Q&A: Leading the Way Toward Sustainability

	David A. Sexton, Vice President, Portfolio Americas, Shell Oil Co.

In an industry that continues to evolve at an international level, Shell Oil Co. is adapting to the broad-scale changes. Although known for its global hydrocarbon projects, Shell has become the largest distributor of transportation biofuels, is exploring alternative and renewable energies and is investing in unconventional energy sources such as hydrogen and gas-to-liquids technology.

In recognition of personal and corporate achievement in three categories (Cleaner Environment, Investment and Corporate Growth, and Vision), Shell was awarded Hart Energy Publishing’s International Refining & Energy Company of the Year award in March 2008. Accepting the award on behalf of the company was David A. Sexton, vice president, Portfolio Americas.

Sexton manages the acquisition and divestment process, and coordinates U.S. oil products external affairs, ethics and compliance as well as health, safety and environment efforts.

FUEL: As the need for clean and abundant energy continues to grow around the world, what will global energy companies like Shell need to start doing to meet that kind of incredible demand?

Sexton: At Shell, we believe that helping to meet future global demand for energy and playing a full role in tackling carbon emissions are our greatest priorities. There is no doubt that by the year 2100, the world will have a radically different energy mix. Our charge is building the bridge from where we are now to where we want to be at the turn of the next century.

For fuel suppliers, that means a shift in our thinking. We’re on the cusp of a move from the oil age to the age of diverse fuels. This diversity includes both conventional, fossil-based fuels and unconventional fuels, including first- and second-generation biofuels, hydrogen and technologies such as gas-to-liquids.

FUEL: What is the refining industry doing to reduce emissions?

Sexton: For conventional fuels, we must continue to find ways of reducing greenhouse gas (GHG) emissions. No one knows more than the refining community how far we have come in reducing refinery emissions, but we can and must go further. At Shell, our target is that by 2010, our GHG emissions from these facilities will be 5% or more below 1990 levels. We aim to do this despite growing our business with projects such as the Motiva Port Arthur [Texas] refinery expansion, which will add 325,000 bbl of capacity.

In fact, the expansion will lower most types of emissions from refinery operations on a per-barrel basis. To do this, we are using advanced technology in all new system installations and also replacing existing systems. The expansion will decrease emissions from present day levels for ozone precursors, specifically nitrogen oxides and volatile organic compounds.

FUEL: What do you believe needs to be done or is being done to balance the intertwined relationship between emissions and energy?

Sexton: To stand any chance of stabilizing the concentration of GHGs at levels scientists say are at least manageable, we need to cut world’s emissions in half. And we need to do it in the same time frame that we need to double the output of energy – twice the energy, half the CO2 [carbon dioxide].

Over the last decade or so, three hard truths have started to emerge. First, we know the world’s demand for energy will continue to grow. Six billion people draw on the earth’s resources today – by the middle of this century, there will be nine billion of us, and an increasing percentage of those nine billion will expect to have lights on at night, drive a car, and work and play on their computers. That means those nine billion could be using twice today’s energy demand in barrels of oil equivalent.

The second hard truth is that those barrels, at least the conventional ones, are becoming harder to get. Companies like ours are making increasingly heroic and expensive efforts to find and extract oil and gas from difficult-to-reach places – places that are difficult geologically, environmentally and politically. We’re spending a lot of money trying to meet the world’s need for energy from unconventional sources and renewables like winds and biofuels.

The third hard truth is not just inconvenient…it’s urgent. That is that more energy typically comes with more CO2, at a time when the climate can ill-afford it.

FUEL: How significant is CO2 reduction becoming to the energy industry?

Sexton: It is not just a refining issue – we need to look at the whole well-to-wheel continuum for opportunities for carbon capture and emissions reduction. That includes everything from carbon sequestration at the wellhead to cleaner burning fuel technology. The government of Alberta, for example, is looking at its oil sands operations and considering mandating carbon sequestration as a part of all oil sands processing.

This issue of well-to-wheel CO2 comes into play again in second-generation biofuels. The challenge right now with products such as cellulosic ethanol, made from the stalks of plants, grasses or any cellulose material, is just how much energy is expended to create the fuel vs. how much energy it produces.

But we have to place our CO2 reduction efforts as fuel makers and energy companies in the context of the whole energy picture, including vehicle technology and consumer behavior.

FUEL: With Shell being the world’s largest distributor of conventional biofuels, do you believe they are a key to providing energy at a lower environmental cost?

