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Resilience and the Energy Sector

Speech given by Peter Voser, Chief Executive Officer, Royal Dutch Shell plc, at the Cambridge Sustainability Leadership Programme Alumni Reunion, London, June 9th, 2011.
Peter Voser

At a reunion of alumni of the Cambridge Sustainability Leadership Programme in June 2011, Peter Voser, the Chief Executive Officer of Royal Dutch Shell, spoke about Shell’s approach to corporate social responsibility and sustainable development. He focused on three themes: the need to increase energy supplies in the face of burgeoning global energy demand; the need to work in partnership with environmental NGOs and indigenous peoples in building the long-term resilience of local communities and their environments; and, finally, some of the steps Shell is taking to better understand and address the relationship between developing energy resources and water.

Resilience and the Energy Sector

Ladies and gentlemen, good afternoon.

It’s an honour to be here with you today and discuss the theme of resilience.

I have deep respect for His Royal Highness, the Prince of Wales, and his work, and for the Cambridge Programme for Sustainability Leadership. Each is doing important work to advance the sustainability agenda, particularly with business.

Our former chairman of Shell in the UK, James Smith, chairs the advisory board of the Cambridge Programme.

James recently retired from Shell, but we will continue to look to his guidance and, of course, to experts such as yourselves.

At first glance, our resilience as a company is evident: we’ve been around for more than 100 years.

The question is, how do we make sure we are around for the next 100 years?

Today, I will discuss three aspects of our role that I hope will help Shell to remain resilient in the face of future challenges. And by achieving that, to enable us to make a positive contribution to the resilience of society.

First, we must increase energy supplies for a growing world population. This in itself will put the resilience of the global energy system to the test. And for Shell, this challenge is at the core of everything we do.

Of course, we need to deliver this energy responsibly – no matter how challenging the location. This is about how we can help build the resilience of local communities and their environments.

And third, with an eye to a resilient future for the planet, I’d like to tell you about work we’re doing to better understand the interplay between energy and water.

But first, let me turn to challenge of supplying more energy.

Meeting rising energy demand

Behind many of today’s planetary stresses, key drivers remain the world’s growing population, and increasing wealth.
  
The world’s population will grow to 9 billion people, or even more, by 2050.

Getting to 9 billion people from today’s 6.8 billion is like adding another China and another India to the world. And with basic needs for food, water and energy that must be met.

Hundreds of millions more will emerge from energy poverty in the coming years, buying their first fridge, computer or car.

What will all this mean for overall energy use?

Global energy demand is expected to double by mid-century from its level in 2000. But it could even triple, if we continue on a business-as-usual path.

By 2050, this could leave a gap between supply and demand about equal to the size of the energy industry’s entire output in 2000.

Our scenario planners in their latest update – called Signals & Signposts – describe this gap as a “zone of uncertainty”.

To bridge this zone, we would need to see an enormous expansion in energy supplies, coupled with extraordinary demand moderation – I say “extraordinary” because it would be unprecedented.

And the decisions we make around energy use in this zone of uncertainty will define whether we will face a period of extraordinary opportunity for policymakers, businesses like ours and for society at large. Or rather a period of extraordinary misery, as price shocks and knee-jerk policy reactions impact our ability to produce and consume energy smartly.

Natural gas

So how must the energy industry, and Shell, respond?

As a first responsibility, we need to keep investing in new energy supplies to prevent the world from standing still – literally.

Not only that, we have to produce all that extra energy at lower environmental cost. For Shell this means investing in energy efficiency and in carbon capture and storage technology, or CCS. 

According to experts like the International Energy Agency, CCS could account for around one-fifth of the CO2 mitigation effort needed by 2050, if demonstration projects get under way quickly. We are involved in several CCS projects, including two here in the UK.

We’ve also made the choice to increase our investments in natural gas, because we believe natural gas will be a significant and reliable component of a lower-carbon energy system beyond 2030.

By 2012, Shell will produce more natural gas than oil.

Natural gas for power generation more than halves CO2 emissions compared to coal, and produces less local pollution.

