Principles to Practice: Striving for Sustainable Development in an Energy Megaproject

Tim W. Faithfull, Shell Canada Limited (SCL), Calgary, Alberta, Canada Introduction
Shell Canada Limited (SCL), a leading Canadian integrated oil and gas company, is a member of the Royal Dutch/Shell Group. The Group holds a 78% interest, the balance being publicly owned. SCL corporate goals are leadership in profitability, which means attaining a 15 per cent return on average capital employed, and profitable growth, with an overarching commitment to sustainable development (SD). SCL believes that a commitment to SD, by focusing on the economic, the social and the environmental dimensions supports both profitability and profitable growth over the long term. SCL has also embedded in all its activities the practices of operational excellence. By this we mean continuously improving our performance in seven key areas of the business: profitability, customer focus, asset reliability, growth, costs, our employees, and health, safety and SD. Within SCL this is known as operational excellence and it facilitates the business managing sometimes-conflicting priorities. Every one of these areas contributes directly to the corporate goals and to the three dimensions of SD. During the 1990s, the company achieved considerable reductions in costs and made changes in its portfolio of activities. Operational excellence has allowed us to maximize opportunities presented by market conditions. Our earnings reached $1, 010 million in 2001, up from $79 million in 1992. Over that same period, our cash flow from operations has more than tripled, and our return on capital employed last year was 21.5 per cent a significant improvement over the equivalent 2.9 per cent of 1992. As for profitable growth, Shell Canada is already benefiting from the production of natural gas from the Sable project, which came on stream in December 1999. Shell Canada leads the Athabasca Oil Sands project (AOSP) which is expected to reach its full capacity through 2003. Our 60 per cent share in this joint venture makes this investment the largest in the companys history and the project is the key focus of this paper. Shell Canada is also part of a consortium of companies considering natural gas development in the Mackenzie Delta, in Canadas Northwest Territories. As with any commodity, the petroleum industry is subject to volatile market forces. But today, the range of uncertainties is even wider than hitherto. Shell Canadas response to great uncertainty is to focus even harder on the basics. For us, sustainable development has now become one of the basics of good business. Thinking sustainably forces us to develop strategies that maintain the robustness of our business in a changing world. Shell Canada Limited first adopted a formal sustainable development policy in 1990. But we are still learning how to integrate SD into the day-to-day business. Meeting the needs of our customers and stakeholders is implicit in our thinking about SD. Canadians need affordable energy now and in the future and hydrocarbon-based products will continue to play the key role. But, increasingly, customers want to feel confident that the manufacture and consumption of these products are not being achieved at the expense of their health and the environment either now or in the future. Although few customers are prepared to pay more,

we believe the ability to show that our products incorporate the elements of sustainability can help us to differentiate ourselves from our competition. We give our customers a further reason to choose us. Societys expectations of big business are becoming more demanding. They embrace the full range of the sustainable development dimensions. To meet such diverse expectations, we need to talk to people and we listen. With public confidence in large corporations at a low ebb, its not enough to tell people what we are doing, we must show them. In such a climate, SD helps us to secure a license to operate. And although this kind of stakeholder engagement is not always easy, it stimulates innovation, which leads to positive change and increased competitiveness. The principles of sustainable development also help us to reduce risk by identifying potential hazards and taking preventive measures. Recently, for example, Shell Canada became the first major oil and gas company in Canada to achieve ISO 14001 registration for all its key operating facilities. An independent audit has verified that all of these facilities have in place an effective environmental management system to support a sound environmental policy. This not only protects the business - its operations and employees - but also builds confidence in our various stakeholders that we are a company to be trusted. It gives yet another reason for Shell Canada to be their company of choice. When embedded in operational excellence, sustainable development provides important objectives and targets that help improve our operational performance and profitability. Through energy efficiency, water efficiency, waste minimization, pollution prevention and product stewardship, we are reducing our footprint and finding innovative and profitable ways to improve our existing business activities. SD has become a part of how we do business. The process evolves as we continue to set our standards of business excellence by incorporating SD performance measurement into our personal and business performance goals.

The Athabasca Oil Sands Project: An Energy Megaproject

Located in the northern reaches of Alberta, Canada near the small aboriginal village of Fort McKay, the Athabasca Oil Sands Project (AOSP) is a joint venture between Shell Canada Limited (60 per cent), Chevron Canada Limited (20 percent) and Western Oil Sands L.P. (20 per cent). At full production the Muskeg River Mine will produce 155,000 barrels per day (bpd) of bitumen. The operation will use new bitumen extraction technology, which allows us to make the most of the efficiencies offered by hydrogen addition technology used in the upgrading process. Albian Sands Energy Incorporated, a company formed by the joint venture, is building and will operate the mine and the extraction plant. Bitumen production from the mine is transported some 500 km south via a black oil pipeline to the upgrader, to be operated by Shell Canada and located adjacent to the Shell Scotford Refinery near Edmonton, Alberta. It will produce 190,000 bpd of synthetic crude oil. The upgrading process will incorporate the addition of hydrogen to increase yield and product quality. The Scotford refinery will process about half of the upgrader output to make highgrade transportation fuels and other products for the Alberta market. Together, Albian Sands and the upgrader will employ about 1,000 permanent employees. Our oil sands leases in the Athabasca region of Northern Alberta contain an estimated six billion barrels of economically mineable bitumen. Future expansion and optimization of this lease could bring total production from the current design of 155,000 barrels per day of bitumen up to 225,000 barrels per day. We estimate that the full potential of our leases in this area is in the range of 525,000 barrels per day.

