Shell Retires Renewable Energy Business

Guest post by Alex Park

Shell might not have been a major player in clean tech, having never dedicated more that around 1 percent of its investments to renewable energy, or a paltry 1.25 billion dollars between 1999 and 2006. But as of this week, Shell has decided that it won't be a clean tech player at all. The reason? In the words of one exec, "We do not expect material amounts of investment in those areas going forward." That's according to a story posted yesterday in Reuters.

In other words, even with diminishing oil production, even with Obama in the White House, even with climate change, Shell is taking its money out of renewable energy because as of yet, it is simply not bolstering the firm's bottom line. And if it can't do that, then Shell can't stay in renewables if it wants to stay in business. It's that simple.

But the news is not just about Shell...

Shell never backed climate change denial with the same vigor as Exxon Mobil, but it wasn't exactly known for having a positive impact on the environment, either. So when Shell, along with BP and Chevron, announced an investment shift into clean tech at the beginning of the decade, many anxious observers declared it proof that renewables were on their way to replacing oil without radical technological advancement.

Now that paradigm is shattered, and the environmental crowd needs to take note: First, in it's current technological state, most renewable energy technologies cost too much to make much business sense, plain and simple. Second, the existing array of push factors - political pressure, peak oil, climate change, and the threat of a cap and trade system and/or a carbon tax - are only enough to get Big Oil to temporarily rethink aspects of it's business plan, not to chart out a radical new path towards renewable energy.

Is that a big surprise? Hopefully its a big wake-up call to environmentalists, because it will certainly be that to Big Oil. In the next year, expect Shell's industry peers who followed suit with their own developments in wind, solar and geothermal to start making similar announcements. The likelihood is that oil executives across the board who made the choice to diversify can already see the news in their accounting statements. Chances are, we'll see it in our headlines before long, too.

The curious thing is, with the above mentioned push factors, Shell and its peers should want an alternative to oil. Peak oil in particular poses a dire threat to the business. Big Oil could wiggle its way out of cap and trade and climate tax, if only because most of its operations happen out of the country. But increased oil scarcity is a real, present threat.

Last year, Exxon Mobil - by far the biggest oil company in the world - boosted its exploration and development budget 25%, or 125 billion dollars over five years. Like Shell, Exxon's oil production has also diminished, and most of its future resource base is staked not in conventional oil and gas deposits, but in the far harder to process, far more expensive to exploit tar sands.

Peak oil is probably a better explanation why Shell and other oil companies started toying with the idea of renewables in the first place. Exxon has staked its entire future on unconventional oil sources and future exploration, on the hope that something will turn up where no one has found it before.

But Shell, along with BP, Chevron, ConnocoPhillips and others, devoted at least some of its resources looking for a future in alternative energy. Like Exxon, Shell's investment in renewable energy was part of an effort to bolster future profits in a world of diminishing oil, and to secure a piece of the energy pie in coming decades. In that case, by announcing its retirement from the clean tech game, Shell has signaled that it's no longer betting any money that wind, solar and geothermal will be a significant part of the energy mix in the future. The safer bet is on expensive tar sands, and guarantee-less exploration projects deep inside the earth.

And that should be the real wake up call: renewable energy is not just prohibitively expensive. Shell is betting, once and for all, that given its current rate of development, the future of renewable energy is less secure than the future of oil.

Alex Park is an Oakland native, and now a senior Sociology major at Macalester College in Saint Paul, MN. Alex hopes to pursue a career in journalism to report on the social implications of energy policy and deployment in the developing world.

Comments

Another factor that should be considered is that natural gas is becoming more accessible (e.g., shale gas) and LNG is growing throughout the world (though local communities in the US appear to be more forcefully opposing the terminals). The alternatives advocates (myself included) need to keep in mind that these are moving targets.

By R Margolis on 2009 03 23