NEW YORK -- Despite expressing hope it can reach a deal to buy out Texaco Inc.'s remaining share of its refining and marketing joint ventures, time is running out on Royal Dutch/Shell.
Shell has been in talks for the last year on buying out Texaco’s share of the companies’ U.S. downstream joint ventures Equilon Enterprises LLC and and Motiva Enterprises LLC as part of Texaco's merger deal with Chevron. As of late last week, Shell Chairman Phil Watts said he was "hopeful" a deal could be reached, though he admitted time was running out.
The U.S. Federal Trade Commission last month ruled that if Shell and Texaco cannot strike a deal by the merger's scheduled Oct. 9 closing date, the assets will be placed into trust, to be sold by the trustee within eight months.
Motiva has four refineries in the Eastern and Gulf Coast regions of the United States and supplies gasoline and other fuels to 13,000 Shell and Texaco retail and wholesale outlets. Shell owns 30 percent of Motiva, while Texaco and Saudi Arabian state oil company Saudi Aramco each own 35 percent.
Equilon has four refineries on the U.S. West Coast and supplies fuel to 9,000 Shell and Texaco outlets. Shell owns 56 percent of the company and Texaco 44 percent.
Royal Dutch/Shell Group and Saudi Aramco, have first rights to buy out the stake in Motiva. The companies have been negotiating since Texaco and Chevron agreed to merge last year but have been unable to come to terms on a price.
Speaking at the launch of Shell’s latest “Long Term Energy Scenarios” report last week, Watts also addressed Shell’s view on the future of the oil industry, saying Big Oil must prepare itself for the end of the hydrocarbon age as alternative energies win over consumers in coming decades.
"One thing I am convinced of is that the next 50 years is not going to be more of the same," Watts said at the launch of Shell's 'Long Term Energy Scenarios' study. "An energy company had better make sure it has the necessary expertise and knowledge."
Shell has pledged to spend between $500 million and $1 billion in the next five years to develop new energy businesses, concentrating primarily on solar and wind energy, Reuters reported.
“There will be different sources of energy by the middle of the century. It challenges what our portfolio will be,” Watts said. “I don't know if Shell will be transmogrified by it, but I wouldn't like the opportunity to pass by default.”
While oil currently accounts for approximately 40 percent of primary energy use, that will fall to barely 25 percent by 2050, according to Shell figures.
“We are going to have oil and gas for many, many years,” Watts said. “The internal combustion engine is not going to go away. It's going to fight for its life. Under pressure, the internal combustion engine is going to develop.”
Automakers such as Toyota and Honda are already selling hybrid cars which combine traditional engines with battery powered motors. The vast markets of China and India are key examples of how nations and energy companies alike will need to balance rapidly growing energy needs with rising import dependence and environmental effects, Watts said.
Natural gas will initially pick up much of the slack as oil's preeminence slowly wanes, Watts said. After that, the outlook is far less certain as new technologies fight to establish themselves.
“We could see an evolutionary progression, the so-called carbon shift, from coal to gas, to renewables, or possibly even to nuclear,” Watts said. “A second scenario explores something rather more revolutionary; the potential for a truly hydrogen economy, growing out of new and exciting developments in fuel cells and advanced hydrocarbon technologies.”
According to one Shell scenario, rapid growth in fuel cells -- which produce electricity from hydrogen and cut harmful emissions -- could shift the energy business dramatically away from oil long before oil becomes scarce.
With change on the horizon, Watts said oil companies, including Shell, cannot afford to assume they will dominate for the next 100 years. “That would be a very complacent view,” he said. “Longevity in corporations is not the norm.”
