Royal Dutch Shell chief executive Ben van Beurden speaks at a meeting on April 18 with Russian President Vladimir Putin. (AP Photo/Maxim Shipenkov, Pool)
Royal Dutch Shell chief executive Ben van Beurden speaks at a meeting on April 18 with Russian President Vladimir Putin. (AP Photo/Maxim Shipenkov, Pool)

The Post spoke last Friday to Ben van Beurden, the chief executive officer of Royal Dutch Shell, one of the world's largest oil and gas companies with $451 billion in revenue and and $16.5 billion in profit in 2013. Van Beurden, a chemical engineer who joined Shell in 1983, became chief executive Jan. 1 promising to shed some assets and focus on the most profitable business areas and exploration prospects.  The company has major operations in the United States, Russia, Iraq, Nigeria, Europe and other parts of the world. The interview has been edited for length and clarity.

Q: The world is awash in geopolitical trouble, much of it revolving around important energy projects. Could you discuss how this is affecting Shell? Are you worried that Western sanctions against Russia might affect Shell’s operations and expansion plans there? [Note: Shell has conventional oil and gas production in the forbidding environment of Sakhalin Island in eastern Russia, a joint venture with Gazprom's oil subsidiary drilling conventional and shale oil wells in Siberia, and retail motor fuel stations.]

We’ve gone through clarifications with host governments, government here in Washington as well, to understand what actually was meant. By and large, it comes out unaffected. We are drilling a few unconventional [shale] wells [in Siberia] as part of that joint venture. We cannot export [certain] technology [to Russia] anymore. We are working with governments to say how far can we go, what can we finish and what new activities can we start or not start.

To sum up, the sanctions have not had a lot of impact on our operations in Russia.

The European governments are also very clear to avoid gas exports as a sanctionable activity. If you would ask will that be it, I'd have to say we don’t know. We don’t know how the situation in the Ukraine and the reactions of Western governments and the reactions of the Russian government will play out. That's a very dynamic situation. I would find it impossible to predict at this point what that would mean for sanctions.

Q: You met with Russian President Vladimir Putin in April. What did you talk about?

I’ve met him before. Very briefly. So this was the first proper meeting. The meeting was the 18th of April at the 20th anniversary of the Sakhalin [oil and gas venture in eastern Russia]. Months in advance I'd asked for an audience with the president to talk about our business in Russia and bring to his attention to our plans to expand Sakhalin. Of course the timing you could argue was eye catching. But for me it was also very clear I'm not a politician, I'm not a head of state. I'm a businessman. My mandate comes from my shareholders. I don't want to have a political mandate. I don't have a political mandate. So my discussion with President Putin was purely on the business opportunities we saw in front of us.

Of course, if activities are not permitted we will not execute them.

An aerial view of the liquefaction plant that is part of the Sakhalin Island energy venture between Royal Dutch Shell and Gazprom. (AP Photo/Ivan Sekretarev, File) An aerial view of the liquefaction plant that is part of the Sakhalin Island energy venture between Royal Dutch Shell and Gazprom. (AP Photo/Ivan Sekretarev, File)

Q: So has any shale drilling been delayed because of limits on technology transfer?

We're in the middle of clarifying it. It's a very small thing. There's less than a handful of wells. The question is can you finish the wells? Is it considered past or previously approved activity? It's nitty-gritty stuff.

 Q: Let's turn to the Ukraine? You have been planning to drill for shale gas in eastern Ukraine near recent fighting. How much of that is in areas controlled by Russian separatists?

It is very much in that general region. That venture is very much in the Donetsk and Slavyansk areas. I'm not sure whether they are smack in the middle of the conflict or on the borders. The contours have changed. One thing I know is we can’t operate there. We have declared force majeure. As it happened, we had taken a pause to evaluate the drilling results. So this is just suspended. I don’t know what is going to happen. I guess nobody knows what is going to happen. When it all has stabilized and returned to normal, which I truly hope will happen soon, we'll take an inventory of what the situation is. There's no production. We had drilled and fractured the first well. It is very early exploration.

Q: You are working in Iraq's giant Majnoon to boost production for a fee, but you haven't, like Exxon Mobil, moved to explore for oil in Kurdistan, where contract terms are better.

Our Iraq position is in the south. We decided not to go into Kurdistan. We wanted to focus on the south. We also got into the Basra gas company, a very large project to gather and process and clean up associated gas from oil fields and give it back to the Iraqi government.

On Iraq we've always kept this perspective that we don’t want to be more than a certain amount exposed. And our business activity would remain under that cap. The view is that things could go very wrong in this country and this is the exposure I wanted to have. The Majnoon project by next year will be paid back. The gas company is creating a more valuable company over time. I’m not building my exposure; it’s more reducing.

Our operations have not been disrupted in the south, deep in Shiia territory. But we have instituted a weekly decision-making process about whether to change our security posture. We have still hundreds of expatriates there. Even though we don’t see risks at the moment, we have done things to harden our security position and increased evacuation capacity.

Q: Shell talks a lot about environmental issues and uses an internal price of $40 a ton for carbon emissions when evaluating projects. Still, a lot of climate activists say fossil fuel companies have reserves – especially oil sands or tar sands reserves -- that are, in effect, stranded assets. In a world striving to limit climate change, these reserves may never be produced, and they argue that fossil fuel companies should be disclosing that to investors and the Securities and Exchange Commission. What do you think of this argument?