	Left to right: Frederick L. Potter, Executive Vice President, Hart Energy Publishing; David A. Sexton; and Kristine Klavers, Vice President, Hart Energy Consulting

Sexton: Shell has developed quite a bit of expertise in biofuels. We have five ethanol hubs in the United States and are also working with other first-generation biofuels, especially in international markets.

Biofuels represent both a tremendous opportunity and a tremendous challenge, as we are learning. Consider the challenges: first-generation biofuels typically compete with the food chain for feedstocks. Right now, biofuels represent about 1% of global transport fuel demand, and we are already seeing it put upward pressure on agricultural prices. We also know, although the general public doesn’t see it, the complexity of bringing ethanol into the fuel supply. We can’t run it through pipelines – it requires special trains, tanks, trucks and blending facilities. It also has lower energy content than gasoline.

But ethanol does represent a huge opportunity to reduce our CO2 impact. These estimates are very rough, but if you look at the whole life cycle, corn-based ethanol has about 10% to 30% lower CO2 output than gasoline. Wheat-based ethanol, which is used in the United Kingdom, can have a 50% lower CO2 output, and in Brazil, sugar cane has been estimated to emit 90% less CO2. This concept of total life cycle, or well-to-wheel CO2, is one that is emerging as critical in how we evaluate our choices.

FUEL: Can you tell us about some of the research/projects Shell is involved in regarding renewable and biomass-based fuels?

Sexton: As we work with first-generations biofuels, we see them as laying the groundwork for second-generation biofuels – fuels made from non-food organic raw materials. These second-generation fuels may be far improved fuels and offer lower well-to-wheel CO2 production. Because we see this as so important, we are investing a lot of research in this area. And we’ve got some exciting projects under way.

In December 2007, Shell announced a joint venture with HR Biopetroleum, called Cellana, to construct a pilot facility in Hawaii to grow marine algae and produce vegetable oil for conversion into biofuels. We also recently expanded our relationship with Codexis, a privately held bio-based clean technology company based in California. With Codexis, we are working on evolving natural enzymes to create “super enzymes” that improve the conversion of non-food bio materials into fuels.

We have partnered with a Canadian company called Iogen to develop ethanol from lignocellulose – the tough molecules that make up the cell walls of plants such as straw. This partnership began in 2002, and at our demonstration plant in Ottawa, we are achieving a CO2 profile around 90% less than gasoline.

Another partnership, with Choren in Germany, is working on using lignocellulose and turning it into high-performance synthetic fuel using gasification and the Fischer-Tropsch process. The biomass-to-liquid, or BTL process, can create a virtually sulfur-free diesel fuel.
This is all exciting research, but we’re just at the cusp of this diverse fuel development. We have a huge challenge to supply the world’s demand for fuel and reduce our CO2 emissions. Biofuels are part of it, but conventional fuels are still the biggest part.

FUEL: Aside from advances in fuels, is there anything else that might help in the effort to reduce emissions?

Sexton: One of the areas where there is huge potential for a game-changing breakthrough is in automotive design. You realize that only 20% of the fuel that goes into a car is used to propel it forward – the rest is wasted heat. A radical redesign, or even a way to capture a fourth of that wasted heat, would double automotive fuel efficiency. This is an exciting area and one that Shell is pursuing on several levels. We work with vehicle manufacturers on projects such as our GM partnership on hydrogen-fueled cars.

We also re-introduced the Shell Eco-marathon in the Americas last year. This event encourages innovative thinking and challenges student teams to build vehicles using conventional or alternative fuels. The goal is to achieve the farthest distance using the least amount of fuel. Last year, the winning team was from California Polytechnic State University. Their vehicle, the Curb Hopper, completed the course with a fuel economy of 1,903 miles per gal.

FUEL: What do you believe it will take to solve the world’s growing energy problems?

Sexton: Consumers are going to have to be part of the solution. We at Shell have spent the past 18 months going around talking to consumers, community groups and local government officials about energy issues, and we’ve gotten very mixed feedback on whether consumers are willing to change their behavior. In surveys we’ve done, they say they want energy security even if it means giving up some comforts. But when we asked audiences who was ready to trade in their car keys for mass transit, how many hands went up? Not many.

The challenge that has been placed before us is to double our energy output and halve our emissions by the year 2050. The question is not so much “Will we get there?” as “Do we have a choice?”

Louise Poirier can be reached at 1 (713) 260-6419 or lpoirier@hartenergy.com