The Athabasca Oil Sands Project and related facilities will provide significant long-term benefits for all Canadians. Remarkably, the project will: produce about 10 percent of Canadas oil supply and with the integration of mining, upgrading and refining, a large part of the projects output will be refined in Canada, supply the equivalent of one-third of Albertas gasoline requirements, cost a total of almost $7 billion to build with over 80 per cent of the total dollars being spent in Canada and more than half of that in Alberta, generate more than $5 billion in royalties and taxes over the life of the project, add important new infrastructure to Albertas energy sector, including the only black oil pipeline from Fort McMurray to Edmonton, the only return pipeline for diluent, a new natural gas pipeline and more than 300 megawatts of natural gas fired power generation.

In line with the overall commitment to sustainable development in Shell Canada, the Athabasca megaproject embraced the challenge of integrating social and environmental responsibility with profitability into the first visions of the project. As a result, many new approaches have emerged from the innovation that has been part of this project history. Shells Athabasca Oil Sands Project incorporates leading edge technology and processes. Low temperature extraction techniques and efficient gas-fired cogeneration will reduce energy requirements dramatically. Eliminating the use of caustics allows for water re-use and a far smaller tailings pond. A closed loop system will maximize the re-use of water and thus significantly reduce the need to draw fresh water from the Athabasca River. With no on-site upgrader, sulphur dioxide emissions will be minimal at the mine site. There will be progressive land reclamation (every seven years) at the mine to reduce visual impact and dust spread. We will reclaim to a dry landscape and use a tailings pond only for the duration of the mining operation. No high carbon coke will be produced and sulphur dioxide emissions will be kept very low due to the hydrogen addition technology used in the upgrader. Waste hydrogen from the neighboring Dow plant will be used at the upgrader. The synthetic crude produced will be very high quality with low sulphur. On-site cogeneration (a highly efficient energy system that produces both electricity and heat from a single source) at both the mine and the upgrader will turn otherwise wasted heat into a useful energy source. On-site cogeneration will reduce greenhouse gas emissions compared to the alternative of purchasing power from coal-fired sources. Two cogeneration plants will generate 300 megawatts of power from cleaner-burning natural gas, enough to meet all electrical-thermal needs of the Athabasca Oil Sands Project. Surplus electrical energy will go to Albertas power grid.

Challenges and Innovation Building Trust and Community Capacity

Social accountability is particularly important to our Oil Sands project and has been part of our planning from the beginning. Most of the 400 people who live near the Muskeg River Mine site are members of the Fort McKay First Nation or Metis. The Fort McKay area has been inhabited for approximately 8000 years. People lived in Fort McKay and elsewhere as part of their seasonal movement related to traditional hunting, fishing and gathering cycles. Shell has made sure the community has full access to development plans so that it can assess the project's environmental and socio-economic impacts. We contributed funding to a community Industry Relations Council, whose Community Liaison Workers act as focal points for local concerns and questions.

What emerged was the need to build community capacity through a long-term relationship with the project rather than focusing only on short-term solutions. The result has been a series of formal agreements covering education, employment, economic development, retention of culture, and community infrastructure. For example, we try to reinforce the connection between education and long-term employment, and we support regular school attendance. Another agreement looks at land-use, conservation and reclamation that includes Traditional Environmental Knowledge (TEK) in the planning processes. TEK is the result of how aboriginal people perceive their world, live within it and use its resources. It is founded on the relationship between the land and its people. A Key Concerns Document was also developed which identified Fort McKays two most fundamental issues on both a day-to-day and long-term basis as: The loss of culture and way of life and their subsequent impacts, due in large part to rapid, ongoing and significant industrial development of land used for traditional activities; and The communitys belief and conviction that they have the right to realize meaningful benefits from industrial development taking place on this land.

