Paddy's writing on Business, Brand and Reputation

This blog contains some of my writing on Brand and Reputation, including those on Shell - the corporation that I worked for for 37 years. Some of the articles have previously been published - others are seen here for the first time. The purpose of the website is to contribute to discussions on the role of brand and reputation management in today's business world. Please also see: http://www.roadsideretail.com/search?q=Paddy Comments welcome to me at: paddy_briggs@yahoo.co.uk

Friday, February 22, 2008

More on "Clearing the Air"




“Clearing the Air”

Further thoughts on Shell’s misleading advertising

My recent article criticising Shells’ “Clearing the Air” GTL advertising campaign has generated a (mostly) healthy debate here and there. I hope that those who have criticised my piece are now satisfied (a) That there are no inaccuracies in it (b) That I am certainly not anti GTL or anti any other development which will mean improvements to our well-being and to the environment in the future. But as someone who has been active in the world of advertising and communications for more than twenty years I believe that it is legitimate that I pass judgment on advertising which is as ill-thought-through and as misleading as this campaign.

To add to what I have already said about “Clearing the Air” let me quote and comment on the copy of the TV commercial (TVC) currently running in the UK. The copy runs as follows:

“As the air in the world’s cities becomes more polluted are we running out of options? To help solve problems like these we need creative thinkers with different ideas. Like starting with cleaner Natural Gas not Oil to create a gas to liquids fuel. Find out how one company [Shell] is helping to reduce city emissions by up to 40% on diesel vehicles.”
There is also an on screen caption at the end of the TVC which says:

In cars tested to May 2007 the typical range was 26% to 40%.



Let us just dissect this copy and how why it is misleading. The intention is to suggest strongly that the reason for the development of GTL technology by Shell was to “…help solve problems” like the fact that “the air in the world’s cities becomes more polluted”. The reason for the development of GTL technology was to produce middle distillate products from Gas in those (very) special situations where it was felt that conventional Gas reserves exploitation could be augmented by the conversion of some of the Gas to liquids – and where such conversion could be economic. The only commercial scale plant in operation at present is the 14,700 barrels per day facility in Bintulu Malaysia – this is equivalent to less than 3% of Malaysia’s total oil consumption. Whilst it is true that if the GTL product is consumed in Malaysia then it could perhaps have a miniscule effect on air pollution - but 97% of Malaysia’s growing oil consumption will be of conventional oil products from oil refineries. Malaysia’s annual growth in oil consumption far exceeds the annual production of the Bintulu plant.

In a few years time the much larger Qatar GTL plant will come on stream and this will produce 140,000 barrels per day. This will be roughly equivalent to Qatar’s total oil consumption in 2010 so it is reasonable to assume that much of the product will be consumed in Qatar – although some will have to be traded (no gasoline will come from the GTL plant so this local demand will continue to have to be ex-oil refinery). The traders will no doubt try to secure a price premium for the environmentally friendlier NGL middle distillate compared with conventional gas oil. If we look at this at a Middle East level then in 2010 the region is expected to consume 12.2 million barrels per day of oil in that year so the Qatar plant, if it is on stream by then, could provide just 1% of regional oil consumption if it is all sold in the region (including in Qatar). 99% of the Middle East regions’ oil consumption will be of ex-refinery products.

I mention these figures just to illustrate how misleading Shell’s advertising is. The claim is that Shell’s GTL “…is helping to reduce city emissions by up to 40% on diesel vehicles.” At a micro level this is no doubt true. Any one vehicle does perhaps indeed produce 26% to 40% less emissions on GTL compared with conventional diesel. The point is that there are hardly any vehicles on the roads anywhere in the world doing this and this will remain the case for the very long term indeed! Even in Qatar the beneficial effect will be small and across the Middle East region as a whole (if that is where the product is sold) it will be negligible.

