Shell says fossil fuel reserves won’t be ‘stranded’ by climate regulation

* Oil major says fossil fuels will be needed through 2050

* Calls “carbon bubble” theory flawed in letter to shareholders

* Says decarbonisation of energy sector will take decades

* Predicts it could take rest of century to resolve climate change

Royal Dutch Shell has dismissed the possibility that its proven oil or gas reserves will become unusable as a result of climate change regulation, saying fossil fuels will play a key role in global energy to 2050 and beyond.

Environmental campaigners, activist investor groups and some lawmakers have warned that financial markets could be overvaluing companies with large fossil fuel assets, such as Shell, thereby creating a “carbon bubble” and putting at risk trillions of dollars in pension funds.

Shell, however, played down such claims last week in a letter it said was in response to shareholder inquiries on the issue of “stranded” assets, referring to large investments in fossil fuel reserves that could become unprofitable if governments pass laws to curb runaway growth in greenhouse gas emissions in an attempt to reduce the impact of climate change.

“While the ‘stranded asset’ notion may appear to be a strong and thought-through case, it does have some fundamental flaws,” JJ Traynor, Shell’s executive vice president of investor relations, said in the letter posted on the company’s website, dated May 16.

Traynor maintained that the world will need oil and gas for many decades to come, supporting both demand and prices.

“As such, we do not believe that any of our proven reserves will become ‘stranded’,” he wrote.

“There is a risk that focusing on ‘stranded assets’ or the concept of the ‘carbon bubble’ distracts attention away from the reality of a growing population, increasing prosperity and growing energy demand.”

DEMAND GROWTH

Shell said it believes that climate change will continue to rise up the public and political agenda, but it estimated that energy demand growth would allow fossil fuels to continue play a major role and account for 40-60 percent of global energy supply through to 2050 and beyond.

Shell also pushed carbon capture and storage – a technology that critics say has not yet been proven – as a key tool to help to keep global warming below 2 degrees Celsius, a threshold deemed dangerous by scientists.

While much of the world has yet to put a price on greenhouse gas emissions, Shell said it employs a cost of $40 per tonne of CO2 when calculating the financial viability of its projects.

In its 2013 annual report, Shell warned that tougher rules on greenhouse gas emissions may lead to higher operating costs, delayed projects and reduced demand for its products.

But on Friday the company said that the long-lived nature of the global energy system’s underlying infrastructure and the many assets within it mean that any regulatory-induced change would “inevitably take decades”.

“The world can tackle and resolve the climate issue over the course of this century, but not in less time than that,” it added.

Exxon Mobil, the world’s largest publicly traded oil company, said in March that it was confident that none of its reserves will become stranded if governments act to bring about a drastic reduction in emissions.

Reuters

8 Comments on "Shell says fossil fuel reserves won’t be ‘stranded’ by climate regulation"

Plantagenet on Tue, 20th May 2014 12:57 pm

I suspect Exxon and Shell is right.

Its one for politicians to talk about cutting carbon emissions—its quite another thing for them to pass laws that increase energy costs for voters.

bobinget on Tue, 20th May 2014 2:07 pm

Disastrous Climate Change Events may not obey Big Oil’s commands. Calamitous drought, flooding, already prime factors in higher food prices, indeed, food scarcity. I’ll ask, will empty stomachs wait 36 years while Shell sorts out if Climate Change has stranded its oil or gas reserves?

Have no doubt, corporations adapting to changes, none are more capable then Exxon or Shell. If our ‘shadow governments’ can drill six miles under the Arctic Ocean, have no doubt, Water Logged New Guinea bereft of humans will be a far more hospitable work place to mine then one occupied by an unfriendly human population.

The wrong sort of human, (that bothersome indigenous population) can be a genuine nuisance. (just ask Israelis)

If fossil fuels are to be had, melting ice, rising temps simply make working simpler without Indians running around all dark skinned, angry, badly nourished,
armed and dangerous. Better these folks should be removed or simply eliminated for the ‘greater good’.
(meaning: your retirement, shareholder)

rockman on Tue, 20th May 2014 4:13 pm

Bob – “Disastrous Climate Change Events may not obey Big Oil’s commands”. Quite true. But Big Oil doesn’t obey the commands of environmentalists. And in the end politicians don’t ultimately obey either of those groups IMHO. They obey the will of the folks that empower them. If the Chinese people demand energy that requires them to burn twice as much as the do today their govt will comply IMHO. If the US gov’t wanted to significantly cut GHG emission from vehicles they could significantly raise fuel taxes next month…but they won’t because the public wouldn’t stand for it. And the US gov’t could propose banning the “dirties oil” on the planet that we import from Canada. But it won’t for the same reason.

Folks keep forecasting that the great majority of the global population will soon turn away from fossil fuels to save the climate. Where in the history of the world can one find such sacrifice for future generations? Hell just saw the latest estimate of the civilian body count in Syria…160,000. And then add the displacement of more than a million innocents. And the world seems to readily accept these sad facts. And these are the same folks some expect to sacrifice their economic well being for the sake of folks not even born yet?

There seems to be an amazing disconnect IMHO between the entire history of man’s nature and what some folks expect to happen in the next 10 to 30 years. For the last 40+ years I’ve repeatedly heard that we have to reduce our fossil fuel consumption for the sake of the environment. And what has happened during that time: coal consumption has doubled; consumption of petroleum has increased about 50%; NG consumption has more than doubled.

And today hundreds of millions of people are striving to improve their lives by utilizing even more fossil fuels. And these are the few generations that are going to radically change how they approach the future compared to how those few ‘at generation acted?

OK then…when do I start seeing this huge shift? I imagine from everything I’ve read about climate change it has to start almost immediately.

HARM on Tue, 20th May 2014 4:18 pm

“stranded reserves”

The very wording implies that natural coal/oil/gas deposits are just human commodities waiting to be mined and exploited by human beings. As if nature specifically deposited them there millions of years ago so we could extract them, refine them into auto/jet/heating fuel and burn them. As if nature’s usefulness to human beings or their “economy” is the sole arbiter of value in the universe.

Northwest Resident on Tue, 20th May 2014 4:35 pm

rockman — Looks like you’ve got the human race figured out. The vast majority of them aren’t going to change if it means one Big Mac less in their daily routine, and they aren’t going to vote for anybody who threatens (or who can be portrayed as threatening) to take away any single one of the items or activities that are “precious” to them. Short term thinking is a human specialty, as is short-sightedness and downright selfishness.

But here comes big bad climate change and global warming, regardless. And whether the mindless masses know it or not, the world and human survival IS threatened by the damage we are doing every single day.

That’s why I like to think that there are some really smart and powerful and altruistic somebody’s in the world who are going to just pull the plug and put an end to this self-destructive charade that we’re all living in. But, that’s probably just a stupid fantasy and the reality is, humans are going down hard. God gave us enough rope to hang ourselves with and in the end, we’ll all be swinging under the burning hot sun.

Kenz300 on Tue, 20th May 2014 8:24 pm