By Jad Mouawad, June 30, 2006
MAASLAND, the Netherlands – A few miles north of Rotterdam, in a region the Dutch call “glass city” for its thousands of greenhouses, gardeners like Frank van Os are part of an unconventional experiment by Royal Dutch Shell to curb carbon emissions.
Mr. van Os produces four million roses each year, flooding the atmosphere inside his vast glass canopy with pure carbon dioxide to bolster his crop. What is unusual is that he now gets the carbon dioxide piped in directly from Pernis, a Shell refinery that is Europe’s largest and typically discharges tons of the gas into the atmosphere every year.
“You can just hear it,” said Mr. van Os, as carbon dioxide hissed through small plastic pipes, feeding the long-stemmed red roses all around. “It goes pshh.”
Shell’s modest effort in this corner of Europe – aiming to cut the refinery’s emissions by 8 percent by diverting it to about 500 greenhouses ? is not going to solve the global warming challenge, of course. But the experiment to limit emissions of carbon dioxide, the main greenhouse gas blamed for climate change, illustrates a fundamental shift in the oil industry that offers glimmers of hope for the future.
With energy consumption expected to increase over the next few decades, a number of leading oil executives now say that how their industry manages carbon emissions will become as important to their business prospects as replenishing energy reserves.
“The debate about CO2 is changing,” Jeroen van der Veer, the chief executive of Shell, said in a recent interview. “You can either fight it – which is useless – or you can see it as a business opportunity.”
The rising alarm over global warming has prompted some oil executives – particularly those based in Europe like Shell and BP – to promote their efforts to develop alternative energy sources that release less carbon dioxide, like wind, solar power and hydrogen from renewable sources.
But the more important industry effort turns on the ability to manage emissions from petroleum itself, based on a self-interested recognition that, if nothing is done, the future costs of carbon emissions may threaten the core of their business, the production of fossil fuels.
The industry’s involvement in the debate is clouded by suspicions that oil companies, even as they seek to develop alternative and renewable sources of energy, are also heavily investing in resources that are dirtier and more polluting than crude oil.
While some environmentalists continue to question the industry’s motives, many oil executives say that they now recognize that to sustain the industry over the long run they need to help mitigate carbon emissions and other harmful pollutants from their operations.
For years, oil companies would not talk about the impact of their business on the environment. That many are even acknowledging the link between fossil fuels and climate change is a measure of how far they have come over the last decade.
“It is urgent to act,” Thierry Desmarest, the chief executive of Total, the French oil company, said during a recent breakfast at the Four Seasons Hotel in Manhattan. “Carbon is what poses the biggest problem.”
Climate experts estimate that overall carbon emissions from fossil fuels must be cut at least in half by 2050 to stabilize their effect on global warming. It is a monumental task.
Emissions of carbon dioxide from the burning of hydrocarbons – oil, natural gas and coal – may grow by 70 percent in the next 25 years if nothing is done to contain them. They reached 25 billion metric tons in 2003, up 4.5 percent from the previous year, according to the most recent estimates by the Energy Department. Since the Kyoto Protocol was signed in 1997, emissions have risen by 20 percent.
“People at the top of the oil business are beginning to realize that there is a problem with climate change and they are looking for ways to compete in a carbon-constrained world,” said David Keith, an energy and climate specialist at the University of Calgary. “Most of that elite now admits the problem is real.”
At the Pernis refinery near here, the stakes are clear and the search for how to compete is under way. Two 700-foot high stacks spew six million tons of carbon dioxide a year into the atmosphere, or 3 percent of the total emissions in the Netherlands.
Business Opportunity
Every day, the refinery processes about 412,000 barrels of crude oil that are shipped from distant places like Nigeria, Kuwait and Norway, and converts that oil into gasoline and dozens of other petroleum products.
The refinery, near the mouth of the Rotterdam ship canal by the North Sea, sprawls across 1,700 acres with a dizzying array of stacks and chimneys, amid noise and vapor. There are 100,000 miles of pipeline, enough to go four times around the globe.
Shell aims to sell 500,000 tons of carbon dioxide a year. While a lot of the gas still ends up in the atmosphere, the reduction is a net gain for the environment: gardeners like Mr. van Os have stopped producing an equivalent amount of carbon dioxide to grow their crops.
“Climate will shape our business,” said Chris Mottershead, an adviser on climate policy to the chief executive of BP, Lord Browne. Some of the largest oil companies, including BP, Shell and Chevron, are already planning multibillion-dollar investments in energy sources that emit little or no carbon, like wind and solar power, biofuels or hydrogen from renewable sources.
Part of the motivation is a mounting anxiety about their basic business.
As access to easily produced oil diminishes, executives realize that tomorrow’s fuels are likely to be manufactured from a variety of sources that are much dirtier than today’s conventional oil. Many researchers say this trend toward unconventional carbon-rich sources – heavy oil, tar sands, shale oil, or processes that turn natural gas or even coal into transportation fuel – will worsen global warming unless technologies are developed to curb emissions.
Global energy consumption is expected to rise by 50 percent by 2030, driven by population growth and rising economic prosperity in developing nations, according to the International Energy Agency. Most of that demand will be met with fossil fuels, like natural gas and oil, which all emit carbon when they burn.
“Either we manage these upstream carbon dioxide emissions,” said Alexander E. Farrell, an associate professor at the University of California, Berkeley, who specializes in energy and climate issues, “or we’re willing to accept very severe climate change.” Exxon Mobil has long stood out in its insistence that global warming was not a serious concern. Unlike its European rivals, its executives are still skeptical, even dismissive, about the industry’s ability to reduce carbon emissions. Its preferred solution is to focus on long-run research into new energy sources.
