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Dec-2019

Case study: How Shell is navigating the energy transition (ERTC)

Although the transportation sector’s trend towards electrification offers important climate change and air quality benefits, it presents many energy companies with profound strategic challenges.

Andy Gosse
Shell Catalysts & Technologies
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Article Summary
In discussing Shell’s wide-ranging plans to navigate the energy transition, this case study may also provide valuable insights for other energy companies.

Our planet’s energy system is changing. A growing population and rising living standards require more energy, but the world must also find ways to reduce carbon dioxide (CO2) emissions and tackle climate change.

Indeed, the Paris Agreement has sent a signal around the world: climate change is a serious issue that governments are determined to address. In addition, politicians are now under increasing pressure to ensure improved air quality, particularly in urban areas. Some analysts argue that this factor now has a greater influence on transport policy decisions than the wider concerns about climate change.

Partly as a consequence of these trends, which are shown in Figure 1, the energy mix is changing. Renewable energy and diversified supplies are increasingly important, including solar power, wind farms and biofuels, and electric vehicles are gaining consumer acceptance.

The impact on refining and petrochemicals
But what impact will the trend towards a lower carbon energy system have on refineries? After all, about 50% of refinery output is directed towards road transportation fuels, so any substantial moves towards electrification could have significant potential to reduce demand for diesel and gasoline.

Although there is no doubt that battery electric vehicles are an important and growing part of the transport mix, the International Energy Agency believes that, even by 2040, only 7.5% of the two billion cars that will be on the road will be electric.

And then there are planes, ships and heavy trucks. The lower carbon answers are especially challenging here, so oil will likely still be needed for decades to come.

Furthermore, refineries feed petrochemicals, which are vital to our evolving modern society. In our offices, cars and homes, while we are at work and while we relax, we continue to increase our use of products that begin life as petrochemicals. Economic growth drives demand in petrochemicals. The desire of consumers and societies for lower carbon solutions will also increase that demand. Many finished products made from petrochemicals use fewer resources and have a lower environmental impact than the glass, paper or metal products they replace. Efficient insulation, synthetic textiles and low-temperature detergents, for instance, all save energy and reduce CO2 emissions. Consequently, Shell expects its chemicals business to help it thrive through the energy transition.

Of course, there are still major challenges for the operators of refineries and petrochemical plants to overcome. For example, responding to tightening environmental regulations and finding ways to minimise the amount of bottoms sent to the bunker fuel pool remain strategic priorities for many. Meanwhile, as the pressure on margins and utilisation continues to intensify, many are looking to enhance their competitiveness by moving away from bulk commodity products to more differentiated products.

Shell, therefore, plans to continue to reshape its refining portfolio over the next decade with both divestments and investments. It intends to ensure that its global presence matches that of its customers, trading operations and chemicals plants, and that the remaining portfolio delivers resilient returns.

Shell’s responses to the energy transition
Beyond its downstream network, Shell is taking a broad range of additional actions to ensure that it thrives as the world transitions to lower carbon energy.

For example, it has established a new business arm, New Energies, whose focus includes wind and solar power, charging points for electric vehicles and lower carbon biofuels. It also announced an ambition to reduce the Net Carbon Footprint (www.shell.com/ncf) of the energy products it sells by about half by 2050, and by about 20% by 2035.

In practice, as shown in Figure 2, its Net Carbon Footprint ambition starts with ensuring its own operations use energy as efficiently as possible. But, as most of the emissions associated with its energy products come from customers’ use of those products, achieving the Net Carbon Footprint ambition means that Shell has to change the make-up of its product portfolio. Probably the greatest contribution Shell can make right now is to continue to increase the role of natural gas to fuel transport, heat and light homes, and power industries because natural gas is less carbon intensive than both coal and oil.

Shell is also investing in low carbon businesses and technologies. These include biofuels, hydrogen, wind and solar power, carbon capture and storage (CCS) technology and nature-based solutions such as reforestation. These investments will mean it can offer new solutions to customers; for example, its nature-based solutions programme offers Shell customers in the Netherlands nature-based carbon credits to compensate for the carbon associated with the use of fuels purchased from Shell.

Shell also develops scenarios that offer descriptions of what could be done – plausible pathways for the future. The latest scenario, called Sky (www.shell.com/skyscenario), sets out a challenging but technically possible route the world could follow to transform the global energy system and meet the aim of the Paris Agreement.

Another of Shell’s responses has been to create a new organisation that is designed to support companies through the energy transition – Shell Catalysts & Technologies.

Launched earlier this year, this exciting new business is the consolidation of Shell’s catalyst, technology and services enterprises: Shell Global Solutions, Criterion Catalysts & Technologies and CRI Catalyst Company. As its tagline, “transforming energy together”, suggests, its purpose is to provide the sector with solutions that will enable more and cleaner energy.

Helping European refiners to navigate the energy transition
The creation of Shell Catalysts & Technologies thus provides valuable opportunities for European refiners. Over the years, Shell has developed various technologies that can help refiners to provide more and cleaner energy; these are now available from Shell Catalysts & Technologies. For example, they include the latest generation process technology, reactor internals and catalysts. The new combined organisation means that customers can benefit from integrated and customised technology solutions that are optimised for their catalysts.

Another solution that could help refiners as the energy transition develops is Shell Catalysts & Technologies’ flexible hydrocracking technology. By generating increased amounts of light naphtha that can be used as chemicals feedstock, it is a key enabler of refinery–petrochemical integration, which is increasingly important as refiners look for ways to differentiate.

Shell Catalysts & Technologies can also help with CCS. For example, it offers two leading carbon-capture technologies that have established strong track records of performing this increasingly important function cost-effectively in a wide range of industries: the Shell CANSOLV CO2 Capture System for capturing CO2 from low-pressure streams such as flue gas; and Shell ADIP ULTRA technology for capturing CO2 from high-pressure process streams.

In addition, Shell’s residue gasification technology provides a high-purity CO2 stream that is suitable for CCS.

Transforming energy together
Understanding what the energy transition means to an energy company is likely to be one of the biggest strategic questions facing its leadership. But Shell, as an owner–operator, faces the same challenges as the rest of the sector and is making investments that will help to create the energy system of the future, while Shell Catalysts & Technologies exists to help others to safeguard their competitive position as the energy transition develops.

This short article originally appeared in the 2019 ERTC Newspaper, produced by PTQ / DigitalRefining.

You can view the digital issue here - http://www.eptq.com/digitalPTQ/2019-ertc/html5/index.html?&locale=ENG
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