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The Herald: Oil and gas firms have difficult questions to answer on climate change

By Mark WilliamsonGroup Business Correspondent

AS Shell boss Ben van Beurden hailed a strong recent performance by the oil giant last week a note of irritation crept into the tone of the normally affable-sounding executive.

Asked if the Anglo-Dutch giant would maintain investment in the North Sea following disruption by climate change activists in Scotland, Mr van Beurden saw no reason why it should not.

Shell boss highlights potential of North Sea and defends oil giant’s respose to climate change

His comments suggested he felt noisy protests were stifling the debate about how the world should respond to the challenge.

“We have a legitimate position at the table and we will make sure not only that our voice is heard but our actions speak louder than words,” Mr van Beurden told journalists.

Highlighting the scale of the challenge that has to be met if the world is to achieve net-zero carbon emissions in time to avert catastrophic global warming, Mr van Beurden underlined the industry view that oil and gas firms have a key role to play.

This will involve them helping to develop and deploy clean energy sources while maintaining production of the oil and gas that will be needed to meet growing global demand for energy.

Mr van Beurden drew attention to the detailed work Shell is doing on tackling the emissions produced in the supply chains of industries such as shipping.

The outgoing chief executive of Shell’s biggest rival BP, Bob Dudley, made similar-sounding claims when the giant posted a $10 billion (£7.7bn) annual profit on Tuesday.

West of Shetland oil fields in focus at BP as chief executive Bob Dudley bows out

There is frustration in the industry that critics appear to have done a better job of highlighting the need to tackle climate change than they have of explaining how we get to net zero without causing huge economic dislocation around the world.

Scots oil services tycoon Sir Ian Wood last year said environmental campaigners were wrong to call for production of oil and gas to be stopped, arguing the world would not be able to manage without them for years.

Stopping the production of oil and gas in the North Sea could simply result in imports to the UK increasing, while some of the associated emissions would be exported.

But critics of the oil and gas industry appear to be winning the battle for hearts and minds.

The perception that the response of oil and gas firms to the climate change challenge has not been adequate has been reinforced by some people who sincerely believe the industry has a key role to play.

These include Tim Eggar, who chairs the North Sea industry regulator, the Oil and Gas Authority. This played an important part in marshalling the response to the crude price slump from 2014, the fall out from which took a heavy toll on the Scottish economy.

Oil and gas firms warned social licence to operate is under serious threat

A former energy minister, Mr Eggar last month delivered a withering verdict on the industry’s response to climate change.

“Industry is not even really in the argument never mind winning it,” he declared warning: “It is, in my opinion, collectively not doing enough and its social licence to operate is under serious threat.”

Underlining the challenge posed by the speed of the shift in opinion on climate change he said oil and gas firms had to act much, much faster and go farther in reducing the carbon footprint associated with their activity. He said the industry must develop and publicise a compelling package of measures which demonstrates “real, genuine leadership and commitment to net zero” by the time of the COP 26 climate change summit, which will be held in Glasgow in November. Glasgow will be the focus of huge attention during the summit and the North Sea industry will be under a bright spotlight.

The International Energy Agency also ratcheted up the pressure on oil and gas firms, with a critique that must have made uncomfortable reading in some boardrooms.

Oil and gas firms could do much more to tackle climate change says watchdog

In a report on the oil and gas industry in the energy transition, the Paris-based watchdog warned firms could see their social acceptability and profitability come under threat unless they addressed growing calls to reduce greenhouse gas emissions.

Expressing concern that some firms may be too focused on maximising short-term profits to make the long-term investment required to support the energy transition, the IEA said the response to date had been limited and patchy.

“With their extensive know-how and deep pockets, oil and gas companies can play a crucial role in accelerating deployment of key renewable options such as offshore wind, while also enabling some key capital-intensive clean energy technologies – such as carbon capture, utilisation and storage, and hydrogen – to reach maturity,” said executive director Fatih Birol.

But the IEA noted: “Average investment by oil and gas companies in non-core areas has so far been limited to around one per cent of total capital spending.”

Talking to analysts on Tuesday, BP’s Mr Dudley suggested a focus on headline investment numbers could be misleading.

He said the money BP invested in Lightsource helped the solar venture secure billions more in support of an expansion programme that has taken it from one to ten countries.

Shell’s Mr van Beurden bemoaned the fact that stock-market listed giants appear to be the focus of public ire.

Insisting the energy transition could not be achieved simply by curtailing the supply of oil and gas, he told journalists: “It definitely can’t be done by demonising 10% of supply that is publicly listed.

“Ultimately it is a system challenge of unimaginable proportions that can only be done if we have collaboration at levels not yet displayed.”

But in their results presentations both Shell and BP made clear that their priority will be to focus on achieving the kind of returns they need to make to support multi-billion payouts to investors.

This will mean maximising the profit they can make from the exploitation of what are finite reserves of oil and gas.

Given that objective, and the size of the companies concerned, some may wonder how much time and effort they will be prepared to put in to clean energy projects on which returns will be uncertain.

There may need to be public debate about how to ensure profit-driven oil and gas companies operate in the interests of wider society and not just their shareholders.

With Budget time approaching, the role of the tax system in promoting the energy transition is one of the most important subjects the Chancellor must address.

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