“The world is going to continue to consume a lot of fossil fuels,” Rex W. Tillerson, chairman of Exxon, said in an interview in March. “Let’s do it efficiently, let’s do it in the least harmful way we can, and look for the breakthrough option that will take us some place different in the decades ahead.
“But there are no shortcuts. People are looking for shortcuts that simply don’t exist.”
David Friedman, research director at the Union of Concerned Scientists, argues that some oil companies fear losing control over the most profitable part of the business, oil extraction and production. “Some see alternative fuels as a threat to their business because they don’t control the resources,” he said.
Executives at several other oil companies, however, are more active in addressing the issue, if only because they see it as the best way to extend the use of hydrocarbons in coming decades.
“If we can solve the CO2 problem,” Mr. van der Veer, of Shell, told an industry conference in Paris last year, “we can, in fact, produce green fossil fuels.”
Green or not, the industry’s future is still firmly tied to fossil fuels.
Lord Browne of BP stunned his peers in 1997 by openly acknowledging the link between rising carbon emissions and global warming. Once a lone voice, he now relishes his role as a pioneer.
But Lord Browne certainly does not see a world free of hydrocarbons anytime soon. Despite BP’s marketing campaign and credentials with many environmental groups, the bulk of its $15 billion in investments this year will still go into its oil and gas business.
Compared with that, its efforts at renewable energy seem relatively modest. The company plans to invest about $800 million each year over the next decade to develop alternative and low-carbon sources of energy.
During that same period, it expects to generate $6 billion a year in revenue from alternative energies. That would be substantial in any other industry, but BP made that much in profits in the last quarter alone.
BP’s new alternative energy business will focus mainly on the power sector, which accounts for 40 percent of the world’s carbon emissions. By 2015, the company expects it will be able to reduce carbon dioxide emissions by 24 million tons a year in absolute terms.
“It’s a progressive change,” Lord Browne said during a recent interview in his London office overlooking St. James’s Square. “Do we have enough time to do it? Are there other things that will need to be done? We will never know. But all I would say is that it’s better to do this than not at all.”
While oil companies are talking about green energy, hundreds of miles north of the border between the United States and Canada, they are also making a costly, dirty bet on future supplies that has created a boom in the frontier town of Fort McMurray, in Canada’s western Alberta province.
Companies like Shell, Chevron, Exxon, and Total are investing billions of dollars to unlock oil from Canada’s underground rock formations. These oil sand reserves are huge, potentially rivaling oil reserves found in Saudi Arabia, according to some optimistic estimates.
Oil sands production in Canada is expected to triple to three million barrels a day by 2015, according to Canada’s National Energy Board.
A Costly Process
The problem is that Canada’s reserves do not flow freely out of the ground. They are packed so tightly that they must first be melted out of the rocks before they can seep out. This process is much more costly than extracting conventional oil out of the ground. Because it takes a lot of energy to produce, it also releases many more carbon emissions.
A gallon of gasoline produced from conventional oil emits 11 kilograms carbon, from the day it is pumped out of the ground to the day it is burned by a car. That amounts to a little less than one pound of carbon a mile. The bulk of that, 80 percent, is emitted when gasoline is burned by the engine; the rest comes from oil companies when they pump, transport and refine the fuel.
In contrast, a gallon of gas from oil sands, because of the energy-intensive production methods, releases three times as much carbon over all as conventionally produced gasoline, even though it produces the same amount of carbon during combustion. Over all, Canada’s oil sands are as much as 39 percent more carbon-intensive than gasoline from crude oil, said Mr. Farrell of the University of California, Berkeley.
The issue is even worse for other types of unconventional fuels. Transportation liquids derived from either oil shale in Colorado or manufactured from coal can emit 90 percent to 150 percent more carbon than gasoline from oil, Mr. Farrell figures.
While they are encouraging interest in alternative energy sources from clean sources, high oil prices are also spurring lots of dirtier ones, too.
“Some people have this notion that high oil prices are going to solve the climate problem,” said Joseph J. Romm, an analyst at the Center for Energy and Climate Solutions, “when in fact they encourage forms of unconventional oils that are really bad for global warming.”
Alternative Projects
In hopes of countering such developments, BP’s most ambitious alternative project is to build a new type of power plant that runs on hydrogen, captures the carbon dioxide, and injects it back into a nearby field to help flush out either oil or natural gas. The company is planning such projects, each costing about $1 billion, in California and in Scotland.Few companies have invested much into that technology, but with many countries mandating lower carbon emissions, that attitude may change.
“The oil industry has the know-how to do geological storage,” said Stephen Bachu, a senior adviser for the Alberta Energy and Utilities Board. “If you ask why it is not done, that is because there is no reason to do it. Either the oil industry will make a profit, and that is why you see carbon dioxide in enhanced oil recovery projects, or the oil companies will do it to avoid paying a penalty.” In the end, experts say, the oil industry may respond only when governments force change. For now, governments are relying mostly on subsidies, but the ultimate answer, they say, probably lies in some form of taxation of carbon emissions that puts a system of carrots and sticks to work to limit global warming.
In the Netherlands, a government goal to derive 9 percent of electricity from renewable sources has led Shell to build an offshore wind farm that will produce 108 megawatts of power. Public subsidies over the next decade will defray more than half the project’s cost of 200 million euros ($253 million).
Graeme Sweeney, who is in charge of renewable energy at Shell, and is the company’s “Mr. CO2,” in charge of the carbon management strategy, said it mattered little to him what kind of energy source Shell was selling.
“We see ourselves,” he said, “as being in the energy business.”
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