Strait of Hormuz: Inside the response to a global energy crisis

You're doing those calls with colleagues in the affected areas and a siren goes off and they have to evacuate. It makes it incredibly real that what we're dealing with is impacting people's lives then and there. There are women and men on board these ships, there's human life, that decision never actually gets easier. The energy podcast from Shell, the home of conversation about the energy that powers our world. Hello and welcome to the energy podcast from Shell. I'm Bryony. And I'm Nathan. At its narrowest point, the straight of a moose is barely 50 kilometres wide, but most oil and gas exports from the Gulf have nowhere else to go other than travel through this narrow sea passage. Around the fifth of the world's supply of oil and liquefied natural gas, LNG, typically flows through the street. So when it closed early this year, the ripple effects will felt worldwide. Ships carrying vital energy supplies were stranded, oil and gas markets were rocked, huge production facilities ground to a halt, access to energy became a real concern in some countries. So if it's your job to help keep energy supplies moving safely, where do you begin when a crisis like this one hits? And how do you deal with the uncertainty? Well, this is exactly what our guests today have been grappling with since the crisis began. We'll be speaking to Shell's chief of staff, Tony Noonan and executive vice president for shipping and maritime carry troth. With them, we'll build a picture of safely navigating the energy crisis from inside a global energy organisation, one which provides energy directly or indirectly to around a billion people each year. Okay, let's get into it. Carrie, Tony, so good to have you both with us today. Thank you for being here. Let's just start briefly tell us what your role is involved. It's great to be here. It's great to be back here. I'm the global head of shipping for Shell. So my team does everything from design and construction of ships for Shell's fleet to operations to, as I think we'll talk about today, our emergency and security responses. Tony Noonan, I'm our chief of staff. I really couple parts of job. One is I support our executive and in the way that we think longer term as a company and the way we bring our strategy to life. I help manage our reputation as a company and I'm also our global crisis lead who manages our crisis capability. We're obviously going to start there, Tony. But let's let's go back to the beginning. So the straight-of-all-mouse closes. Arguably a lot of people have to look up where the straight-of-all-mouse is if you outside the energy industry. Do you just pull a bit crisis plan out of a drawer, dust it off? Good to go. Talk us through the process from the outset and how you felt about it when this crisis started. You would always love to have this perfectly planned response to any situation. Of course, because they're so unpredictable, you don't have that. We've got a couple of things. So first of all, we've got a fantastic team. So we stand them up who were trained and ready to respond. We follow a pretty simple process, particularly in the early stage because the first thing that we're trying to do is to understand what's happening, what's that mean for people, what's it mean for assets, what's it mean for governments and customers. So we look at the current situation, we understand what could escalate it, what could make it worse, and that helps us to get a frame of where we are so that we can start making decisions. How do you feel, though? You know, when those calls come in, I generally feel initially unsettled because I know that something's happening that I don't yet have a grip on. And so I feel unsettled until we're able to start getting the information and putting some process around it to help us make decisions. I think the second reaction is I know pretty quickly that this is going to dominate for the foreseeable future because this is the single most important thing we need to be able to do. So I think it's developed, then. Could you give us an idea of where some of the crucial decisions, as well as some of the hardest decisions they feed? That's a thing. I think with any crisis, it will start in one place and it evolves. And I think with this one in particular, the first place you start is, are our people safe? Do we know where they are? Are they being looked after? Can we support them? You then go to our assets. Are they producing? Can they safely produce? And are we able to get product to our customers? So that's where you start. And I think that always has to be the focus because, of course, looking after our people, making sure that they're safe and well is critical. And then recognizing the huge responsibility we have for our customers to give them the energy that they need in their lives, they have to be the first two places we go. As the crisis evolves and as we're getting more and more information, we want to be in a position to make decisions. You want to be capable of making a decision because it means that you've got insights that can help you. They keep our people safe, can support the supply of energy, can make sure we look after our customers. So what we're looking for is how do we bring those decisions forward so we can give guidance? And we're doing a couple of things. We're getting information from our colleagues in the region and we've got fantastic teams on the ground and each of those affected countries. We're also talking to those around us. We're talking to governments. We're talking to security advisors. We're talking