The End of Royal Dutch Shell?

Today I read of the demise of Royal Dutch Shell – that huge unconscious behemoth employing 104,000 people around the world with 22B profits and revenues greater than USD300B per year.

Well it wasn’t the specifically the demise, but the decision – that defining moment  that will lead to Shell’s demise – that I read about.

The article was in Professional Engineering, 25th March 2009, Page 4:  Royal Dutch Shell has announced that it will no longer invest in renewable energy sources (wind, solar and hydropower). Whilst it will still remain a “committed member” of the Energy Technologies Institute (ETI)*, Royal Dutch Shell will invest in biofuels and carbon capture.

Why do I say that this is the beginning of the end for Royal Dutch Shell?  Isn’t the world looking at carbon capture?  Isn’t “clean coal” the new buzz word?  Isn’t corn ethanol our salvation?

No they are not.

Carbon capture simply raises the costs of using existing fossil fuels, and defers the problem of carbon dioxide disposal to future generations.

Biofuels are not only expensive and marginally carbon neutral, they raise the cost of food for people, and increase the rate of degradation of the worlds remaining, dwindling farming lands.

Free, abundant energy from the Sun is the answer – captured by photovoltaics, wind power and hydro.

Remember, that wind is also created because of the Sun: hot air rises, and cool air rushes in to fill the gap: wind power is solar energy one step removed. Hydro: capturing the energy of falling water from rain caused by heating of the earth by the Sun, solar energy two steps removed.

Shell is missing an important factor: the rapidly reducing cost of producing electricity from solar panels.  

By 2015 using the Sun to directly produce electricity from photovoltaics will be an economic reality for every one. The cost to produce electricity is presently around $0.20 per kWhr and with reducing manufacturing costs this will reach $0.10 per kWhr by 2015 – directly competitive with power from coal, with no government subsidies or incentives in sight!

This is supported by research from the RMI (Rocky Mountain Institute). [Here’s Amory Lovins, director of the RMI, speaking about it: Amory Lovins on winning the oil endgame]

First Solar: the worlds largest billion dollar manufacturer of solar cells is rapidly approaching 1 GigaWatt in annual production capacity. They are already manufacturing at $0.93 per Watt – this is as of the 30th of April 2009.

So why has Shell taken this monumental decision – not to invest in wind and solar – only a handful of years from the tipping point?

A few reasons:

Shell is a fossil fuel company making business by selling the stored energy of the sun for over 100 years. The leadership, the management, and hence the culture of Shell is fossil fuels. This inertia is difficult to refocus.

Fossil fuels are also still highly profitable: production costs are still less than $10 per barrel in most parts of the world (and here in the middle east, it’s less than 2), so there’s a heck of a lot of profit still to be made. And profit, well that will drive us for a long time to come.

The worlds present infrastructure, the system, is built on a fossil fuel economy. As a people we fear change, and strive to maintain a constant regular environment around us.  This drives short term thinking and puts off long term decision making.

Perhaps Shell believe they can delay the tipping point?

Can they can buy up – and lock up – the new technologies. Yes, I suppose they could, in the short term. What lengths would you go to to protect a $300B business? You certainly have a lot of money to support what ever strategy you wanted!

For example, technology developed by Stanford R. Ovshinsky, leader in thin film photovoltaic and Li-Ion battery technology – was bought and locked up by Exxon Mobile in the early 2000’s.  (Watch “Who Killed the Electric Car” for this reference). What has happened since? Newer, better technologies, made the purchase by Exxon redundant. It slowed the shift but didn’t stop it.

So what?  So solar panels can make cheap electicity?  Who cares? Well everyone will.  When the cost of placing solar panels on the home roof is less than the annual fuel bill for the home car, then most people will want to switch to an electric car and charge it with the power collected from those solar panels (Electric car technology is more than suitable right now – see Tesla Motors, backed by one of the founders of Google, or the stylish two seater vehicle from Aptera Motors).

A shift will occur.

Four  key things will happen:
1) Demand for electric cars will surge
2) Demand for oil will drop
3) Power generation will become decentralised, as consumers control the generation of their own electricity
4) Demand for coal will drop

The age of fossil fuels will be over.

And Shell, by the looks of their current policy will be over with it.

How long will the shift take? Perhaps 10 to 20 years after the tipping point is reached. Perhaps less. The first world war (1914 – 1918) was a war waged on crude oil.  The diesel engine was developed a mere 25 years earlier in the 1890’s. Trucks, tanks, battlecruisers and even cars and planes using similar technology where all driven by refined crude oil was used for the first time on a huge scale during this war.  It established the fossil fuel economy.

So the time frame for the next shift will be about the same, perhaps less because sharing the information can now happen at the speed of the internet.

What a time to be alive!

Jeremiah Josey

* By the way, Royal Dutch Shell has committed a paltry 50M GBP to the ETI over 10 years. The company profit presently exceeds 60M GBP per day.


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