Circular Economy

Oil, Money and Global Warming:
How Shell Is Tackling the Challenges of Energy, Economy and Climate Change

By Aarti Sharma | Published 11 years ago | About a 6 minute read

Nine billion people, two billion cars and 16 billion annual passenger flights — that’s what our planet is predicted to look like in 2050. And we will be thirstier for energy and oil than ever before. Despite advancements in renewable energy technologies, fossil fuels will continue to power the economy and cater to 65% of the global energy needs. According to the International Energy Agency, by 2035 the global energy demand will increase to 16,730 MTOE (million tons of oil equivalent), a one-third increase from the demand of 12,380 MTOE seen in 2010. And 60% of this increase will be due to rising energy needs from economic growths of India, China and the Middle East. By 2035, oil demand is also expected to increase to 99.7 mbd (million barrels per day) from 87.4 mbd in 2010.

Indeed, these trends signal greater business and growth opportunities for oil giants such as Shell. Ranking first in Fortune’s 2012 Global 500 list, Shell operates in more than 80 countries across the world. It has over 30 refineries and chemical plants, and forty-four thousand service stations. In 2012, Shell produced around 3.3 million barrels of oil equivalent daily; it estimates to increase its production by 23% to 4 million barrels of oil equivalent a day over the next five years.

While business opportunities are tremendous, challenges are no less for Shell. From one side, governments and citizens from developing and underdeveloped nations alike expect oil companies to help them meet their economic and energy needs. In 2012, Shell employed around 87,000 people, and paid $21 billion globally in corporate taxes and $3.6 billion in royalties. It collected $85.1 billion in excise duties and sales tax, on behalf of the governments, from the products it sold. From another side, environmentalists are scrutinizing and condemning oil companies, resisting expansion plans and demanding stricter environmental regulations and performance measures, including those on climate change.

In 2012, Shell directly emitted 72 million tons of CO2 equivalents of greenhouse gases from its facilities. Around 55% of its emissions came from its downstream operations in refineries and chemical plants, 40% from its upstream oil and gas production business, and roughly 5% from its shipping functions. If the current trend of global CO2 emissions and increases in fossil fuel consumption continues, the Earth’s temperature is predicted to increase by 3.5 degree Celsius.

So, as a corporate leader of an oil industry, what are Shell’s responsibilities towards its corporate sustainability, sustainable economic development of nations, and sustainability of our planet? While the company certainly has not figured out all the answers, it is making serious attempts to reduce its negative environmental impact. CEO Peter Voser emphasizes that “sustainable development remains at the core of Shell’s business strategy” — the company has adopted multi-pronged strategies to address global energy, economy and climate change challenges in an integrated way.

Increasing the production capacity of low-carbon fuels

Shell is investing heavily in low-carbon fuels; it is one of the world’s largest distributors of biofuels. With 50% stakes in Raizen, one of the world’s largest ethanol producers, Shell annually produces roughly 2.2 billion liters of ethanol from sugarcanes in Brazil. It is also one of the world’s largest distributors of liquefied natural gas, the cleanest burning and most affordable fossil fuel; natural gas accounted for almost half of the energy resources produced by Shell in 2012.

Adopting technologies for GHG emission reductions

Shell’s Athabasca Oil Sands Project in Alberta, Canada, contributing to 4.4% of Shell’s global oil and gas production in 2012, is a heavy emitter of CO2. Studies show that CO2 emissions from fuel generated from oil sands is 4-18% more than that from fuel coming from conventional sources. Shell recognizes that the long-term business success of its oil sands operations also depends on how effectively and efficiently it reduces its negative environmental footprint through technological breakthroughs. With the funding support of C$865 million from the Government of Canada and Alberta, Shell has initiated the Quest Carbon Capture and Storage project, which will annually capture over one million tons of CO2 emitted from Shell’s Scotford upgrader and permanently store the gas deeply underground. Achieving such a reduction would be equivalent to removing 175,000 cars from the road.

Enabling customers to lower their carbon footprint

Shell is researching, developing and commercializing technologies and products that help its customers lower their own carbon footprints. Products such as “Shell Fuel Save” and advanced lubricant “Shell Helix,” which prevents build-up of dirt in engines, are helping customers improve their fuel economy. Marine lubricant “Shell Alexia S4” enables large ships to travel slowly and conserve fuel in the process, without preventing the slow speed from distressing the engine. Shell is also working to help the airline industry lower its carbon footprint; in fact, in 2009 Shell powered the world’s first commercial passenger flight with liquid fuel made out of natural gas.

Nurturing budding entrepreneurs for ultra-fuel efficiency

The company has committed itself to nurturing hi-technology entrepreneurs that can aggressively push the current fuel efficiency standards of the automobile industry. Every year, the company hosts “Shell Eco-Marathons” in the Americas, Europe and Asia. High school and university student teams are challenged and inspired to design, build and drive ultra-fuel efficient vehicles for the globally coveted award. The vehicles that compete are judged not based on their speed, but on their mileage. This year’s 7th Annual Shell Eco-Marathon competition for Americas was held in April in Houston. With an astounding mileage of 3586.3 mpg of gasoline, Team “Alerion Supermileage” from Quebec's Université Laval won the competition for its vehicle.

Promoting energy literacy for sustainable consumer behavior

Shell is attempting to reach millions of auto drivers and consumers of oil and promoting sustainable consumer behavior among them. Its “Target One Million” project draws on gaming and social media platforms to educate consumers on fuel efficiency and economy. The “Smarter Driving Challenge” is an interactive online game that challenges players to demonstrate good driving behaviors and achieve higher fuel efficiency. By playing those games, available across different social media, drivers learn about how good driving habits, vehicle maintenance and use of high-quality fuels and lubricants lead to higher fuel efficiency and cost savings.

Empowering base-of-the pyramid communities with cleaner energy solutions

The company has also assumed responsibility to uplift lives of marginalized and impoverished communities by equipping them with clean energy solutions. For example, the Shell Foundation offered financial assistance to Husk Power Systems and helped the company build its capabilities to electrify rural Bihar in India. Generating electricity out of rice husk, the 35-100kW mini power plants of Husk Power Systems can provide 8-10 hours of cleaner and affordable electricity to more than 1600 residents per day. Till date, Husk Power Systems has employed around 350 people to locally operate and administer the energy production and distribution business, and provided electricity to over 200, 000 people across 300 villages in Bihar.

While pursuing the above strategies, Shell also recognizes that it has not perfected the art of balancing energy, economy and the environment. However, the company seems determined to continually improve the safety and reliability of its operations. In the words of Voser, the company is “incorporating the lessons learned from [environmental mishaps and inefficiencies into [its] future plans” with the goal of leading the industry toward higher performance of business excellence.