EIS 34

Written evidence submitted by Shell International Ltd

What is the contribution to the UK economy of extractive industries in the UK?

Shell has had a home in the UK since the founding of Shell Transport and Trading in 1897. As the UK’s largest listed company, Shell makes a major contribution to the UK, not just through delivering energy and providing products and services to our customers, but also through employment, tax revenues and investment, which boosts the economy. Approximately £1 out of every £10 of all dividends paid in the FTSE 100 last year came from Shell.

In conjunction with its co-ventures, Shell operates around 12% of the UK’s production of oil and gas and invests around $2bn per annum in the North Sea. Shell has played a significant role in diversifying UK gas supply through the operation of an infrastructure that processes 35% of the gas coming into the UK. In addition to developing our assets in the North Sea, Shell is working on several projects in the UK, including: the first full scale gas power Carbon Capture and Storage (CCS) project at the Peterhead power station; a new fuel import terminal at Coryton in Essex and our investment in and successful integration of 250 recently acquired new petrol stations.

Shell has a long history of supporting the UK’s highly developed oil and gas supply chains demonstrated by an extensive number of partnerships with UK companies on our projects throughout the world as seen in the examples below. Around 80-85% of the exploration and production spend for Shell U.K. Ltd is placed with UK companies. For instance, around 500 million $ of the Majnoon project in Iraq is to UK companies. In addition, UK companies attract a significant amount of work from other Shell exploration and production operations such as the Netherlands and Norway, where respectively approximately 10% and 15% of annual spend goes to UK suppliers.

Shell is also investing in decarbonising the extractive industry sector. We are working with Scottish power provided, SSE, towards an integrated Carbon Capture and Storage (CCS) project from the Peterhead (gas-fired) power station to the offshore Goldeneye depleted gas reservoir. This project is in the final stage of the competition for UK government co-funding. This project will bring many economic benefits such as job creation from the provision of goods and services across the full CCS chain. Other economic benefits will arise from helping UK’s economy to remain productive and competitive by providing the technologies that will secure a flexible, reliable and low carbon energy system. Further, the UK’s competitiveness in the sector will be strengthened by developing expertise in the CCS sector.

Outside the Exploration and Production sector, other areas of Shell business such as downstream fuels and lubricants, corporate activities, and research and development contribute strongly to the UK supply chain. Shell’s expenditure brings significant income for UK industry and government, as well as delivering a range of additional benefits such as infrastructure, employment, and supporting services.  The long history and high level of activity in the UK oil and gas industry has allowed for the development of skills and technological excellence which is exported around the globe. Examples include contract values to UK companies of around $500 million contributing to Shell projects in Nigeria and Iraq and opening up strategic growth markets to UK industry.

The decommissioning of the Brent field in the North Sea opens up significant employment and business opportunities to the local market in the next decades. This includes both skilled and unskilled work in services such as transport, scrap handling and waste disposal. In addition, this presents an opportunity to achieve global excellence in decommissioning that can be exported across the globe. 

A consortium of Shell, Vopak and Greenergy acquired the terminal assets at the Coryton refinery (formerly owned by Petroplus) in September 2012. Redevelopment of the site into an import and distribution terminal called Thames Oilport is underway and the first phase is due to be operational in Q4 2013. The site has a unique quality as a UK terminal - deep water access, meaning larger ships can bring in finished products directly into the UK market. This will connect the UK market to, for example, the global diesel supply chain, affording long-term access to competitively priced product for UK consumers.

Shell also contributes to the UK through its social investment programs which focus on enterprise development. Shell Springboard and Shell LiveWIRE provide support to low carbon entrepreneurs and young entrepreneurs to start-up and grow their businesses. Support is provided through monthly start up grants, an annual awards programme, networking opportunities and online business advice. LiveWIRE winners contribute approximately 100 jobs to the UK economy each year and £800,000. Winners of both of these programs have gone on to set up successful enterprises such as GlassesDirect.com who won the Shell LiveWIRE Young Entrepreneur of the Year Award in 2005. GlassesDirect.com has grown into a £12 million per annum (turnover) online eyewear retailer employing more than 50 staff in the UK. Through these programs to date more than £7.5m has been awarded to entrepreneurs in the UK.