to customers. And that's giving us information that helps. What are the hardest decisions that for me, anyway, personally, it's always about people. It's knowing that you had in the region, you know, we had a couple of thousand staff and their dependents who were in a really challenging personal situation. It's making decisions that keep them safe and well, knowing that there is risk that sits around it. How do you make decisions in a situation like this? I love listening to people first and foremost. I know that I don't have all the information and it will come from others. So listening and hearing the views of others is really, really important. I know that I'm not going to always get it right, but I know that the decision has to be made. And so recognizing those things, I always think, how do I make a decision which I believe is the best one at that moment in time, knowing that it may not be perfect. And I do it with a view to what will this look like in the weeks, months and years ahead, rather than just the decision in the moment. And it just helps me personally to recognize that these decisions will have longer effects. But of course, we're not alone and we're not the experts in everything. We rely heavily on those around us, whether it's governments, whether it's the advice of the emergency response services in the various countries, but also getting updates from media and other sources. All of those things come together in helping us to make decisions. Kerry, for anyone that didn't hear you on the podcast last season, could you paint us a quick picture of how the global shipping network usually functions to deliver the energy that our customers need? Yeah, happy to do that. So I think I described roughly 80% of the world's products and goods moved by ship. And that's some 60,000 ships moving around the world, largely in a series of operational lanes, you can see images, their ships that go around Africa to Europe, their ships that are going from the Middle East to Asia. There's almost highlighted lanes around the globe if you watch the 60,000 ships moving around. And on a good day, the system is in balance, where the demand is and where the supply is are reasonably balanced. So I think when I was on the podcast last, there'd been a disruption in the Red Sea. And that caused ships to reroute, reset their approach and go around this other type of Africa to come to Europe, to come to America from the far east. That's a bit of a disruption in how the global flow goes, but it's actually how shipping works. And that's the beauty of it with 60,000 ships on the sea. You can simply redirect from supply and to demand. So you've outlined how it usually works, but I wonder from your front row seat, do you think the crisis has changed the way you think about that system of moving energy around the world? I think what this crisis has shown with some 1,000 ships trapped in the Gulf and unable to exit is how important the navigational choke points in the globe are. So there's one here in the Strait of Hormuz, there's the Suez Canal, the Panama Canal. There are a handful of these choke points. And what this crisis really made us see is that one, one choke point closes, it has the potential to significantly impact the entire rest of the system. And this is a choke point that doesn't have another outlet. Some choke points you can go much longer around. You can go around Africa instead of go through the Suez Canal. This choke point simply stopped the provision of this 20%, 20%, 30% of the world's oil and gas and container shipping and bulk shipping from being able to exit the Straits and indeed from being able to go in and supply. So it was two ways. What has this disruption felt like operationally? Could you give us some insights into how this disruption has maybe changed where yours and your team's immediate focus has been each day? The focus really was on understanding what ships were where and what conditions they were in. Many of them were doing cargo operations. They were loading the ship. They were discharging the ship. There were crews transferring because that's something that we do when we go to ports. Global shipping requires people to embark and disembark ships. But those first few days we also expected this to be short-lived. We had every expectation that once we gathered the information, we would get to a position where we would be able to start moving ships in and out of the Gulf. And we again, when we realized that this wasn't going to be short-lived, then you start to think of about things like food, water. If you think about this, ships travel the world, sometimes those voyages are a few days, but sometimes those voyages are up to 30, 60 days. So ships carry food. They're big refrigerated stores, big dry stores, just like in your own house, you're settled in, but in your own house, you're not ready on any given day to go weeks without going to the grocery store. And so some of the ships, of course, had just loaded and were getting ready to depart, and were set for a 30, 60, 90 day voyage. Some ships had just gotten port, and they were due to have a vessel come alongside and transfer food, or have food transferred across the pier, but the terminals were full as well. So the early days were finding where do supplies come from? Where can we procure those? How can we physically get those to the ship? Tony's said his hardest decision was around people. I wonder where your hardest decisions lie. Maybe there are two. One of the hardest decisions was trying to determine the safest place for a ship to be within the Gulf, when ships within the Gulf were