Shell strategizing to become an energy company rather than an oil and gas one
Fortune magazine has carried a long but interesting article into the strategy behind Shell’s decision to sell much of its Canadian oil sands leases to Canadian Natural, for a net price of US$7.25 billion (€5.83 billion). While it does not mean Shell is pulling completely out of oil sands in Canada, according to Fortune, it does reflect new strategic beliefs at Shell headquarters. After much consideration, the company’s leadership is now convinced that the energy sector is changing fundamentally, and that global demand for oil will peak sometime between the late 2020s and late 2040s due to competition from other sources of power, chiefly renewable energies (and, presumably, the spread of electric or hydrogen-powered cars), and more stringent regulations and policies around greenhouse gas emissions. What would follow would be a long decline, with those companies left holding oil assets being the losers (the head of Shell’s future ‘scenarios’ team puts it more bluntly). Shell CEO Ben van Beurden put it succinctly: “We won’t be sitting ducks. We’re going to adapt.” Continuing, however, he pointed out the crux of the problem for a traditional oil and gas company: “What is a challenge at the moment is that we don’t know anymore where the future will go.” Shell has divided future scenarios into four, made by the intersection of two axes, one being low or high total energy demand and the other the technologies used to produce it (low technology to high technology). A high demand, low technology scenario would mean more demand for fossil fuels, while at the opposite end of the two axes would be a highly energy efficient world reliant mostly on renewable energies and storage technologies. Prongs of the new strategy that Shell is taking are: reducing production costs in the present oil business so that profit can be made even at US$40/barrel; deepening investment in renewable energies to US$1-2 billion by 2020; becoming more of a mover of renewable energy across the global network; reducing the carbon intensity of its operations; and electrifying the business. At the very least, the company’s keen eye on the future should give it flexibility and speed in adapting to events.
World Economic Forum sees diverse range of responses by delegates on climate change
The Climate Change News website has covered various statements of political and other leaders at the Davos World Economic Forum held in Switzerland in the second half of January. The statements ranged from anodyne to notable, and the backstories to some of the statements were of particular interest. A graph of International Energy Agency predictions about the growth of renewable energies, for instance, shows just how remarkably different the EIA projections have been compared to what has happened, the EIA consistently predicting far less growth than has occurred. Another interesting development was the Papua New Guinea prime minister, Peter O’Neill, describing highly-polluting developing countries such as China as “one of the biggest contributors” to the challenge of climate change, in a break in the previous solidarity between developing nations. The divide between highly-polluting developing countries and developed countries remained, though, with Indian prime minister Narendra Modi saying “Everybody talks about reducing carbon emissions, but there are very few countries who back their words with their resources to help developing countries to adopt appropriate technologies. Very few of them come forward to help.” Al Gore, on the other hand, stated that the US would exceed the commitments it originally made to the Paris Agreement, “in spite of what [Trump] says, or tweets or does”, trusting state and business leaders instead, as well as market forces. The range of opinions is revealing about the myriad political and economic tensions underlying the problem of climate change.
Saudi Arabia and Russian oil cooperation deepening into an alliance
In the oil world, the cooperation between Saudi Arabia and Russia over the last 18 months appears to be solidifying into a deep and lasting alliance. After an initial agreement to “act jointly” back in September 2016, the two countries (Saudi Arabia as part of OPEC) came to an agreement on production limits at the end of 2016, an agreement which was extended in 2017 to last into this year. The energy ministers of Saudi Arabia and Russia, Khalid al-Falih and Alexander Novak, met twice in January of this year, with Mr Falih telling reporters that he expected the alliance to last for “decades and generations”. It also appears that OPEC and Russia do not view US shale production as a fundamental disruptor of their businesses, with Mr Fatih saying “In the overall global supply demand picture, it’s not going to wreck the train”. Whether this is true or not is uncertain, but the oil price is now at a three-year high at US$71 per barrel of Brent crude, something that will be at least a momentary joy for oil producers across the world.
Draft study puts price tag of Germany meeting 2050 climate targets at over €1 trillion
A draft study for the Federation of Germany Industries (BDI) has found that meeting the lower end of Germany’s contribution to EU 2050 climate targets would be technically feasible but extremely expensive, the price tag being estimated at more than €1 trillion (US$1.24 trillion). The target is to reduce emissions by 80-95% from 1990 levels, and the upper bound may also be technically feasible given even more expenditure, but this was not costed in the report. The authors, Boston Consulting and Prognos, have spent months on the study, which has been reviewed by Reuters (presumably amongst others) before its release. To safeguard German industry, targets matching those of the EU would need to be implemented globally, the study has postulated, although if this will eventuate is an open question. The report also reiterated the findings of other work, stating that higher and expanded carbon pricing could help climate targets be met, as could carbon capture and storage and increased support for alternative fuels. In mid-January, federal German politicians agreed to drop the country’s emissions reduction target for 2020 (a 40% reduction from 1990 levels), which Germany was on course to miss, but retain that for 2030 (55%).
