Ir. Drs. Machiel Hulsbergen (19940930), Director Offshore Wind

INTERVIEW WITH MACHIEL HULSBERGEN

Energy expert Machiel Hulsbergen:

"Merkel was wrong with closing nuclear power plants and importing Russian gas."

These days, anyone who doesn't have an opinion on climate is not considered full. The rhetoric on social media and in talk shows is overwhelming. A conversation with Ir. Drs. Machiel Hulsbergen (19940930) is therefore enlightening. This alumnus has a realistic view on the international climate and energy agenda. After nearly a quarter of a century at Shell, he can step back enough to list the climate opportunities and threats. In forty questions around the world!

BY OELE STEENKS - PHOTOGRAPHY MACHIEL HULSBERGEN/SHELL

Machiel Hulsbergen: "I studied chemical engineering at the University of Twente with Nyenrode IDP as my main study. I started at Shell in a technical position. As a process engineer and project engineer, I worked on oil and gas platforms, including in the North Sea. At some point Shell found it interesting to use business engineers in a different way. I then more or less accidentally moved into the commercial side, first as a project economist. Then I climbed up the management hierarchy and managed departments and operating companies from an economic and commercial perspective. Then I managed a new business development department at the head office in The Hague. I worked for Shell for a total of 24 years, 17 of which were spent abroad. I have been away from Shell for a year and a half now, doing a number of small assignments and the necessary volunteer work. I honestly needed to recover for a while after all those years abroad. It is likely that I will soon have the sense and energy to take up a new structural activity."

Question 1) Oil reserves are not distributed among the world's economic power blocs. The top ten oil states clearly show this. We are talking about countries like Venezuela, Saudi Arabia, Canada, Iran, Iraq, Kuwait and the United Arab Emirates. Is it really attractive for these states to participate in a better climate?

MH: "It is indeed quite unevenly distributed with oil production and reserves. A country like Venezuela is not likely to give up its natural resources. Rather, the climate interest will have to come through the demand for fossil fuels, which will shift and decrease over time. If you look at it macro-economically, the prices of oil and gas will start to fall over time."

Question 2) Can you imagine countries like Saudi Arabia and Venezuela receiving compensation for that declining demand?

MH: "I can hardly imagine that. If we look back a little further in time, we have seen that all over the world large reserves of coal have remained in the ground. In England, for example, but also in Limburg. And just as well. There have been no economic compensations for this, and certainly not from abroad. I think that Saudi Arabia and Venezuela, which are very richly endowed with oil reserves, are not going to use it all up. On the other hand, I do think that those countries can continue to produce fossil fuel the longest, because the operating costs are the lowest there."

Question 3) What are countries with high operating costs?

MH: "Extracting oil from tar sands in Canada is very expensive, relatively speaking, and so is oil extraction in deep oceans and arctic regions. In general, the further away and more difficult the conditions, the more expensive. In contrast, the Middle East states up to and including Qatar remain attractive. Theoretically, this also applies to Iraq and Iran. There is very cheap oil in the ground there."

Question 4) The People's Republic of China is a major consumer of Middle Eastern oil. Will the Chinese ultimately determine the future of the traditional oil states?

MH: "China's economy still runs largely on coal-based energy. The only wry advantage of coal is that its own, local population will soon be affected. China itself has already converted a large number of coal-fired power stations to gas. That in itself is more expensive, but cleaner in terms of local air pollution and also CO2 emissions. You can say what you want about China, but the People's Republic does have environmental standards, which may lag behind Western Europe, but the Chinese themselves also prefer to live in cleaner air. For them, fossil fuels from the Middle East are a cleaner and necessary intermediate solution, especially natural gas."

Question 5) Meanwhile, has it become apparent that coal consumption in China has reached a peak?

MH: "That will certainly have to do with the country's school size and its own development toward an industrial society. And let's not forget that China needs a huge number of cheap jobs, for example in mining, to keep society functioning and to prevent social unrest. The Chinese have also clearly indicated at the Glasgow Climate Agreement to take longer on the energy transition. The year 2060 has been mentioned by the Chinese delegation for switching off coal-fired power stations. It may of course be that it is a first negotiation step."

