Big Oil's Irresponsible Energy

8/9/2019 Big Oil's Irresponsible Energy

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Tis brie summarizes our analysis o the carbon intensity o the top international oil companies. It revealsthat Shell has become the most carbon intensive oil company in the world based on its total resources.

When Shells total resources are taken into account, the amount o greenhouse gases (GHGs) emitted perbarrel o oil equivalent produced will outstrip those o its nearest competitors. Te data shows that in the ageo carbon reduction, Shell is ast heading in the opposite direction, massively increasing the carbon intensityo its production o oil and gas. Tis presents real risks or Shell, or investors, and or the climate.

Key Conclusions1) Shell holds more carbon in itsresources, per barrel o uture oilequivalent, than any other majorinternational oil company. It isthereore the worlds most carbonintensive oil company;

2) Te average carbon intensityo each barrel o oil and gas Shell

produces is set to rise dramatically,increasing 85 per cent on todaysgure;

3) Tis sharp increase is causedby Shells move into tar sands, itsreliance on liqueed natural gas(LNG), and its continued gas ar-ing in Nigeria;

4) Shell is thereore more vulner-able to carbon pricing and subjectto greater carbon risk than itspeers.

Company 2008 Production Total Resources PercentageIncrease

Shell33.8 62.6 85

Chevron 38.8 52.8 36

ExxonMobil 40.6 44.7 10

BP 31.0 36.9 19

Units in Figure 1 above and able 1 below are average intensity o kilograms o carbon dioxideequivalent emitted per barrel o oil equivalent produced.

Shells green image still benets the company, and the company wins praise or its words expressing aware-ness o and concern or climate change. But the reality is that Shell has chosen the most carbon intensiveand climate changing path orward. Climate science reminds us that global greenhouse emissions need topeak by 2015 and come down to at least 80 per cent o 1990 levels by 2050 in order to prevent the worstimpacts o climate change. Given this, using ever greater quantities o energy to produce billions o barrels

o otherwise inaccessible oil appears to be a strategy or disaster. It appears however, to be Shells strategy.

Irresponsible EnergyShell: he Worlds Most Carbon Intensive Oil Company


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Te carbon intensity of major oil companies

Not every barrel o oil has the same carbon ootprint.When a barrel o oil is produced, the amount ocarbon emitted during its production varies signi-cantly. Tis depends on actors, such as the depth andpressure o the reservoir, as well as the attributes o

the oil, such as its viscosity and gravity. In addition,oil is oten extracted with gas, known as associatedgas. I this gas is ared, as is common in Nigeria,the amount o greenhouse gases emitted radicallyincreases.

International oil companies, like Shell, ace a grow-ing problem o nding sources o conventional oil.Much o the easy oil has already been produced oris controlled and exploited by countries such as SaudiArabia. Te decline o oil elds in the Middle East,North Sea, North America and elsewhere, as well asthe resource sovereignty exercised by governmentsall over the world, means that access to oil reservesor Shell has declined sharply. In the 1970s interna-tional oil companies controlled around 70 per cent oreserves. oday that gure is close to 10 per cent. 1

Te oil industry has to look beyond conventional re-sources o oil to maintain supplies. In its Sustainabil-ity Report, Shell concedes that,conventional sources

o oil alone will struggle to meet growing demand. 2In order to maintain the production o oil and gas,

companies have developed technology to accessreserves that were previously inaccessible. Deepwater,tight gas, shale gas, liqueed natural gas, enhancedoil recovery and tar sands production are all exampleso how the industry has developed technology toaccess more oil and gas rom the decreasing pool ohydrocarbon reservoirs they have access to.

Tere is a undamental problem or the industrythough: all o these orms o production are to di-erent degrees more energy intensive than traditionalmethods. For example, injecting steam into a tarsands reservoir in order to get the tar to ow to aproduction well can emit up to 135 kg o co2 perbarrel o oil produced.3 Extracting conventional oilin Saudi Arabia on average emits only 13.6 kg o co2per barrel.4 So as the industry moves urther towardsunconventional oil, the emissions associated with

each barrel will dramatically increase.

