Interviews

Managing energy and carbon – Part of the blueprint for a secure future

03/06/2008

World Energy, Q3 2008

by Greg Lewin, President Shell Global Solutions International BV

When the first oil-price shocks happened in the 1970s, at Shell we were better placed to withstand the disruptions than some of our competitors as a result of our scenario planning. This technique enabled us to examine the potential consequences of the changes that were happening and make suitable preparations.

Today, with the turbulent nature of the energy market, scenario planning is still used by Shell, but the targets for the messages are the policy makers in government as much as the senior executives in the organization. The key drivers for the latest scenarios are the continuing escalation in demand for energy; the challenge to ensure the energy supply to meet this demand; and concerns over climate change.

Global energy use is continuing to grow because of the burgeoning world population as well as rising levels of affluence. This growth is expected to lead to a doubling in world demand for energy by 2050. At the same time, there is increasing doubt about the extent to which new supplies of oil can be easily produced. Certainly, there are large resources of heavy oil and tar sands that can be used to supplement existing supplies of light oil, but to use these sources requires more work, more technology and, in particular, more energy.

Not a day passes when the news does not mention climate change. Action on climate change will encourage the development of new and renewable energy supplies. However, using fossil fuels is currently the only way to meet the rapidly increasing demand for energy, so they will continue to dominate the energy supply for many years to come.

Energy scenarios

It was the recognition of the existence of the three key drivers that stimulated Shell to develop two new scenarios: Scramble and Blueprints¹.

Under the Scramble scenario, policy makers give most attention to securing supplies of energy but less attention is given to more efficient use of energy – until supplies of energy become tight. Likewise, greenhouse gas emissions are not seriously addressed until there are major climate shocks. As a result, meaningful action on climate change is delayed by 20 years.

In Blueprints, growing action at the local level leads the way in addressing the challenges of economic development, energy security and environmental issues. As part of this scenario, carbon pricing is introduced, which stimulates the development of clean energy technologies as well as significant improvements in energy efficiency. This results in a set of shared responses that reduce carbon dioxide emissions by 2050 to much lower levels than happens in Scramble. For this reason, although the organization does not normally express a preference for one scenario over another, Shell favors Blueprints.

Scenarios are not predictions; rather they are devices for helping people to think and plan. Typically, the use of scenarios has been seen as enabling managers to be prepared for whatever may happen. But continuing growth in energy demand, the end of easy oil and climate change are truly international issues that no one company or country can fully address by itself. The competitive nature of markets is such that one company cannot afford to take on the excessive costs that its competitors do not accept.

This situation has stimulated Shell to publicize its new scenarios on a wide stage to encourage everyone to think about how the world may develop. Our senior executives are introducing the new scenarios to government leaders as part of conversations that underline the need for action, and we are openly calling for bold changes in the world’s energy systems.

Necessarily, this will take some time to have an effect. In the meantime, Shell is managing its carbon dioxide emissions through six reduction pathways. We are:

• Increasing the efficiency of our operations and seeking first quartile performance.
• Establishing a substantial capability in carbon capture and storage (CCS).
• Continuing to research and develop technologies that increase efficiency and reduce emissions in hydrocarbon production.
• Aggressively developing low carbon dioxide sources of energy, including natural gas and low carbon dioxide fuel options.
• Helping to manage energy demand by growing the market for products and services that help customers use less energy and emit less carbon dioxide.
• Working with governments and advocating the need for more effective carbon dioxide regulation.

Energy efficiency

Shell has been improving the energy efficiency of its operations and will continue to do so. The target for 2010 is to reduce our greenhouse gas emissions by 5% compared with the 1990 level. Shell is also working with customers to help them improve the efficiency of their own energy use. For example, we are improving lubricants so motorists can achieve better fuel consumption; working with automobile makers to enhance vehicle drivetrains; and helping owners of major process plants to reduce their energy requirements.

As a research and technology resource, Shell Global Solutions has a vast range of expertise that we use to, amongst other things, help businesses reduce the energy required for running their plants. It might be thought that modern, energy-intensive plants already have plenty of incentive to manage their energy in the most efficient manner. In practice, operating staff have diverse responsibilities so, although they can keep efficiency up to agreed benchmarks, they may not have the time or the expertise to develop strategies for further improvement. Just the scale of a large plant can generate huge inertia.

In our experience, there are usually profitable opportunities to be found for reducing energy use, even in an industry-leading plant, and the energy-efficiency programs that Shell Global Solutions has developed for addressing Shell’s energy use are now being offered as a service to other companies with large energy bills.

A formal and structured energy-efficiency program is key to identifying the actions necessary for improvement. A good example of this is Shell Chemical’s lower olefins plant at Moerdjik in the Netherlands. Working with energy consultants from Shell Global Solutions, staff at the olefins plant identified as many as 150 opportunities for improving energy efficiency. From these, they selected 23 for action, and the joint team worked together on implementation. This has saved $5 million per year (or 3.5% of the plant’s annual costs) for a capital expenditure of $100,000. More than half of the energy savings were achieved through modified control strategies, with much of the rest coming from changes in operating procedures and improved maintenance of equipment and instruments. The final step of the program was to establish the targets that the on-site team now uses to manage the plant and sustain the energy savings.

Through actions such as these, the whole of our chemicals business has reduced the amount of energy required to produce each tonne of product by almost 8% in seven years².

