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Speeches and webcasts

Meeting the energy challenge through innovation

Speech given by Peter Voser, Chief Executive Officer, Royal Dutch Shell plc, at the Delft University of Technology, 30 August 2010.
Peter Voser

The energy sector is under great pressure to innovate to be able to satisfy the world’s growing energy needs at reduced environmental cost. Continued economic growth in China and other developing economies, a growing world population and fierce competition drive companies like Shell to develop new technologies and products. In this speech, Peter Voser, Royal Dutch Shell’s Chief Executive Officer, explains what people at Shell are doing to help build a better energy future while meeting global energy demand. He explains how Shell’s new innovation strategy is designed to allow Shell to both play into existing markets and open up new ones. Peter also discusses the benefits that an increased reliance on natural gas, biofuels and carbon capture and storage could bring. In this fast-moving world, in which cross-border networks are becoming increasingly valuable, there will be an important role to play for talented graduates, especially from technical universities like Delft.

Meeting the energy challenge through innovation

When I received the invitation to speak here at the opening of the academic year 2010, the decision to accept was an easy one.  Many of my Dutch colleagues in Shell speak with passion about their student days in Delft. So thank you for this opportunity to undergo the “Delft Experience” for myself. I hope we’ll have a lively discussion!

Over the years, I've often been told that Royal Dutch Shell was founded on the combined skills of Scottish accountants, English merchants, Delft engineers and Swiss geologists.The fact that I managed to make a career as a Swiss economist shows that Shell is not dogmatic in this respect.

There are other areas where we are indeed dogmatic: such as safety, diversity, long-term thinking and sound financing. These priorities tie in perfectly with the theme chosen for today: building a responsible and excellent energy future in which there’s no room for waste.

At Shell, we believe it’s an exciting challenge to help build a low-carbon energy future, while at the same time supplying the energy that people need today, to live, work and travel.

I will first discuss what this energy challenge is all about and why innovation has a key role to play in our industry. Secondly, I’ll explain what Shell’s people are already doing to increase supplies of energy at less environmental cost.

Going forward, the energy industry will need all the brainpower it can get. And one of my aims for today is to interest you in a career in the energy sector.

The energy challenge

Sooner or later you will all run into that energy challenge yourselves – as consumers, and perhaps also as scientists, business people or policy makers. That’s because energy is the lifeblood of modern civilisation. Laptops and smart phones have changed the way we communicate, but only because there’s sufficient and affordable electricity to charge their batteries.

So the first task we all face is to use energy efficiently and reduce energy waste to a minimum. Government mandates like the ones to improve vehicle fuel economy and insulation of buildings will help. But I really do think we all have an individual responsibility too.

Managing energy demand in developed countries is one way of cushioning the impact of rising energy demand in the developing world. That demand is set to rise. We might even see a doubling of world-wide energy demand during the first half of this century.

The world population is growing, and people are getting wealthier. Roughly every second, five babies are born. As a result, the world’s population will grow from roughly 6.5 billion at the start of this century to over 9 billion by the year 2050.

Not only that. Wealth levels will increase. By 2050, billions more people will be buying the phones, fridges and cars their grandparents couldn’t even dream of.

It will be a tough challenge to supply all that extra energy even if we include all of the world’s known energy sources.

In this technical environment, I’d like to substantiate my assertion with some figures. In 2007, the world consumed 12 billion tonnes of energy measured in oil equivalent. To give this a human flavour, that’s the equivalent of 630 Olympic-size swimming pools every hour. Of these, 520 pools were filled with fossil fuels – that’s over 80%. In addition to that we have about 10 pools with wind, modern biomass such as biofuels, and a tiny bit of solar power. The remaining hundred are nuclear, hydro-electricity and traditional biomass – mostly wood-burning.

By 2050 we might be looking at between 1,100 and 1,200 such swimming pools.

Shell’s scenario team believes that by then, 30% of the world’s energy could come from wind, solar, biomass and other renewable sources. That would represent spectacular growth. But it also means that fossil fuels and nuclear would will still supply the remaining 70% even then – of which fossil fuels will likely account for 60%. 

So in absolute terms, we will have to produce more oil and gas.

That will not be easy. To illustrate the task ahead, by 2020 the world will need to replace 40 million barrels of daily oil production, because of natural decline in existing oil fields. Most of it will need to come from resources that haven’t even been found yet. Forty million barrels a day is about four times what Saudi Arabia produces, or 10 times what the U.K. and Norway together produce.

Technology deployment curve

Some people wonder why we can’t build a low-carbon energy system more quickly.

The great obstacle is the deployment and scaling up of new energy technologies against this background of rising demand.

We’ve researched all forms of energy and found that it takes around 30 years for all new forms of energy to achieve 1% of the market after their commercial introduction.

For instance, biofuels are just now reaching 1% of the oil market, or about 0.5% of total energy, after decades of development and government support. Wind may get to the 1% mark in the next few years, nearly three decades after the first big wind farms were built in Denmark and the USA.

The reason for this gradual deployment is not a lack of money. You first have to gain experience and build industrial capacity before a new technology can absorb billions of dollars worth of investment.

