Money’s too tight to mention. Shell has axed thousands of jobs, cut its spending by billions of pounds and has put the “for sale” sign on projects all around the globe. It reassured its big city investors last week that, to prosper in the “new normal” of low oil prices, it has cut its capital expenditure by around one-third, is concentrating on fields that will produce the juiciest returns and will squeeze even more cost savings out of its combination with BG.
Yet, in these days of scrimping and saving, there was one pot of money that remains protected. In terms of Shell’s overall expenditure, it is tiny – around 3 per cent of the company’s capital allocation today. But it will become an increasingly large and important part of Shell’s business in the next decade. It is “new energies”; Shell-speak for renewable energy.
I realise that writing about climate change on this website may – to some of you – be as sacrilegious as running into Church and screaming “Satan!” during the service. The re-configuration of the global economy to reduce our production of CO2 and lessen our reliance on fossil fuels is simultaneously an unyielding rebuke, a deadly economic threat and – keeping with the legend of Satan as the original fallen angel – an issue partly of your own making.
Politicians Don’t Count
The considered judgement of the overwhelming proportion of climate scientists is that the world is warming up dangerously, it has been caused by human activity and unless we act urgently the effects could be catastrophic; possibly irreversible in some cases. When it comes to the science, these are the only people whose judgement matters. Politicians, economists and public relations representatives – however vocal – don’t count.
Where the politicians and the others play a role is in deciding what the response should be, how urgent it should be and who will pay for it. In some cases, they are merely following behind business leaders who are already out in front, setting the pace of reform. Insurance and financial services companies, faced with massive claims for flood and weather damage, are increasingly aggressive in their demands for political action and in persuading their customers to modify their behaviour. Some retailers, recognising that climate change is so important to some customers it determines their spending choices, have re-engineered their operations to make them more sustainable – and insisted that companies in their supply chain do the same.
Air Miles & Hot Air
The truth – inconvenient, perhaps, for some – is that climate change cannot be solved without the energy industry because demand for energy is insatiable and growing. You can have as many international climate summits as you like but until we develop viable and affordable alternatives to heating, lighting and powering everyday life, all those gatherings do is clock up the air miles and produce even more hot air.
To Be Seen At The UN Climate Change Conference, Ban Ki-moon & Celebrity Leonardo di Caprio
Growing populations, increased industrialisation and expanding wealth from Chongqing to Chennai, Cairo to Caracas will mean more cars guzzling fuel, more gadgets sucking up electricity, more factories and offices devouring heat and light to produce the world’s products and services. These richer, aspirational people will consume more food, more plastics, more chemicals; they’ll shop more and travel more. And they will see it as a right and an entitlement. After centuries of enjoying the fruits of economic growth fuelled by modern industry, are we really in a position to tell the developing nations of the world that they have to skip their turn? Hollywood celebrities finger-wagging from the steps of their private jets, take note.
BP’s Energy Outlook
BP’s Energy Outlook – which makes a stab at guessing energy needs in the next generation – shows energy use flattening out in the world’s most developed nations like the UK, Germany and the USA, but continuing to rise in China, India and (to a lesser extent) across Africa. Overall, it estimates that the world will use one-third more energy in a generation than it does today. BP’s economists estimate fossil fuels will still meet 80 per cent of the world’s energy needs in the year 2035.
But growing energy demand does not necessarily mean a growing appetite for oil. Innovation in transportation and in energy storage will reduce the demand for petrol, diesel and gasoline – not necessarily a bad thing, if it allows oil to be conserved for processes where it is essential and, at present, irreplaceable. And the cost of using oil may increase if last year’s Paris agreement to curb rising global temperatures is translated into new green taxes to limit CO2 emissions. While BP forecasts that demand for fossil fuels will continue to rise, the International Energy Agency warns oil usage may fall by one-fifth by 2040, as the world switches to CO2-friendly gas and renewables.
The chief executive of the French oil & gas major Total warned the industry recently that it should stop being too defensive, and embrace change. He wants the group to have one-fifth of its assets in renewable energy, energy storage and energy efficiency within the next 20 years. Shell is moving more cautiously, perhaps burned by its previous experience in solar energy; it wants to be far enough ahead of renewable demand to get early financial rewards, but not so far ahead that it destroys shareholder value while waiting for the returns to show up. In the meantime, its combination with BG boosts its capacity as a gas company, in anticipation of that switch in demand from oil to gas.
We need to use existing energy supplies more efficiently, and to develop practical, economic & sustainable energy alternatives. The oil & gas industry should be in an unassailable position to offer this. It has the scientific knowledge, the technical skills and the financial clout. But the industry’s credentials are suspect after years of denying or disputing climate change. This disastrous strategy – devised (I imagine) to protect the industry – trashed the public’s trust in big oil on this issue. That loss of credibility and authenticity means you don’t get the hearing you now deserve, even as you invest heavily in sustainable energy solutions.