being either intentionally attacked or impacted by projectile flying over. Ultimately, it's the decision of the captain, the captain, his or her account abilities includes the safety of the ship and the people. My team provides advice. Many of the companies that we work with rely exactly on that advice because Shell has a huge network. We have deep relationships into the countries in this case around the Gulf, but really around the globe. So when Shell provides advice, often the companies take it. What probably was the hardest decision was when we started to consider whether to have the vessels under our operations transit the state of Hormuz and exit the Gulf. I know that you've got such a long career in what you do, and like you said, people turn to Shell for this kind of expert advice, but does it become easier to make that call such a crucial call? I think the only thing that gets easier is the process. How do you think about the question, what information, what data sources are you looking at? How do you test your logic? The decision itself? There are women and men on board these ships. There's human life, that decision never actually gets easier. So Kerry, you touched on this earlier, of course, but could you give us a wider sense of what supporting colleagues on the front line actually looks like? Of course, we have security teams, intelligence teams, but also resilience teams. And so we would have calls with the ships, some of them daily, some of them every other day, depending on what the ship needed. And we've been working on resilience and well-being and all of the ships in our fleet. We've been working with them on how to build the resilience just on a normal 30-day trip. And so we were able to pull some of that material out, walk with the ships, walk through the tools they know, remind them what they know, and helping particularly the senior team on the ship. So there's a captain, there's a chief engineer. These are the people who are really responsible for the ship, helping support them in the decisions they had to make. And I think that's what was so crucial was the two-way conversation, hearing what the master, the captain on the ship could see, and then providing support and feedback. We first introduced resilience as a concept with these shipping companies we work with just before COVID. And we found through COVID the importance of being able to speak about resilience, speak about mental health when people feel trapped. Tell us about some of your conversations that you've had with the captains. That's really been a bit of a highlight of this. I enjoy visiting ships, seeing the crews when I can, when I'm in a port, and the ships are in the port. And during COVID, I did a lot of calls with the crews to see how they were doing to do a routine visit, if you will, virtually. But this was different. There's one specific one that comes to mind a few weeks ago on the international day of the seafarer. It's a UN-recognized day. I got the opportunity to talk with one of our ships. And it was just nice to hear the captain, to hear the chief engineer talk about both their experience while they were in the Gulf karaoke nights. We're Friday, pizza were Sunday. So they did what they could. And for me, the opportunity to talk to the crew, to hear from the people on that ship, who work for us day in day out, and their appreciation for what Shell and Shell's shore base team were able to do to support them through the crisis. That really, it made my day. Of course, we don't just have colleagues at sea. Tony, we have thousands of colleagues supporting offices and operations across the Middle East. Now, when the crisis isn't just something that you're monitoring from afar, but it's actually something that's unfolding around the people and the operations that you're responsible for, how does that alter your thinking? And how does your experience of dealing with it change? So undoubtedly is the answer. You can't help but beyond calls when you're contemplating big decisions and you're doing those calls with colleagues in the affected areas. And a siren goes off and they have to evacuate. It makes it incredibly real that what we're dealing with is impacting people's lives then and there, and you can see and feel that through your colleagues. So I think that if that doesn't affect you, then you've sort of lost that human side of you. And I think that that would be more disastrous for all of us if we just didn't feel it. That said, and I think Carrie touched on this brilliantly, that the decision-making process that we follow can't be affected by it. And I think that being able to feel and sense the personal challenge is really humanly important. But then being able to get the information in a way that helps make decisions in an unemotive way is the key. And so that balance is really, really important because you have to recognize that there are, you have colleagues who are impacted and it's affecting their lives. But then likewise, we have to make decisions that span thousands of people, but also customers around the world that we have to think about and make sure we do the right thing by them as well. - So the conflict became very real. - Yeah. - Back in March that attack on Qatar, the Rasulfan industrial system, which is at the heart of Qatar's gas and LNG industry was attacked. And of course, for those, you don't know, Rasulfan is home to Shell's Pearl GTL. One of the world's largest plant turning natural gas into liquid products. Fills, lubricants, chemical feedstocks, everything we need in everyday life. Thankfully, all the staff were safe at Pearl. And