Sustainable Innovation


Shells Sustainability Challenges refined with Scenario Planning Analyses
April 9, 2010, 3:38 pm
Filed under: Best Practices in The Netherlands | Tags: , ,

Scenario Planning continues to be one of Shells tools to anticipate on trends and adapt its business plan consequently. At present, Shell recognizes two paradoxical needs : at one hand  a growing energy need, at the other hand an urgent need to reduce CO2 emissions. The energy and petro-chemical company has decided to invest in energy efficient solutions, energy diversity and carbon storage solutions.

 

Bert Fokkema, Issue Manager at Shell International

Royal Shell, the Anglo-Dutch energy and petrochemical multinational has its Headquarter in The Hague in The Netherlands. The company is currently employing 101,000 employees worldwide in over 100 countries. It produces 3% of the yearly gas and 2% of the yearly oil production and generates 280 billion dollar revenues (2008 numbers) (1).

 

Examples of two of Shells key projects (1) Refinery platform in the icy sea of Okhotsk (Russia) and vessel with pipeline in the ‘Parc das Conchas’ (Bresil)

Bert Fokkema is ‘Issue Manager’ within Shell The Netherlands. Biologist by education, Mister Fokkema has covered various positions within the Shell Group in the UK and The Netherlands. Among the positions covered was the role of toxicologist within the group Health Safety and Environment. In his current role as Issue Manager, Fokkema is responsible for the ongoing dialogues with external stakeholders, particularly NGO’s, but also groups such as national governmental bodies, social investors, academics .

1.   Which trends are foreseen in the energy sector ?

Scenario Planning has been a important tool for Shells Top Management to analyse societal, economical and environmental trends. As of the early 80ties, the Planning Department has been using this interactive methodology to investigate key societal, technological, economical and environmental trends that create a huge impact on the business. It is common to develop multiple scenarios of possible futures – knowing that no one can predict the future – to investigate the impact of trends that are existing ánd to develop a robust corporate strategy.

In 2008 the new ‘Shell energy scenarios 2050’ have been developed (2). Two distinct scenario’s have been developed ‘Scramble’ and ‘Blueprint’, that we will explain later. The scenario’s were inspired by 3 ‘Hard Truths’ identified by teams of internal and external experts :

Three Hard Truths about Energy & Environment :

1. DEMAND : Step-change in energy use : A growing world population (up 40% by 2050) and upcoming economies will result in a rapidly increasing energy request and transportation needs. Alternative energies or energy efficiency methods, unfortunately, won’t offset the growing demand in the world.

2. RESOURCES : Supply will struggle to keep pace. Fossil fuel production won’t keep up the pace of the demanded growth of energy consumption. Environmental degradation post limits to use of coal that produces large quantities of green house gases. Along renewable energies, it is, biofuels may become more significant part of the energy mix.

3. ENVIRONMENT : Environmental stresses are increasing : Remaining within desirable levels of CO2 concentration in the atmosphere, to avoid severe threat of human-well being, will become increasingly difficult.

 

Shell has defined two scenario’s for 2050 that seem plausible based on the identified trends : Blueprints and Scramble. Unfortunately, neither of them are comfortable, both need to be investigated and anticipated on, as also Shall can’t predict or ‘choose’ the future.

In a Scramble world in 2050, National governments are the principal actors in this future imaginable world. National governments focus on national security and crises, day to day business and solving energy supply-demand issues. In this scenario, neither the international governmental bodies nor the private industry groups have been able to implement climate laws or carbon emission trade schemes. Actions to address climate change are pushed into the future. Major energy providers are the rule makers that influence policies. Rivalry between states is huge. Economic and energy performance is varying between different countries. Due to gas and oil scarcity, energy production based on coal (expected to grow by a factor 2,5) and biofuels will be significant. Second generation biofuels will start to take off as of 2020. The concentration of CO2 will be above 500 ppm (parts by million by volume), which is way higher than the 2% above pre-industrial times proposed for COP15 (Copenhagen convention 2009).

Scramble Scenario, screenshots of Taxi Driver explaining Blueprints and Scramble Scenario’s, Shell production 2009

In a world called ‘Blueprints’ in 2050, to the contrary of the ‘Scramble’ scenario, International bodies have managed to create a set of international frameworks, laws and well-performing carbon trade systems. Entreprises are still driven by market mechanism. Public and private sector actively develop and implement new ‘blueprint’ solutions for renewable energy and CO2 storage.  Energy efficiency improvement measures and mass-market electric vehicles production has been accelerated. Progressive cities around the world share good practices of efficient infrastructure development, congestion management and integrated heat and power supply. A variety of carbon capture and storage (CCS) systems underground are implemented. Despite all energy efficiency measures and an increasing renewable energy proportion, it is expected that in this scenario the rate of atmospheric CO2 will still be somehow higher than the 450 ppm CO2 equivalent (the 2% limit of COP15). The high levels of CO2 in the atmosphere is creating a constant concern and push to switch to a less energy-intensive path.

