WPC: Sustainable development fealty deemed survival test for oil firms

Sept. 3, 2002
The concept of sustainable development was accorded the status of competitive differentiator for the oil and gas industry of the future at the 17th World Petroleum Congress in Rio de Janeiro today.

Bob Williams
Executive Editor

RIO DE JANEIRO, Sept. 2 -- The concept of sustainable development was accorded the status of competitive differentiator for the oil and gas industry of the future at the 17th World Petroleum Congress in Rio de Janeiro today.

The theme of sustainable development, pervasive throughout the WPC agenda, was given a distinctly European flavor in one of the opening plenary sessions this morning by two officials: an executive with Europe's largest oil and gas company and a government official from Europe's largest oil producing country.

Keynote speakers Lew Watts, of Royal Dutch/Shell Group's gas and power unit, and Einar Steensnæs, Norway's petroleum and energy minister, delivered what was touted in the WPC program as " . . . an analysis of the response of the petroleum industry to the World Summit on Sustainable Development . . . ," also being held this week, in Johannesburg.

In addition to being woven into the agenda of many other WPC sessions, the notion of sustainable development also was given official status at the conference when the congress for the first time established what it called a Social Responsibility Arena, which is open to the public. The Brazilian organizing committee established a separate, concurrent program bringing together nongovernmental organizations (NGOs), government agencies, and industry representatives for a seminar on social responsibility and sustainable development. A separate pavilion at the sprawling Riocentro convention complex was given over to NGOs as part of this initiative.

Meanwhile, organizing committee Pres. João Carlos de Luca, told OGJ that WPC attendance had "already exceeded expectations" on the first day of the congress, which is being held concurrently with the Rio Oil & Gas Expo 2002. Attendance at WPC was estimated at 3,400 delegates on the first day of the conference, vs. early estimates of 3,000 for the full 5 days, he said.

Shell view
Watts, Shell Gas & Power director, Africa, Latin America, and Mediterranean Rim, claimed that it is no longer possible for the oil and gas industry to conduct oil and gas exploitation activity without "proper regard" for the broader issues of environmental protection and social capital development.

"No company can expect to survive as a sustainable entity if it does not operate within a sustainable society, environment, and economy, supported by its own sustainable policies, organization, principles, and values," he said.

Watts noted that global energy demand in 2050 is expected to be three to four times what it is today and cited recent US Geological Survey estimates of the world's undiscovered potential hydrocarbon resource totaling 3 trillion boe.

With those targets in mind, the Shell executive said that, among the issues being debated in Johannesburg is the notion that while energy companies have "done well in producing energy, we have not done so well in convincing others that we can do it safely and with regard for sustainability."

That suggests, Watts noted in reference to his often-cited Brazilian soccer analogy of the sustainable energy development issue, that it will become an issue of "who will be allowed to play."

The public is looking for a greater contribution from industry to sustainable development, he said, noting that the concept encompasses economic, social, and environmental values.

"Companies that don't meet the needs of sustainability won't survive."

Climate change
Shell factors into its notion of sustainable development the still-controversial concept of human-induced (largely via fossil fuel use) catastrophic climate change—a stance that has put the company and its fellow European supermajor, BP PLC, at odds with the biggest supermajor, US-based ExxonMobil Corp.

In an earlier statement, Watts underscored Shell's commitment to reducing greenhouse gas emissions as central to its support of sustainable development principles: " . . . The task (of meeting the world's energy needs) has become even more important and complex as the world adapts to the challenges of globalization, the need for transparency and accountability, the legitimate need of key stakeholders to be heard, and the growing realization that energy consumption is affecting the world's climate."

Sustainability litmus test
In his plenary address, Watts reiterated the Shell stance on climate change as a key part of the company's seven principles of sustainable development:
-- Generate robust profitability. ("An unprofitable company cannot be sustained.")
-- Deliver value to customers. ("A customer is one who allows you to make a profit.")
-- Protect the environment. ("In the need to address the issue of climate change, we must look at it not as a cost but as an opportunity.")
-- Manage resources. In Shell's view, said Watts, this entails recognizing that "energy is decarbonizing" and thus moving towards investment in renewable energy sources en route to a hydrogen-based energy economy.
-- Respect and safeguard "our own people and all other stakeholders."
-- Benefit communities. ("All business is local.")
-- Work with all stakeholders—"not just shareholders . . . There must be a willingness to engage in dialogue with all stakeholders, with respect and civility."

In sum, Watts contended, fealty to sustainable development will be the ultimate test of an oil and gas company's survival. That fealty is necessary, he said, for three reasons:
-- "It is the right thing to do."
-- "If we don't, we won't be allowed to operate."
-- "It will be the key competitive differentiator."

Norwegian perspective
Steensnæs touted Norway's importance as an oil and gas producer before framing his central thesis that access to affordable energy is central to the concept of sustainable development.

Norway has the potential to sustain its current oil production for 50 years and its current gas production for 100 years, he said. Yet Norway also relies on renewable energy, hydropower, for 60% of its own primary energy needs.

Steensnæs also insisted that development of oil and gas can be compatible with environmental values and that these conventional energy supplies are crucial for economic development.

But, he noted, ". . . 10 years after the Rio Summit, progress has been slower than expected" in improving the lives of the poor in developing countries.

"The eradication of poverty can happen only with access to low-cost supplies of energy," he noted.

Yet, Steensnæs said that this creates an imperative for the oil and gas industry to reduce its emissions of carbon dioxide, the principal component of global greenhouse gas emissions.

Shift to cleaner fuels
Citing renewables' market share of 5% of primary energy use worldwide, Steensnæs noted that, despite their "great potential and great progress in reducing costs," there is still a need to further reduce the costs of renewable energy sources.

The minister said he sees the declining market share of coal as emblematic of the world's gradual shift to cleaner forms of energy. And while oil will retain the largest energy market share for the next several decades, ". . . natural gas will be the fastest-growing primary energy source in the decades to come, especially in the developing countries."

This latter trend, he said, is "another necessary step toward the increased use of cleaner fuels in the future."

While there is no substantial alternative to oil and gas in the medium term, Steensnæs said, citing the special need of developing countries to increase their use of these fuels, oil and gas companies must continue to find ways to improve their efficiencies, reduce emissions of carbon dioxide, and bolster efforts to conduct further research into the sequestration of carbon dioxide.

Paradoxical challenge
In sum, he said, industry's main challenge is to provide global access to supplies of energy while meeting concerns caused by the production of fossil fuels.

"Fighting poverty requires adequate energy supplies and infrastructure, but the implementation of the Kyoto Protocol (on climate change) is important, too."

It is the oil and gas industry's paradox that "we have to deal with the high level of (energy-related) emissions in the developed world as well as the insufficiency of energy in parts of the developing world."

Citing Norway's ratification of the Kyoto Protocol this year and earlier implementation of a carbon tax, Steensnaes said he is concerned that not enough industrialized countries have ratified the treaty.

"It is no longer sufficient for energy companies to say, 'We do business, not politics."

Contact Bob Williams at [email protected]