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Shell Places a Not-So-Green Bet on Natural Gas

By STANLEY REED: Published September 5, 2012

A version of this article will appear in print on September 6, 2012, in The International Herald Tribune.

AMSTERDAM — Outside Royal Dutch Shell’s research laboratories here, a stack of tubes, tanks and dials four stories high percolates 24 hours a day. This bewildering-looking apparatus is a tiny prototype of one of Shell’s crown jewels: the huge Pearl gas-to-liquids plant in Qatar.

Now gradually increasing production, Pearl sucks in huge volumes of natural gas from the gargantuan North Field under the aquamarine Gulf and — in a feat of seeming alchemy — transforms the gas into jet fuel and diesel and other liquids far more valuable than natural gas these days. Eventually, Pearl could earn Shell $10 billion per year, justifying its nearly $20 billion cost.

The Shell lab’s director, HP Calis, presents a sample from Pearl for a visitor to sniff. Because it is made from purified gas, the clear fluid in his flask does not have the nauseating odor of gasoline and other products of oil refineries. To Mr. Calis’s evident pleasure, it is as sweet-smelling as beeswax, indicating it will burn cleaner than its conventional cousins. Shell lore has it that one can even drink the stuff, though Mr. Calis said he would not recommend it.

Shell wants you to think that natural gas is good for you and the world. That is not surprising because its management has just about bet the company on it. Over the years, Shell — the largest European oil company — has invested tens if not hundreds of billions of dollars in being a world-leading producer, processor and transporter of natural gas. For instance, it has stakes in facilities amounting to about one-third of all the global production of liquefied natural gas: gas supercooled to a liquid so that it can be shuttled around the world like oil.

The rise of L.N.G. has meant that natural gas is increasingly traded like other commodities, at a time when the explosion of shale gas output in North America has increased the supply, leading to sharply lower prices.

Shell portrays this “gas revolution” as a big opportunity to exploit the company’s expertise, even though low prices are depressing profit. Shell argues that the boom in supply means that natural gas, which accounts for about one-quarter of global energy consumption, should be viewed as a main solution to reducing climate-warming carbon dioxide emissions and not part of the problem. “Having all this gas creates options for policy that were not there in the past to get very cost-effective CO2 reduction,” said Dick Benschop, Shell’s vice president for gas market development.

He has a point. Burning natural gas to generate electricity — a major use — produces substantially less carbon dioxide than untreated coal. Replacing aging coal-fired generators with stations fueled by now cheap and abundant gas — as is occurring in the United States — would be a net benefit to the environment. China, where Shell is well-positioned, sees the gas as an antidote to the coal fumes that choke its cities and wants to double the proportion of the use of natural gas in its energy mix by 2015.

Shell is scrambling to find still more uses for natural gas. The company is beginning to supply ships out of Rotterdam with L.N.G., replacing viscous bunker fuel. It is also setting up a “Green Corridor” for L.N.G.-fueled trucks from Edmonton, Alberta, to Vancouver, British Columbia, and wants to install L.N.G. pumps at U.S. truck stops. The company is also working on a plan that might put a Pearl-like gas-to-liquids plant on the U.S. coast of the Gulf of Mexico, executives said.

But Shell and the wider gas industry still have a problem — especially in Europe, the part of the world most serious about doing something about global warming. Europe is aiming to reduce carbon dioxide emissions 80 percent by 2050, from 1990 levels. Natural gas may be cleaner than coal or oil, but it is still a fossil fuel that produces substantial quantities of carbon dioxide. The products that emerge from Pearl may smell nice and burn cleaner, but their carbon dioxide footprint is similar to that of conventional fuels.

Critics say the gas industry has been dragging its feet on making major investments in reducing emissions. The most promising way to eliminate carbon dioxide, especially in the electric power area, appears to be a process called carbon capture and storage. The idea with carbon capture is to strip out the carbon dioxide from fossil fuels and pump it somewhere it can be safely contained forever, like a depleted oil field or an aquifer. But carbon capture is expensive and, because it has been slow to move from the drawing board to reality, unproven. There are also fears that the carbon stored underground might escape. Tellingly, there are few if any large-scale carbon capture projects under way at gas-fired power plants. Shell is considering one at Peterhead in Scotland.

“The gas industry talks a good game,” said Jonathan Stern, chairman of the natural gas research program at the Oxford Institute for Energy Studies, which is affiliated with the University of Oxford in England. But in the long term, he added, “there is no obvious way forward with gas in a low-carbon economy except to say that we are better than coal.”

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