Shell's 2010 sustainability report: big bets on natural gas, doubles down on safety

Deep water oil drilling and natural gas fracking are the focus of energy giant Royal Dutch Shell's latest sustainability report, which examines environmental impact and social responsibility through the lens of efficient operations.

The oil and gas company says 2010 was dominated by safety concerns stemming from the Deepwater Horizon spill in the Gulf of Mexico, painting sustainability for the year as less an end-to-end efficiency play than a social and environmental impact concern.

That means Shell will continue to pursue revenues through fossil fuel production, but it's slowly opening its business model up to efficiencies (such as cleaner-burning natural gas) and alternatives (such as biofuels), with operational efficiencies along the way.

Shell rightly sees itself as the beginning of the energy food chain, and looks to efficiencies in its products to ripple through the supply chain. That means improved fuels and lubricants, so that its customers use less energy to accomplish their own goals.

Emphasis mine:

The use of more natural gas for power is a critical pillar of a new sustainable energy system. A third of the world’s CO2 emissions come from power generation. Given that the power sector is such a vital part of the energy system that helps economies grow, we believe it must be the top priority for cutting global CO2 emissions. Generating power from natural gas produces 50–70% less CO2 than a coal-fired plant. Combining natural gas with carbon capture and storage could reduce CO2 emissions by 90% compared to coal. Replacing ageing coal-fired power stations with new gasfired plants could therefore significantly reduce CO2 emissions from the power sector.

Natural gas is also abundant, with 250 years of supplies at current production rates. Natural gas will account for over half our total production in 2012. Many governments are already developing national, regional and sector-based CO2 regulations. These practical approaches could eventually link to form a global market that would provide the most effective way of tackling climate change. Such a market would encourage the adoption of lower-CO2 approaches that are faster to implement and less costly – such as natural gas instead of coal for power generation. This would discourage governments from favouring technologies that need support from subsidies. It would also create an incentive to develop commercially viable technologies to reduce CO2 emissions.

Shell insists that that the transition to a sustainable energy system will take decades, and that 80 percent of the world's energy is still provided by fossil fuels. With that in mind, it's looking less for absolute sustainability -- such as solar or wind or thermal -- and more for relative sustainability, such as moving from coal to natural gas.

Even with continued long-term government support, renewables and nuclear power may account for around a third of the global energy mix by mid-century. New technologies can take 30 years to achieve just 1% of the global market – wind power, for instance, is expected to reach this point in the next few years.

A few highlights about core businesses:

Natural gas fracking. Shell says it has decades of experience with "tight gas" and will protect drinking water supplies. "Studies by the US Environmental Protection Agency (EPA) and the Ground Water Protection Council have shown that hydraulic fracturing is safe." Also: "Fracturing uses more water than conventional production processes. But we recover some of this water for reuse."

Wind energy. Shell's business is focused on North America, with 550 megawatts in the portfolio.

Liquefied natural gas. Lots of innovation going on here, mostly with regard to how to get the fuel to areas that need it. "By cooling the gas to -162ºC we turn it into liquid and shrink its volume by 600 times, enabling us to ship it around the world."

Deep water oil drilling. Despite Deepwater Horizon, "the Gulf of Mexico continues to be essential for energy supplies and we expect it to remain a significant part of our production," Shell says. Projects near Brazil and Malaysia have also come online. Also: Shell seeks efficiencies in recovering more oil from existing fields, extending their life. The process involves the injection of CO2 or brackish water into rock.

Oil sands. Canada's cash cow, at least when it comes to energy, is about 2.7 percent of Shell's overall mix. It's an energy intensive process, generating significant emissions and requiring lots of water. Also: Iraq's Majnoon field is the world's largest; Shell has a 45 percent stake there.

The Arctic. Shell returned to Alaska in 2005, and despite global warming issues in this region, sees opportunity. Thirty percent of the world's undiscovered natural gas and 13 percent of its oil is hidden there. "The Arctic could be essential to meeting growing demand for energy in the future..we have plans to explore in the Beaufort and Chukchi seas off north Alaska in the near future."

Biofuels. The international market is growing thanks to new energy policies in Europe and the U.S. requiring cleaner fuels for transportation. Shell sold 9.6 billion liters of
biofuels in 2010, and is one of the world's largest distributors. It's big bet in this sector: Brazilian
sugar-cane ethanol. Still, concerns remain over competition with food crops.

Plus, a few smaller projects:

Improved packaging. Shell's fully-recyclable "Ecobox" -- an oil container made of cardboard and a flexible plastic liner, rather than an all-out plastic bottle -- reduces waste of both product and package. It's used in 3,600 service centers in the U.S. and Canada following a successful trial with Walmart in 2009.

More efficient roadways. It takes fossil fuels to make the roads beneath your tires (which, incidentally, also require fossil fuels to produce), so Shell has created a "warm asphalt mixture" so that roads can be paved at drastically lower temperatures, saving energy and reducing emissions.

Employee responsibility. Sustainable development accounts for 20 percent of the company's internal scorecard, which helps determine the annual bonus levels for employees. Tellingly, Shell splits that rating equally between safety performance and its rating in the Dow Jones Sustainability Indexes.

Finally, the statistics. In 2010, Shell:

• Generated $20.5 billion in income.
• Produced 2 percent of the world's oil (3.314 million barrels a day, a 5% increase from '09) and 3 percent of its gas.
• Discovered nine new oil and gas opportunities.
• Produced 9 percent more carbon emissions, for a total of 75 million tonnes.
• Spilled 29,000 tonnes of oil, doubled from 2009. (The number of spills, however, was down to 193 from 275 in 2009.)
• Used 202 million cubic meters of fresh water, up from 198 million cubic metres in 2009.
• Spent $1 billion on research and development.
• Spent a portion of a $2.1 billion outlay over five years on alternative energy.

The big lesson here? Like any industry-dominating company, Shell doesn't see a lot of profit in moving away from its big revenue sources.

But the company -- which employs 93,000 people in more than 90 countries -- plays a major role in the essential infrastructure of the modern world, and this report is a stark reminder that despite headlines of new, green technologies, the 21st century world isn't very far from the 20th.

This post was originally published on Smartplanet.com