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The View From Big Oil


MARCH 8, 2010

Peter Voser of Royal Dutch Shell talks about the kind of energy legislation he’d like to see

These days, giant oil companies find themselves trying to balance two big pressures on their business. Governments are trying to slash carbon emissions—but the world’s thirst for oil is growing by leaps and bounds. Peter Voser, chief executive officer of Royal Dutch Shell PLC, is navigating the situation by joining a business-backed effort to push for global-warming laws, and making sure Shell has a strong exposure to natural gas and alternative fuels.

Mr. Voser sat down with The Wall Street Journal’s Alan Murray and Kimberley Strassel to talk about the future of climate-change legislation, the company’s push beyond oil, the prospects for electric vehicles and more.

Here are edited excerpts of their discussion.

Chief Executive of Royal Dutch Shell, Peter Voser talks about what kind of a future oil based energy can have in an environmentally conscious world.

ALAN MURRAY: I’d like to start by asking you about U.S. CAP [the U.S. Climate Action Partnership], the business effort to push for global-warming legislation. You are the last oil company there. Many of the other majors never joined to begin with. BP joined and then pulled out because it didn’t like the direction that it was going in. Why is Shell alone among the oil companies in continuing to push for this?

PETER VOSER: We have a belief that we need a market-based energy legislation in this country. And by the way, in all the other countries as well. We feel that we can do more by being inside U.S. CAP together with the other stakeholders represented there in order to actually achieve the right outcome.

KIMBERLEY STRASSEL: What kind of bill could you want or expect that would actually be good for your industry?

MR. VOSER: What we want is energy legislation that drives supply security in this country, which drives the country to lower fuel emissions, which generates new jobs but also preserves old jobs.

To then go further down, we are a keen proponent of market-based energy legislation. We will quite clearly look out for natural-gas developments, which we see as a long-term source of energy that has a lot of positives.

And in general, I think our industry is facing an interesting challenge that the demand in the world will double, but we have to provide that energy at a much lower cost to the environment. This will drive technology developments, innovation developments, etc., and that’s normally where our industry has always been in a leading position. And that’s what we want to see in the legislation so that we have certainty on the carbon price, certainty on, let’s say, legislation that will stay for a while so that we can operate.

MS. STRASSEL: What odds do you give passage of a cap-and-trade bill this year?

MR. VOSER: I’m still hopeful that we get something passed. I know the timing will be longer than what we expected maybe 12 months ago, but we will do our part in order to make sure that we get something that the industry and the country can take forward. But I think we are in for a longer period before we get something.

New in the Pipeline

MR. MURRAY: We talk about Shell as an oil company, but you’re very close to becoming a predominantly natural-gas company, aren’t you?

MR. VOSER: That’s absolutely correct. Shell started quite a while back, actually, to put a lot of emphasis on gas. And by 2012, we will have more gas production world-wide than we have oil.

So this has been a journey of 20, 30 years that we have used our technology and innovation in order to drive the gas development on a world-wide basis because, let’s face it, it has 50%, 70% less CO2 than coal, for example, and that’s exactly where we see the long-term benefit.

MR. MURRAY: And in your view, is that the big answer to our environmental problems for the next 50-plus years?

MR. VOSER: I don’t think there is one answer.

On a global perspective, the energy demand will double—this is pretty much proved now—by 2050. So we will need most of the energy forms that we know today.

MR. MURRAY: What percentage of your capital spending goes to renewable energy sources, roughly?

MR. VOSER: It is not the capital intensity that drives renewable energies and alternative energies. It’s what you spend in technologies and in innovation. Roughly 25% of our budget at this stage goes into what we call alternative energies from an R&D point of view.

MR. MURRAY: And of the 25% of your R&D budget that you spend on renewables, what in that portfolio do you personally think is the most promising?

MR. VOSER: We are focusing a lot on biofuels at this stage. We just announced a few weeks ago a big joint venture in Brazil where we are bringing our first- and second-generation biofuels technologies together with Cosan, a sugar ethanol producer there, in order to speed up the second-generation capabilities because we need to speed up that process. So biofuels is one.

We are in wind. We have gone out of solar. We tried both silicon and thin-film solar, but we can’t see that as being something that we can scale up globally and get the economies of scale. So we leave that. It’s a technology that will be developed, no doubt, but we leave that to a smaller, medium-sized players.

Driving Ahead

MR. MURRAY: For your oil business, transportation is obviously a key to the future. How long do you think it will take for electric cars to become a significant part of the vehicle fleet?

MR. VOSER: We think between now and 2050 we will go from one billion cars to two billion cars world-wide. So it’s quite a growth there. We think by 2050 that roughly 40% of those two billion cars will be electric cars.

But there is a but to this. Which means in the meantime we will need all [types of environmentally friendly cars]. So we will need low-carbon-fuels cars, more-efficient engines. We will need the hybrids. There will be more electrical cars coming in. There will be fuel cells, there will be hydrogen. So I think there will be room and space to develop all of them.

Looking to the Market

MS. STRASSEL: You talked about how you wanted legislation here in the U.S. to help with the certainty. But as a global company you already operate in regions that do have climate restrictions. How has that affected your business?

MR. VOSER: I would like to have a market-based system that actually works on the global environment. Because the world, the trade flow today, is a global trade flow, so you cannot cut between frontiers, boundaries, countries, etc.

So while I think it is OK to start country or regionally, we need governments working together, and that’s where I think Copenhagen would have been a good way to achieve a global agreement. We didn’t get it. I’m not too disappointed because I think this is a journey. We will need more time.

The politicians or the governments also have to learn to bring some reality into the discussion from time to time. So we get biofuels legislation, for example, and two years later they change because they realize technically it’s not possible. I think that’s where governments, companies, NGOs can work together to set the right frames.

MS. STRASSEL: Some people say instead of all the negotiations and the offsets and the carbon trading, just put a carbon tax, in particular a gas tax, and see where that goes.

MR. VOSER: I would say you need a market-based system where you can actually give the right incentives for those industries that are affected to make sure that they can lower the CO2 over time and they can lower the costs to achieve that over time. You need an incentive there, and I just struggle to see that a tax is an incentive.

The Journal Report

See the complete Environment Report.


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