How do the UK based extractive industries support employment a) in the UK and b) for UK citizens overseas?

Currently Shell directly employs over 6000 personnel in the UK (as at Sept 1st 2013). Moreover, the UK is one of Shell’s largest sources of talent. We have nearly 2,000 British nationals working for Shell overseas in more than 50 countries, where they bring specialist skills to our oil, gas and chemicals projects and operations.

Shell supports UK universities, through sourcing graduates to work in the UK and internationally, year to date for 2013 Shell has recruited 65 students to work in the UK, 55 to work internationally (as at Sept 1st 2013). Shell owns approximately 850 service stations which are operated under Retailer Business Agreements (RBAs), by independent business men and women who run clusters of between five and 12 sites each. Shell UK has around 110 RBAs, all of whom provide employment for many people.

Is there sufficient engagement between UK extractive industries and the NGO sector? Are there examples of best practice in engagement between the extractive industries and NGOs?

Industry can achieve more when working in partnership with governments, communities and NGOs. We work closely with NGOs across all areas of our business and believe such collaboration helps us operate more safely and responsibly. Close scrutiny of our industry from the NGO sector helps raise broader public awareness of the energy and environmental dilemmas the world faces. It can help shape government policies for the better, and it can help raise operational standards across the board.

As above, working with experts from leading environmental organisations helps us better understand and address the challenges we face in running our facilities and developing major projects. Through our partnerships with leading environmental organisations we continue to find new ways to manage environmental challenges and improve the way we develop our projects. In 2012, Shell worked with Wetlands International on ecosystem baseline studies of the Timan-Pechora region of northern Russia, where Shell is planning a new exploration project. Shell was one of several companies and organisations that commissioned an independent study through IUCN on the relationship between extractive industries and natural World Heritage sites. The study report proposes practical ways of strengthening the role of the World Heritage Convention in safeguarding these special areas. Our partnership with Earthwatch enables Shell employees to work with scientists on research projects around the world. This includes our support for its research and learning programme in the rainforests of the Sabah region of Borneo, Malaysia. Our employees are working with scientists to understand the effects of logging and changes in land use, and the resilience of these rainforests to the potential effects of climate change. With The Nature Conservancy we are working to find ways to use artificially engineered oyster reefs as breakwaters to reduce coastal erosion in Louisiana, USA. This approach can also protect pipelines in the area.

Would increased regulation for London listed extractives companies result in competition from elsewhere or can it be used to make the UK a centre of excellence for best practice and corporate governance?

Stability in a regulatory regime and a level playing field globally are critical for incentivising the necessary investments in our energy infrastructure; upstream and downstream and maintaining competiveness for UK companies. We welcome effective legislation where it can demonstrate excellence for best practice and corporate governance and can be exported to other countries, thus enhancing the UK’s competitiveness. Shell is a founder member and strong supporter of the “Extractive Industries Transparency Initiative” (EITI) and therefore welcomes efforts to improve transparency. However, it is important to ensure a level playing field globally; so that the UK companies are not competitively disadvantaged.

What is the competitive landscape for the extractive industries in the 21st Century and is it in the UK’s interest to remain a global centre for them?

There is clear evidence that demonstrates the ongoing role for oil and gas production into the 21st Century. Analysis by the International Energy Agency (IEA, World Energy Outlook, 2012) showed how fossil fuels remain dominant in the global energy mix up to 2035, despite the growth in low carbon sources of energy, in part due to an overall rise in energy demand. Clearly, the UK must remain competitive and can do so by offering a stable and streamlined regulatory regime and providing additional policy support where necessary. For example, support for Carbon Capture and Storage is essential to enable it to progress through the demonstration phase into commercial deployment. Without such support, CCS will not reach its full potential of helping decarbonise the energy mix and ensuring that energy sources like gas, continue to provide secure and reliable energy supplies. Without these, the benefits that extractive industries can bring to the UK could be limited.

4 October 2013