Memorandum by Shell UK
SHELL IN THE UK
In the UK, Shell is engaged in the business
of Exploration and Production, Oil Products, Chemicals, Gas and
Power, Renewables and other activities. With centres in the Northwest
of England, Scotland, and London, Shell provides more than 8,000
direct jobs and 80,000 indirect jobs across the United Kingdom.
The following summarises Shell in the UK:
has equity in around 12% of the UK's
oil and gas production, having operated in the North Sea since
provides 15% of the UK's oil products;
operates approximately 1,000 petrol
stations, nation wide;
aiming to develop, with partners,
two large scale offshore wind farms; one of which would be among
the world's largest;
paid $1,209 million in UK taxes in
Shell's international businesses
spent approximately $4.5 billion with UK suppliers in 2005.
Shell recognises the energy challenge to ensure
sufficient, clean, affordable and secure energy nationally and
internationally, in the short-term and into the long-term future.
Meeting this energy challenge requires organisation, skills, technology,
finance, and the ability to manage risk, benefiting from the wisdom
of markets, long term resilience and aligned effort on a global
Shell will be responding fully to the Government's
consultation as part of its Energy Review as well as responding
to the European Union's own Green Paper on energy, "A European
Strategy for Sustainable, Competitive and Secure Energy".
Our response is in development and we are participating in discussions
through the DTI's seminars as well as a range of other stakeholder
events. Our full response to the Energy Review will be copied
to the Committee in April.
Below are set out Shell's views on the key areas
upon which the Committee seeks views as well as further comments
on how Shell can contribute to meeting the energy challenge.
2. THE IMPLICATIONS
Shell recognises that concerns have been expressed
as the UK moves from being self-sufficient in gas to becoming
a significant importer. However, Shell considers that gas should
continue to play a key role in affordably delivering security
of energy supply to the UK.
The UK will need to replace some of its ageing
electricity generation stations over the next 20 years and it
is likely that some of the new stations will be gas fired. However,
it is important to recognise that gas is used not only for electricity
generation but for heating our homes and offices and for industrial
purposes, meeting about 40% of the UK's primary energy needs.
The UK has been in the fortunate position over
recent years that this gas has come from indigenous sources. This
distinguishes it from a number of other major economies such as
Germany, France and Japan that have had to import substantial
quantities of gas for decades. But while gas production in the
UK sector of the North Sea has probably now peaked and the UK
is becoming a net importer of gas, Shell believes that gas will
continue to play a key role in affordably delivering security
of energy supply to the UK.
While gas supplies have been tight over the
last winter and may also be tight in the coming winter, new projects
aimed at bringing additional supplies to the UK are currently
under way. For example, the Ormen Lange gas field and the Balgzand-Bacton
Line (BBL) will offer the opportunity for substantial new gas
supplies to the UK, from 2007 to beyond 2020.
Gas needs to play a major role in the long-term
energy mix. Gas is clean, with the lowest carbon footprint of
the fossil fuels. In addition, it is difficult to see what other
source of primary energy could replace gas as a substantial proportion
of the overall mix. Self-sufficiency in energy is not a realistic
option for the UK. Therefore policy frameworks need to be actively
designed to ensure efficient markets, a sufficiency of supply,
diversification and the use of the tools available for effective
mitigation of risks. While oil markets have been international
markets for a long time, gas markets are only recently become
international. With an increasing number of LNG projects and a
rapidly growing number of LNG ships around the world, the LNG
market is becoming increasingly international. In addition, pipelines
are bringing gas to regional markets. This process is likely to
continue, particularly as European gas markets are deregulated
and made more international.
Against the above background the Energy Review
needs to confirm gas as a major component of the long-term energy
mix. The following themes need to be present in the Energy Review
to ensure that the advantages of gas are realised in full and
the associated risks are effectively mitigated.
Maximising indigenous production: the
UK sector of the North Sea has been in production for 30-40 years.
It is now in "vigorous middle age". Future reserves
could be substantial but are going to be more difficult to find
and produce. It is vital that the incentives are maximised for
oil and gas production in the UK sector of the North Sea. Human
and engineering resources are in tight supply worldwide. Once
resources leave the North Sea it is difficult to get them back.
Therefore, consistent and competitive incentives for licensing
and fiscal charges are crucial for the North Sea. The recent tax
rise that reduced North Sea cash flows by 17% was retrograde to
Diversifying sources of supply: gas can
be supplied from domestic sources, by pipeline from Norway, by
pipeline from continental Europe and by LNG from several sources
around the world. This provides a well diversified set of supply
sources. What are needed in addition are the commercial frameworks,
the incentives and the relationships to ensure supply.
Providing a stable and predictable framework:
it is of utmost importance to create and maintain regulatory stability.
