By James Batty, 20 May 2014 13:21 GMT
Oil and gas reserves will not become worthless in coming decades as a result of emissions reduction legislation, while gas and carbon capture technology will play an increasingly important role, Shell said in an open letter to shareholders this month.
The letter, signed by JJ Traynor, Shell’s executive vice president of investor relations, was written in response to activist shareholder groups that have warned future legislative changes could render oil and gas reserves uneconomic to produce. The most high-profile example this year was a report from the Grantham Institute that said the scale of carbon risks needs to be taken into account when pricing equities and bonds from oil and gas companies.
Activist groups
ExxonMobil published a similar response earlier this year as oil companies take a harder line with activist groups seeking to divert money from oil and gas stocks towards renewable energy companies (see Switch to gas key to reducing emissions – Exxon, 1 April 2014).
“While the ’stranded asset’ notion may appear to be a strong and thought-through case, it does have some fundamental flaws and there is a danger that some interest groups use it to trivialise the important societal issue of rising levels of CO2 in the atmosphere,” Traynor said in the letter.
He claims the activist groups fail to acknowledge the growing demand for energy; the crucial role of carbon capture and storage (CCS) technology; and the prospects for the gas, bioenergy and energy efficiency sectors.
The letter was dated 16 May, but was published on Tuesday to coincide with Shell’s annual shareholder meeting in the Hague.
In a similar way to Exxon’s response, Traynor also accused the activist groups of distracting attention from the need to meet growing energy demand in developing countries.
He added the company’s response to the threat of climate change is to expand its gas business, as well as investing in low-carbon biofuels, CCS technology and energy efficiency measures.
“The role of CCS in helping the world to avoid the worst effects of climate change is critical,” he said, outlining Shell’s view that fossil fuels will remain the dominant energy source until 2050.
The company uses a price of $70-110 per barrel of oil, $3-5/MMBtu of gas, and $40 per ton of CO2 when assessing the viability of projects.
He concluded that, while Shell does believe a “fundamental transition of the energy system will be needed”, it will “take considerably longer than some alarmist interpretations of the unburnable carbon issue would have the public believe”.
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