Shell has EU's largest oil refinery in Botlek Question 6) To what extent is the Chinese CO2 problem reaching Europe?

MH: "That impact is really enormous. But there is no way around the fact that different countries will follow different scenarios based on their current economy, energy resources and climate state. This is also happening in the European Union. We in the Netherlands are closing relatively clean coal plants, while in Poland, heavily polluting plants continue to run on coal. By the way, Germany is still using lignite on a large scale, which is heavily polluting."

Question 7) Can the greening process be accelerated?

MH: "For that, we in Europe will really have to get serious about the climate agreement. Then you can make a fist towards China by starting to apply import levies. If we start applying equivalent CO2 levies at the European borders, this will definitely have an impact on China. But those levies will also make Chinese products more expensive for European consumers."

Question 8) Has climate become a political weapon?

MH: "Absolutely. We're going to see more examples of that."

Question 9) For Russia, the only thing that is really left is natural gas as an economic weapon, since we don't buy many Russian products?

MH: "Russia has huge reserves of natural gas. What the Russians have done very well in recent decades is build the system of pipe connections with Europe. With that, Russia has been doing energy politics for many years, whether we want it or not. Whether it is really a means of pressure depends enormously on the behavior of the importing countries. I think Germany is a bad example in this respect. The Germans took the decision in 2016 to accelerate their exit from nuclear power. I had great respect for Merkel as Chancellor, but I think this was a geopolitical error of judgment on her part. Who was cheering that decision? They were The Greens in Germany and Putin quietly in The Kremlin. And what happened? Lignite production in Germany went up rapidly and imports of Russian natural gas soared. The new German coalition wants to green the country even faster, with coal-fired power plants to be shut down. The dependence on Russia, which the Germans themselves have created, will only increase. We have just seen what this situation is doing to gas and electricity tariffs, while revenues for Gazprom have never been higher! The Netherlands is also importing quite a bit of Russian gas now, so we are also contributing to this."

Question 10) Does the age-old competition with France, which runs largely on nuclear power, play a role?

MH: "Yes, indeed. It will be exciting to see to what extent Brussels will label nuclear energy and natural gas as clean energy sources. I fear that Frans Timmermans' appointment as European Commissioner for Energy Transition is not the right one. He has started thinking about energy a little too idealistically and has lost sight of many pragmatic aspects"

Question 11) What alternative does the Netherlands have to the natural gas problem?

MH: "It is clear that with a pipeline system you are condemned to each other. With the import of liquefied gas LNG, you as a country are able to operate more independently in the energy market. So we have seen that in December 2021 a lot of American liquefied gas has come to the Netherlands.

By the way, that also means that a fair percentage of shale gas is imported; a by-product of the extraction of the shale oil that is exploited in the US. Everyone who is now cooking on gas in the Netherlands is burning some shale gas. While a few years ago we decided to ban shale activities in the Netherlands. But in the meantime we do import it, and the earth as a whole is worse off. There are more examples of this. We all have cell phones with metal from the Congo. We buy solar panels en masse, mostly made in China, with all kinds of questionable labor camps for Uyghurs."

Question 12) Isn't it tragic that a historically important country like Iran cannot now use its rich oil reserves?

MH: "It's no secret that Shell tried to get a liquefied natural gas project off the ground in Iran, but it floundered on international sanctions against the country because of the nuclear energy issue there. A shame, because Iran could be a major exporter of LNG, but now even it has to import gas. If the regime there changes and becomes friendly to the West, then LNG exploitation can certainly be realized. But then we are talking about at least 15 years away."

Question 13) Does shale gas inhibit the achievement of the climate agreement?

MH: "But not that much different than natural gas from Russia or LNG from other parts of the world. Gas is gas. Moreover, replacing coal with natural gas is a relatively big improvement in terms of CO2 emissions. Natural gas is a very important transition energy source for the coming decades."

