Shell Oil and Gas Company’s Perspective on Energy Future

There was a time when the Royal Dutch Shell corporation demonstrated strong interest in nuclear energy.

In 1973, it was approached by Gulf Oil Company, the owner of Gulf General Atomics, as a capital partner for an aggressive expansion program.

GA had spent the better part of two decades developing an innovative high temperature gas-cooled reactor technology. It had constructed a small prototype at Peach Bottom in Pennsylvania and followed that successful experiment up with a larger, 300 MWe demonstration plant at Fort St. Vrain in Colorado. That plant generated a lot of excitement and customer interest in the technology because it seemed to solve several problems that had been seen as hampering the development of light water cooled nuclear reactors.

Most importantly, the high temperature gas cooled reactor offered higher steam temperatures and pressures, which enabled the Ft. St. Vrain nuclear power plant to achieve a heat rate (thermal efficiency) that was competitive with the best available coal fired technology. As an additional benefit, the inert gas cooling eliminated the internal corrosion and minor activation issues that can lead to “hot spots” in the reactor coolant piping systems, tanks and valves in light water reactors.

On the strength of the technical advances embodied in the HTGR technology, General Atomic’s had earned an impressive order book for ten nuclear plants that would be a scaled up, 1000 MWe version of the Ft. St. Vrain design. Gulf did not have sufficient capital resources by itself to finance the necessary industrial expansion to fulfill those orders, hence its approach to Shell.

Royal Dutch Shell purchased 50% of Gulf General Atomics, which then reverted its corporate name to simply General Atomics or GA.

Then something quite surprising — to most observers — happened. For the next year or so, GA salesmen worked feverishly to convince the customers who had ordered HTGRs to cancel those orders. The official story offered by the company was that after investing hundreds of millions of dollars into the purchase of 50% of the company, Royal Dutch Shell people performed a detailed technical evaluation of the reactor plant design and decided that it could not be constructed and sold profitably at the agreed upon prices. They saw an immense future effort that would yield nothing but losses for the company.

According to the company, if they cancelled the orders, they were liable for tens of millions in contract-related damages, but if the customers cancelled the orders, both parties could simply walk away and avoid the trouble of trying to fulfill the contracts by building plants.

In 1981, Gulf bought out Shell’s interest in General Atomics. That was 33 years ago. There is little evidence of any Shell investments in nuclear energy development since that time. There are those who accept the notion that Shell decision makers have a “once burned, twice shy,” justifiable reason for staying away, but I suspect that Shell accomplished exactly what it wanted to accomplish with its several hundred million dollar investment. After all, Shell often reports quarterly, after-tax profits from sales of oil and natural gas that exceed $5,000 million dollars.

Those profits are driven by gas and oil prices that are substantially higher than they would be in a market that included robust competition from a growing nuclear energy industry.

As a skeptic when it comes to the actions and motives of petroleum companies, I’ve often marveled at the timing of Shell’s brief flirtation with nuclear energy investing. It purchased its share of GA at the time that world oil prices were increasing by 400% from $3 per barrel to $12 per barrel and when logical market observers thought that nuclear energy was a terrific way to reduce petroleum dependence. It bought into a company with strong sales prospects in 1973 and left a company in 1981 that no longer had any interest in selling nuclear power plants.

The impetus for telling this story today was my discovery of a Shell promotional video that describes its view of the world’s energy challenge and its proposed solution. The video mentions “nuclear power” one time, but focuses on the growth in unreliables like wind. Not surprisingly, the video concludes by saying that Shell is putting all of its bets on natural gas, because it produces “up to” 70% fewer CO2 emissions compared to coal, which is quite a stretch goal considering that the basic chemical reaction of burning methane (CH4) produces 66% of the CO2 of the basic chemical reaction of burning C (carbon, the primary ingredient of coal.)

Here is that video.