In act, gas aring in the production o oil in Nige-ria and the energy-intensive extraction o tar sandsare two o the most carbon intensive orms o oilproduction (see Figure 2). Te liqueaction and re-gasication processes involved in producing liqueednatural gas (LNG) which enables it to be transport-ed by tanker are also typically highly energy intensiveand thereore constitute a markedly carbon intensive

way to produce and deliver natural gas.5 Shell is aleading producer o both tar sands and LNG, and isthe largest oil operator in Nigeria.

Figure 2 - Oils contribution to global warming varies, depending on where, and how, it was extracted.

Source: US Department of Energy, National Energy Technology Laboratory, March 2009


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Greater Vulnerability to Carbon Pricing

As concerns over climate change have risen up thepolitical agenda with many countries now enactinglegislation to regulate carbon emissions the invest-ment community has started to analyse what risks acarbon-constrained world could pose to oil and gas

companies.

Shell admits it has a problem in its latest Sustain-ability report, saying Our upstream energy intensityhas risen by around 27% since 2000 as felds age andmore heavy and harder-to-reach oil is produced.6

In September 2008 the Global Research Depart-ment o HSBC produced a report, Oil and Carbon,in which it analysed the top European oil companiespotential exposure to legislation on carbon and car-bon pricing. Te report notes Shells increasing moveinto carbon intensive tar sands and increasing LNGproduction. It concludes that Shells above averageexposure to carbon intensive projects leaves Shell morevulnerable to carbon pricing than its peers.7

otal Resources Analysis

According to HSBC:the most commonly used mea-sure o reserves, proven and probable, is a probability-

weighted assessment o a companys reserves. Tis un-derstates the level o a companys potential reserve base.it does not capture some companies unconventionalreserves as many have only potentially become commer-cial in the past 12 months as the oil price has risenAnalternative measure, resources is a much wider assess-ment and is an estimate o the total potential reserves ora company. Tis measure will capture a higher proportiono unconventional energy sources including oil sands,heavy oil and tight gas.8

We agree with HSBC that a total resources measureis more indicative o a companys total carbon pro-le, and thereore we have used that measure in ouranalysis.

In March 2009 the National Energy echnologyLaboratory, (NEL) part o the United States De-partment o Energy, reported on the huge range incarbon intensities or oil production, depending on

location and extraction method.

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Figure 2 (above)shows that oil rom Nigeria (because o the associ-ated gas aring)and Canadas tar sands top the listor the carbon intensity o crude oils processed in USreneries.

Our Analysis

Company disclosure o total resources rom annualreports and strategy presentations were analysedusing the NEL carbon intensity gures in gure 2along with intensity estimates or other orms o oil

and gas production drawn rom the HSBC report.10

We applied these carbon intensity averages to therelevant percentages o the resource base disclosed byeach company and derived a weighted average.11

Te 2008 gure we used or comparison with currentproduction is drawn rom a carbon intensity analysisconducted by rucost in April 2009.12

able 1 (cover page) reveals that based on reportedtotal resources, Shells production o oil and gas willbecome the most carbon intense o its peers. It willrise by 85 per cent rom todays gure an increasemarkedly greater than its competitors. Tis sharprise is due to Shells total resources being dominatedby unconventional and heavy oil (34.7 per cent)and LNG (16.9 per cent), as well as Shells ongoingreliance on Nigerian crude with its associated gasaring. Other companies, while showing an increasethat is also o concern, have not staked such a signi-

cant proportion o their uture production on thesecarbon heavy resources.

Shells uture dependence on carbon intensive,unconventional oil is illustrated succinctly in itsdisclosure o total resources rom its 2008 strategyupdate.13 O the 66 billion barrels o oil equivalentrepresented in Shells 2008 chart o total resources,22.9 billion is heavy oil and enhanced oil recovery.We know that 20 billion barrels o that is tar sands14,

which thereore constitutes the biggest single portiono Shells resources, a ull 30 per cent o its utureoil and gas production. No other oil company hasstaked so much o its uture on the dirtiest orm ooil production.