Question 14) But shale gas is seen as a lifesaver for the U.S. economy, while it is polluting due to released methane!

MH: "Methane is released during all oil and gas production, but the methane content is indeed higher in shale oil and shale gas. This is partly due to the fact that you need to drill more wells to extract shale oil. In states like Texas and Colorado there is much more space to do this. In addition, there has been a technological breakthrough to make the extraction of shale oil cheaper. That has made America quite self-sufficient in oil production. The shale gas Americans got for free."

Question 15) Does the exploitation of tar sands oil contrast with Canada's clean image?

MH: "In part, that is true. Tar sands oil extraction is the most polluting way to get oil. It's actually a form of open pit mining. You have to scrape the surface and use chemicals to wash the oil out of the sand. It's a polluting process, but you can't blame Canadians for wanting to use their resources. In comparison, Germany is seen as a stable and green country, while it has been excavating huge areas for lignite production for decades."

Question 16) Is lignite mining in Germany the proverbial elephant in the EU room?

MH: "I think so, at least one of the elephants.For lignite mining, whole villages have also been evacuated in Germany."

Question 17) The most important achievement of the climate agreement

comes from behavioral change. Or is this too simple a conclusion? MH: "Too simple? No, I don't believe so. In the end, the biggest steps will have to come from there. I think everyone in Europe is doing their very best to become greener, but we keep coming up against the discussion about where exactly this should be done. Take onshore wind energy, for example: it's pretty clean energy, but it also pollutes the horizon and I wouldn't want to be within earshot of a windmill like that. I understand that offshore wind energy takes away those disadvantages, but it will be quite a task to make international progress with it. Take the electric car. In Europe, at least, a network of charging stations will have to be set up. We have to do that from an outdated electricity network. That will need a hefty investment run. When it comes to adjustments by industry in the area of energy consumption and climate-neutral production, the general public has developed the idea that you can demand this without consequences. Of course, this is not the case. Industries have a revenue model and if costs are structurally higher, they will pass this on in their end products. And if consumers shift their purchasing behavior to countries that do not have such structural cost increases, we as a European community will continue to contribute to the international climate problem. Higher costs in the energy system will end up with the consumer anyway."

China itself already has a considerable number of coal-fired power plants converted to gas.

Question 18) Does this make the Glasgow Climate Agreement to limit global warming to 1.5 degrees Celsius by 2030 a pipe dream?

MH: "Many climate goals are geared to the year 2030 or 2050, as if that were some kind of end date. For strategists it is normal to think in time frames, but the general public still experiences this as far away. It is pointless for a political party, or an NGO, to threaten in the sense that if we don't make it, the world will end. If the public can see the energy transition as a gradual process rolled out over the next few decades, then it is certainly promising, but I do not believe in a forced approach. The point is for the general public to get used to the price increases that will be inevitable. A government needs to build in enough creative tension with a climate agenda, but not set ridiculous targets. At the moment, the coalition agreement in the Netherlands seems to be pretty idealistically framed. The target of 60% reduction in CO2 emissions will no doubt be intended as a guideline, although this is not said out loud."

Question 19) Is it the case that the price of oil determines the intensity with which climate targets are pursued after all?

MH: "What we've seen is that when fossil fuels are phased out nationally, there can be big price fluctuations. We experienced it here, but the price increases in the UK were even more shocking. There, the weather conditions were unfavorable for generating offshore wind power. It was just too windy over a long period of time. In the Netherlands, the decision was made to compensate consumers for price fluctuations through a partial refund of the energy tax. One might wonder whether it is the government's job to continuously protect citizens from the price consequences of the energy transition. At the end of the day, that's pocket-to-bin. Furthermore, we will really have to look at other energy sources, such as gas-fired power plants and nuclear power. We need those sources to balance things out a little bit financially."

Shell climate neutral in 2050? Revolutionary! Nothing could be further from the truth.

Question 20) Boris Johnson is patting himself on the back for allowing the UK to make the move to offshore wind so quickly. Is this justified?

