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“Wow!” said Ollila

Former Nokia CEO was surprised at the environmental smarts of the oil companies in his role as Shell Chairman

By Juhana Rossi in The Hague 

“I came into this industry two and a half years ago from the outside. After having looked around for a few months one of my first observations was: Wow!” says Jorma Ollila.
      He is not talking about Nokia, of course, but his first months as the Non-Executive Chairman of Royal Dutch Shell.
      
Ollila took up the reins on the Shell Board in June 2006. He arrived in the oil industry as a rank outsider but with an excellent pedigree, known as the man who had turned Nokia from a multi-branch company in some financial trouble into the world’s largest mobile phone manufacturer and a global success story.
      Ollila left his position as Nokia CEO three years ago, but has stayed on as the Chairman of the Nokia Board.
      
When Ollila arrived at Shell HQ, he says: “The attitudes within the [oil] companies, just the sheer knowledge of environmental impacts and climate change issues, their ability to have a dialogue with any environmentalist, any government official, any politician [was] well beyond what I had expected.”
      Just over two and a half years later, Ollilla sits smiling in his office in The Hague and flips through the proofs of Shell’s new annual report.
      “We’re at the proof-reading stage right now. Unfortunately I’m not in a position to show these to you quite yet”, Ollila says, with a broad grin on his face.
      
The windows of the corner office look out onto a quiet side street. The room provides a mixture of old and new.
      The old is in the form of the original wood panelling from 1917, when the oldest part of the Shell head office building was completed. What is new are the modern pieces of furniture, and two paintings on the wall that Ollila has picked for himself.
      “I like this. Past and present in one. Isn’t that what life’s all about, anyway? says Ollila.
      
The ability to blend history and the present-day reflects the current situation faced by international oil companies like Shell.
      For more than a century they have extracted, refined, and sold oil and natural gas, without which the motorised transport we take for granted would not exist, without which we would not have the food production to satisfy the hunger of a population of seven billion people, and without which the humble plastic toothbrush would not have been invented.
      On the other hand, the oil and gas resources will be exhausted in time. The hydrocarbons stored inside the earth’s crust are not an unlimited supply.
      
The use of hydrocarbons also generates carbon dioxide, the abundance of which poses a threat to the balance of our atmosphere, and by inference, to our life on this planet.
      All the oil companies, Shell included, have committed themselves to reducing carbon dioxide emissions.
      And yet at least Shell intends to lean on its traditional commercial operations as an oil company for a good few years to come.
      Until 2030, hydrocarbons – in the shape of oil, gas, and coal – will continue to play a dominant role in our energy supply, says Ollila, noting the long lead-in times for the introduction of alternative technologies. This means that Shell’s important position in the energy industry will go on.
      
On a day-to-day basis, Shell’s more than 100,000 employees are led by CEO Jeroen van der Veer.
      The strategic outlines and the goals are determined by the board headed by Ollila.
      Ollila spends two or three days a week on his job. The year before last he collected EUR 750,000 for his efforts.
      
Founded in 1907, Royal Dutch Shell is an Anglo-Dutch concern, and before Ollila’s appointment, the Chairman had always been either a British or Dutch national.
      In June of this year, the company’s present chief financial officer Peter Voser will become Shell’s first-ever CEO who is not from either of these two countries. Voser is Swiss.
      So, was the idea behind Voser’s appointment a deliberate ploy to put in another “neutral” like Ollila himself?
      “[No.] It was very clear. We had a number of very strong candidates in the company, and we went for the best. Very simple. Nowadays this company is very much a meritocracy. Whatever your background is, if you do well, you get to go as high as you deserve. Nationality, gender or ethnic background doesn’t play a role these days.”
      
During Ollila’s time as Chairman, Shell has so far avoided any of the corporate communications crises that have buffeted the company in the recent past.
      In 2004, for instance, the overstatement of oil reserves – involving the misuse of the words “proven” and “probable” – caused a spat with the owners.
      Back in 1995, Shell had a particularly ill-starred year in this respect. First there were the company’s plans to dispose of the Brent Spar storage and tanker loading buoy in the North Sea, which prompted widespread opposition and the involvement of Greenpeace, and then there was the execution by the Nigeria military of journalist and environmental activist Ken Saro-Wiwa.
      Shell has a very strong presence in Nigeria, and Saro-Wiwa had protested strongly against the company’s actions there.
      