GTL is a good thing and it would be churlish to deny that over the very long term it will have a place in the world’s oil consumption mix. But the “Clearing the Air” advertising wishes to suggest that Shell is at present “helping to reduce city emissions by up to 40%” with GTL - this is simply not true! Even in Malaysia where the only producing plant is operating the production is so small as to have no measurable effect.

Advertising has to be “Legal, decent, honest and truthful”. “Clearing the Air” fails this test – Shell should withdraw the campaign.


© Paddy Briggs February 2008




Friday, February 15, 2008

"Clearing the Air" Who is Shell kidding?


If corporations, especially energy giants like Shell and BP, ever wonder why they are vilified by environmentalists and accused of “Greenwash” one objective viewing of the latest Shell film “Cleaning the Air” should tell them why. This highly professionally made paean to the virtues and responsibility of Shell shows the company seemingly single-handedly trying to solve the problem of city air pollution is a misleading farrago of half-truths and lies. Let’s get out of the way first the overtly “romantic” undertone of the film as handsome young twenty-something male Shell scientist Theo eyes up and then chats up a gorgeous young sceptical female colleague whom he eventually convinces (business-wise anyway) by delivering synthetic diesel fuel for some taxis at the 2004 Athens Olympics. I suppose that the intention here was to show that Shell employs human-beings with all the foibles and fantasises that we all have. The misty images and stolen glances of this embryonic romance, brought to earth (or maybe not) by the revelation that the young woman has a daughter, is as facile as it is irrelevant. If I want romantic escapism I’ll watch a Richard Curtis film thanks.

But it is the false premise of the film, not its soppy story line, which most offends. Theo we are told has a job which requires him to “tackle the problem of city air pollution”. What nonsense! Nobody in Shell has such a job – it’s not what a multinational energy company is for. Tackling cities air pollution is the responsibility of city political leaders or national governments - even supra national bodies like the EU, but not oil corporations whose sole raison d’être is to deliver value to their shareholders. If a consequence of developing Gas To Liquids (GTL) programmes is that gradually the air in cities will become cleaner than that’s good news for all. But Shell’s driver in its GTL programme is not environmental it is commercial. If there is money to be made in GTL then Shell will be in it – if not, not. Period!

The mendacity of the film “Cleaning the Air” is the clever proposition of the premise that Shell is in the GTL business because it cares about pollution. Aside from the convoluted logic which allows any anonymous corporation to have feelings at all there is no evidence that Shell has ever or will ever take a major business decisions for purely environmental reasons – and it is preposterous to imply that the main driver of the GTL business is environmental. The stakes are too high and the costs too massive for there to be anything other than a cool business driver behind Shell’s GTL programmes. That’s how it is and that’s how it should be - for GTL to fly there has to be a hard-nosed evaluation of costs against benefits. So in the Qatar project (140,000 barrels per day of GTL products) the project planners will have satisfied themselves that it makes economic sense to convert a small proportion of the State’s huge gas resources into middle-distillate – principally, I suspect, for local consumption as gas oil and diesel fuel. Little if any of this synthetic distillate will find its way outside of Qatar and there will be no measurable benefit on city air pollution. I don’t recall the small city of Doha being particularly polluted anyway - although the fact that a by-product of the plant’s production of GTL fuel is that it will be a bit less so is to be commended – I suppose!

The facts are that GTL is only an option where there are massive gas resources and where the conventional uses of gas are limited or non existent. Gas is mainly used for electricity generation or space heating in the developed and (mainly) northern hemisphere world. It makes no commercial sense to convert any or Europe’s gas to liquids, for example, when there is a growing conventional demand for all the gas that Europe produces. The same applies in North America. It is true, I guess, that is possible that a Government in a European country could offer subsidies to encourage automotive GTL use rather than refinery fuel. But it’s not very likely is it – certainly in the short to medium term?

The 2004 Athens Olympics “GTL in taxis” exercise was no doubt useful to show some people that it is possible to covert gas to synthetic diesel and to run diesel cars on the liquid. But it was not a commercial venture it was a PR stunt. How many cars in the Greek capital today run on GTL fuel I wonder?