MH: "Let's not forget that the UK has been enormously lucky in terms of energy. When the country had to get rid of coal-fired power plants in the industrial cities in the 1970s, a huge supply of oil and gas was tapped off the coast of Scotland. They were able to take advantage of that for decades. At the time when it was necessary to develop an alternative to that fossil fuel, it turned out that the UK could build huge wind farms in the territorial waters of the North Sea, for example on the side of the Dogger Bank, because the sea is relatively shallow and the bottom reasonably stable. The British have been lucky, but don't blame them for taking advantage of it en masse. It will be a challenge for the UK to cope with windless periods, by storing energy and using it, for example, to produce hydrogen or to charge large batteries."

Question 21) The Netherlands has now written nuclear power back into the coalition agreement. Can't we do without nuclear power?

MH: "Nuclear energy has also become such a wonderfully polarizing topic of discussion. If you vote leftist then you are almost by definition against nuclear energy, if you vote conservative then you are for nuclear energy. I think we need to start thinking about this a lot more practically, and not so dogmatically. Of course, the problems of nuclear waste still haven't gone away, so we have to think about that sensibly. At the same time, the technology of nuclear power has advanced a lot since the Chernobyl and Fukushima disasters. You also have to look at nuclear energy in terms of energy independence and energy security. I think it's very wise that the Dutch government is now seriously studying nuclear energy and decides not to be as cowardly as parties who are now suddenly calling: leave it to the market. Let's not forget how many billions of euros in subsidies have gone to large-scale wind farms and solar parks in recent years. Now these can support themselves somewhat independently, but this has not happened without a struggle. So, if we as humanity want to broaden our energy palette, I think nuclear power could fit right in."

Question 22) The KNMI predicts that if adequate measures are not taken, the North Sea mirror may rise by one and a half meters by the end of this century. How do you view that?

MH: "Of course this is not good, but on the other hand the Netherlands has very good hydraulic engineers and we have a relatively short coastline. I think these are good ingredients to cope with a one-and-a-half meter rise in seventy years' time. Many more countries will be seriously affected by sea level rise. You can look, for example, at the gross national product per kilometer of coastline. On that scale, the Netherlands is closer to Switzerland than, say, Bangladesh."

Question 23) Shell has moved its headquarters to London and now operates with a single type of shares. Does this contribute to the climate transition?

MH: "Not in itself. It helps to raise capital from the market more easily, to make large investments and to buy back shares respectively to maintain dividend payouts. And it will certainly help to make decisions faster."

Question 24) At the same time, Shell has announced its intention to be climate neutral by 2050. Is that achievable?

MH: "It is comparable to the climate goals set in Glasgow and at other climate summits: it sounds safe and far away. In that sense, it is easy for a current CEO to set such a goal, but it will have to be translated into manageable milestones by the business units. I don't know how exactly this will go, but to achieve this overall goal in thirty years will be a gigantic challenge."

Question 25) Is it revolutionary?

MH: "Nothing could be further from the truth. It will mean a huge shift from fossil to renewable. Much more electricity and much more offsetting possibilities, which means capturing and storing CO2. In addition, Shell will become active in so-called 'nature-based solutions.' For example, by investing in forestry and the cultivation of algae. Furthermore, Shell will focus more on the trade in clean energy and on CO2 offsetting certificates. I think the general public still underestimates how much money this will involve. By its very nature, Shell has a business culture based on trading in oil and gas. That requires a certain amount of experience and knowledge. I think the company will certainly want to use those aspects in green energy trading."

Question 26) Does it help that Shell operates in 140 countries?

MH: "This is particularly true of the downstream activities, i.e. trading in gasoline, gas and diesel oil. When it comes to the exploration branch, we're talking about 20 to 25 countries. That's a much smaller group of countries."

Question 27) What impact does the ruling of the Dutch court forcing Shell to reduce CO2 by 45% by 2030 have?

