Oct 302013

This article was first published in Business Green, in July 2013. Sadly, given Shell’s partnership with Gazprom and the unjust detention of the Arctic 30, it’s even more relevant than it was three months ago.

If Shell executives thought things had gone a bit quiet after the delay to their Arctic joyride last summer, they were soon corrected when the Greenpeace Shard protest happened. Shell isn’t entirely stupid when it comes to future energy challenges. There are probably worse companies around. Which is why its continued bungling over the Arctic, infamous not just among environmentalists, but noted by the Financial Times and other defiantly non sandal-wearing institutions, is so extraordinary.

Shell does not understand that increasing numbers of citizens around the world are unwilling to tolerate its gamble into one of the last great pristine corners of the planet. Investors are none too thrilled either – a deep sea drilling accident in the Arctic would make BP’s Deepwater Horizon liabilities look like a tea party (and not of the Palin variety, despite the same Alaskan backdrop). Shell’s arguments for Arctic drilling have been pitiful, and can be summarised (and demolished) as follows.

1. People have already drilled in the Arctic. Well, yes, but much of the drilling thus far has been in vastly different conditions to those proposed by Shell. A helpful comparison might be to compare paddling in a kids’ swimming pool with deep sea diving in a rough ocean. Shell does have experience in the North but there is a big difference between the North and the Arctic. Almost all of Shell’s “Arctic” experience has been 1,000 km further south than their planned wells in the Chukchi and Beaufort Seas. Sea ice conditions – which constitute one of the biggest risks to Arctic drilling projects – are very different and much less challenging in these waters. No one has successfully done what Shell is proposing to do on this scale in Alaska, and many scientists believe the harsh conditions in the region actually make it simply impossible to do it safely.

2. It’s going to happen anyway, as the Russians will go ahead regardless. It’s true that Russian oil and gas companies seem determined to push ever further north; though how technically and commercially viable many of these proposed projects will be is yet to be proven. Moreover, Russia hasn’t exactly been a beacon of excellence in its own exploration efforts. There have been a series of environmental calamities, and plenty of evidence of local populations literally having to wade through fields of spilt oil. Russia’s recklessness on environmental matters does not provide a moral or commercial argument for Shell, which should know better. Unlike Shell, Russia does not advertise its sustainability credentials either. Now Shell is exploring Arctic entry through the back door, with its new pals Gazprom and Mr Putin. Could a sustainability image get much worse other than hiring Gerard Depardieu as the face of it all?

3. It’s better that we do it because that way it will be safely done. This from a company that initially proposed an oil spill safety plan involving sending a small dachshund (yes, one) to have a sniff about in the event of a problem. It was “safety first” Shell that managed to ground one of its ageing drilling barges, the Kulluk, off the coast of Alaska (prompting questions over whether the vessel was being moved to a more tax efficient location in Washington State). Shell also managed to damage a containment dome during testing, and a fire broke out on its Noble Discoverer rig, leading to the discovery of 16 safety violations on board by the US Coast Guard. And despite repeated assurances that during the summer months, Shell would not encounter any big ice, drilling in the Chukchi Sea was abandoned almost immediately because of a major ice floe appearing, bringing the madness to a temporary halt. I don’t want these people anywhere NEAR the Arctic’s people or wildlife, thanks.

4) We need this oil. Yes, in the way that an alcoholic needs an extremely large vodka, and then another. If we pursue “new” sources of fossil fuels that will only come on stream in 10-20 years’ time and are very expensive to extract, we assume everything that is available now, and cheaply, will be burnt. So we’re betting on an unsafe world in climate terms. The only economic argument that makes Shell’s Arctic lunacy commercially viable is a world unviable in terms of climate change and its impacts. The International Energy Agency says we need to leave two-thirds of fossil fuels in the ground to have a shot at avoiding catastrophic climate change, but if Shell then hedges by saying “but not me, not now, not here”, then our generation has invested in a fatal future infrastructure in a bet against a safe climate. Many investors know this, even if Shell doesn’t. It is completely insane.

Shell has comprehensively failed to engage with stakeholders on this issue. Its emergency response plans and pre-emptive lawsuit against NGOs have all combined to make Shell the perfect poster child for activists. Again!

Of course we must accept that fossil fuels are not going to disappear overnight. We also have to understand that future energy demand will require a mix of solutions and technologies. But these undeniable facts do not mean we have to destroy the Arctic to provide that mix.

The only way forward now is probably a bold market signal by business customers that they do not want their companies fuelled by Shell’s recklessness. There are many progressive business leaders out there who might jump at the chance to differentiate. So here’s an idea: “Arctic free fuel”. Bear with me.

I have already heard a few people say “that’s impossible”. Oh yes, and so is dolphin safe tuna, deforestation free palm oil, child labour free cotton, pesticide free food, and BPA free baby gear. It’s just all too difficult because of supply chains and how these things are produced and traded. Except hang on – all those things already DO exist.

Indeed, some towns are now declaring that they will be “tar sands free” municipalities. Oxford has become the first “tar-free City” in Europe. Of course you can segregate fuel according to its source. If there’s a will, there’s a way. I well recall people saying you could never segregate palm oil; it was technically and commercially impossible. What they meant was they “would never” do it. Of course, they did in the end. At present, there’s just no will when it comes to the Arctic. Which provides a huge opportunity for business leaders to lead.

I’d like to see a progressive businessman like Sir Richard Branson develop a narrative that runs broadly as follows. “I run an airline. I do what I can to explore alternative fuels and designs to minimise our impact. I take advice from the right people. But I accept we are dependent on fossil fuels and a major contributor to climate change. I’m also an explorer and a citizen and I’ve seen some of the Earth’s most beautiful and pristine places. The Arctic is one such place. I cannot and will not add to the planet’s fragility by running my business on the fruits of Arctic oil drilling. It’s a step too far, and I believe there are some parts of the natural world we must now leave ALONE. That’s why Virgin Atlantic will operate on ‘Arctic-free fuel’ for as long as I’m in charge.”

Think of the market signal that would send. Of course, it needs cross-sector collaborative and pre-competitive approaches – no one company can do this (or anything comparably meaningful) alone. And it isn’t just fuel, it’s about the use of Arctic resources for a range of materials, such as plastics, clothing and so on. If a group of progressive CEOs, from airlines, consumer goods firms, clothing companies and packaging giants, were to send out this “Arctic-free” message, then the seemingly impossible would become a market imperative for energy companies. It’s been done in other sectors, many times over.

There is no perfect fossil fuel, and there will always be social and environmental issues around any oil extraction. But we can draw a line in the Arctic ice. We must do so without delay. The question for Shell is whether it could potentially be a beneficiary of such a trend, or the lonely laggard that failed to wake up to what its customer base was saying.

Shell portrays itself as a buzzing hub of innovation, exploring the frontiers of new energy sources in a fast changing world. In its stubborn refusal to abandon its Arctic misadventure, it confirms it is still, at its core, a fossil fuel hungry dinosaur. The question is whether Shell will finally see sense, and get out before it’s too late.

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