Mexico plagued by fuel theft by drug cartels
Mexico is experiencing a rising wave of crime related to fuel theft, as Reuters reports. Drug cartels have splintered following the government’s successful efforts to topple cartel heads, and the splintering has made surviving groups keener for new sources of revenue. Last year, over US$1 billion of fuel was stolen, a sizeable amount in proportion to the annual US$52 billion revenue of the state-owned oil company, Pemex. There have been around 10,000 taps of pipelines, and the rising problem is making investors shy away, causing a knock-on problem for the industry. More tragically, refinery and other industry workers have been murdered and subjected to other forms of violence, and to date it seems that no government action has been effective. Whether over time the government manages to gain control over the problem remains to be seen.
SaskPower representative discusses operating experience at CCS-equipped Boundary Dam plant
The Estevan Mercury has carried an interview article looking at the changing challenges faced by Boundary Dam Unit 4, the CCS-equipped coal-fired unit owned and operated by SaskPower in Saskatchewan, Canada. According to the acting vice president of power generation, Howard Matthews, in the first year of operation of Unit 4, the challenges were mostly in regards to the chemistry of the amine absorbent solutions used to capture carbon dioxide from the air. In the last year, however, challenges have been more mechanical – the piping of the CO2 compressor required unforeseen levels of maintenance, which led to a longer than anticipated period of shutdown. After some unrelated boiler maintenance in November of last year, the facility as a whole has been operating well, capturing 2,500 to 2,700 tonnes per day, and some planned maintenance aside, it is expected to run steadily this year. While the news is positive, Mr Matthews intimated it is too early to say what SaskPower’s future plans are regarding carbon capture and storage.
NET Power CEO confident of commercial prospects of new gas-fired power plant design
Forbes has published an article which gives some interesting updates on the NET Power gas power plant design, which the company says will be carbon neutral and cost competitive with existing power plants. NET Power’s demonstration plant is currently undergoing testing, and there is some understandable secrecy around it, but it is understood that carbon capture is not part of the demonstration. Instead, presumably, the demonstration will focus on proving the Allam process, invented by semi-retired British chemical engineer Rodney Allam, which uses carbon dioxide as its turbine fluid, in a radical new overall plant design. The NET Power project has attracted widespread interest due to its freshness and purported potential for carbon neutrality (with carbon capture). Bill Brown, the CEO of the company, attended a question-and-answer session at the University of Chicago last month and many of the questions centred around the financial viability of the plant. Mr Brown insisted that the technology will be financially sustainable, even without use of carbon dioxide for enhanced oil recovery. He did concede, however, that it would take perhaps 30 plants until such a point was reached, the technology improving with deployment, but with a carbon price, or EOR, the plants could be commercially successful even immediately, he said. There were also questions about the technical feasibility of the plant, but given that Exelon, Toshiba and CB&I are all investors, there appears a good chance the design is indeed technically feasible. Time, of course, will tell, but eyes will be watching NET Power’s development from around the world.
European Cement Research Academy selects two sites for oxyfuel carbon capture trials
In news in brief, the European Cement Research Academy has selected two locations – HeidelbergCement’s Colleferro plant in Italy and LafargeHolcim’s Retznei plant in Austria – to host oxyfuel carbon capture pilot projects. The aim of the research is to test oxyfuel technology and processes at industrial scale in cement plants. The group has €25 million (US$31.2 million) in funding from cement companies, but is looking for additional national or European funding.
Abu Dhabi National Oil Company to expand use of carbon capture and storage
The Abu Dhabi National Oil Company has announced it plans a six-fold increase in the use carbon dioxide for enhanced oil recovery over the next ten years. The gas will be sourced by adding carbon capture to its own gas processing operations, decreasing the carbon footprint of its business while extending the life of its reservoirs. The company aims to achieve up to a 70% ultimate oil recovery rate from its reservoirs, twice the global average, a measure of the ambitiousness of the move. ADNOC already uses CO2 captured from the steel mills of Emirates Steel Industries at two reservoirs, and so has operational experience with enhanced oil recovery. The added capture and increased use of CO2 is to begin in 2021, and by 2027 the company aims to be using 250 million standard cubic feet (or 12,970 tonnes) per day. A company spokesman said of the plan that “Replacing rich gas with CO2 injection into ADNOC’s maturing fields will allow the more productive use of valuable clean-burning natural gas, whether for power generation, desalination or as petrochemicals’ feedstock. This is a prime example of how clean technology can be integrated with traditional energy to optimize resources and reduce the environmental footprint.”
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