Shell chairman warns oil firms to prepare for end of hydrocarbon age

Royal Dutch/Shell Group chairman Ph. Watts has said that major oil companies should prepare for the end of the hydrocarbon age as alternative energies win over consumers in coming decades.

Watts predicted consumers would move toward hydrogen-powered vehicles and renewable energies, such as wind or solar power.

Speaking at the launch of Shell's Long Term Energy Scenarios forecast, Watts said, "One thing I am convinced of is that the next 50 years is not going to be more of the same. An energy company had better make sure it has the necessary expertise and knowledge."

He spoke in New York City to an audience of businessmen and representatives of nongovernmental organizations, under the auspices of the United Nations Development Program.

Shell, has moved firmly into the same camp as fellow oil super major BP PLC, which has made vigorous efforts to carve out an environmentally friendly public image. The world's largest oil firm, Exxon, has by contrast concentrated firmly on its oil and gas interests.

Shell has pledged to spend between $500 million and $1 billion in the next 5 years to develop new energy businesses, concentrating primarily on solar and wind energy.

"There will be different sources of energy by the middle of the century. It challenges what our portfolio will be," Watts said. "I don't know if Shell will be transmogrified by it, but I wouldn't like the opportunity to pass by default."

Oil currently provides 40% of primary energy use. While that will fall to 25% by 2050, oil will still be the major energy source, above gas at 20%, according to Shell figures.

"We are going to have oil and gas for many, many years," Watts said. "The internal combustion engine is not going to go away. It's going to fight for its life. Under pressure the internal combustion engine is going to develop."

He noted automakers already are selling hybrid cars that combine traditional engines with battery powered motors.

The vast markets of China and India are key examples of how nations and energy firms alike will need to balance rapidly growing energy needs with rising import dependence and environmental effects, Watts said.

Natural gas will initially pick up much of the slack as oil's preeminence wanes, Watts said. After that, the outlook is far less certain as new technologies fight to establish themselves.

"Which ever scenario plays out, we believe that in the medium term, natural gas will move center stage to become what I call the bridging fuel to get us from where we are now to where we will be in the future. In fact, expanding the use of natural gas is perhaps the single most important way of responding to the issue of climate change. And I can tell you the Royal Dutch/Shell Group is uniquely placed because of its technical expertise and geographical spread to be a prime mover in this transitional period.

"We could see an evolutionary progression, the so-called carbon shift, from coal to gas, to renewables, or possibly even to nuclear.

"A second scenario explores something rather more revolutionary; the potential for a truly hydrogen economy, growing out of new and exciting developments in fuel cells and advanced hydrocarbon technologies," he added.

According to one Shell scenario, rapid growth in fuel cells from 2025 -- which produce electricity from hydrogen and cut harmful emissions -- could shift the energy business dramatically away from oil long before it becomes scarce.

Radical changes possible in the energy business means the old order which dominated the last century -- companies such as Exxon, BP and Shell itself -- cannot afford to assume they will dominate for the next 100 years.

"That would be a very complacent view. Longevity in corporations is not the norm," said Watts.

Oil companies will have to be more sensitive to environmental concern, he added. "Companies are not charities but they do have values," he said.

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Oil mop-up starts after Alaskan pipe is punctured

Crews scrambled Friday to mop up the second-largest oil spill from the trans-Alaska pipeline after a rifle shot nearly halted about one-fifth of U.S. domestic production, officials said.

The first piercing of the 24-year-old pipeline by a bullet forced the operator Thursday to turn off the flow of 1 million barrels (42 million gallons) a day through the 800-mile-long pipeline, which runs from Prudhoe Bay in the Arctic to the Prince William Sound port of Valdez in the south.

Close to the pipeline's midpoint, about 50 miles north of Fairbanks, oil sprayed from the puncture to coat about two acres of ground in an area of tundra and stunted spruce, operator Alyeska Pipeline Service Co. said.



An estimated 6,600 barrels, or 277,000 gallons, gushed from the bullet hole, Alyeska said. Oil continued to spew Friday. The hole had not been plugged because of the high pressure in the line at that section, Alyeska said.

The company does not yet have a time estimate for the plugging, spokesman Tim Woolston said.

Alyeska has isolated the affected section of pipeline, which held about 20,000 barrels, or 840,000 gallons, of oil at the time of the leak, Woolston said. The amount has declined since then, he said. "Since early on, we have been draining the line slowly," he said.

CLEANUP PROCEDURE IS DESCRIBED

About 120 emergency workers were dispatched to the scene, along with representatives of regulatory agencies, the Alaska Department of Environmental Conservation said. Workers were setting up containment areas to collect the spilled oil and using vacuum trucks to suck it up and remove it, the conservation department said.

Woolston said the cleanup workers had picked up 357 barrels, or nearly 15,000 gallons, by midafternoon.

"The contamination is limited to a two-acre area, and it is limited with containment dikes and ponds that have been put in place," he said. "It has been described as a very stable situation, even though oil is still coming out of the line."

No animals and fish appeared to have been directly affected by the spill, the department said.

The Alaska State Troopers arrested a local man, Daniel Lewis, 37, for allegedly shooting the pipeline. He was charged with first-degree criminal mischief, driving while intoxicated, assault and misconduct involving a weapon and was jailed in Fairbanks, trooper spokesman Greg Wilkinson said.

The pipeline was built to withstand gunshots and has been hit by bullets in the past. But none had previously pierced the thick pipe's protective layers, which Woolston said consisted of an outer coating of galvanized metal, four inches of insulation and a half-inch of steel.

Wilkinson, the trooper spokesman, said merely that the pipeline had been fired on with "a high-powered rifle." A local television station identified the alleged weapon as a .338-caliber rifle. Ammunition that size is used for hunting large American and African game.

ALMOST ONE-FIFTH OF U.S. OUTPUT

Producers that depend on the pipeline to transport their oil halted nearly all output from the North Slope, which industry and state sources say usually accounts for about 18 percent of overall U.S. output.

Production Friday was only 5 percent of normal, according to representatives of the two companies operating the oil fields there, BP unit BP Exploration (Alaska) Inc. and Phillips Petroleum unit Phillips Alaska Inc.

Alyeska is owned by companies with interests on the North Slope. Major owners are BP, Phillips Petroleum and Exxon Mobil .

At the southern end of the pipeline, the shipping of stored oil can continue as normal for at least a day, Woolston said.

"There is enough oil in storage to continue loading operations as normal until Sunday," he said.

The spill could add to the debate about oil exploitation in Alaska, where President Bush wants more exploration despite environmentalists' opposition.

The spill was the biggest along the pipeline since an incident 23 years ago, Woolston said. Explosives were detonated near Fairbanks in 1978, causing a spill of 16,000 barrels, or 672,000 gallons, he said.

The biggest spill involving the Trans Alaska Pipeline System was the 11 million gallon Exxon Valdez disaster in Prince William Sound, the worst tanker spill in U.S. history.

Thursday's pipeline shooting is not considered an act of terrorism, Wilkinson said.

"This is considered somebody under the influence, with a rifle, trying to see if he can't blow a hole in the pipeline," he said. "And he'll live to regret it."