For an example of how technology is scaled up over time, consider that today’s largest wind turbines are nearly 100 times more powerful than the ones installed in the mid-1980s.

Once a technology is ready to absorb those billions, the scale at which we work can be difficult to imagine for those outside the energy industry.

Energy projects easily take ten years from the drawing board to start-up, by when companies will literally have spent billions of dollars. For instance, in Qatar we are nearing completion for our Pearl gas-to-liquids project, one of the biggest industrial developments in the world, and one that will use a technology we spent decades researching and developing. Now we’re reaching scale: more than 50,000 workers from 60 nations are at work on a site the size of 350 football fields, or more than five times the Vondelpark in Amsterdam.

Pearl GTL will produce enough gas-to- liquids fuel to fill over 160,000 cars a day and enough synthetic base oil each year to make lubricants for more than 225 million cars. Pearl GTL would not have come about if it hadn’t been for huge innovation.

To give you an idea: Shell has 3,500 patents related to all stages of the gas-to-liquids process. This is no exception. Earlier this year, the US Patent Board issued its Patent Scorecard and said the strength and impact of Shell’s overall technology portfolio is the strongest in our sector.

Shell’s innovation strategy

Clearly, in a fast-changing and highly competitive world, innovation is a key differentiator for Shell. And major innovation is taking place, especially in areas like computing and algorithms, nanotechnology, fundamental chemical processes, catalysis, biotechnology and exploration technologies.

Shell’s spending on research and development has been the largest of any international oil and gas company for some years – around $1.1 billion in 2009.

We recently adopted a new technology strategy, with the explicit aim of making Shell the most competitive and innovative energy company in the world.  And it has three principal goals.

First, we want to come up with innovations that improve our existing business activities, or that play into existing markets. For example, our Chemicals business is helping manufacturers to make many everyday products that save energy. Think of building insulation materials that are lighter and more energy-efficient; foams that improve the energy efficiency of refrigerators and freezers; washing detergents that clean at lower temperatures; and materials that help car manufacturers to build lighter, more fuel-efficient cars. People at our research and technology centre in Amsterdam conducted the R&D behind most of these technologies.

The second goal of our innovation strategy is to develop more of the groundbreaking technologies that open up new markets. An example would be floating LNG, which will allow us to produce and liquefy gas at sea on massive floating facilities. That opens up gas resources once considered too remote to tap. Our floating LNG plans for Australia are most advanced, but we think that there are opportunities to use this concept in other areas.

The third part of the strategy is emerging technologies, exploring the frontiers of science and technology in fields from the subsurface sciences to computation, but also in an area like hydrogen. These are higher risk opportunities. But they may lead to new businesses in the longer-term and allow us to adapt to major shifts in the global energy market in the coming decades.

Imagine working with some of the brightest minds in the world, in small teams. Not only that, you’d be working in international knowledge networks that go beyond Shell. And isn’t that something your generation is particularly good at?

Our networks include Delft University of Technology, with whom we work together in the areas of enhanced oil recovery and sustainable mobility. Some of the most promising areas of research are extremely complex, and in disciplines in which no single company can do without external partnerships. So we must look outwards and generate ideas together with customers, other businesses and universities.

We started a number of new collaborations with external partners this year. In one of these, researchers from Shell and Hewlett Packard will work together to develop nano-sized electromagnetic sensors that could improve the quality of seismic signals we use to determine the existence of oil and gas resources underground. 

What I’m talking about is open innovation. To engrain open innovation in our culture, we launched the GameChanger programme in the 1990s. It provides the resources and support for inventors to move from a rough idea to the proof-of-concept stage. Around half of these ideas come from university students and professors engaged in fundamental research. 

The best ideas may be developed further by one of Shell’s businesses, converted into a spin-off company or sold to third parties. Since it began, we have invested nearly $250 million in more than 2,000 GameChanger projects.

One of GameChanger’s successes has been to help nurture in its earliest stages the floating LNG concept I spoke of earlier.

So I invite you to submit your idea through the GameChanger pages on the global Shell website.

You’ll be proud to know that the person overseeing all of our innovation and R&D efforts is a Delft alumnus, Gerald Schotman. It’s Gerald’s job to make sure that we choose the best ideas and the best ways to commercialise them.

Which shows that more than a century after Koninklijke Olie and Shell Transport and Trading merged their interests, Delft engineers still play an important role in Shell. And who knows, one day some of you may be one of Shell's chief scientists, working with Gerald to advance the most promising energy technologies.

For now, the people who joined Shell before you are already doing a lot to power progress.

I’d like to discuss three areas where we think we can make a difference based on our skills and capabilities. These are natural gas, carbon capture and storage, and biofuels.

Natural gas

If the aim is to reduce emissions quickly, the priority has to be to reduce the environmental impact of fossil fuels, the main staple in the world’s energy diet.

There are several things we can do.

The first step is to displace old coal capacity with new natural gas capacity in the electricity sector. Modern gas plants emit between 50% and 70% less CO2 than coal plants.

