, idealism and altruism are wonderful things…IF you can AFFORD them.” Or if you’re not “lining your own pockets” in their absence. Depend on this: EVERYONE in America and the Western industrialized democracies WILL have non-polluting electric vehicles, re-charged with electricity produced by renewable resources, when it makes economic sense for the market as a whole and for individuals…and not one minute before.