Shell also has major research and development inoil shale extraction, which does not yet actor intothese resource estimates. Shells oil shale extractiontechnology emits between 176 and 292 kilograms ocarbon dioxide equivalent per barrel o oil equivalentproduced. (kg-co2e/boe).15 Shell is also aggressivelyseeking oil shale and tar sands production opportu-nities in Russia and Jordan. 16


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Shells sustainability report claims that its tar sandsoperations are more efcient than its competitors. Italso claims that as the company produces increasingamounts o natural gas its production base is becom-ing cleaner. Te truth is the dominance o tar sandsresources in its resource base will render Shells oiland gas production more carbon intensive per unit o

production than any o its peers.

Shells green image still benets the company, andthey continue to win praise or their good wordsexpressing awareness o and concern or climatechange. But the reality is that Shell has chosen themost carbon intensive and climate changing pathorward. Climate science reminds us that globalgreenhouse emissions need to peak by 2015 andcome down to at least 80 per cent o 1990 levels by2050 in order to prevent the worst impacts o climate

change. Using ever greater quantities o energy toproduce billions o barrels o otherwise inaccessibleoil appears to be a strategy or disaster. It appears tobe however, Shells strategy.

Tis brieng paper was researched and written by Lorne Stockman,Andrew Rowell, and Steve Kretzmann. Questions or commentsshould be directed to Steve Kretzmann at [email protected]. It waspublished in May 2009 by Oil Change International,PLAFORM, Friends o the Earth International, and GreenpeaceUK.

Endnotes

1. Robin Pagnamenta, Oil Producers limit the options o multinationals,Te imes, February 4, 20082. Shell Sustainability Report 2008. http://sustainabilityreport.shell.com/2008/servicepages/downloads/les/entire_shell_ssr_08.pd3. Pembina Institute, Te Climate Implications o Canadas Oil SandsDevelopment, November 29, 2005. http://pubs.pembina.org/reports/oilsands-climate-implications-backgrounder.pd4. National Energy echnology Laboratory, US Department o Energy,March 29, 2009. An Evaluation o the Extraction, ransport and Rening o

Imported Crude Oils and the Impact on Lie Cycle Greenhouse Gas Emis-sions, http://www.netl.doe.gov/energy-analyses/pubs/PetrReGHGEmiss_Im-portSourceSpecic1.pd5. Paul Spedding, Nick Robins & Kirtan Mehta, September 2008. Oil &Carbon: Counting the Cost. HSBC Global Research.6. Shell Sustainability Report 2008. http://sustainabilityreport.shell.com/2008/servicepages/downloads/les/entire_shell_ssr_08.pd7. Paul Spedding, Nick Robins & Kirtan Mehta, Oil & Carbon: Countingthe Cost, HSBC, September 2008.8. Ibid.9. National Energy echnology Laboratory, US Department o Energy,March 29, 2009. An Evaluation o the Extraction, ransport and Rening oImported Crude Oils and the Impact on Lie Cycle Greenhouse Gas Emis-sions, http://www.netl.doe.gov/energy-analyses/pubs/PetrReGHGEmiss_Im-portSourceSpecic1.pd

10. Paul Spedding, Nick Robins & Kirtan Mehta, September 2008. Oil &Carbon: Counting the Cost. HSBC Global Research. Page 13.11. For a ull explanation o our methodology or this analyses please seehttp://www.oei.org/en/publications/pds/methodology-behind-irresponsible-energy.pd or contact us.12. rucost Analysis conducted or Oil Change International, April 200913. Shell March 17, 2008 Strategy Update. http://www.shell.com/home/con-tent/media/news_and_library/press_releases/2008/strategy_update_17032008.html14. Ibid. Chart reprinted in Methodology Appendix available at http://www.oei.org/en/publications/pds/methodology-behind-irresponsible-energy.pd15. Adam R. Brandt, Supporting Inormation or Converting oil shale to liquiduels: Energy inputs and greenhouse gas emissions o the Shell in situ conver-sion process, July 11, 2008. Available rom author.16. PRIME-ASS News Agency, atnet, Shell mull development o bitumendeposits outside atarstan, December 26, 2008, AND Lloyds List, News

in Brie, Shell Oil Shale Deal Finalised, March 30 2009, and http://www.menan.com/qn_news_story_s.asp?StoryId=1093239495

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Big Oil's Irresponsible Energy