PS – After writing the above post, I realized that my “discovery” of the video was almost exactly three years after it was posted, July 6, 2011. As I think back on what led me to the video — a message from YouTube that said “We think you’d like…” — I chuckled. Something tells me that the bots that made that recommendation don’t look at the “year” field when checking dates and viewing habits to make their recommendations. Oh well…

About Rod Adams

25 Responses to “Shell Oil and Gas Company’s Perspective on Energy Future”

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  1. Joel Riddle says:

    For the “up to 70%” value, they’re probably counting the better thermodynamic efficiency of combined cycle plants along with the lower CO2 from the CH4 combustion reaction.

    • Rod Adams says:

      @Joel Riddle

      And ignoring the CO2 and methane costs associated with extracting and transporting the fuel. They also compare the most modern combined cycle gas turbines against 50 year-old coal fired steam plants.

  2. Jim L. says:

    And I believe that natural gas produces quite a bit of the NOx gases as well, and even with scrubbers it is still high.

  3. Robert Steinhaus says:

    There is better coal technology available that makes it less green house gas producing than the best combined cycle natural gas plants.

    Direct Carbon Fuel Cells (DCFC) have been practically shown to convert the chemical energy in coal directly into electricity at an efficiency of 80%. DCFCs do not produce any particulates and do not release radiation from Uranium and Thorium particles into the air. DCFCs do not require coal to be burned and do not require expensive precision turbine-generators that typically account for approximately half of the cost of a coal fired power plant. DCFC fuel cells also do not require turbine-generators to produce electricity from heat. Since turbine-generators are about half of the cost of traditional coal fired power plants, DCFCs are a significantly cheaper way of extracting the chemical energy in coal.

    https://www.llnl.gov/str/June01/Cooper.html

    Just for the record – nuclear power plants are a cleaner and less GHG producing than DCFCs.

    • Rick Armknecht says:

      A partner technology to DCFCs would be the conversion of the high-purity CO2 (produced in the generation of the electricity with a DCFC) into methanol, thus affording a decent liquid fuel for motor vehicles. There are some promising advances in the field.
      And, yes, nuclear is cleaner.

      • Engineer-Poet says:

        Just put the DCFC into the vehicle, as the replacement for the engine in a plug-in hybrid.  Keep it hot with grid electricity (from nuclear, of course).

        • Eino says:

          As far as the Direct Carbon Fuel Cells are concerned, I just wonder how much prep it would take to clean up coal or petroleum coke before it could be used in this experimental fuel cell. The article says they’ve been trying to get these to work for a long time.

          • Rick Armknecht says:

            I read something a couple of weeks ago about DCFCs. The most promising tech appears to require processing the coal/peat/wood/whatever into lampblack. It is a “Direct CARBON Fuel Cell”, not a “Direct COAL Fuel Cell.”

  4. Eino says:

    This sure seems to be part of the smoking gun series. Big oil company buys the company and stops all the projects. Maybe,…..the 200 mpg carburetor is still out there.

    • Rod Adams says:

      @Eino

      The equivalent of a 760 million mile per gallon carburetor is still “out there.” http://atomicinsights.com/million-mile-per-gallon-mmmpg-carburetor/

      • Rick Armknecht says:

        Rod,
        I read the article (great as always). But I was really entertained by the comments. Especially the one about some guy who sold a patent to Ford for a 100 (or so) mpg carburetor, but Ford never built it and installed it in cars. The fabricators of these stories don’t seem to understand that patenting an invention makes it public knowledge, thus undermining much of the purported “conspiracy.”

  5. EdP says:

    Shell was asking about SMRS for electricity production for tight Gass wells

  6. Paul W Primavera says:

    Speaking of General Atomics, here is its latest design:

    http://www.ga.com/energy-multiplier-module

  7. Smiling Joe Fission says:

    Has anyone been keeping track of the EPA’s plan to raise radiation threat level by a factor of 350? I read an article today at Reason.com which was quite good at pushing the point that these unnecessarily low limits have cost the US, and the World, billions of dollars without any benefits.