Without such stability the investment climate will suffer and
consequently security of supply will be put at risk. It is also
important to realise what role long-term contracts play: While
we acknowledge that there is a role for short-term business in
the gas market, we also see that the gas business in Europe is
fundamentally long-term orientated. The role of long-term contracts
is also reflected in the gas Directive and the Security of Gas
The European high level Green Paper on energy
is welcome. The EU has an important role to play in securing European
energy supply and the efficiency of European markets, by supporting
enterprise initiatives and ensuring coordination across national
governments, especially towards non-EU partners and other stakeholders.
Shell recognises the need for co-operation at the EU level as
markets become more integrated and welcomes proposals to improve
external relations with major energy-producing and consuming countries
based on reciprocity.
Support the market structures that provide
seasonal balancing: Until recently, the UK has depended on
swing gas fields in the Southern North Sea to respond to peak
gas demand as is normally experienced in winter. Many European
countries have not had access to swing gas fields and instead
have invested in long-range gas storage. As the structure of the
UK gas supply is set to change, it is important that seasonal
flexibility is provided; this could include investment in new
Planning consents for new infrastructure:
planning consents are likely to be needed for regassification
terminals, for storage and for pipeline landfalls. It is crucial
that streamlined processes are put in place for planning consents.
This needs to be supported by very open public debate about energy
needs and the pros and cons of different energy supply options.
Promoting partnerships and relationships
with major gas suppliers around the world: a number of countries
are major suppliers to international gas markets. On the basis
that the UK needs to be a participant in these markets the importance
of good relationships and mutual understandings is high. Effort
needs to be put into this at governmental and institutional levels,
in conjunction with the EU. In addition partnerships among energy
companies in these "resource holding" countries and
the UK's major energy companies should be promoted as supporting
common goals of secure markets in exchange for secure supplies.
3. NUCLEAR ENERGY
Shell is not involved in the nuclear power business.
We consider its role in the UK electricity mix is rightly a matter
for the Government and public debate. It is for the utility and
electricity generation companies to decide whether they wish to
make investment in new nuclear stations. However, a decision to
build new nuclear power stations is likely to require special
incentive arrangements. These arrangements may include changes
to the regulatory environment or financial incentives to be developed
should not preclude other forms of low carbon energy being developed.
For example, as discussed above, the Review should consider changes
to the planning regime to allow timely investment to provide
for energy security of supply. This will apply to plans to develop
nuclear power stations but also for other energy infrastructure
projects, such as wind farms and storage sites.
Shell is encouraging an approach by Government
that does not "pick winners" but instead focuses on
the outputs to be achieved, whether these are carbon reduction
targets or security of supply. We advocate an approach that provides
a level playing field between competing fuels and approaches to
carbon management. The Review should focus on market incentives
to deliver its carbon management objectives. Using an approach
that involves market mechanisms should minimise the burden on
the Treasury and on energy consumers.
While gas will continue to play an important
role in meeting the UK's energy needs, Shell is also working on
responding to the energy challenge through: cleaner utilisation
of hydrocarbons (eg carbon capture and storage) and commercialisation
of renewable energy technologies (eg wind, hydrogen, and wind).
We have now invested over US $1billion in alternative energies,
making it one of the world's leading companies in the sector.
Shell believes that wind energy has real potential
for the UK as it has the best wind resource in Europe, as stated
by the Oxford University's Environmental Change Institute study
for the DTI published in November 2005. We believe that offshore
wind is vitally important to delivering the UK's renewables target
and this in turn is a key component for delivery of the CO2 target.
We are focusing on the development and operation of two offshore
wind farms in the UK. Offshore wind needs to be encouraged as
it has the economies of scales required to make a significant
contribution to low carbon energy. Our two projects are:
London Array, in the outer Thames
Estuary, is the flagship project of the UK offshore wind industry
and if it proceeds it will be the world's first gigawatt (1,000
MW) scale offshore wind farm. It will contribute nearly 10% of
the UK's 2010 renewable energy target and offset the emission
of 1.9 million tonnes of CO2 each year.
Shell is one of three companies that
have been granted an option to lease an area of the Irish Sea
from the Crown Estate to develop an offshore wind farm near Blackpool.
Development is dependent on the results of a full economic feasibility
study and environmental impact assessment.
Together these two projects would meet the electricity
needs of over 850,000 homes.
Shell has an established position as the world's
largest marketer of bio fuels, as well as a leading developer
of advanced bio fuels technologies. Shell is actively participating
in the implementation of the Renewable Transport Fuel Obligation
(RTFO) for 2010.
Shell has also recently announced a carbon capture
and storage project with Statoil in Norway to use carbon dioxide
to enhance oil recovery. If this project is successful, it could
be used elsewhere in the world to address the CO2 challenge.
In addition, clean coal energy could make an
important contribution to meeting the goals on energy supply diversification.
Coal gasification is a leading technology that it especially applicable
for carbon capture and storage. We believe that hydrogen will
become important in the future energy mix in the coming years
and we will responsibly champion this development.
Shell also responds to the energy challenge
by promoting and participating in informed debate through our
work on scenarios. We would draw to the Committee's attention
to the World Business Council for Sustainable Development's "Pathways
to 2050" document.