I know you'll talk about that a bit more. But one of the two production lines was damaged and production was stopped. So what do you remember about that moment that Pearl was impacted and what were your immediate priorities? - I think you framed it up really well, Brian. So Qatar for us, just the plant itself, one of the most complex hydrocarbon plants in the world. Something that from an engineering perspective, we're deeply, deeply proud of. And it's operated by people in Qatar who are just, they're so committed to what they do. And they turn that technology, that engineering marvel into something that delivers energy that changes people's lives. And it's them who do that. And so on a day like that, the personal response is one of picturing the colleagues there, having been there, seeing it, walked the plant with them. You know it and you can feel the response of the reaction that sits with it. So the first response, of course, is can we account for our people? Are they safe and well? And there were no injuries. The fact that we were able to work through that and credit to the teams there, but also to the Qatar authorities who were so good in providing information helped to make sure that that day was a really challenging moment for all of our people. But it was in a moment where anyone was hurt. Can you give us a sense of where things are in terms of getting old GTL back online? If you go back to that, which is the 18th of March, it was actually the last day or two of Ramadan. You can imagine for our colleagues in Qatar, but across the Middle East, you know, the best part of a month reflecting and fasting and to get to that moment, you have to respond. And so the first part of the response, of course, is looking after our people, but there was a fire. There was damage, so getting that under control, being able to stabilize our teams, I think the focus on that and the delivery on that was something that I know they're immensely proud of and I'm certainly immensely proud of. And since then, their determination to say, that's happened. How do we bring Pearl back to where it was? Has been unbelievable. We've been open that it's going to take around 12 months from when it happened. So we're looking at March next year. The damage was just to one of our two production units. And so the production unit that wasn't impacted is still ready for production. The one that was impacted is the one that will take until around March next year to recover. - I think what's interesting about this conversation is there's always this overriding sense of collaboration that we're working with partners, we're working with our colleagues. And I'm just wondering, does this crisis teach you both anything, maybe you knew about collaboration that you hadn't thought of before that's been particularly kind of brought to the surface? Tony. - This crisis was really in two parts. It was the direct impact on those around the world. region affected, so in the Middle East. But then it was the impacts on those who use products that come from there, whether it's petrol stations or lubricants plants or whether or not car factories are going to be able to get enough grease and oil to go into their new vehicles. What I thought was helpful was that the information that we were getting, the collaboration we're getting from others helped us make decisions, we have a role to play in being able to provide information to others as well so they can make decisions. And I think that collaboration both ways, that sharing of information both ways helps everyone to make decisions that reduces the long-term impacts on them. Did they change anything the way you think about collaboration? I would say in many ways it's reinforced. This crisis has really deepened some of those key relationships. And actually it demonstrated both the complexity of how the shipping chain works, there's owners, there's countries, there's operators, there's charters, there's even within what seems like a very simple move of a ship from point A to point B, there five or six different companies involved. So then working across that each of us having our own piece of information was able to allow us to build a bigger picture. And because of Shell's footprint being one of if not the largest charter, we then realized we had quite a big picture globally. We were able to understand to those flows to our customers what the customers demands are and how else other ships, other flows might be able to serve those customers. What if anything does this crisis teach us about how Shell may react or approach a crisis like this in the future? It sounds strange I think that reflecting on learnings, you have some in the moment, you have some that come to you quite a long way afterwards. I think those in the moment are the importance of following a process in making decisions. When you've got a lot of uncertainty, a lot of personal emotion, a lot of feeling that sits around it, using a process to help guide you is incredibly important. So that is just continuing to use those. But to say what reflection with time, it's how a series of events can all of sudden start spreading more broadly and have impacts that are far greater than the initial moment and being able to think ahead and to understand what those could be and preparing in advance for them. And I think that this was one where you could see the wave of impacts moving out from the Middle East to initially India and Pakistan and then in Southeast Asia, they're moving up into North Asia, then starting to affect the rest of the world in terms of supply. And I think the learning is how can