Longer term, with CCS technology, we can reduce emissions from gas-fired power stations by 90%.

Gas-fired power can also be ramped up and down relatively easily – making it the perfect partner for intermittent renewable power sources like solar and wind energy.

Of course, producing natural gas is not free from challenges. Many of you will have seen the recent headlines about tight and shale gas, in relation to water.

Hundreds of thousands of wells have been fractured safely to date. Nevertheless, concerns remain about the tight gas industry.

As a company, we are working hard to address these concerns, through better operating standards and a more open and accountable dialogue with neighbouring communities.

Our aim is not only to set the standard, but to raise the bar in extracting natural gas in the safest ways.

So we strongly favour regulation that requires everyone to do it right. For example, we support proposed regulations requiring the disclosure of the chemicals used in the fracking process.

Biofuels

In the renewable energy space, we continue with our wind business – principally in North America, where such investments make economic sense.

But our main effort is in biofuels. We believe biofuels are the only low-carbon transport fuel that can be scaled up fast enough to really tackle carbon emissions from transport in the next 20 years.

Last week, we finalised our deal with Cosan – Brazil’s largest producer of ethanol – to form the Raízen joint venture. It is our first involvement in producing biofuels on a large scale.

From cultivation through to use, Brazilian sugar-cane ethanol produces around 70% less CO2 than conventional fuels. That’s also less CO2 than any other commercially available biofuel.

Now, I recognise that biofuels bring other substantial social and environmental challenges.

In response, we have been introducing our own sustainability clauses into supplier contracts since 2007. We are also working with industry, governments and NGOs to help develop global standards.

Operating responsibly

For our company to remain resilient in the years ahead, it’s not only about which projects to develop, but how to develop these projects – and how transparent we are about our methods.

One year on from the BP Deepwater Horizon incident, our industry is subject to closer scrutiny than ever before.

When I became CEO of Royal Dutch Shell in 2009, we began a reorganisation that embedded more sustainability-related roles at the heart of our operations.

I wanted to make sure our staff bring considerations for safety, the environment and communities to the core of our business plans and decisions.

This includes considering the potential cost of a project’s CO2 emissions in all major investment decisions – something we have been doing for several years.

It also includes earlier consultation with communities, governments, NGOs and others to help develop our plans and inform our approach.

Fortunately, we’re not alone. We have good partners. In particular, we learn a great deal from our environmental NGO partners – IUCN, Wetlands International, The Nature Conservancy and Earthwatch.

Such partnerships were especially valuable back in 2004 when developing the Sakhalin 2 gas project in the Russian subarctic.

IUCN helped convene an independent scientific review panel to evaluate Sakhalin 2 in light of any potential impacts on the endangered  Western Gray Whales. The panel’s input led to rerouting of offshore pipelines, and later to delaying 4-D seismic surveys, in order to protect the whales.

We currently have more than 30 projects under way with our environmental partners.

With IUCN and Wetlands International, we are working on initiatives that could help shape regulation for responsible development of the Arctic’s natural resources, regulation that will put the well-being of the region’s people and environment front and centre.

We also look to the knowledge of indigenous peoples to guide our approach.

For example, in Alaska, Shell ecologists consult with native advisers and hunters to make sure we choose the right locations for our operations and protect hunting grounds.

And in Western Canada, we draw on traditional ecological knowledge in our oil sands operations.

Before we mine an area, we consult with the elders of local First Nations on our land reclamation plans. These elders teach our staff about the traditional and spiritual uses of the land, vegetation and wildlife. This way, we can feel more confident that, once a mining operation ceases, the end use of the land will meet the needs of local communities.

We know we don’t have all the answers.

But I believe the closer we work together with NGO partners, indigenous peoples, and scientific experts, the more we can help one another achieve sustainable outcomes.

There’s another aspect to sustaining local communities, which is to ensure they share the economic benefits of our projects, through building local supply chains, creating jobs, training young entrepreneurs, or through social investment programmes.

