The 'People versus Shell' landmark ruling implications
A Netherlands court has ruled that Shell must reduce its emissions by 45% by 2030 compared to 2019 levels - the first time a company has been legally obliged to align its policies with the Paris climate accords.
While Shell has committed itself to net zero by 2050, its near-term targets have only concerned the 'carbon intensity' of its business. The ruling means Shell, in line with other majors, must ramp up its decarbonisation efforts.
Shell's Projects & Technology Director Harry Brekelmans said it "expects to appeal" the decision.
“We are investing billions of dollars in low-carbon energy, including electric vehicle charging, hydrogen, renewables and biofuels," he said. "We want to grow demand for these products and scale up our new energy businesses even more quickly."
Yesterday's ruling makes that a legal, as much as a commercial, imperative. The legal action was brought by Friends of the Earth Netherlands (Milieudefensie) together with 17,000 co-plaintiffs and six other organisations.
Rachel Kennerley, climate campaigner at Friends of the Earth England, Wales and Northern Ireland said: “Today an historic line has been drawn, no more spin, no more greenwashing, big oil is over. The future is in clean renewables. This is also for the urgent attention of the UK government, because real emissions reductions are required urgently, not offsetting or other smoke and mirrors distractions."
Shell said it has built around 200 fast charging points, increasing to 250 by the end of the year, and will offer 200,000 charging points throughout Europe, through its subsidiary NewMotion.
It is opening hydrogen fueling stations and has plans to build electrolysers in the Port of Rotterdam and the Eemshaven for green hydrogen production from green electricity. These hydrogen plants could reduce industry emissions, are at the centre of new value chains (wind to hydrogen to industries/freight transport) and provide jobs.
But the clear message inside and outside the courtrooms is the industry needs to act faster. Last week the IEA turned up the heat on the oil industry, stating no new oil and gas fields should be developed from this year in its Net Zero by 2050 report.
In the near term, the report describes a net zero pathway that requires 'the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation.'
The difficulty for majors is reconciling environmental strategies with financial practicalities, in a world that still evolves around oil and gas. How can organisations balance legacy core hydrocarbon businesses while also diversifying into a range of low-carbon options? The 'double whammy' of the pandemic and declining oil prices has rocked the industry to the core. In the first three quarters of 2020 alone, oil and gas companies in North America and Europe wrote down asset values of $145 billion.
bp and ENI recently signed an MoU to combine their upstream portfolios in Angola, including all oil, gas and LNG interests, and it announced gas production from the Raven field, the third stage of its major West Nile Delta (WND) development off the Mediterranean coast in Egypt - part of a $9 billion development. Though in sustainable moves, it also teamed up with CEMEX and secured planning approval for upscaling plans for the Wellington North solar project.
"The first response of oil and gas companies ... must be to build a portfolio that is resilient to both lower commodity prices and higher carbon prices," advises a McKinsey report.
According to McKinsey’s 1.5-degree-pathway scenario, over the next decade $750 billion is needed to flow to CCUS, $200 billion to EV infrastructure, and $700 billion to hydrogen-production capacity, while Renewable power capital expenditures of $8.5 trillion are required to build the solar and on- and offshore wind capacity required from 2020 to 2030.
"We continue to take significant steps to accelerate the transition of our business to net-zero emissions, which includes working with our suppliers, customers and other partners in reducing their emissions," said Brekelmans. "To find the solutions the world needs, we continue to engage in dialogue with NGOs, industry partners, governments, academia, shareholders and wider society."
Magellan, Enterprise and ICE unveil new futures contract
The Midland WTI American Gulf Coast contract is being launched in response to market interest for a Houston-based index with greater scale, flow assurance and price transparency. It will use the capabilities and global reach of ICE’s trading platform and is due to be launched by ICE by early 2022, subject to regulatory approval.
The quality specifications of the new futures contract will be consistent with a West Texas Intermediate crude oil originating from the Permian Basin with common delivery options at either the Magellan East Houston terminal or the Enterprise Crude Houston terminal. In support of this new futures contract, Magellan and Enterprise anticipate discontinuing their existing provisions for delivery services under the current futures contracts deliverable at each terminal once the new contract receives regulatory approval and is finalised.
“Magellan is pleased to join forces with Enterprise and ICE to offer this leading-edge joint futures contract,” said Aaron Milford, Magellan’s chief operating officer. “The new contract improves the transparency, flexibility and marketability of Midland WTI crude oil for Gulf Coast and export customers while maintaining industry-recognized quality and consistency.”
Harold Hamm, Chairman of the Board of Continental Resources and Founding Member of the American Gulf Coast Select Best Practices Task Force Association said on April 20 last year, when the Cushing, Oklahoma WTI contract traded down to -$38, it was a wake-up call to the oil industry that the storage constraints and landlocked location of the Cushing contract could no longer be ignored.
"I started the American Gulf Coast Select Best Practices Task Force to develop specifications for a new US light sweet crude oil price benchmark in the American Gulf Coast, and to advocate for its implementation and adoption as the main pricing point for the US oil markets," he said.
"We think a futures contract in the most interconnected market center in the country, with a widely accepted quality spec, which settles with guaranteed delivery of crude oil is an important new alternative for the industry. The task force has worked tirelessly to create a marker with transparency and liquidity that is waterborne for this modern era. The Midland WTI American Gulf Coast futures contract ... is a huge step forward for the industry and goes a long way to accomplishing the mission on which the task force has been working.”
Brent Secrest, Executive Vice President and Chief Commercial Officer of Enterprise’s general partner, said: “We are excited about this new crude oil futures contract, which features the combined strength of two extensive and complementary networks of midstream assets with a world-class trading platform to provide customers with greater supply reliability, flexibility and price transparency.
As the market hub for Permian Basin production, Houston represents the most logical choice for a new futures contract. Between Magellan and Enterprise, we offer access to virtually all of the export capacity in the Houston region, redundant connectivity to all area refineries, a robust Gulf Coast storage position and interconnects to all of the relevant supply pipelines, including those owned by third parties.”
Jeff Barbuto, Global Head of Oil Markets at ICE, said combining efforts with Magellan and Enterprise to establish a benchmark for pricing Midland quality WTI on the Gulf Coast allows it to offer the industry a futures contract with over four million bpd of supply capacity from Midland into Houston, access to both domestic and foreign demand, and nearly 60 million barrels of storage capacity in the Magellan and Enterprise systems.
"Traded on the same global platform as ICE Brent, Murban and Platts Dubai Crude Oil futures contracts, the new Midland WTI American Gulf Coast contract can also offer significant capital efficiencies to the industry and provide industry-leading quality that buyers have grown accustomed to in the Houston market," he said.
According to EIA forecasts, global consumption of petroleum and liquid fuels will average 97.7 million bpd for all of 2021, a 5.4 million bpd increase from 2020. US crude oil production averaged 11.2 million bpd in March, up 1.4 million on February.