Decentralising powers, driving productivity
Mar 20, 2015
Speech given by Hugh Mitchell, Chief Human Resources and Corporate Officer, Royal Dutch Shell plc, at the Scottish Council for Development and Industry Forum, March 20, 2015.
There are major and complex challenges – such as meeting growing energy demand while cutting greenhouse gas emissions – which are too big for one government or one organisation to resolve. These challenges demand a collective response.
In this speech to the Scottish Council for Development and Industry, Hugh Mitchell highlights two examples of cross-sector collaboration: the proposed Peterhead carbon capture and storage (CCS) project, and plans to decommission the Brent oil and gas field in the North Sea.
With the potential CCS project, he observes that the interests of one partner – in this case a future government – have been taken into account right from the start. It is a reminder, he says, that one of the most critical partnerships we have is with the past and the future.
Puzzling out, powering up performance
Ladies and Gentlemen, good morning. I’d like to thank Ross and his team for bringing us together for this year’s Forum. I’m delighted to be with you all in Edinburgh.
It’s a city I’ve always thought of as a hub for great discussions. That was certainly the case when I was a history student here. And as a board member of the Edinburgh Business School, I’ve been pleased to see it’s still true.
In fact, the School has recently bought the home of Adam Smith and is renovating it to become a centre for global economic and social debate. Smith wrote that “every man lives by exchanging”. He was referring to commodities, but it’s just as true of the exchange of ideas. Something I’m looking forward to doing over the course of the day.
I want to use my time to talk about collaboration and how it allows us to overcome tough challenges and achieve goals which simply wouldn’t be possible by going it alone.
I’ll focus on collaboration in the context of the energy industry which, of course, plays such a central role in Scotland’s economy. The oil and gas sector alone supports nearly 2,000 Scottish supply chain companies and 225,000 jobs across the country.
I’ll then talk about an area of collaboration which could be enhanced in Scotland’s oil and gas sector, before concluding with three steps that can be taken to ensure effective partnerships. Partnerships which will power Scotland’s economy in the years ahead.
The benefits of collaboration
First of all, what does collaboration involve and why is it important?
Towards the end of last year, I was introduced to two girls from Aberdeen called Abbey Thomson and Grace Brown.
They told me that until a couple of years ago, they’d associated the oil and gas industry with gruff old men in boiler suits, working on big platforms in the sea. This, quite understandably, put them off pursuing a career in the sector.
That’s until they took part in a course which highlights the huge number of different jobs available in the energy industry. This piqued their interest, encouraged them to re-think their career path, and they’re now on a two-year intensive course which will give them a qualification in Electrical Engineering.
Abbey and Grace are two out of two hundred students who have taken part in a project run by teachers at the North East Scotland College and sponsored by Shell.
These two very different organisations identified a common interest and goal – we wanted to introduce girls in Scotland to careers that weren’t on their radar. And then we worked together to create a course which does just that.
Shell couldn’t have done this without the North East Scotland College. And vice versa. For me, this is a simple but clear example of effective collaboration as an investment for the future.
Of course, not all forms of collaboration are that easy. Even though you’re working towards the same goal, very often it requires guts, pragmatism, and a willingness to listen and learn from a wide range of people you don’t always agree with.
But that mustn’t be enough to put people off. There are major and complex challenges which affect all of us. Challenges which are too big for one government or one organisation to resolve. As such they demand a collective response.
Rising demand, fewer emissions
As you all know, one such major challenge is how to achieve a transition in our global energy system over the course of the century, meeting growing demand while cutting greenhouse gas emissions.
The world’s demand for energy is expected to be close to 40% higher in twenty-five years’ time, according to the International Energy Agency.
This demand is coming from a global population increasing by around 73 million a year. That’s nearly 150 times the number of people living in Edinburgh. It’s also coming from cities, where more and more of us are moving. And it’s coming from a growing global middle-class looking for a better quality of life.
The impact on the environment of all this energy demand is highlighted by the Intergovernmental Panel on Climate Change. It has warned that continuing to emit greenhouse gases will lead to further global warming and long-lasting changes in the climate.
It’s clear that this is an urgent challenge we must all share. And close collaboration – between governments, business and civil society – is essential if we’re to address it effectively. It’s the only way to ensure comprehensive and balanced action.
Easy to say. Tough to do.
The pressures on the energy system affect countries throughout the world in different ways. But the overarching challenge is universal.
Efforts to tackle this challenge can be seen across Scotland. There are two examples that stand out for me. They have the potential to boost Scotland’s economy significantly. And they wouldn’t have reached the stages they’re at without cross-sector collaboration.
Working with the past and the future
First to Peterhead, on Scotland’s north-east coast, where Shell and SSE are looking to develop the world’s first full-scale gas carbon capture and storage project. This could capture millions of tonnes of carbon dioxide emissions from the Peterhead Power Station and store it deep under the North Sea.
This potential project wouldn’t be going anywhere without collaboration. The government, local community councils, universities, and the regulators who set the standards for this new industry, are among those heavily engaged in the process.