Both were the foundation for building a sustainable Socio-Economic Agreement between Shell and the community of Fort McKay. Although no developer is required by current regulatory legislation to address these two central issues, Shell Canada recognized that they were at the heart of its relationship with its closest neighbor. Shell has also been active in creating employment for First Nations peoples. This is not just about hiring staff. It's about building capacity within the community to run its own businesses. Our mine operating company, Albian Sands Energy, is now contracting on a competitive basis with the Albian/McKay Business Alliance, to whom we have already awarded some $25 million in contracts. The Alliance forecasts a further $70 million over the next five years. Six full-time businesses have been established, resulting in the creation of 120 positions. None of these initiatives could happen without the growth of trust, common ground and the desire to work together to support each others endeavors. But a sustainable, long-term relationship is not built between a community and a company: it is built on the interactions between people who represent the larger entities. Typically, the relationship starts very cautiously, with only key team members from the company interacting closely with the community. This initial effort is part of demonstrating commitment and stability to the community, in recognition of the mistrust and apprehension often held by community members. Over the course of time, the representatives develop a rapport and shared experience that enables them to take risks together: to advocate programs and solutions that are outside the usual way that communities and companies work together but that result in significant, long term successes.

Climate Change
Given the scale of the AOSP and its impact on Shell Canada's overall greenhouse gas emissions, we recognized the need to review our climate change program with fresh eyes. We consulted widely and sought the help of outside groups. One key outcome was the formation of the Shell Canada Climate Change Advisory Panel. Established in 2000, this group is helping us to gain a different perspective on our business and to advise us on our greenhouse gas management planning. The panel comprises local, national and international environmental and community leaders, who work with us to balance local and global considerations. They will also hold us accountable to our commitments. The panel has helped us to set a target of a minimum additional 50 per cent reduction in the Oil Sands Project post-start-up emissions levels by 2010. A reduction of this size means that the new operation will produce emissions levels six per cent less than those from an equivalent quantity of crude oil, which otherwise would have to be imported into North America to meet demand. This target actually represents more than a 60% overall improvement in net greenhouse gas emissions when compared to the predicted emissions at the time of application for regulatory approval (see figure 1). We also undertook a first ever study into the greenhouse gas emissions that would be generated in the construction of the mine site and the upgraders. We already have experience in managing greenhouse gas emissions in our conventional businesses. In 1995, as part of Canada's Voluntary Challenge and Registry program, we set out to stabilize at 1990 levels the greenhouse gas emissions for our existing businesses by the year 2000. We achieved that target and are now working towards a further six per cent reduction by 2008. However, with startup of the AOSP and other projects our greenhouse gas emissions are going to increase as our business grows. To address this, we have finalized our Climate Change Strategy and we are developing principles for managing greenhouse gas emissions associated with business growth.

Figure 1 Emissions Baseline and Project Emission Profile

Cumulative Effects
Shell and the Athabasca Oil Sands Project were also catalysts in the formation of a multistakeholder committee to address cumulative environmental effects of oil sands operations and other industry in the regional municipality. The potential impacts to the environment, culture and traditional lifestyles arise not just from the direct activity of one mine site but from the cumulative effects of development in the region. Shell listened to the stakeholders in the region and participated in developing a process called the Cumulative Effects Management Association (CEMA). The group was formed as a regional partnership to evaluate impacts and establish guidelines for sustainable development in the Athabasca region. The Alberta provincial government is the lead regulator and sponsor of the Athabasca Regional Sustainable Development Strategy. The CEMA is a multistakeholder group charged with providing recommendations for resource management through the adaptive management process. Its mandate is to: Assess regional environmental effects and issues Develop and implement environmental management systems Make recommendations to regulators Identify gaps in the science and research

The initial priority issues for action have been identified as: Sustainable ecosystems Cumulative impacts on wildlife Biodiversity - soil and plant species diversity Impacts of trace air emissions Bioaccumulation of heavy metals Impacts on surface water and fish

Collaborative strategy development programs that include government, business, aboriginal interest and local community participation are proving to be value added and critical to preserving and identifying long term development opportunities in sensitive regions. This is a world class model for large scale and small-scale resource development programs committed to the challenge of sustainable development.

Conclusion
Shell Canada believes that its commitment to sustainable development is not only a part of sound business practice, but also helps us to withstand changing circumstances. SD supports us in delivering on our objective of leadership in profitability and profitable growth. We believe that incorporating economic, environmental and social considerations into every business decision can provide a competitive edge through operational excellence and sustaining our license to operate. By addressing the needs and concerns of society, both locally and globally, we become a more trusted partner and the company of choice for all those with whom we can do business. We can attract additional resources: investors, customers, and dedicated employees. These resources, in turn, create broader economic benefits. We believe the Athabasca Oil Sands Project is demonstrating innovation and best practice in addressing the full range of sustainable development challenges. It will provide significant long-term benefits for all Canadians. We dont have all the answers. Sustainable development is not simply a set of rules or guidelines; it is a continuous process of hard work. We must listen to others and be responsive in ways that make sense. We are learning that with the need for accountability comes the need to be more open about the business. This transparency depends upon broad engagement with stakeholders, setting measurable goals and reporting performance against those goals. As a member of the Royal Dutch/Shell Group of Companies, Shell Canada is committed to a business strategy that generates profits while contributing to the well being of the planet and its people. There is no alternative.