Over the next few years, many old coal fired power stations will need replacing.  And the good news is that natural gas capacity is considerably faster and cheaper to install than other sources of electricity. So you could argue that natural gas is the cheaper green electricity. And it’s a solution that is available to us right now. 

Natural gas can also provide reliable back-up power for the growing amount of intermittent electricity from solar and wind farms.

We don’t have to worry about gas supplies. The International Energy Agency reckons there’s 250 years worth of technically recoverable gas still in the ground at current production levels. And that amount will grow as innovation unlocks new resources.

North America has seen the most dramatic changes in its gas supply picture. Thanks to technological advances over the past decade, tight gas and shale gas have become economically viable, resulting in the recent boom in gas production.

Tight and shale gas are abundant gas sources that are trapped in geological formations with low permeability which makes them hard to tap. Tight gas, for example, is trapped in reservoirs amid tightly packed rock grains – so tightly packed that the gas must travel through passages as narrow as one-hundredth the width of a human hair.  

The race is now on to unlock tight and shale gas resources in other parts of the world, including here in Europe.

Carbon Capture and Storage

Another focus area for Shell is carbon capture and storage, or CCS. 

The IEA has said that if rapid deployment of CCS can start this decade, it could account for 19% of the total CO2 reductions needed by 2050.

CCS is the most suitable technology for big stationary emitters like power stations and industrial installations.

All elements of CCS – capture, transport, re-injection and underground storage – are in operation today.

For instance, Shell’s Pernis refinery already collects around 400,000 tonnes per year of pure carbon dioxide and pipes it to greenhouses to boost the growth of tomatoes in the summer; a smaller amount gets transported, by truck, to the soft drinks industry to put the fizz into their drinks.

In storing CO2 underground the industry would be replicating what we have been doing with natural gas for many years in hundreds of different locations around the world as short-term reserves for cities,for example right underneath the Olympic Stadium in Berlin.

Shell is a partner in a series of demonstration projects in Europe, America and Australia. This includes the Gorgon liquefied natural gas project in Australia, in which Shell has a 25% stake. The plan is to capture some four million tonnes of CO2 a year, equivalent to the annual emissions of around  700,000 cars. As things stand today, it is the world’s largest confirmed full-scale CCS project.

For CCS to fulfill its potential, we’ll need many more CCS projects. But, remember, CCS projects of themselves don’t bring in revenues. And there are no early customers to bring down the cost. So we will need careful shepherding, and public financial support for the technology to take off. And, longer term, we will also need a CO2 market price and the possibility to earn allowances for the CO2 we mitigate through CCS.

Biofuels

The third area in which we can play a positive role is to help diversify the world’s energy mix. For instance, we run a modest wind business. But our main effort goes into biofuels. Let me explain why.

Of all the low-carbon transport fuels, we believe biofuels can make the biggest contribution to reducing CO2 emissions over the next twenty years.

Today, their share of the global road transport fuel mix is 2%. On existing trends, biofuels could meet 5% of demand by 2030, although that figure could double with more aggressive policies to diversify the transport fuel mix and reduce emissions in the sector.

Some biofuels have better CO2 performance than others. For example, ethanol derived from Brazilian sugar cane emits between 70% and 90% less CO2 than conventional fossil fuels.

For North American ethanol produced from corn the figure is between 10% and 30%.

Shell already is one of the world’s largest distributors of biofuels, with nine billion litres sold last year.

We are getting into the production of biofuels. We just agreed to set up a 12-billion dollar joint venture with Cosan in Brazil. With the capacity to produce some 2 billion litres of ethanol a year from sugarcane, this would be one of the world’s largest biofuels producers. 

We’re also in a range of technology partnerships with the aim of producing biofuels from new and unconventional sources, including non-food biomass. For example, with Iogen Energy in Canada we are working on using enzymes to produce ethanol from agricultural residue, such as wheat straws.

And in the USA, we work together with Codexis to ‘evolve’ natural enzymes into ‘super enzymes’ to convert biomass into fuel, and with Virent, which tries to convert plant sugars directly into gasoline and diesel.

I’m the first to admit that the expansion of the biofuels industry will bring social and environmental challenges. We’re addressing these by introducing sustainability clauses in contracts with suppliers and are working with NGOs and other businesses to push for international standards for the sustainable sourcing of biofuels.

Conclusion

Let me summarise. Our challenge is a formidable one: we need to produce more energy for a growing world population and at the same time build a more sustainable energy system for the future.

I have explained what Shell’s people are doing to meet that challenge, through innovation and hard work in many areas. And I’ve highlighted the role that natural gas, CCS and biofuels can play in a low-carbon economy.

I want Shell to be the most innovative and competitive energy company in the world. That’s why we’re pushing hard to develop new technologies and products, new markets and new ways of working.

Your generation knows how to multitask and build networks at lightning speed. In a world of rapid change, Shell needs your best ideas.

I hope that some of you will one day join us in Shell, just like your predecessors have done for over a century.

And if you do, chances are you will discover, develop or deploy new technologies for millions of Shell customers. 

But let’s not get ahead of ourselves.

For now, your focus should probably be on making the academic year 2010-2011 an excellent one.

Good luck with that and thank you for your kind attention.