This is not to say that it has all been plain sailing since 2006, however.
      Ollila faced his first big challenge right at the outset of his term, in July 2006, when the Russian authorities announced that they were cancelling the environmental licences issued to Shell.
      Shell needed the permits in order to build a massive natural gas production facility utilising the oil and gas fields that are being developed offshore from Sakhalin Island in the Sea of Okhotsk, in the Russian Far East.
      The dispute ended in victory for the Russian side. Shell and its partners in Sakhalin Energy sold their controlling interest in the venture to the Russian state-owned energy company Gazprom, and are now minority shareholders.
      
The Sakhalin incident was an example of the power politics that countries owning large tracts of natural resources have used as a lever against the international oil companies.
      The multinationals see this development as a threat. They have no future without getting access to hitherto unexploited reserves of oil and gas.
      Then again, the oil-producing countries require the capital investment and the expertise of the oil companies.
      
As a result, the general feeling is that the power politics of the oil producers will be put on the back burner following the collapse in crude prices, which has sharply reduced their income.
      “That remains to be seen. It is not for me to forecast. There have been comments to this effect, but as I said, I think you will see a good continuing co-operation between the national oil companies and the IOCs.”
      “It has worked in the past because there is a complementarity, particularly in tapping the unconventional resources and building access to deep water and to arctic conditions which require very complex project management as well as technological input. We’re likely to see healthy and good co-operation between NOCs and IOCs”, says Ollila.
      
The world currently consumes around 85 million barrels of oil each day. The International Energy Agency predicted in its most recent World Energy Outlook that the demand for oil in 2030 will be 106 million barrels per day.
      A barrel in this context is the standard measure for the oil trade, equivalent to 159 litres.
      At the same time, a good many analysts predict that the production of crude oil will peak within the next couple of decades at around 95 million barrels a day. This view has been publicly expressed, for example, by Christophe de Margerie, the CEO of the large French oil company Total.
      
Ollila is unwilling to go into the numbers game or the balance between supply and demand in such detail.
      “There is a quite strong likelihood that not only the number 106 is on the high side for the demand as well as the supply number 95 is on the low side. But what we have also seen is that the market tends to clear any imbalance, i.e. there is a price mechanism which brings signals to the supply and to the demand side, and they will meet. This is what has happened with other natural resources, and oil is no exception.”
      
Of one thing Ollila is quite certain, and that is that the oil companies will be able to respond to increased demand for hydrocarbons.
      The technology is moving ahead all the time. In the future it will be possible to exploit oil and gas resources that were once considered unrecoverable.
      Technological advances also make it possible that in the future we can produce energy without carbon dioxide emissions. We already have wind power and solar energy, biofuels, and cars that run on electricity or use nitrogen as fuel.
      Ollila does not have a favourite among the assortment of new and renewable energy sources and solutions.
      “Many renewable technologies, in fact most of them, need subsidies in order to get off the ground in commercial scale. That’s the case in wind and solar energy, with biofuels, with the electric car. Since it is public money, the public decision-makers have to make the choice. When the technology evolves, you hope to get into a situation that we will have open competition and the market will clear”, says the Shell Chairman.
      
In order that our energy supply can rest on a solid and sustainable foundation, Ollila believes three things are needed in the medium-term future.
      “You need energy efficiency. We have to improve energy efficiency, not only in our homes by having double glazing, but also in terms of processes, industrial processes, etc.”
      “The second thing we need is CCS. Carbon capture and storage is fundamental because the use of coal is increasing so much. We will not be able to have sustainable climate change policy unless we have CCS.”
      “Thirdly, I think we need to develop second and third generation biofuels to satisfy the demand on the transportation side.”
      
Helsingin Sanomat / First published in print 8.3.2009
      

      
      
The transcript of the complete interview, which was carried out in English, is available from the link below. A shorter article was also included in our dailies on Monday 9.3.2009. 

Previously in HS International Edition:
  New mission for Jorma Ollila: fighting climate change (30.1.2007) 
  Jorma Ollila to become non-executive chairman at Royal Dutch Shell (4.8.2005) 

See also:
  Transcript of interview with Jorma Ollila in The Hague, 4.3.2009 

Links:
  Jorma Ollila (Wikipedia) 
  Shell 

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