A government and industry task force predicts that a new UK CCS industry could create “tens of thousands” of new jobs by 2030.
A few years ago, while many governments focused on how to decarbonise their economies, specialists at the Department for Energy and Climate Change went one step further. They looked at how to achieve the most competitive de-carbonised economy.
To do this, they came up with a model that considered a host of options, from solar to tidal power. Then they went through each of these options, taking them out of the mix one by one to check how each stacked up financially. And when they removed CCS from the model, the economy was worse off to the tune of £32 billion.
This is an unusual kind of collaboration. Today’s government collaborated with a future unknown government, which will deal with the consequences of any projects initiated today.
It’s a good example of collaboration because the interests of one partner – in this case a future government – were taken into account and factored in right from the start. It’s a reminder that one of the most critical partnerships we have is with the past and the future.
This is something we’re well aware of at Shell. The large-scale energy projects we work on inevitably take a number of years to deliver. So the ribbon cut by our Chief Executive to mark the start of a project will typically have been initiated by his predecessor. And many of the projects we start now will be delivered by today’s graduates.
Learning from your mistakes
Next, I want to look at decommissioning oil and gas fields nearing the end of their lives. An essential part of our energy future.
Over the next three decades this will play a big role in the UK North Sea’s evolution as many of the 470 offshore installations will need to be decommissioned.
Contrary to what you might think, this isn’t a gloomy prospect. At this time of uncertainty over the oil price, it presents an opportunity to create a world-class centre of excellence for decommissioning of platforms and pipelines. It has the potential to create thousands of highly skilled jobs. And it means industry expenditure of between £35 and £50 billion.
The Brent oil and gas field has produced almost 10% of the UK’s North Sea oil and gas since the 1970s, generating more than £20 billion of tax revenue.
Brent will be one of the first to be decommissioned in the North Sea. And earlier this year, Shell submitted the first of two decommissioning programmes to the Department for Energy and Climate Change.
We’ve collaborated with lots of people on the way. And we will continue to engage thoroughly and widely.
That didn’t happen two decades ago when we decommissioned Brent Spar, a redundant oil storage installation in the North Sea.
Although technical and scientific assessments supported our proposal to safely sink this installation in deep water in the Atlantic Ocean, rather than risk bringing it to shore, crucially we failed to properly engage and understand the concerns and expectations of others.
We’re doing things differently this time around and have spoken with more than 180 organisations, from the Scottish Fishermen’s Association to the Marine Conservation Society.
And we’ve made changes following their feedback, including setting up an independent group to focus specifically on what to do with the storage cells. We’ve done this, and have provided them with the facts so that they can come up with their own conclusions, working with an external facilitator.
What can be done better
In both of these cases – the proposed Peterhead CCS project and Brent decommissioning – I’m convinced that the progress that’s been made to date wouldn’t have been possible without effective collaboration.
Again and again, here in Scotland, Shell has witnessed how collaboration in the oil and gas industry has made the once impossible, possible. It’s how the industry has succeeded in delivering 42 billion barrels of oil and gas equivalent to date. That’s about 8 billion barrels more than global annual oil demand.
When it comes to collaboration in the North Sea, a lot of focus is understandably given to the partnerships on oil and gas platforms. This isn’t surprising, as the vast majority of ventures in the North Sea have between two and 20 partners.
But another important partnership is between the industry and the invaluable supply chain which supports it.
In a crisis, we come together. Just look at what happens when we think there might be damage to a pipeline and it needs to be inspected quickly: one company lends another a diving support vessel to help them out. This means any production shutdown is kept to the absolute minimum.
At the moment, the structures aren’t in place for this flexibility to be the rule and not the exception. A collaborative approach needs to be part of our day-to-day practice, rather than ad hoc.
This is clearly addressed by the Wood Review, which recommended a tripartite strategy, involving Government, industry and a new independent regulator.
The establishment of this regulator – the OGA – and its mandate to drive industry co-operation is welcome.
To conclude: there are three steps which I believe are vital to ensuring effective collaboration.
Firstly, be comfortable collaborating with people who don’t necessarily think the way you do. We live in an imperfect world. Behaving like an ostrich with its head in the sand and refusing to listen to anything other than our own opinion doesn’t work.
Secondly, collaboration must be in everyone’s mind at the start of a project. By failing to integrate it right at the front end, we risk wasting time and money further down the line.
And finally, accountability must be shared. We’re all focused on tackling the same urgent challenges. As such, responsibility for delivering the desired outcome mustn’t rest on the shoulders of a single government or organisation.
Collaboration isn’t a new concept. The saying that two heads are better than one has been bandied about for a long time.
It’s something Shell recognises. Collaboration is one of four core attributes we expect our leaders to possess. Because we believe there’s a direct link between collaborating effectively with all of our partners, and adding value to the company.
It’s also clearly something everyone here recognises, given that we’ve got representatives from across government, business and civil society in the room.
And because this appetite for co-operative engagement is so apparent, I’m confident that Scotland’s economy has a bright future ahead.
Thank you very much.