    Link

    Ultra-low limits have delayed and prevented the construction of new nuclear power plants, added billions to the cost of refurbishing old reactors and Superfund clean-up sites, scared Nevada residents into opposing the opening of the Yucca Mountain nuclear waste storage facilities, and triggered panic whenever there has been a slight increase in radiation almost anywhere for any reason. One remembers the Three Mile Island nuclear leaks, where residents were exposed to less radiation than they got from the granite building blocks at the Senate hearing room when they testified.

    • Rod Adams says:

      @Smiling Joe Fission

      Yes. So far, the effort to provide more sensible guidance in the case of an accident has not bled into the EPA office that sets radiation protection limits and emissions standards for routine operation under authority given by the Atomic Energy Act of 1954 as modified by the Energy Reorganization Act of 1974.

      However, that office has issued an Advanced Notice of Proposed Rulemaking to find out if the public and stakeholders believe there is a need to revise the current limits in 40 CFR 190.

      The comment period for that ANPR, issued in January, was initially set for 120 days, but it was extended to 180 days. That period will end in just 3 weeks on Sunday, August 3.

      http://www.epa.gov/radiation/laws/190/

      This is an effort that some industry practitioners and nuclear opponents have known about for at least 2 years, based on this 2012 presentation to the NRC’s Regulatory Information Conference (RIC).

      http://www.nrc.gov/public-involve/conference-symposia/ric/past/2012/docs/abstracts/littletonb-hv-th33.pdf

      Time is fairly short, but there is an opportunity for people who believe regulations should be based on sound science, real math, and a century’s worth of experience of humans working with radiation to voice their well-referenced comments. It is time to halt the use of regulations based on politicized, committee-based conservatisms that apply ridiculous assumptions under the guise of uncertainty.

      There is no doubt in my military mind that people who oppose the use of nuclear energy see the ANPR comment period as an opportunity to demand onerous rules that will add cost and complexity to the act of compliance without providing any public safety benefits.

  8. Sam says:

    “…So far, the effort to provide more sensible guidance in the case of an accident has not bled into the EPA office…”

    After reading your \ General Atomics cancelled orders post one could not criticized for thinking over regulation is by design to shut down nuclear power.

  9. Jardinero1 says:

    Fort St. Vrain did not come fully on line until mid 1979. Three mile Island was early 1979. The combination of bad timing and the technical issues with the reactor were what drove the cancellations. Shell saw an opportunity for a new profit center in the 1972-pre-Arab Oil Embargo world. Post embargo/post three mile island, the numbers looked terrible so they dumped the investment as soon as they could.

    I don’t think any single oil company or group of companies are as calculating as you would like to think. I live in the oil patch and people in the oil and gas industry don’t have any animosity towards nuclear. Most oil patch people are engineers and bean counters and skilled tradesman. They fully appreciate the technical superiority of nuclear energy. Most too, would rather convert hydrocarbons to high margin products like plastics and fertilizer instead of converting them to fuel for locomotion and electricity. The oil patch is entirely about profit maximization and nobody throws money away trying to stop nuclear energy. There is no oil patch conspiracy against nuclear energy.

    • Rod Adams says:

      @jardinero1

      I have a great deal of respect and feeling of kinship with many of the residents of “the oil patch.” Tradesmen and engineers are my kind of people.

      However, I think that many of them have an admirable tendency that makes them vulnerable to being fooled at times. They project their fundamental honesty and straight talking nature onto others to the point where they fail to recognize people who are fundamentally motivated by something other than being forthright and maintaining trusting relationships. The people at the very top of major corporations like Shell, Gulf, ExxonMobil, etc. are motivated to maximize their profits.

      Slowing nuclear has vastly increased the wealth and power of the multinational oil companies. Shell did not throw any money away; they made a strategic investment to hamstring a formidable competitor.

      There is little doubt that the people at the top of the seven sisters recognized major changes coming in the oil business long before 1973. They understood the implications of OPEC long before the American public had ever heard of the organization. As early as 1967, the multinational oil companies knew it was only a matter of a few years before OPEC nations gained control of annual oil output and the ability to establish far higher pricing models.

