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9 billion reasons to address the world's energy challenge now

Speech by Shell CEO Peter Voser at the Singapore Energy Summit 2011 in the Suntec Singapore International Convention & Exhibition Centre, Singapore, October 31, 2011.
Peter Voser

Earth is now home to 7 billion people. Its population is expected to grow to more than 9 billion by 2050, with major implications for the global energy system. In this address to the Singapore Energy Summit, CEO Peter Voser says planning wisely for the energy needs of 9 billion people is one of the most important challenges of our generation. While renewables will make up a larger portion of the energy mix in decades to come, Voser says we will need to develop all of our energy resources to meet the increased demand.

9 billion reasons to address the world’s energy challenge now

Today, our world reached a significant milestone: Somewhere – most likely here in Asia – a mother gave birth to Earth’s 7 billionth inhabitant.

Of course, we’ll never know for sure who the 7 billionth person is. We’ll never know exactly where he or she was born. But based on computer projections from the United Nations, today is that child’s birthday.

And a true milestone it is, one that reinforces why the world must address its future energy needs now. As a result of longer life expectancy and high birth rates in some of our most populous countries, five more people are added to the global population every second. Within the next minute, there will be nearly 300 more.

At that rate, Earth will be home to more than 9 billion people by 2050.

Planning wisely for their energy needs is one of the most important challenges our generation faces. It is challenging, in part, because energy issues, solutions and implications cross traditional political, geographic and industry boundaries.

Indeed, we face far more than just an energy issue. Our future energy challenge is a security issue, an environmental issue, an economic and jobs issue.

The global energy system is in the early stages of a fundamental transformation. The future will see expanded use of renewables and cleaner fossil fuels. Consumers will have more energy choices and we will all have to become smarter about using energy efficiently.

Despite the enormity of the challenge, I believe there is reason for optimism. I’m confident human ingenuity and technology will make it happen.

What’s lacking today is the common will to act. Getting there will require a new level of leadership and global collaboration on multiple fronts.

Unfortunately, the leadership triangle of government, business and society seems increasingly unable to address it. We need to rekindle the spirit of global cooperation that was evident in dealing with past challenges.

Simply put, our challenge is to produce far more energy for a world with far more people. At the same time, we need to reduce CO2 emissions and get smarter about how we extract and use our resources. And we will need to do this against a backdrop of almost constant volatility and change.

A big part of a broader global energy mix will be the rapidly expanding contribution of renewable energy resources. We think up to 30 percent of the world’s energy mix could come from renewables by 2050. But that target assumes a very rapid growth rate. It will require a large amount of effort and sustained investment.

Shell is helping to meet this challenge by focusing on biofuels and cleaner-burning natural gas.

With our Raízen joint venture in Brazil, Shell has become a leading producer of ethanol from sugar cane, which cuts CO2 emissions by about 70 percent compared with standard petrol.

Meanwhile, our production of natural gas continues to grow. Natural gas emits between 50 and 70 percent less CO2 than coal-fired plants, and is one of the least expensive energy sources to produce electricity.

Among fossil fuels, natural gas will play an increasingly important role. It is the cleanest burning and the best ally of wind and solar power, which need a highly flexible backup supply when the wind stops and sun goes down.

Even if the global energy mix gets to 30 percent renewables, all forms of energy will need to be developed to meet future demand.

We estimate by 2020, the world will need to produce 40 million barrels of oil a day from fields that haven’t even been developed yet, due to a combination of increased demand and production lost through the natural decline of today’s fields. To put that in perspective, that’s four times what Saudi Arabia produces today, or 10 times the UK and Norwegian production in the North Sea.

And just imagine all the jobs, know-how, investment, steel and other resources this level of production will require.

In addition to population growth, two more trends will propel future energy demand: They are the rising wealth in developing economies and increased urbanization. With these trends come major energy implications, as new entrants to the middle class buy their first refrigerators, computers and cars.

At Shell, we spend considerable time and energy to identify and understand how trends such as these will affect the global energy system. Recently, we have focused on understanding the ways in which water, energy and food are interconnected.

Water is used to produce nearly all forms of energy, energy is used to move and treat water, and energy and water are used to produce food. There’s a growing awareness that the path to a more sustainable energy future will require society to consider all three of these systems and how they relate to one another.

At the same time, we cannot lose sight of carbon emissions and other resource stresses.

So Shell has brought together specialists from various fields to map the links and better understand the trade-offs. It’s a tremendous undertaking.

Our early findings have identified two important factors that could help avoid a water-energy-food crisis: “smart” urban development and greenhouse gas regulation and pricing.

Cities today hold half of the world’s population and are responsible for up to 80 percent of its CO2 emissions.  The proportion of people in cities is expected to grow to 75 percent by 2050. So the way in which our cities develop will have a significant impact on energy and water demand.

“Smart” cities technology holds tremendous opportunity, through more efficient public transport, energy-efficient buildings and designs that utilize waste heat and efficient energy sources. By investing heavily to upgrade our infrastructure, we can offset some of the growth in energy demand while creating new jobs.

Fortunately, the world has the tools and knowledge to address this issue. And there are many heartening examples of individuals and communities rolling up their sleeves and starting to make a difference.

Unfortunately, there is no consensus globally on greenhouse gas regulation and pricing.

At Shell, we already are taking actions to consider sustainability issues in our decision-making. To help determine the annual bonus levels for our most senior executives, 20 percent of our scorecard is based on our sustainability performance. The key indicators include safety performance, energy efficiency and water use.

We also factor in a price for CO2 when making major investment decisions. If a project doesn’t make sense when that price is factored in, it does not move forward.

We believe the only way to drive widespread adoption of the most cost-effective CO2 reduction measures is if governments promote frameworks to price CO2. Which brings me back to the need for leadership and global collaboration.

The absence of coherent energy policies among some of our largest energy-consuming nations and regions is a direct result of the lack of leadership. More broadly, there is a troubling lack of basic trust between business, government and society.

A few nations, particularly China, have sharpened their energy policies and are implementing them aggressively, which will give them a clear competitive advantage.

Eventually, our political leaders and society will have to face this truth: Energy is going to get more costly. We need to decide how we are going to manage it over the coming decades. We must focus on these long-term issues to ensure our children and their children can avoid paying a far higher price down the road.

All types of energy need to be developed to meet the needs of our growing population. At the same time, we need to continue to invest in mitigation techniques such as carbon capture and storage, we need a price on CO2, and we need an unprecedented long-range investment in energy efficiency.

Government has an important role in setting the rules, in spurring investment in new technologies that may not see a payoff for many years. Rather than choose winners and losers, government should set the end goals, then provide appropriate incentives that let the market determine the most effective solutions.

Business can harness its immense human talent and creativity to apply innovation, technology and investment capital to the challenge.

Now is when we should be building a consensus to address our future energy challenge as we would a common threat to our well-being. But we first need to be clear about the work required: Overcoming our energy challenge will take decades of focused effort, long-range thinking, political discipline and, above all, strong leadership.

I’m optimistic we will address this challenge, despite the difficulties.

Past examples of global leadership should give us hope: The coordinated response to the 2008 financial crisis is one. The international agreement to ban substances blamed for depleting the ozone layer is another.

Today we have a major opportunity to address this challenge in a way that avoids unnecessary pain in the future. Let’s not waste it.