 

Blueprint Scenario, screenshots of Taxi Driver explaining Blueprints and Scramble Scenario’s, Shell production 2009; see  Descriptive Video

The Scenario’s are agood framework for discussions with internal and external stakeholders. ‘What if’ questions can be asked and tested. Future strategy directions can be ‘ ‘simulated’ in both scenario’s. Energy efficient measures will be important in both scenario’s, as energy will become, anyhow, scarce.

2. What are the CSR & Sustainability Objectives of Shell  ?

Shell has defined Sustainable Development for itself as : Helping to meet the world’s growing demand for energy in economically, environmentally and socially responsible ways’ (1). The six pathways identified (3)

1. Managing emissions from Shells own production facilities. CO2 emissions have been reduced by 20% since 1990 and will be reduced further. New investments calculate in CO2 management options and costs.

2. Capturing and storing CO2. Industrial plants such as power stations, refineries and chemical plants produce a large share of man-made greenhouse gases. Shells wants to move forward with pilot projects on CO2 separation and storage technologies.

3. Find and produce fossil fuels by producing less emissions. Grow development of gas projects. Already half Shell’s portfolio consists of gas opportunities which provide clean burning fuel.

4. Developing low CO2 forms of energy. Shell believes that biofuels will become an important energy source. The company will focus first on the 1st generation biofuels such as ethanol generated from sugar cane, corn and wheat to be blended with gasoline. 1st generation biofuels knowledge and acquired market share will make Shell ready for the 2nd generation biofuels that will come on the market in 5-10 years (4)

4. Helping customers to become more energy efficient. Shell is offering new fuels (such as Shell Ultralow Sulphur Super Diesel and Fuel Save) is educating drivers how to use their cars and fuel more efficiently.

6. Contribution to the creation of international frameworks of carbon CO2 regulation. Shell is actively participating and lobbying for clear international regulations that set a level playing field.

 

Shell advertisement in The Economist 30th of January 2010 showing the mission that Shell has set itself : combining delivering more energy while reducing CO2 emissions.

3.  How does Sustainability lead to Innovation at Shell ?

The different pathways intrinsically lead to innovation. We can distinguish technological innovation as well as new ways to cooperate with external stakeholders.

1. Technological Innovation. Next to improving methods of fossil fuel production to reduce climate impact, and biofuels, an important area of investment to be mentioned are new offshore wind parks (solar energy has been abandoned as a major R&D area in 2008). An offshore wind farm (108 MWh) has been developed with energy provider Nuon, 10 km west of the Dutch coast at Egmond aan Zee (5). Shells offshore technical knowledge with oil and gas platforms helped ensure 115 tonne turbines to withstand the harshest weather,

 

Installation of the wind offshore park ‘Noordzeepark’ west of the Dutch coast  in cooperation with Nuon (5)

2. New ways of Stakeholder Engagement. Shell has started to develop close relationships with its external stakeholders. Fokkema is one of the people responsible for these relationships. Contacts are maintained with the academic world, governmental bodies and NGO’s. The relationships provide two-way information (informing NGOs about latest Shell news and funnelling information of NGO into the Shell organisation). Shell is performing impact assessments and setting up engagementswith NGO’s and local communities to investigate impact of new upstream projects, in order to provide for a sustainable cooperation with local communities. An example is the project in the Arctic region. In cooperation with IUCN and Wetlands International, Shell is studying implications of construction of new upstream projects on tundra and permafrost environments. Traditional knowledge of Eskimos about ice seasons, whale and seal movements is therefore crucial. It helps Shell to plan better its offshore production, not to disturb traditional  fishing and hunting (6).

 

Sources : 1. www.shell.com ; 2. ‘Shell energy scenarios to 2050, Shell brochure 2009’ ; 3. Hard Truths and Opportunities, 2008, Rob Routs, Executive Director Oil Products and Chemicals Shell,  http://www.shell.com/home/content/media/news_and_library/speeches/2008/routs_engineering_conf_28032008.html ; 4. ‘Shell and biofuels, finding a sustainable energy way forward, 2008’  ; 5. ‘Shell Technology Report, Jan 2007’.  6. ‘Successful co operation between the Oil and Gas Industry and Arctic Communities’, Robert Blauw, January 2010.


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