Balancing act for top tier companies
Carbon research is an alternative play for the ‘ supermajors’ in the petroleum industry which have benefited from high oil prices, writes Mike Hanley
WHEN oil prices slumped to around $ 30 a barrel in the mid- 1990s, oil companies consolidated. Now, globally, there are just six ‘‘ supermajors’’ that dominate the industry, and all are sitting on enormous reserves for which they are receiving more than $ 100 a barrel. It is a licence to print money.
But it’s the same kind of licence the tobacco companies had in the late 20th century: limited. Like pack- a- day smokers, we know we are addicted to oil — even President Bush has said so. But we also know it is killing us.
With climate change here now, the supermajors are in a tricky position — they have to maximise profitability today without jeopardising their existence tomorrow. It is a complex strategic balancing act — to be seen to be doing something about climate change, without undermining their main product. Some make a better fist of it than others. BP and Shell in particular have made significant strategic decisions to support limiting carbon emissions, including investing billions in low- carbon technologies and alternative energies. Other supermajors have been less proactive, but have at least mostly stopped denying that climate change is an issue. Even Exxon, once a notorious climate change denier, now invests in carbon change research.
At the beginning of 2008 Jeroen van der Veer, the chief executive of Royal Dutch/ Shell, wrote to all 112,000 employees across the globe to introduce them to two scenarios the company had come up with to describe two possible futures to 2100.
The two scenarios describe very different worlds: one optimistic, the other, not so much.
Under ‘‘ Scramble’’, countries compete for energy supplies, ignoring the sirens of climate change, until it is too late — energy supplies begin to run out, prices are sky high, there are huge climate change- induced shocks, and the global economy is plunged into uncertainty.
The more optimistic scenario, ‘‘ Blueprint’’, is the one Shell is hoping for, writes van der Veer. Under Blueprint, local innovation in carbon efficiency leads to enlightened national policymaking — carbon trading systems, for instance — and international co- operation on these policies.
Blueprint means a more orderly world, and a lower carbon one.
Blueprint, as modelled by the Massachusetts Institute of Technology for Shell, assumes that CO is captured at 90 per cent of all coal- and
2 gas- fired power plants in developed countries in 2050, plus at least 50 per cent of those in non- OECD countries. Today there are none. ‘‘ Since CO capture
2 and storage adds costs and brings no revenues, government support is needed to make it happen,’’ says van der Veer.
In Australia at least, government is providing significant support for carbon sequestration — and that is where Shell is putting its alternative energies in this country.
The company is working on four different carbon sequestration projects, including a Chevron- operated Gorgon project in Western Australia which has claimed $ 60 million of the government’s Low Emission Technology Demonstration Fund.
The company is also providing money, research and people to the ZeroGen black coal zero emissions project in Queensland, brown coals research at Monash University, and a CO Co- operative Research Centre at the
2 Otway gas project in Victoria.
In Australia, Shell limits its alternative energy activities to capturing carbon and burying it, but overseas it invests heavily in biofuels. It recently announced a joint venture with Virent, a Wisconsin- based company, to convert plant sugars directly into petrol rather than ethanol. According to Shell Australia’s website, the company will bring alternative energies to Australia when it sees commercial potential for them.
BP made a big show of rebranding itself ‘‘ beyond petroleum’’ in 2000. Since then it has invested some $ US8 billion ($ 7.4 billion) in alternative energies, and two years ago brought its wind, solar, hydrogen and gas low- emissions technologies under one alternative energy banner. It has pledged to invest $ US1.5 billion this year alone, and to eliminate 24 million tonnes of CO by 2015, equivalent to making 6
2 million cars carbon free.
In Australia, BP’s alternative energy activities are limited to solar and a hydrogen project in Western Australia. But it is big in solar: BP is the only domestic manufacturer of photovoltaic cells and panels. Its subsidiary, BP Solar, has a manufacturing plant in Homebush which employs 250 people manufacturing 50MW of solar capacity a year. It exports 85 per cent of production, as well as having a strong foothold in Australia’s 10MW domestic market for solar energy.
‘‘ BP has been in solar energy for over 30 years,’’ says Brooke Miller, Regional Director of BP Solar for Australia, ‘‘ so it’s a long term investment. Many of the oil majors have an interest in solar, but we are the only commercial manufacturer of photovoltaics in Australia. We have a strong partnership with the University of NSW, where a lot of the knowledge about photovoltaic energy resides, and it makes big sense for the company.’’
The company is involved in the $ 75 million government- sponsored ‘‘ Solar City’’ project, which subsidises the purchase and installation of solar systems for particular communities around the country. In Adelaide, for instance, a partnership between BP Solar and the ANZ bank brings the cost of a $ 15,000 6.4KWh/ day solar system down to about $ 8,000.
BP and Shell are at the forefront of alternative energy investment in Australia as well as globally. The other oil supermajors majors have little or no alternative energy investment in Australia, but this may change in the near future with the Rudd government’s ratification of the Kyoto protocol, and enthusiasm for clean energy incentives.