{"id":9395,"date":"2016-11-03T21:12:54","date_gmt":"2016-11-04T01:12:54","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/redefining-an-oil-giant\/"},"modified":"2016-11-03T21:12:54","modified_gmt":"2016-11-04T01:12:54","slug":"redefining-an-oil-giant","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/redefining-an-oil-giant\/","title":{"rendered":"Redefining an Oil Giant"},"content":{"rendered":"<p>We\u2019re all aware of the rapid growth of solar and wind power generation over the last decade<sup>1<\/sup>. The shift towards renewable energy sources must continue if CO<sub>2<\/sub> limits are to be achieved<sup>2<\/sup>. Yet, for Shell, it\u2019s not so much the source of the energy which is troubling, it\u2019s the form that energy comes in.<\/p>\n<p>&nbsp;<\/p>\n<p><em>A Business Under Siege<\/em><\/p>\n<p>Climate change effects all aspects of Shell\u2019s business, particularly its strategic direction. Although energy demand is projected to grow 48% from 2012 to 2040, political pressures could shift the energy mix towards lower carbon fuels<sup>3<\/sup>. Although not legally binding, COP21 targets are ambitious and meeting them will necessitate a reduction in hydrocarbon use globally. In addition, any sort of carbon pricing scheme will reduce demand for hydrocarbons<sup>4<\/sup>. These combined pressures directly threaten the very existence of Shell and other oil &amp; gas producers.<\/p>\n<p>&nbsp;<\/p>\n<p><em>Manning the Battle Stations<\/em><\/p>\n<p>Shell has taken a multi-pronged approach to addressing climate change with initiatives aimed at cleaning up its operations and investing in clean technology<sup>5<\/sup>. However, the biggest strategic decision Shell has made has been to shift its portfolio away from crude oil towards natural gas. Although the proportion of revenue from natural gas has been increasing for many years, the recent acquisition of BG creates a step change in the important of natural gas to Shell as reported by the WSJ, \u201cthe combination would nearly double Shell\u2019s production of liquefied natural gas within two years, and turn it into the world\u2019s largest marketer of the fuel by the end of the decade.\u201d<sup>6<\/sup><\/p>\n<p>&nbsp;<\/p>\n<p><em>A Way Out<\/em><\/p>\n<p>This is an effective short term strategy for Shell. Natural gas is primarily used for generating electricity, a space within which it competes with coal<sup>3<\/sup>. Decarbonizing the power generation industry is one of the easiest ways to meet CO<sub>2<\/sub> targets, and since natural gas has half the carbon intensity of coal, replacing coal-fired power plants with efficient gas-fired plants can be part of a solution<sup>7<\/sup>. Figure 1 shows forecast demand for electricity, with natural gas and renewables providing the growth while other fuels stay flat. Crude oil, on the other hand, is primarily used in the transportation industry<sup>3<\/sup>. Decarbonization of the transportation sector has started, with electric vehicles starting to gain a foothold. That will put pressure on crude oil demand while simultaneously raising demand for electricity. In the short term, natural gas is well positioned to play a key role in fighting climate change.<\/p>\n<p>&nbsp;<\/p>\n<p><figure id=\"attachment_9387\" aria-describedby=\"caption-attachment-9387\" style=\"width: 300px\" class=\"wp-caption alignnone\"><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/renewables-1.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-9387\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/renewables-1-300x236.jpg\" alt=\"Fig. 1 World electricity generation forecast in trillions of kwh. 3\" width=\"300\" height=\"236\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/renewables-1-300x236.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/renewables-1.jpg 578w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><\/a><figcaption id=\"caption-attachment-9387\" class=\"wp-caption-text\">Fig. 1 World electricity generation forecast in trillions of kwh.[3]<\/figcaption><\/figure><sup>\u00a0<\/sup><\/p>\n<p>&nbsp;<\/p>\n<p><em>\u00a0<\/em><\/p>\n<p><em>The Long Game<\/em><\/p>\n<p>Of course, the IPCC has called for net zero emissions of CO<sub>2<\/sub> by the end of the century which means that, barring large scale carbon capture and storage deployment, natural gas production must ultimately decline<sup>8<\/sup>. It\u2019s not obvious how the world will achieve that target, but what is quite clear is that a very large proportion of global energy will be supplied by wind and solar generation in the future. Those technologies naturally produce electricity and economic activities that can take advantage of that form of energy will have an advantage. Total electrification will be the defining industrial trend of the 21<sup>st<\/sup> century.<\/p>\n<p>&nbsp;<\/p>\n<p><em>What Next?<\/em><\/p>\n<p>Shell has several transferrable competencies which it can apply to the electrical supply chain. Management of long term capital intensive projects can as easily describe an electrical generation and transmission system as it can an oil field and pipeline network. Commodity trading, health and safety, and research and development are all activities that can be transplanted wholesale into the electricity space. But if Shell has any hope of surviving that transition, they need to take steps now to build up their technical expertise in a new electrical world.<\/p>\n<p>&nbsp;<\/p>\n<p>(611 Words)<\/p>\n<p>1 U.S. Energy Information Administration, \u201cShort Term Energy Outlook,\u201d October 2016 [https:\/\/www.eia.gov\/forecasts\/steo\/pdf\/steo_full.pdf]<\/p>\n<p>2 IPCC, \u201cSpecial Report on Renewable Energy Sources and Climate Change Mitigation,\u201d 2011 [https:\/\/www.ipcc.ch\/pdf\/special-reports\/srren\/SRREN_FD_SPM_final.pdf]<\/p>\n<p>3 U.S. Energy Information Administration, \u201cInternational Energy Outlook 2016,\u201d May 2016 [https:\/\/www.eia.gov\/forecasts\/ieo\/pdf\/0484(2016).pdf]<\/p>\n<p>4 Bruvoll, Annegrete, and Bodil Merethe Larsen. &#8220;Greenhouse gas emissions in Norway: do carbon taxes work?.&#8221;\u00a0Energy policy\u00a032.4 (2004): 493-505.<\/p>\n<p>5 Royal Dutch Shell. \u201cSustainability.\u201d http:\/\/www.shell.com\/sustainability\/environment\/climate-change.html, accessed November 2016.<\/p>\n<p>6 Kent, S. \u201cBG Deal Caps Shell\u2019s Big Gas Bet.\u201d The Wall Street Journal Jan 27 2016 [<a href=\"http:\/\/www.wsj.com\/articles\/shell-shareholders-back-bg-deal-1453899225\">http:\/\/www.wsj.com\/articles\/shell-shareholders-back-bg-deal-1453899225<\/a>]<\/p>\n<p>7 U.S. Energy Information Administration. \u201cFrequently Asked Questions.\u201d https:\/\/www.eia.gov\/tools\/faqs\/faq.cfm?id=73&amp;t=11<\/p>\n<p>8 IPCC, \u201cClimate Change 2014 Synthesis Report Summary for Policymakers,\u201d 2014<\/p>\n<p>[https:\/\/www.ipcc.ch\/pdf\/assessment-report\/ar5\/syr\/AR5_SYR_FINAL_SPM.pdf]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>With hydrocarbons heading for the door, will Shell&#039;s bet on natural gas carry it into the future, or is this only the first step of a larger transformation?<\/p>\n","protected":false},"author":2223,"featured_media":9396,"comment_status":"open","ping_status":"closed","template":"","categories":[1218,86,1445,157,185,1444],"class_list":["post-9395","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-climate-change","category-electricity","category-electrification","category-oil-and-gas","category-renewable-energy","category-shell"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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