On Monday, the oil and gas giant gritted its teeth and pulled out of one of the most ambitious, expensive and controversial exploration forays on the planet – Alaska. A project that could have delivered tens of billions of dollars instead delivered a dry well and, on Sunday, van Beurden and his team called it quits.
ANALYSIS: By The Business presenter Ticky Fullerton: 2 Oct 2015
Rarely have energy companies faced greater challenges, and global giant Shell has moved to tackle some of them head on.
Of all weeks to be in London to catch up with global Shell chief executive Ben van Beurden, this was it.
On Monday, the oil and gas giant gritted its teeth and pulled out of one of the most ambitious, expensive and controversial exploration forays on the planet – Alaska.
A project that could have delivered tens of billions of dollars instead delivered a dry well and, on Sunday, van Beurden and his team called it quits.
At present the costs stand at $US4.1 billion, although that will be confirmed in the company’s third quarter update.
One should feel for Ann Pickard, the highly successful Shell Australia chief who went on to drive the Alaskan venture as her last big career move.
Yet this is what frontier exploration is all about – risk. The technical challenges just to move equipment out to test drill have been extraordinary, let alone the hurdles of deep sea and ice.
Alaska has also been uncomfortably controversial on the environment front. There have been the carefully-timed drilling plans to address noise issues with walruses for instance.
Ben van Beurden himself talks of his own personal journey to endorse the venture.
Now ditched on Monday, the giant polar bear standing in front of the Shell building had been removed by the time we got there on Wednesday: just four large white footprints on the tarmac.
But make no mistake, this decision will have included other factors. Perhaps the low oil price, although Shell anticipates a return to high prices by the time Alaska would have been pumping.
Paris on their minds
Significantly, though, we are now just eight weeks shy of the Paris climate change conference, which everyone with a bleeding heart and actually some sensible people are really hoping will be more meaningful than Copenhagen.
So, for a big oil and gas company that wants to have real input into the climate change debate, arriving with an Alaska free image must have value.
Mr van Beurden accepts the question but points out that, as a fossil fuel resource, Alaskan oil was low on the carbon spectrum.
But surely this is a useful card for President Obama at Paris too? The jockeying for influence at Paris is worthy of a PhD.
Alaska was not the only public release from Shell on Monday. Very importantly, we hear of a new Commission of Energy Transition, perhaps initiated by Shell, but whose members include BHP Billiton, Dow Chemical, GE and Sir Nicholas Stern, as well as NGOs whose mission it is to advise governments on practical climate change policy.
Interestingly, Ben van Beurden is said to have approached Andrew MacKenzie and BHP, a member of ‘Big Coal’, to get on board. Interesting because in the lead up to Paris there has been a push by the gas boys to somewhat diss coal as the high carbon emitters. Gas emits only 50 per cent of the CO2 of coal.
I put to van Beurden that this was a clever new strategy that allows Shell a policy discussion with government at a high level, divorced from the operational level of a fossil fuel operator, and that hard lessons have been learned from BP’s push for clean green imagery only to have it literally blow up in the Gulf of Mexico.
His argument in response is broadly that the developing world needs energy, and the whole world needs a practical plan to move to zero net carbon, which he believes will happen, but not overnight.
You only have to look at the bizarre and presumably unintentional policies in Germany, for example, that have mothballed gas in favour of renewable and coal for largely cost efficiency reasons, to see he has a point.
I write this from Oxford where, down the road, the Didcot coal-fired power station has been partially converted to woodchip fuel!
Shell strongly supports a carbon price and a trading regime.
Last week, China announced moves towards carbon pricing and yet, as we head to Paris, Prime Minister Malcolm Turnbull (who we know also believes in this stuff) is offering up direct action at the conference. What interesting times.
This week as well, an extraordinary speech from the governor of the Bank of England Mark Carney, who warned companies like Shell of the stranded assets that they could be left with stuck in the ground once new climate change policies take effect.
Shareholders and even the insurance industry beware, he warned.
Again van Beurden makes light of stranded assets and the carbon bubble, precisely because the world will need transition and he argues that is gas.
I asked him what the middle ranking executive at Shell should do when, during the inevitable dinner party before Paris, some punter asks, ‘Why are you guys even at the climate change table, you’re big oil and gas, you shouldn’t even be there?’ His answer is worth a listen in the interview online.
Shell’s major Queensland gas play
Of course the Alaskan decision delivers a brand new set of future financial models for allocation of Shell investment dollars.
It also makes the BG merger even more vital.
This massive $70 billion play says much about resource companies’ preference for existing operations over new ventures, but it’s not a done deal yet.
Europe has given approvals, as has Africa, but Shell awaits China and Australia.
For the Australian Competition and Consumer Commission, it’s all about Queensland gas availability to the domestic market at a time when coal seam gas in Victoria and New South Wales is paralysed by moratoriums.
Shell owns 50 per cent of a big field through Arrow, BG brings the QCLNG plant so Shell doesn’t need to build one.
The ACCC, in the middle of a review of east coast gas availability has served Shell with a statement of issues.
One serious question will be just what, if anything, the regulator will demand of Shell to ensure domestic gas is accessible at a reasonable price.
Would it demand a sell-down of half of Arrow? Or a domestic reserve like Western Australia? Or perhaps some sort of behavioural commitment from Shell on selling to a number of domestic customers? From my reading of body language, Shell might have to live with the latter.
My last question to Ben van Beurden was around public trust in big companies on the back of Volkswagen, big bank rate rigging, Google taxes and now looking towards a carbon trading system.
Why should we have faith that Shell and others will do the right thing?
This very important Dutchman in front of me said two things: remember we are the public too, but also it is transparency – around trading, around initiatives like carbon capture – that will be the measure of Shell.