Energy-efficiency programs have also been used in our refineries. At Stanlow in the UK, the site’s managers recognized that the energy performance might not be optimal because staff had to balance managing energy use with aspects of running the business such as plant availability and cost control. To identify what could be done to reduce energy use, Shell Global Solutions’ staff joined the refinery’s energy-management team in April 2004. By September, the team had prioritized a range of energy-saving measures from which projects were selected for action, including achieving best practice in energy use; changing the boiler management procedures; modeling the steam system and optimizing its use; and introducing advanced process controls. Energy savings worth 5 to 6% of the site’s energy bill were identified; over the following four years, the joint team implemented the measures and maintained the refinery’s energy intensity at its new, lower level.

One of Shell’s best refineries and a role model for other refineries, Fredericia in Denmark, regularly assesses its energy efficiency and now uses 9% less energy per tonne of product than earlier this decade. It also sells low-temperature heat that cannot be used in the refinery to three nearby cities for district heating, which reduces their need to use extra fuel.

Reducing carbon dioxide emissions

In Shell as a whole, many opportunities for improving energy efficiency and reducing carbon dioxide emissions have been identified. These can be displayed as a carbon abatement curve (Figure 1) that demonstrates how some measures will pay for themselves in commercial terms. Indeed, we will spend $500 million in 2008 on energy-efficiency improvements, which is a substantial percentage of our total capital expenditure in the oil products and chemicals businesses ($5 billion in 2007). Improving energy efficiency makes good financial sense in existing plants, even though it can be seen that it only gives incremental reductions in emissions.

Occasionally, there are low-cost opportunities for making greater reductions in emissions, as at Pernis refinery in the Netherlands. Here a relatively pure stream of carbon dioxide is diverted to greenhouses for improving crop growth, instead of it being released to atmosphere. The overall reduction in emissions in this case arises from not burning natural gas in summer to produce the carbon dioxide needed for the greenhouses. This is a relatively unusual measure made possible by recognizing the availability of a source of waste carbon dioxide and a nearby demand for the same material. More typically, a major reduction in emissions from a large plant requires massive investment, which can be difficult to justify if the plant is to remain competitive.

Other measures for reducing greenhouse gas emissions include low-emission energy production, for example, by using natural gas, lower carbon fuels or renewable sources, and capture of carbon dioxide for storage, where Shell is making use of its oil production experience. For example, we are participating in the ZeroGen project in Australia where carbon dioxide will be captured from power generation via coal gasification for storage underground.

In the first half of this decade, Shell invested more than $1 billion over five years in alternative energies, including wind, hydrogen and biofuels. Shell is a major wind power developer; its share of current projects amounts to 550 MW. Our solar business is developing a proprietary thin-film solar technology. For over a century, we have been an industry leader in developing cleaner, more efficient fuels, and in 2007 we quadrupled our rate of investment in second-generation biofuels made from non-food biomass such as stalks and wood chips.

The critical contribution of CCS has been widely recognised because of its potential to substantially reduce global greenhouse gas emissions. If widely deployed, CCS could deliver one quarter of the carbon dioxide emissions reductions required by 2050. We have calculated that a seven-year delay in the world’s known CCS projects means 90–100 billion tonnes of avoidable carbon dioxide emissions being released into the atmosphere, or a 10-ppm increase in long-term carbon dioxide stabilization levels.

For CCS to be replicated on a wide scale, there will need to be a suitable regulatory framework that puts a price on carbon dioxide emissions, such as an emissions trading scheme, and sets realistic targets for emissions reduction. Only government policy can establish a scheme that applies to all the players in a market. To make substantial reductions in carbon dioxide emissions to tackle climate change, governments have to provide a global framework for doing so.

A carbon emissions trading scheme (ETS) has been operating in Europe for some years; Shell Trading completed the first ever trade within this scheme in 2003 by forward selling some carbon dioxide emission allowances to Nuon. We believe that an ETS is the most efficient, cost-effective way to tackle climate change and to reduce overall emissions from large stationary emission sources such as power stations and most industrial facilities. The scheme provides participants with the flexibility to decide to reduce emissions directly or buy allowances on the market. The aim of such schemes should be to provide an incentive for greater efficiency and to direct capital toward more carbon dioxide efficient projects through a market price for carbon dioxide emissions. Taking account of all of these different factors should be a part of any company’s strategy for managing its energy and carbon use.

Carbon and energy management

Based on its experience of all these different aspects, Shell Global Solutions has developed the Carbon and Energy Management service. This gives companies with large energy bills access to the expertise of a team who can bring to bear the full range of techniques to achieve cost-effective carbon and energy management. These methods include strategic planning and forecasting; benchmarking the performance of existing plants; and identification of opportunities for improving energy efficiency, carbon dioxide sales, using CCS or switching to renewable energy. All of these can be coupled with trading of carbon allowances and project financing via the Kyoto mechanisms in the appropriate circumstances.

This service has already been used in the steel industry, specialty chemicals, minerals processing and different parts of Shell. Perhaps surprisingly, we have found the advice to be of most use in plants already operating with above-average performance. At plants with poorer performance, other management issues often have to be addressed before energy efficiency becomes the top priority. But the secret of success is that all levels of a company must be committed to the need for change. It is not enough just having enthusiasm at board level: companies must aim to win commitment at operational level on each of their sites. This is essential to achieving lasting change and continued improvement in energy performance.

¹Shell Energy Scenarios to 2050
²The Shell Sustainability Review 2007