THE HAGUE—Royal Dutch Shell PLC's chief executive on
Tuesday defended the company's environmental record as its board
was peppered with questions about plans for Arctic exploration and
the risks climate change poses to its business.
In the company's first annual shareholder meeting since it
announced its planned tie up with British energy company BG Group,
the climate issue took center stage, overshadowing the $70 billion
deal announced in April. It took place after Shell's Arctic-bound
vessels were met with kayak-borne protests in Seattle last week as
fossil-fuel companies come under scrutiny ahead of climate-change
talks in Paris later this year.
CEO Ben van Beurden said the company was the first in the
industry to acknowledge a link between CO2 emissions and climate
change.
"We have thought through a fairly pragmatic strategy to position
your company with the long-term energy transition that is currently
under way," Mr. van Beurden said.
On the Arctic, Mr. van Beurden said Shell was managing the risks
of Arctic drilling "down to the levels that we think are acceptable
and indeed negligible."
Mr. van Beurden is the latest oil-industry executive to face
questions over the environment.
Exxon Mobil Corp. Chief Executive Rex Tillerson told the
Associated Press last month that world energy demand requires
fossil-fuel companies to keep looking for new resources, or
"everybody's lights would be going off before not too long." BP
PLC's Chairman Carl-Henrik Svanberg told investors last month that
"fossil fuels will be part of a balanced, sustainable energy mix
for many decades to come."
The investor concerns highlight the challenges Shell faces as it
seeks to position itself as a greener, gas-focused energy company.
Its tie up with BG would give it a dominant position in liquefied
natural gas, which is cleaner-burning than oil.
But Shell is also doing some of the most environmentally
sensitive drilling work in the world, from Canadian tar sands to
the Nigerian Delta. At the heart of that tension sits the company's
controversial plans to drill for oil in the Arctic this summer.
Investors entering Shell's AGM in the Hague were greeted by
protesters dressed in a life-sized polar bear costume. The annual
gathering was heralded by a flurry of news releases sent out by
environmental groups protesting the company's Arctic drilling
plans.
"There's a complete disconnect between Shell's words and actions
on climate change," said Louise Rouse, a consultant for Greenpeace,
the environmental group, and a Shell shareholder. "It's as if a
transition to a low-carbon economy can be accommodated to oil
companies. Climate change isn't going to wait for oil companies to
be ready."
Shell's previous experience in the Arctic in 2012 was plagued
with missteps. After paying more than $2 billion to the federal
government to obtain Arctic licenses, Shell had to stop drilling
early because of sea ice. On its way back to port, one of the
company's rigs ran aground, resulting in U.S. government fines for
Clean Air Act violations.
Shell still requires a number of legal permits to get the final
green light to resume exploration in the Arctic, but this time the
company insists it has taken adequate precautions, upgraded its
fleet and rigorously tested its oil spill response mechanisms.
"The multiple layers of defense that we have are unprecedented,"
Mr. van Beurden said. "Nowhere ever in the industry has there been
such precautionary measures to make sure a spill cannot and will
not happen."
The scrutiny comes as activists, government officials and
business leaders focus on the issue of climate change ahead of a
United Nations conference on carbon emissions in Paris later this
year.
Investors are now considering the possibility that companies
involved in extracting fossil fuels may find some of their prize
assets worthless in the future if new climate change rules and
regulations on carbon emissions are bought in to ensure global
warming stays within the two-degree limit advocated by the U.N.
It Is a theory that Mr. van Beurden said "ignores reality" and
distracts from the issues global energy markets face to meet
growing global consumption over the coming years, particularly from
emerging markets.
"If there would be no further investment in oil production the
gap between supply and demand could be 70 million barrels per day
by 2040," Mr. van Beurden said. "Energy demand will continue to
grow and that will have to be by and large met by fossil fuels," he
added.
Longer term Shell is positioning itself to be at the forefront
of a transition to a lower carbon world and says it is up to the
challenges presented by climate change. It has called for
government-controlled limits on carbon emissions and is focusing
investment on lower-carbon fuels like gas and helping to develop
carbon-capture storage technology.
Write to Sarah Kent at sarah.kent@wsj.com
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