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Shell’s sustainability plan emphasizes biofuels, CCS

Published: May 7, 2009

NEW YORK — Royal Dutch Shell PLC plans to focus its “clean energy” efforts on biofuels and developing carbon capture and storage (CCS) technology while pulling back from investments in solar and wind, Shell’s CEO said today.

With major offshore wind projects in Europe requiring abundant government support, “we figure it’s not logical to expect that you can build a big business based on subsidies,” Shell CEO Jeroen van der Veer told a teleconference organized to explain the company’s sustainability strategy.

“This is not a good business model for the long term,” he said from Germany. “It’s hard to see, at least in the way we look at it at Shell, how to make reasonable financial returns.”

Shell sees a variety of energy sources emerging in the coming decades, but it still expects renewables to constitute no more than 30 to 40 percent of the world’s energy mix by 2050, van der Veer said. Though his company will continue to be primarily an oil and gas company, Shell is hoping to gradually increase the mix of fuels it will supply with a special emphasis on advanced biofuels from sources like algae and possibly a distribution system for batteries to be used in electric cars.

“What we expect at Shell is that there’s a place for many different forms of energy under the sun” — including gasoline, diesel, biofuels and electricity, van der Veer said.

Van der Veer took pains to show that the company was not abandoning wind and solar technologies entirely. He noted the company’s wind investments in the United States and a solar joint venture with a Japanese firm.

And although Shell’s investments in renewables are still a tiny portion of what it spends on oil and gas development, van der Veer dismissed the comparison as irrelevant, since oil and gas is an established enterprise while much of clean energy involves nascent technology still at the research and development phase.

“To compare an investment in oil and gas to an investment in renewables, I think, is to compare apples and oranges,” he said.

Peak oil prices and the struggling global economy mean the company has been forced to make tough investment decisions, the CEO said. As a result, Shell is shifting its focus to technologies it already is deeply engaged in, like biofuels, where Shell is a big player in Brazil’s sugarcane ethanol industry.

The company also says it is keen to leverage existing assets as it explores options for expanding the market for clean energy. As one potential example, van der Veer pointed to Shell’s network of gasoline and diesel filling stations, which could potentially become places for electric vehicle owners to switch out batteries.

“We will always think about how renewable energy can be built into a business based on capabilities that we already have,” van der Veer said.

CCS could ‘become very big’

In 2008, Royal Dutch Shell produced about 2 percent of the world’s oil and 3 percent of its natural gas, pumping roughly 3.2 million barrels of oil equivalent each day. Weak oil and gas prices saw Shell’s profits slide by 62 percent in the first quarter of 2009, from $9.08 billion over the same period last year to $3.49 billion.

To show that the company is still proceeding with experimental low-carbon technologies, van der Veer touted Shell’s investments in demonstration projects for carbon capture and sequestration, an area the firm believes holds enormous potential should governments follow through on their promises to institute a global price on carbon dioxide emissions to combat climate change.

“We think carbon capture and storage is one of the few technologies which has the potential to become very big,” van der Veer said. “And if it becomes very big, then you start to do something about greenhouse gases.”

Though the future will likely be one in which rising energy demand will be met from all sources, including fossil fuels and alternatives, van der Veer said it is unwise for his company to become too heavily invested in all those. The best strategy for Shell is to focus on those technologies that show the greatest potential for early, large-scale commercialization, with an emphasis on affordability and convenience for the consumer.

“I think if you want to be in all forms of energy,” he said, “you will stretch your know-how too thin.”

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