Of course much of advertising is designed to accentuate the positives and eliminate the negatives in products, services or businesses. Most of us have a fairly sceptical reaction to advertisers’ messages and a live filter to stop us being fooled. But “Cleaning the Air” is a pretty mucky example of the corporate communications advertising genre. It suggests, implies, and hints at things that are simply not true. There is no likelihood of GTL being a significant factor in any of the world’s most polluted cities for the foreseeable future. That Shell has the technology to produce GTL is commendable and there are some very clever people involved. That Shell has solved the horrific problems it encountered in its small Malaysian plant is excellent as well. But as one authorative source, “Chemlink”[1], has said
“It is clear that the commercial success of GTL technology has not yet been fully established, and returns from GTL projects will depend on projections of market prices for petroleum products and presumed price premiums for the environmental advantages of GTL-produced fuels.”
Price premiums will come only if governments specifically offer consumers and businesses advantages if they choose synthetic fuel over normal refinery fuel. Such a development is a long way away and except in very special circumstances it may never happen. So for Shell to develop a whole advertising campaign around something that is at best tiny in its impact for the foreseeable future is disingenuous in the extreme.

© Paddy Briggs February 2008



[1] http://www.chemlink.com.au/

Tuesday, February 12, 2008

Response to article in The Guardian by Jeremy Leggett


Response to article in The Guardian

http://www.guardian.co.uk/commentisfree/story/0,,2252581,00.html


Jeremy Leggett makes some excellent points in this article and he is quite right to draw attention to the continual failure of Shell and other oil multinationals to invest in exploration and production. Shell’s continued affection for buybacks and BP’s recent massive hike in dividend payments show that it is the stockholder stakeholder who is the most favoured recipient of largesse. Cash “given back” to shareholders is, of course, cash denied to capital investment or to other potential beneficiaries such as employees, pensioners or the community at large.

This is not a temporary phenomenon - there has been a strategic shift in the industry that is irreversible. The power which was once in the hands of Exxon, Shell, BP and the others has shifted almost entirely to the National Oil Companies (NOCs). Remember that the growth of the oil industry was characterised by a corporation like Shell having skills and resources that the countries with the hydrocarbon resources lacked. So Aramco, Nigerian National Petroleum Corporation (NNPC), Petroleum Development Oman and the rest were established on the basis that the western oil company brought the technical expertise and the funding and the NOC partner was essentially a sleeping partner who simply banked their share of the income streams. Those days are long gone and whilst there will still be some areas where the multinational is the prime mover the shift to the NOC is almost complete everywhere. In Nigeria Shell is expected to lend NNPC the funds to cover the State's share of the budget of SPDC, the joint venture E&P company and this may shore up Shell’s position in that country in the short term. But Nigeria is the exception and with oil prices at $90 a barrel most NOCs have income galore to make them largely independent of the multinational giants.

So the model for the future is the oil-poor world continuing to grow economically but needing oil and gas imports to fund that growth – the United States the largest and most obvious example. The western oil companies will continue to exploit resources in their western homelands – increasingly non-conventional resources such as the Canadian oil sands. But their traditional role as explorers and producers in the rest of the world will swiftly decline (as it already has substantially) because the NOCs frankly don’t need their help any more. In many cases the NOCs already have as much expertise as the multinational companies that they used to rely on. Where that expertise in a particular technical area is missing then the NOC can buy it in from (for example) a Schlumberger rather than being forced into a partnership with an oil company. Existing partnerships, such as PDO, may well continue for a while but once the new generation of leaders in Oman begins to take power it is not conceivable that they will continue to tolerate a situation under which a substantial proportion of their revenue streams from oil and gas go not to their own people but to western companies - primarily Shell.