Let me very very clear, for us climate change is real and it's a threat that we want to act on. We're not aligning with skeptics. Let's talk about the carbon bubble theory. It's a very seductive argument, but it is also not necessarily in line with the reality that the world will have to go to a tremendous growth in supply of energy simply because demand will double in the first half of the century for very strong fundamental reasons. First of all growth in population but even more importantly growth in living standards in places like Africa and India and China and Latin America where the energy intensity is a fraction of what it is in the Western world. We cannot deny very very large parts of the global population the sort of standards that we enjoy. And therefore it's just going to happen whether we like it or not.

You can say don't worry it will all be supplied by renewable resources. Well that's a fantasy. I'm not against renewable resources. We're very much invested in research and other ways of participating in it. But if you look at the most optimistic scenario, we think we are looking at still 75 percent of that energy demand by the middle of the century coming from fossil sources, down from probably 85 percent. At the moment we're about 11 percent of renewables, 10 percent [age points] of which is hydropower, which doesn't have an awful lot of growth. So 1 percent is wind and solar. So how on earth do we think that one percent is going to become 90 percent of a system twice as big as what it is by the middle of the century? Whether you like it or not, it won't happen. That might be a gloom and doom type picture. But I think the real challenge is not so much how do we accelerate renewables but more about how do we decarbonize the system we have. How do we take coal out and replace it with gas? That's half the CO2 already. How do we fit carbon capture and storage on electricity generation where you can bring the carbon emissions of a third of the energy system down by 30 percent?

To just demonize a number of international oil companies that collectively make up 2 or 3 percent of the total world resource base and say 'disinvest yourself from that' is not going to be a solution. I think what has happened over the past few years is that the discussion has become dysfunctional. I think energy companies like us have retreated because there was no reputational upside in it, so better keep your head down. So the discussion has gone into la-la land a little. I think there's a responsibility for us to reengage -- maybe as part of a wider coalition with partners, academia, regulators, also NGOs with societal interest very much at the forefront -- and see what would be good policy.

So I think the argument of the stranded assets is first of all flawed, and second of all a red herring. Over the coming decades we will see a transition to a new energy system, which will have more renewables and where carbon intensity will play a very important role because this problem is going to be bigger.

That's why we put in carbon pricing [when we evaluate new projects]. We want to make sure that whatever we invest in, which is going to live for another 30 years, in 30 years is still going to look like an advantaged asset. We future proof as much as we can.

The Keystone XL pipeline was under construction in Hardisty, Alberta in June 2012 even though the route through the United States hadn't yet been approved. (Michael Williamson/The Washington Post) The Keystone XL pipeline was under construction in Hardisty, Alberta, in June 2012 even though the route through the United States hadn't yet been approved. (Michael Williamson/The Washington Post)

Q: Climate concerns have also played a leading role in opposition to the Keystone XL pipeline, which would make it easier to export crude from the oil or tar sands region of Canada, where Shell is a major producer. What is your thinking on that and how is the delay affecting your expansion plans?

We took a position in the Keystone pipeline when it was out there for open season. [Note: Pipelines auction off space to oil and gas companies prior to construction. Van Beurden said Shell has also taken space in another proposed pipeline.] The question came up: Which evacuation route will we take now that Keystone may not be open to us? In the end we came to another opportunity all the way to the east coast. We participated in that open season and got the capacity we needed. We’re covered. I’m good.

Whether the Keystone pipeline will happen I think is going to be a political decision. I will not comment on it in terms of predicting it. It has been shown that if it doesn’t happen alternatives will somehow present themselves. The argument that Keystone is a bad idea because it will somehow enable development of resources in Canada is to some extent flawed. Alternatives will present themselves: bringing the oil to the eastern coast through Quebec and Canada and then bringing it around by ship to the U.S. Gulf coast may not be the best option from a climate perspective, but it will happen.

Q: Here in the United States, Shell has somehow managed to stumble in shale regions where many companies are getting rich. Earlier this year, the company took a $2 billion write off in oil-rich shale and the year before had written off part of the value of shale gas properties. You've also sold some positions. What's gone wrong here?

I wouldn’t necessarily characterize as things gone wrong. It's just a matter of having the right portfolio.

We went into the shale in a massive way, which we felt we had to do simply because of the opportunity ... a lot of it was in natural gas. Shortly after we went into it, natural gas prices prices came down to levels below where we had premised. We have basically rationalized that portfolio down because I simply do not have enough capital or enough resources in the company to develop everything. So just good enough is not good enough. It has to be the best of the batch.

Q: Shell's efforts to explore for oil in the Chukchi Sea off Alaska's Arctic coast has produced nothing but trouble so far. The company has run into one mishap after another and environmentalists are still trying to block drilling in this remote area. Recently you filed a plan with regulators for another attempt in 2015. What's next?

I haven't t decided. The only thing I have decided is not to say no. That's basically keeping our options open. That’s why we filed this exploration plan with the Bureau [of Ocean Energy Management]. There are other milestones we have to fulfill. There's an important legal block that the Department of Interior will have to resolve. And there are other things we have to take into account. Basically what you see us doing is keeping our options open.

A ship Royal Dutch Shell planned to use to drill exploration wells in the Chukchi Sea off Alaska's Arctic coast ran aground on New Year's Eve near Kodiak Island. (AP Photo/U.S. Coast Guard, Petty Officer 2nd Class Zachary Painter, File)
A ship Royal Dutch Shell planned to use to drill exploration wells in the Chukchi Sea off Alaska's Arctic coast ran aground on New Year's Eve near Kodiak Island. (AP Photo/U.S. Coast Guard, Petty Officer 2nd Class Zachary Painter, File)