For example: in Nigeria, regular power outages disrupt businesses, hospitals and schools. Near the Bonny Island LNG plant, Shell companies have helped set up a local utility company that supplies electricity to thousands of homes in the area, literally transforming lives. Work is under way on another scheme near the Gbaran Ubie gas plant to connect thousands more homes to the grid.

Transparency

I’m telling you all this because I’m a big believer in transparency.

Many of you will be familiar with the Shell Sustainability Report, which for 15 years has articulated the environmental and social challenges we face and the approaches we take.

We are taking further steps to open up and share our performance in many different areas.

For example, our oil sands project in Canada publishes a detailed annual performance report. It provides information about five key areas: CO2, water, tailings (the mixture of water, sand, clay and residual hydrocarbons that remain once the heavy oil has been removed through processing), land and reclamation, and people, communities and engagement.

In Nigeria, the Shell Petroleum Development Company of Nigeria (SPDC) recently launched an external oil spills website.

There, anybody who’s interested can access the details of oil spills, joint investigations with communities and regulators, as well as clean-up and remediation efforts.

I encourage you all to have a look. You can find it on www.shell.com.ng.

It took tremendous efforts and discussions with government stakeholders to make this website possible.

But we will continue to make these sorts of efforts wherever we can.

Future resilience

Earlier I mentioned our Signals & Signposts publication, and the zone of uncertainty.

This concept obviously applies not just to the energy system or the global economy, but also to the environment and climate change.

Signals & Signposts mentions the work of Johan Rockström and his Stockholm Resilience Centre.

The Centre’s work has opened many people’s eyes, including at Shell.

It made us realise that we can’t look at greenhouse gases in isolation, but that the various social-ecological systems are interconnected, and that resilience requires a more integrated approach.

One of the connections that we at Shell take particular interest in is that between energy and water.
 
As the world population grows, fresh water availability will become a critical issue, for society and for our industry.

If current fresh-water consumption trends continue, we could see a 40% shortfall between demand for water and supply in just 20 years.

That’s why we are currently doing work that will help us to understand the water use associated with different energy types, on a well-to-wheel basis. That means looking at the water used for electricity, transport and heating.

We are working together with the International Energy Agency and the World Business Council for Sustainable Development to lead in this space. 

I shall be happy to share the results of this work once it is completed.

What we can say today is that technology is a key differentiator, whether in tight gas production, power generation or biofuels production. For instance, the Raízen JV in Brazil has been introducing a system that recycles 90% of the water used in the industrial process.

Regional differences play an important role too. When you’re producing crops for biofuels, it makes a huge difference whether you do so in regions with a lot of rainfall, as we do in Brazil, or in arid regions.

Finally, water scarcity is not just a local issue as is often suggested. Local water scarcity causes knock-on effects.  For instance, as a result of large-scale desalination of seawater by countries in the Gulf region, the Gulf itself is becoming saltier. And as NASA has pointed out, ocean salinity could have disturbing effects on ocean circulation and climate change over time.

Clearly, our industry will be called upon to contribute solutions.

The good news is that the energy industry already possesses effective water technologies, and they are improving.

For instance, we are getting better each day at recovering and recycling water, including waste water from communities close to our operations.

However, today’s water solutions use energy and increase CO2 emissions. In some parts of the Gulf region, the energy to desalinate water accounts for 65% of domestic oil use.

So the challenge will be to develop technologies that can reduce both water use and CO2 emissions. That’s going to take time, but I’m confident we’ll find these solutions, and so is Shell’s technical community.

Conclusion

For Shell to stay resilient as a company over the next 100 years, we must continue to invest in energy supplies for a growing world population.

It is the essence of our business and we must do it well – with the highest regard for communities and the environment.

But we are also entering a new paradigm, that calls for us to recognise interconnected social-ecological systems. We are working to better understand how we can respond to challenges, and where we might play a role.

And we’re determined to make a positive contribution. I believe our ability to innovate will help us produce energy with a lower long-term environmental cost, and in partnership with local communities and other partners.

We at Shell have learned much over the years from others. And we will continue to work closely and passionately with all those who are willing to put the world on a path to lasting resilience.

Thank you.