A New Energy Blueprint

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When Peter Voser, 53, took over from the retiring CEO of Royal Dutch Shell PLC (NYSE: RDS.A, RDS.B; NYSE Euronext: RDSA, RDSB) in 2009, he set a goal to make Shell “the most competitive and innovative energy company in the world.” But before the former CFO could turn his full attention to reshaping the company for a world where energy demand would inevitably increase, supply would shrink and tighter environmental regulations would come into play, he had to scale a stone wall. “Shell and its competitors faced the unprecedented challenge of building a more sustainable energy system while responding to the worst economic downturn since the 1930s,” observes Voser.

Courtesy Shell

Royal Dutch Shell CEO Peter Voser

Even as he made bold bets on the future, Voser began reducing expenses through a combination of flatter structures in Shell’s senior management team, faster decision-making and simpler ways of working. The company also sold noncore assets, including some European and African downstream operations, using much of the proceeds to shore up higher-margin businesses and maintain R&D levels through the worst of the downturn. “Current economic challenges aside, energy remains a long-term business,” says the CEO, who points to estimates that fuel needs are poised to soar. The International Energy Agency expects China, India and Brazil to double their energy consumption during the next 40 years, meaning that these three economies alone could account for a third of global energy consumption — on top of continued existing demand.

Voser estimates that Shell will invest more than $100 billion globally between 2011 and 2014, with a target of raising its production by 12 percent from 2010 levels to 3.7 million barrels of oil equivalent a day, one of the fastest growth rates in the industry. “Whereas much of the world is still drawing up plans, we are doing what we can today to make a difference,” says Voser. “That means producing more natural gas, focusing on biofuels, helping to develop carbon capture and storage technology, and trying to improve energy efficiency in our operations.”

JUST THE FACTS

Headquarters
The Hague, the Netherlands

Revenue
$368.1 billion
(fiscal 2010)

Market cap*
$228 billion

Employees
93,000

Listed since
July 20, 2005

*As of 10/17/2011

When it comes to renewables, Shell has shifted most of its attention to biofuels, especially through Raizen, a joint venture with Cosan Ltd. (NYSE: CZZ), a processor of Brazilian sugarcane. The venture is developing what Voser says is the lowest-carbon biofuel commercially available: ethanol that can reduce CO2 emissions by around 70 percent compared with standard petroleum. Raizen’s blueprint calls for more than doubling annual production to 5 billion liters of sugarcane ethanol in the next five years from about 2.2 billion liters in 2010.

The End of an Era

But Shell isn’t putting aside its focus on its traditional hydrocarbon products, although Voser warns that “the era of so-called easy and cheap oil and gas is over.” With that in mind, Shell expects to increasingly explore challenging environments, such as the Arctic. Nearly 200 miles off the coast of Brazil, the company is drilling in pre-salt areas — so named because the reserves are trapped beneath a geological cap of impermeable salt that restricts the oil from pushing up.

Part of Shell’s R&D budget is used to develop sophisticated computer systems that help geologists identify hidden reservoirs more accurately and thus place drilling rigs more precisely. Technology also has enabled Shell’s shift from oil to natural gas, which by next year will represent more than half of its production, says the company. Noting that natural gas plants emit up to 70 percent less CO2 than old coal-fired plants, Voser says: “North America now has enough gas reserves to last for the next 100 years, thanks to discoveries of gas trapped in dense rock — tight gas — and new production techniques.” With tight gas and shale gas potential elsewhere, he cites the International Energy Agency in noting that “the world has enough gas for 250 years at the current level of production.”

Shell is also developing procedures aimed at cleaner energy. For example, the company has filed more than 3,500 patents that apply to the Pearl Gas-to-Liquids (GTL) project, which opened in June in Qatar. This plant, explains Voser, refines natural gas, turning it into diesel fuel for vehicles, kerosene for aircraft and other products for the chemical sector. Pearl GTL’s water processing plant, the company claims, recovers, treats and reuses every drop of the industrial process’s water. With a capacity to treat 280,000 barrels of water a day, Pearl GTL’s water treatment plant is the world’s largest, comparable to that for a city of 140,000, according to the company.

While mapping out a new energy blueprint for Shell, Voser is counting on something that might be the biggest challenge of all: collaboration. To meet growing energy needs, “we need to bring together scientists, urban planners, businesses, governments and society to develop policies and solutions,” he says. Voser is optimistic. “The human race has faced many challenges in the past and surmounted them with ingenuity and creativity.”