ENERGY TRANSITIONS

Oil majors see a climate threat — to their bottom line

The second in a three-part series. Click here for the first story.

In 2016, Royal Dutch Shell PLC, one of the largest oil and gas companies in the world, started a historic plunge into new businesses.

The British-Dutch-controlled company began spending $2 billion a year on joint ventures that had little or nothing to do with oil and gas. One of its new companies sells biofuels made from sugar cane in Brazil. Another built an advanced demonstration project in Bangalore, India, that makes biofuels from agricultural wastes.

Shell and other oil majors see potential chaos in their markets. Their carbon-rich product is one of the most valuable commodities on the planet, generating $1.7 trillion in sales in 2016. Transportation consumes more than a quarter of the world's energy, and projections estimate the number of passenger cars will double by 2050.

Here's the hitch: Governments concerned about climate change might impose stiffer taxes on carbon emissions.

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To some companies, that's a green light to invest in electric cars. Shell bought its way into the hydrogen fuel business in Germany, becoming a partner in a network that is building 400 hydrogen filling stations, needed to supply a growing market for fuel-cell-driven cars. They are electric vehicles that get their power from hydrogen; the result is emissions that consist mainly of water.

Shell also bought a Dutch company called NewMotion, which makes chargers for electric cars in Europe. They can recharge a battery in 30 minutes. Another major, BP PLC, invested in an Israeli company called StoreDot. It is working on a new electric car battery that could be recharged in as little as five minutes.

Meanwhile, Shell is building a solar park in Moerdijk, in the Netherlands. It has 50,000 solar panels that will provide renewable energy to run Shell's nearby chemical plant and reduce its emissions.

Ben van Beurden, Shell's CEO, begins press interviews by explaining that Shell is no longer just an oil and gas company. His views have become contagious among the leaders of some other major oil companies. Ten of them, led by Shell, Total SA and BP, put up $100 million apiece in November 2016 to help promote the goals of the Paris Agreement by forming the Oil and Gas Climate Initiative.

"There are plenty of questions facing our industry," van Beurden explained last year at an energy conference in Houston. "But I believe the biggest of them is climate change."

That means "the reality is change" for the oil and gas business, he explained.

"For me, the second-biggest question is how our industry can succeed through all this change," van Beurden said. Shell's ambition is to remain a "world-class" investment while it ramps up new products and drops others, he said.

"We are businesses, not charities," he reminded a group of oil and gas executives.

Shell is helping governments sponsor new research into the next generation of electric storage batteries. In the United States, part of the effort is aimed at developing lighter, more efficient batteries that can replace the current lithium-ion batteries that power electric cars. Another part is finding new chemistries for much larger batteries needed by utilities to store excess electricity generated by wind and solar power. The idea is to use the power at night, when the wind isn't blowing.

Shell has partnered with the National Renewable Energy Laboratory, part of the U.S. Department of Energy, in a program that it calls the "game changer technology accelerator." NREL and Shell are reviewing proposals from over 50 startup U.S. companies to see which four might be eligible to share $1 million in Shell seed money. Next year, a second round of prospecting for "game changers" will extend to startups in Europe.

"One of our big [research] criteria is that we want to see a big difference in new technology, one that's going to revolutionize the energy landscape," said Adam Duran, a program manager at NREL. "Shell has funded core research at NREL before, but not in this particular kind of accelerator space."

The goal is to find companies with the most promising science proposals and award them up to $250,000 of Shell's money to help them escape what Duran calls the "valleys of death" that doom many new startups. One is the struggle to develop a workable product from an idea. The other is to develop a commercial market for it.

That could earn a company as much as $500,000 after two rounds of competition.

"One of the things that brought Shell to NREL is that they're making the transition from their core competency," Duran said, referring to oil and gas.

NREL has a long history of developing new electric battery chemistries, and Duran noted that Shell's involvement will give it a preview of new ideas coming from inventors and universities.

"I wouldn't call it truly philanthropic," he admitted, but Shell's agreement with NREL would not give it equity rights in the emerging winners. But that could happen later. Shell wants "to be in the front of the pack, versus following up from behind."

Shell also co-sponsored recent research by two committees of experts from the National Academies of Sciences, Engineering and Medicine on ways to make commercial products out of carbon dioxide contained in industrial waste, such as power plant emissions.

Asked about NREL's "game-changer" competition, Natalie Gunnell, a spokeswoman for Shell in Houston, said: "We are excited about these partnerships that bring together industry experts and innovative thinking to identify promising new technologies and move future energy solutions to market, as we continue to provide more and cleaner energy."

Some of Shell's major competitors are excited about partnerships, as well, and they are using different ways to stay ahead of the pack. For example, there is Bob Dudley, the group chief executive of BP. He grew up in Hattiesburg, Miss., and got his degree in chemical engineering at the University of Illinois.

As he put it in a recent speech: "A race to renewables will not be enough. That's why we are making bold changes across our entire business." That put BP, which launched a $200 million advertising campaign called "Beyond Petroleum" in 2000 to emphasize BP's relatively small solar and wind power assets, onto a circular pathway.

In 2011, it divested itself of its solar assets, claiming it needed to refocus the company on continued expansion of the gas and oil business. Now, driven by climate change and the moves of its European competitors, BP is back to where it started in 2000. And it's moving way, way beyond petroleum.

It bought a new solar company, calling it LightSource BP. It plans to invest at least $500 million a year in "low-carbon activities," Dudley said. BP's list of new investments includes Solidia Technologies, a New Jersey company that makes building materials, including cement and concrete, that can reduce the massive CO2 footprint of these products by up to 70 percent, according to BP.

A companion move was to buy into Tricoya Technologies Ltd., a British company that makes a lighter, more durable particleboard and other building materials that can be substituted for higher-carbon construction materials.

BP is also working with Fulcrum BioEnergy, a California company that is building a plant near Reno, Nev., to make household garbage into a low-carbon fuel intended to help airlines and trucking companies switch from conventional diesel and jet fuels.

On another front, BP owns part of Breathing Buildings Ltd., a company in Cambridge, England, that promises to make heating and cooling buildings more energy-efficient with advanced controls that can use more air from outside.

Almost every oil and gas major has invested in some form of electric-vehicle-related market. For that, BP took its checkbook to China to invest in NIO Capital, a fund involved in building multiple EV battery plants there.

For years, environmental groups have bashed oil companies collectively as "Big Oil," and blamed its lobbying and ready cash for being one of the motivating forces behind the Trump administration's pledge to pull the United States out of the Paris Agreement.

Bob Perciasepe, president of the Center for Climate end Energy Solutions, a Washington-area think tank, believes that with most of the majors, the economic and business settings are rapidly shifting.

"One of the things that's interesting about oil and gas companies is that they have some of the best chemists in the world," said Perciasepe, formerly deputy director of EPA under President Obama.

"When you sit down and talk to them, you understand they know what needs to be done about climate change," he said. They are aware of a timetable recently set by the Intergovernmental Panel on Climate Change, a body of scientists organized by the United Nations, that said action will have to begin "well before" 2030 to bring greenhouse gas emissions down to net-zero growth by around 2050.

"I think what they're doing is not public relations," Perciasepe said. "They're starting to put real resources and brain power into thinking how they might evolve over the next 20 years."

"They're basically saying, 'Look, we're running out of time. We've got to do everything.'"

Next: Some American majors get involved.

Email: jjfialka@eenews.net

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