you see a trend and then get ahead of it and help to preempt what could happen. Think about scenarios that you could work on and be ready in the moment. And that was one in this one where I think that the longer it progresses, Carrie said, we sort of thought it was going to be a lot shorter than what it was past experience. If you look back last year, it was 12 days. Yeah. As this, as it became clearer, it was becoming a longer event. I think we got a lot better at understanding where could this go and how do we get ahead of that? So we can support our customers, we can support our people, we can support governments and we can learn on the go. So we had been building relationships in and around the golf for many years because there's always the opportunity that something small could happen. A small incident could trigger a temporary closure. If you have a temporary closure, what does that mean? Who are the partners who do you need to talk with? Now we realize that temporary closures could be 24 hours long, but temporary closures could be two, three, four, I don't know how many weeks. And so a learning that I would say is that we have to be able to continuously reassess. There is a point when the conflict in the Middle East will settle down, will hopefully be over, but chipping doesn't just revert. It's not like flipping a switch. Even when the conflict's over, it will take some time for those vessels to exit. And I think even from then, fundamentally world shipping will change because we'll look at these choke points. We'll look at these potential crisis points for years to come. Wondering always what if what might happen and how we would respond. So trade will eventually normalize, but I think there will always be something in the minds of the seafarers, of the captains, of the shipping companies, and indeed of companies like Shell, thinking if this could happen today, what could happen tomorrow? We know, and you've said, you know, how much it takes to keep the energy flowing when the system is now under huge strain. I guess a question for both of you, both been in your positions in the industry for a long time, I wonder if there's anything that's surprised you specifically about what it's taken to keep those supplies going. The world's energy system has lost at times up to 20% of its crude and LNG supply because of the straits closure. So what surprised me is just the sheer resilience of the global energy system. It's a combination of electrification increasing around the world with renewables increasing with just tweaking an extra couple of percentages out of other operating fields elsewhere in the world and the refineries that go with it. Governments making some really thoughtful decisions on how do you balance demand at a time like that so that you can reduce your reliance on energy products when it's most scarce. And because of all of those little decisions, the global energy system has held up a lot better than what most would have thought. And at least for me personally, I think that's been the biggest realization that the resilience of a global energy system is far greater than what I thought going in. Carey, anything that stood out to you is surprising. So Tony has talked about the crisis response. I've always known we had a strong operational response. But for me, one of the surprises was how closely the operational and the strategic responses could work together. And indeed, the depth of experience and the depth of our ability to see data, to visualize and to understand that's probably the biggest surprise for me. If you're looking back at the last few months, I'd love to understand what will stay with you both as individuals. For me personally, it was the phone calls in the moment that you never, you never, in your mind, you know, I think in our industry, lots of things go extremely well and every now and then things don't. And you get used to having to respond when things don't go well. But even with that experience, I never expected to make a phone call to the CEO of Shell to let him know that one of our plans had been impacted. And in that moment, the continued calmness and professionalism of how he deals with those sort of things, but also hearing the emotion that comes with it, you know, a plant that we were so proud of with just operated by an amazing group of people. Those phone calls will always stay with me. And I think for me, the gem that will stay with me is the importance of relationships and the depth of relationships that our organization has and between companies globally, how that allows us to respond. And some of the conversations that we had with governments and with other companies really, for me, are the thing that I will take away from this. Guys, thank you both for joining us today. Thank you very much. Thank you for having us. What an interesting episode there, Ronnie. Completely agree with you. And if you'd like to learn more about what the recent disruption and the ongoing disruption might mean for the future of the energy system, don't forget, you can check out our previous episode where we discuss that with our experts. And looking forward to our next episode, we're going to look at this crisis and what that means for the outlook of LNG liquefied natural gas. So watch out for that. Remember that you can find Shell's Coastry Note on Shell's website. And we've also included a link in the show notes. And if you enjoyed this conversation, don't forget you can subscribe to the energy podcast where we get your podcasts from. And of course, you can also find us on YouTube. See you next time. Bye for now. [BLANK_AUDIO]