      Many of the people running the majors were actually quite happy to help that process along because they had made major discoveries in Alaska and the North Sea that would only be profitable at a much higher price because they needed huge infrastructure investments to gain access to the resources. In the case of Alaska, they were also faced with opposition that wanted to prevent the required pipeline. (I suspect some of that opposition was not as real as it looked, since it melted away as soon as the project had been delayed long enough to be approved immediately AFTER the profit-making price increases.) Many US oil producers benefitted handsomely from the windfall profits enabled by the 400% price increase. Despite a lot of political posturing about imposing a “windfall profits tax” that never happened, so the managers and the investors took home many extra billions. Wages rose, but nowhere close to 400%.

      That price increase could not have stuck if more countries had joined France in recognizing that nuclear was a fine alternative to oil in many applications like electrical power, space heat (via electric heaters), transportation (electric trains), etc.

      Here is a little story I like to repeat.

      I am often reminded of a illuminating tale buried in the midst of nearly 800 pages of Daniel Yergin’s signature work, The Prize: The Epic Quest for Oil, Money & Power. The situation described is a poignant reminder of how people at the top of the heap think about investing in developments that increase the supply of a commodity (energy or food) to a point of abundance.

      At one point during those years, Oman, at the southeast corner of the Arabian peninsula, emerged as a very interesting oil play. Standard Oil of New Jersey, as might be expected, had a chance to get in. But when the issue came up in the company’s executive committee, Howard Page recommended against it. He had spent so much time negotiating with the Saudis and Iranians that it required little effort on his part to conceive of how furious they would be. He could well imagine, in particular, what Yamani would say to him if Jersey and Aramco sought to restrain Saudi output to make room for production from a new concession in a neighboring country. That would surely contradict Jersey’s principle number one, which was not to do anything that “would endanger our Aramco concession.”

      But the members of Jersey’s production department disagree with Page. After all, they were geologists, and as far as they were concerned, discovering and developing new reserves were what the game was all about. Their ambition was to find new elephants, and they were very excited about Oman. “I am sure there is a 10 billion barrel oil field there,” a geologist who had just returned from Oman told the executive committee.

      “Well then,” replied Page, “I am absolutely sure we don’t want to go into it, and that settles it. I might put some money in if I was sure we weren’t going to get some oil, but not if we are going to get oil because we are liable to lose the Aramco concession.” With that logic, Jersey stayed out of Oman. The geologists, however, were right. Oman did become a significant oil producer, with Shell in the lead.

      (Yergin, Daniel, The Prize. Touchstone (Simon and Schuster), New York. 1992, page 535.)

      For more details on this line of thinking, please see:

      http://atomicinsights.com/anti-abundance-is-common-link-between-anti-gmo-and-anti-nuclear/

      Teaser – I am working diligently on a book about the uranium cartel and its relationship to the oil market changes between 1967 and 1973. There are some common players with financial interests that were not discussed very often in the media reports about the uranium cartel.

      • Jardinero1 says:

        I appreciate your reply. I have read Yergin’s book and enjoyed it a great deal. I take Page’s quote with a grain of salt, after checking the footnote. Yergin summarizes a great deal in just a page and a half. The footnote, which covers the preceding page and a half, summarizes not one, but four documents, covering three entire years.

        I will go back to Shell and Gulf Oil’s investment in General Atomics. Shell put up nearly half a billion in early 1970’s dollars for its part of General Atomics. I believe they made an earnest effort.

        http://www.fundinguniverse.com/company-histories/general-atomics-history/

        No single company puts up half a billion, on its own, to halt what was an on-going national effort, since the Eisenhower administration, to convert a large part of the nation’s grid to nuclear energy. You give too much credit to oil companies and too little to other institutional forces and political events. Three mile island and the environmental movement played a much larger role than the seven sisters. Consider the timing of all of the reactor cancellations, many of which were already under construction, most of which would have been very cost effective against the alternatives available at the time.

        http://en.wikipedia.org/wiki/List_of_canceled_nuclear_plants_in_the_United_States

        The oil business is more than the mere extraction and sale of oil and gas. The vast majority of capital investment and employment is in refining and affiliated business – like steel and machining. That is a significant industrial component which depends upon reliable electricity. Two canceled units were at Blue Hills, and would have been the General Atomics units which Shell and Gulf were marketing. These two units would have provided reliable generation to refineries and affiliated industries in Shell and Gulf’s own backyard.