MH: "The move of the headquarters to London is not related to that statement. Shell has also confirmed this on its website. Unfortunately, Shell has also become a polarizing factor in the social discussion, especially in the Netherlands. The Dutch left, and Shell haters in general loved the verdict in favor of Milieudefensie. That's a shame, of course. But perhaps there are two issues one could raise with the verdict. First, a matter of principle; many people agree that the judge in this case pretty much sat in the seat of politics. This is what both legal experts and supporters and opponents of the verdict itself say.

Proponents of the verdict say in reply: yes, that may be so, but it was necessary because politics left quite a gap. Even if this were really the case, you have to wonder whether you should want a judge to take such a position. Look around us, for example at Poland and Hungary. There the judiciary has now been given a very firm political seat. Brussels thinks something of it and within the EU the Netherlands shouts the loudest that things are going completely wrong in Poland and Hungary. But in our own country we applaud this development. I would say: 'Be careful what you

wish for.' In any case, I find it pretty hypocritical. Suppose that tomorrow the judge would forbid Friends-of-the-Earth or Extinction Rebellion, because they might have terrorist motives, then you should see what happens in the Netherlands! Then there's the substantive side of the ruling; so that's about 45% reduction of CO2 emissions compared to the year 2019. It's about scope 1, 2 and 3. Scope 1 is the emissions that are released from your own production, simply put, that which comes out of your own chimney. Scope 2 revolves around the CO2 emissions from industry that purchases your electric power, in this case from Shell, and blows it down your chimney as CO2. So far it sounds pretty logical. Scope 3, however, revolves around what CO2 is emitted by customers using your products. So I fill up with Shell gasoline at the pump and my driving releases CO2. Who is responsible for that? In this case the judge says: that's Shell's responsibility. Now suppose we are talking about a sugar producer who has its headquarters in the Netherlands and grows and buys sugar internationally. That sugar producer supplies a large number of food producers in the Netherlands and abroad. The consumption of all these end products releases CO2; is that sugar producer then responsible for the environmental pollution caused by the consumer? While the Suikerunie, a competitor, is allowed to continue. In other words, such a judgment by a Dutch court must be enforceable, and must preserve legal equality. Another example: suppose that within the EU the pressure on Poland becomes effective and that it is agreed that, in exchange for normal behavior, the country will receive help in converting coal plants to natural gas. Shell could make a huge contribution to this by bringing liquefied gas into the country through the port of Gdansk. Now Shell should say it makes an enormous contribution to a cleaner climate, but sorry we can't do anything, because we're stuck with that court ruling. I find that bizarre!"

Question 28) Do you think Shell is always going to push the boundaries to operate within the court ruling?

MH: "They will have to. With regard to scope 3, they have a best-effort obligation; it is not a law. However, the burden of proof now lies with Shell. They will have to show that they have made the necessary effort. At the same time, of course, there will be another appeal."

Question 29) Isn't it true that Shell will soon be more strongly driven by the London and New York stock exchanges, and that Anglo-Saxon views of cleaner operations, will come to dominate?

MH: "I think that American companies are also starting to focus more on international environmental agreements. So the extent to which Shell could deviate from the European standard will be less in the future."

Question 30) Can you imagine Shell becoming an acquisition target?

MH: "If the oil price were to structurally collapse due to clean energy technology, there will come a time when the valuation of Shell's oil and gas reserves will also come under pressure. At that moment I can imagine a takeover, but that is not on the agenda for the time being, if only because of the international competition laws and regulations."

Question 31) Has the acquisition of UK BG (gas production) in 2017 been an important strategic move in this context?

MH: "It's no secret that Shell has been looking at that acquisition for decades. I, myself, worked in the new business department and every year BG came along as a potential 'merger & acquisition target.' In terms of the valuation of BG, at one point we even went through it twice a year. In 2016 the circumstances came together: Shell had the money and BG was valued low, so the stars were aligned favorably. In the process, BG was seen by the entire oil and gas industry as a "natural fit" for Shell. Shell was already the world leader in liquefied natural gas, as the company had been betting hard on it. The acquisition of BG further strengthened that leadership position. Shell believes very strongly in natural gas as a transition to the use of hydrogen and other renewable sources. It is realistic to assume that this transition will take decades."