Jeremy Leggett is one of the pessimists who argue that oil production is close to peaking and that as a result the western world’s over-dominance on hydrocarbons will imperil their economic future. However when he says that the National “…oil and gas producers are going to start keeping what remains for themselves in an effort to feed their own economies” he is being disingenuous. Whilst some of the major resource holders do indeed have large populations and large economies (North America and Russia in particular) in the main reserves are concentrated in countries with small populations relative to their hydrocarbon wealth - Saudi Arabia, Kuwait, the United Arab Emirates, Libya, and Qatar in particular (these five countries have 40% of the world’s proven oil reserves between them). In addition other major resource holders such as Iran, Iraq, Venezuela and Nigeria are likely to remain substantial net exporters for a very long time as their economies are comparatively undeveloped and not very energy intense.
I would draw rather different conclusions than Mr Leggett from his analysis. I agree that the multinational oil companies’ days are numbered and suggest that they will have to institute further consolidations and mergers to survive at all. They are also highly vulnerable to the more sophisticated of the NOCs who might envy the multinationals’ downstream strengths and try and acquire these refining and marketing assets. There are also political attractions for (in particular) Russia to use their financial muscle to swoop on Shell or BP – what pleasure that would give Mr Putin! However the main changes in the next couple of decades are likely to be a growing strength of the OPEC producers and their diversification (using oil revenues) into other business areas around the globe. The most entrepreneurial of the oil rich states (with the UAE in the lead) are well underway with their strategy of using their financial (oil driven) strength to acquire a range of non oil assets in the west.

There is a case to be made that the principal challenge for the west for the foreseeable future will not be how to cope with “peak oil” but how to cope with the shift in control from the old world in which the multinational oil companies played a significant part to the new world where both the control of hydrocarbon assets and, increasingly, other core businesses is in the hands of a small number of increasingly powerful new players – especially in the Middle East and North Africa. That will be a political challenge for the nest US President – perhaps his (or her) principal one.


© Paddy Briggs February 2008

Wednesday, February 06, 2008

The perils of mediocrity


“Thrusting mediocrity rises to the surface in almost every sphere”


This is a quote from Tariq Ali who was writing about characters in Anthony Powell’s “Dance to the Music of Time” - but it struck me immediately as being very true of Shell today.

When I left Shell after 37 years back in 2002 there were a number of colleagues much younger than me who I rated and respected and who I thought were the future of the oil giant. Almost without exception they have left the corporation over the last few years. To illustrate the point I will pick out two of them but, to spare their blushes, I will keep their names anonymous!

Michael

Michael is twelve years younger than me but before he was fifty he had already run four big Shell businesses – three as Chief Executive overseas and one global business. Michael is seriously bright, well-educated (MBA etc.) and creative and original. He performed exceptionally well – all of the businesses he ran delivered good results. He left because of his growing contempt for Shell’s senior management who he saw as greedy, short-sighted, conniving, unprincipled and not very competent. Michael now runs a FTSE 100 level company in the UK. In a few years he could have been running Shell – but he isn’t mediocre enough!

Charles

Charles is almost a generation younger than Michael but, like him, very clever and ambitious. When I first got to know him he was in his twenties and already MD of a Shell subsidiary in the Middle East. I worked with him when he was in this job and admired his originality, hard work, loyalty to his staff and superb relations with stakeholders in a difficult environment. He was pitched in at the deep end in this job and did exceptionally well. I thought Charles to be one of the highest potential young people I had seen in my time in Shell. But, like Michael, Charles become disillusioned, and for largely the same reasons. In addition he did not feel that his career was being thoughtfully managed and as a high flyer, and still only in his thirties, he felt that the prospects outside were better and he too left. Like Michael he was not mediocre enough to stay.

The point about both these stories is that Shell should have bent over backwards to look after two very able people and they didn’t. And they should have realised that the changing culture of the company, which so alienated Michael and Charles, would be likely to alienate others as well. I hear that it has - and I know of at least ten other examples of good people who have left prematurely because they couldn’t stand it any more. Very sad.


© Paddy Briggs February 2008