        • Rod Adams says:

          @Jardinero1

          I give “oil interests” — a term that includes a much larger set of the rich and powerful than the term “oil companies” — an enormous amount of credit for their ability to influence “other institutional forces and political events.”

          The environmental movement, for example, received a great deal of push from foundations like the Rockefeller Foundation, the Rockefeller Brothers Fund, Pew Charitable Trusts, and the Aspen Institute. Every one of those organizations owed virtually all of its funding to petroleum wealth.

          Friends of the Earth was started by David Brower in 1969 after he lost an internal struggle to make the Sierra Club more antinuclear. The first check that organization received — for $200,000 –came from Robert Anderson, the CEO of ARCO.

          Heck, I even have my suspicions about Three Mile Island. I wrote a short series of three posts that described my interpretation of the series of unlikely coincidences that caused the accident to happen at the time that it did. http://atomicinsights.com/tmi/

          I’ve continued working on that story, but I haven’t published any more of the interesting information I’ve come across — yet.

          For example, the plant manufacturer, B&W, was purchased a little more than a year before the event by a large, rather disreputable representative of “oil interests” in one of the most highly publicized bidding wars of 1977. J. Ray McDermott’s current and previous CEO (in 1977) had admitted to making illegal kickbacks and political contributions. The company was convicted of fraud, racketeering and other crimes and fined a million dollars within days before the takeover of B&W was finalized (March 1978.) (J. Ray McDermott was, at the time, one of the world’s largest producers of oil rigs and had a significant share in the off-shore oil drilling market.)

          Yes, I realize that many will dismiss me as a “conspiracy nut.” What those who automatically jump to that dismissal either do not realize or realize all too well is that there really are organized groups of powerful people that work more than full time jobs seeking to arrange events to further their own interests and those of their friends, partners, and business associates. Strategic planning happens, games get played in markets, and companies make tactical moves that do not make sense to someone who does not have all of the confidential information that supports the decisions.

          I’ve got some advantages over other observers. I have greying hair, an independent source of income, business experience, technical experience, and experience as a well-placed staff officer in a large organization with regular contact with the top level decision makers.

        • Jeff Walther says:

          “Three mile island and the environmental movement played a much larger role than the seven sisters. ”

          And from whom do you think the “environmental” movement suddenly got so much money with which to oppose nuclear electricity generation? It didn’t come out of hippie’s pockets $10 at a time.

          • Eino says:

            I believe there has been market manipulation in the oil industry since the days of John D. Rockefeller. Human nature does not change. Today’s oil barons have, no doubt, learned from their predecessors. We hear a lot about the Koch brothers manipulating our political scene. Is it so hard to believe that people with vast amounts of wealth and power would not use their resources to maintain their positions? Keeping nuclear power out of the mix means the need must be filled with other forms of energy which they are happy to provide.

  10. Neil Midkiff says:

    Interesting history of Big Oil and market drivers through the comments on Rod’s article. I might add that when I was with Booz Allen Hamilton in 2008 we had a series of meetings and workshops with Conoco to work through a business case for them to invest in US new nuclear projects (remember the “nuclear renaissance”?).

    The attraction at the time was, compared to the most US utilities, they had the market cap, the big project management experience and a positive attitude towards risk that had left the original new build Utilities of the ’70s and ‘80s. The concept was they would invest the capital and own a very long term and reliable generation asset and the perspective utility would manage the site and hold the license. The business case lost favor mostly because the rate of return, although very steady, was very low (5-8%) by Big Oil standards and the concept was tabled.

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