Shell Update


 

So you think you really know Shell?

 

Picture: Seattle 'kayak-tivists' take on Shell in battle over Arctic oil, June 2015. 

 

Corporate profile update 2014

 

Shell is the world’s biggest company with annual sales of £295 billion. Only the 35 biggest countries in the world each have a GDP (annual gross domestic product) larger than this. 2014 hasn’t started very smoothly for Shell’s new CEO Ben van Beurden. First of all he had to announce that the company had only made $16.8bn in 2013 compared to $27.2bn in 2012. (1)

This was swiftly followed by the news that a US Court of Appeal had ruled in favour of a coalition of native and environmental groups which had found that the US government had illegally sold oil drilling leases in the Arctic in 2008. Shell had invested more than any other energy company in US Arctic drilling. Due to the ruling, the company announced that it would cancel drilling in the Alaskan Arctic in 2014. (2) And to top off a bad week, Shell was dropped as a sponsor of the Southbank Centre classical season. (3)

 

Fracking in Egypt
 

Against a background of continuing political unrest and economic instability, the first oil and gas licensing since the revolution was launched by the Egyptian General Petroleum Corporation (EGPC). Shell received three exploration blocks in November 2012. In July 2012 it was announced that the Badr Petroleum Company (Bapetco), a joint venture between Royal Dutch Shell and the EGPC, would become the first company to begin fracking in North Africa. 

This followed the successful extraction of natural gas from the ‘Apollonian formation’ for the first time in Egypt. In 2014, the state-owned Egyptian Natural Gas Holding Company (EGAS) planned to launch an international tender for deep water gas exploration – an area whichShell is currently exploring. EGAS is also studying the feasibility of shale gas exploration in the Western Desert with Shell and Apache Corp. 

 

The world’s biggest sea vessel
 

Timor-Leste (formerly known as East Timor) is a country whose GDP for 2012 was 372 times less than Shell’s turnover. However, this small country has petroleum reserves in the ocean between it and Australia which oil companies such as Shell have a stake in. But no-one can access the reserves until a dispute between Timor-Leste and Australia over which country should have control over the reserves is settled. The current treaty – Timor Sea Treaty – allows Australia claims to the reserves. However TimorLeste disputes its claim.

Another key issue of contention is the route by which the petroleum should be extracted. Australia wants a pipeline to its onshore processing facility in Darwin. Timor-Leste wants an onshore facility on its southern shores. But Shell wants to use a floating liquefied natural gas (FLNG) facility.

Shell’s FLNG has been described as a “game changer” for the energy industry allowing the company to access oil and gas reserves in “extreme environments”. The company’s first ocean-based LNG plant was floated out of its dry dock in South Korea in December 2013, and is expected to be used by 2017. The Prelude FLNG will be the biggest vessel ever sent out to sea and will produce enough gas to supply a city the size of Hong Kong. (8)

In June 2011, the Timor-Leste government said that Shell should be locked out of discussions about how to extract the gas claiming that it had a conflict of interest. While protesters in the country have been calling for Australia “to respect Timor-Leste’s sovereignty and rights to its undersea oil and gas”, of Timor-Leste government has also been engaged in a battle to ensure that the petroleum companies pay a fair amount of tax on the resources they extract. 

 

Arctic Drilling
 

The Arctic Shell’s quest for new oil sources have led the company and others to start drilling in the Arctic. Despite its promise to stop drilling in the Alaskan Arctic in 2014, Shell is still heavily involved in drilling and exploration in the Arctic regions of Russia, Western Siberia, Norway and Greenland. Greenpeace fears that in such an extreme environment, an oil spill would be almost impossible to deal with. 

The challenges faced by oil companies in the Arctic were highlighted in 2013 when Shell’s drilling ship ran aground in Alaska after stormy weather. The company’s inability to clear up oil spills in the Niger Delta (see below), which have rendered it one of the most polluted places on earth, also questions the wisdom of allowing Shell into such a sensitive environment. One of its partners, the Russian company Gazprom, doesn’t provide much reassurance, after the death of 53 workers when its Kolskaya rig sank in 2011. (7)

 

New concerns in Nigeria
 

Although we have covered Shell’s terrible record in Nigeria before, recently there has been growing resentment by communities at the government and oil companies in the region over their failure to implement the recommendations of a 2011 UNEP report. The report confirmed that Ogoniland in Niger Delta was a disaster area and estimated that cleaning up pollution and catalysing a sustainable recovery could take 25 to 30 years. 

The report included clear steps for oil companies such as Shell to take, including “all sources of ongoing contamination must be brought to an end before the clean-up of the creeks, sediments and mangroves can begin.” (5)

In December 2013, members of Movement for the Survival of the Ogoni People (MOSOP) and the Ogoni Solidarity Movement protested about the delay by blocking all routes leading to major oil facilities in the area. Sarah Shoraka from Platform stated, “2015 is an extremely significant year because it is likely to be an election year in Nigeria. Voters will be deciding who will be President and the state Governors.

The current President, Goodluck Jonathan, is the first from the Niger Delta and is fighting to be re-elected in the face of rebellions and defections to a new political party. He will need votes from the Niger Delta where his support is strongest and so could be susceptible to influence on the issue of oil pollution.” 

However, a US cable leaked by Wikileaks in 2010 stated that Shell had “inserted staff into all the main ministries of the Nigerian government, giving it access to politicians’ every move in the oil-rich Niger Delta.” (6) Therefore the ability of political promises to actually hold Shell accountable for its actions seems unlikely.

Shell’s failure to adequately address environmental concerns about its activities contributing to climate change has been exacerbated by its plans to expand production through unconventional energy sources. These sources are considered to be the most polluting fuels on the planet and often come from inaccessible areas like the Arctic, the tar sands of Canada and deep water drilling. 

Shell is actively involved in all of these areas. As we can see from campaigns around the valuation of carbon assets elsewhere in this issue, investors in Shell may want to be worried about the value of their holdings.

 

 

 

References: 
1 The Guardian, Shell issues shock profit warning, 17 January 2014 
2 Platform, Shell cancels 2014 Arctic drilling, 30 January 2014 
3 Platform, Shell no longer sponsoring Southbank Classic series, 24 January 2014 
4 Platform, Counting the Cost, 2011 
5 UNEP, Environmental Assessment of Ogoniland Report, 2011 
6 The Guardian, WikiLeaks cables: Shell’s grip on Nigerian state revealed, December 2010 
7 Platform, Russian prosecutors: Kolskaya rig was drilling illegally, December 2011 
8 Financialpost.com, ‘Shell’s massive Prelude hull world’s biggest-ever floating vessel and first ocean-based LNG plant’, December 2013