Question 32) Is there sufficient transport capacity available to distribute LNG around the world?

MH: "That's not a problem. It's a matter of adding LNG tankers. The advantage is that you can work with LNG in smaller quantities. Even islands like Aruba, Malta or Cyprus and other island states can be served well with liquefied natural gas. That also applies, by the way, to the Philippines and Indonesia where there is sufficient coastline."

Question 33) In 2017, Shell exited the extraction of Canadian tar sands oil. Was this done for environmental reasons?

MH: "The economic premise will have been more important. Shell had to deploy a lot of capital on the ground. The environmental standard that Shell applies to this worldwide increased the cost. On the other hand, the yield of a barrel of tar sands oil was low, since it is lower quality oil. It is true that tar sand oil got a worse image, along the lines of tar oil, you should not want to be in it. At the same time, Shell stepped into a $30 billion Canadian liquefied natural gas project, along with some Japanese companies. Then you have to think, how many companies and capital do we have working in a single country? Then you make portfolio decisions. If it's a good sale, then you use the cash from one project to start up another."

Question 34) Shell exited the shale oil industry in the United States. Did environmental concerns play a role there?

MH: "To a certain extent. The business interest played a bigger role. Promises had been made to accelerate debt repayment through the acquisition of BG, so that required bringing capital

The Hulsbergen family spent 17 years abroad for Shell.

Important that battery technology get better!

from the US back to the UK. From there, money could be returned to shareholders. Shell could sell a 'chunky bit' of the portfolio in one go and that was a very good fit at the time."

Question 35) How does hydrogen production fit into Shell's practice?

MH: "You need hydrogen in the refining of crude oil. This is certainly true of Shell's oil refinery in the Botlek area (the largest in Europe, ed.). So Shell already produces the necessary so-called grey hydrogen there. With that, you crack the supplied oil with hydrogen. Future green hydrogen can replace that gray hydrogen just fine."

Question 36) But surely Shell will want to invest in hydrogen?

MH: "We are now primarily looking at projects in the Netherlands and Germany. Hydrogen could become a very important energy carrier. It can be used to transport generated sustainable electricity in a different way. This makes it an alternative to the old-fashioned power cable network. Furthermore, hydrogen can be used in industrial processes that run continuously, such as the steel furnaces at Tata Steel."

Question 37) It is difficult at this point to imagine a European network of charging stations for electric trucks. How do you see this?

MH: "The important thing is that battery technology is getting better and better. This will initially be positive for passenger cars. Only much later will electricity become the fuel for trucks across Europe."

Question 38) Is Shell Chemie in Moerdijk an autonomous part of the group?

MH: "Shell is in the chemical industry worldwide and that remains a substantial growth market. In addition, certain fractions that come out of the refineries can be passed on directly to the chemical branch. So chemicals offer an important portfolio offset to oil and gas, while the profit margins are good. Investment can only be profitable in very large plants. Competition for Shell in the chemicals sector, in this regard, will come directly mostly from the Middle East."

Question 39) So in which countries can Shell do this?

MH: "In Qatar, Shell has a chemical plant that sits on top of a gas field; in Pennsylvania, USA, there is also a chemical unit close to shale gas production. In China, Shell has a chemical plant next to a huge tank storage facility, so there the company is right next to the customer."

Question 40) Has solar and wind power become large enough for a company like Shell?

MH: "Particularly in large states with favorable climate conditions, Shell has interests in green energy on land. For solar energy, this concerns the United States and Australia, but also Oman, for example. For wind energy, Shell is only interested in offshore wind energy in the United States, the Netherlands, Germany and Denmark. The company builds wind farms itself, but also acquires many well-run offshore wind projects. This is necessary to quickly create the right scale and to gain project experience." ♦

A Shell e-car charging station in London.