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Meeting our future energy needs

Speech by Shell CEO Peter Voser at the Harvard Business School Club of the Netherlands and the Ivy Circle, The Hague, The Netherlands, on September 5, 2011.
Peter Voser

By 2050, the world’s population is expected to hit 9 billion people, up from nearly 7 billion today. As the world’s population grows, as wealth increases and more people escape poverty, and as more and more people move into rapidly expanding cities, there will be increased stress on our energy, water and food resources. In this speech, Peter Voser discusses the world’s energy challenge and argues that we need to take a far more integrated approach to the challenge of creating a more sustainable energy future. He says success will also require a new level of collaboration and leadership that brings together governments, business, scientists and others to develop workable solutions.

Meeting our future energy needs

Thank you for that kind introduction and for the invitation to speak here tonight.

I’ve been asked tonight to share my thoughts on how the world can meet its future energy needs. Now, I realise that’s a big subject to cover in 20 minutes, so I’ll try my best to be succinct.

First, I’d like to give you a brief summary of Shell’s energy strategy.

Then I’ll share our latest thinking about what we need to do as a society to ensure a more stable, sustainable energy future.

I also look forward to a lively discussion. I really want to hear your thoughts and questions as well.

At Shell, we pride ourselves on taking the long view. We devote considerable resources to looking into the future, at the long-term strategic trends reshaping our world.

We feel we have a responsibility to use our considerable expertise to understand what the world’s energy needs will be, and how we can help meet them.

As you know, society faces unprecedented challenges when it comes to energy, against a broader backdrop of constant volatility and change.

The world’s energy system is in the early stages of a fundamental transformation. It is shifting to a future of cleaner fossil fuels and expanded use of renewable energy.

I’m confident that human ingenuity and new technology will overcome the challenges. We just need to be clear that it will take decades of focused effort, sustained investment and collaboration to ensure a smooth transition to a more stable energy future.

There are three key drivers behind our energy challenges. It’s not surprising that the same drivers are behind our environmental and economic challenges as well:

  • The world’s growing population
  • Increasing wealth as more people escape poverty, and
  • Rapid urbanisation.

In 1960, when I was a toddler, the world’s population hit 3 billion.

In the coming months, we will reach 7 billion.

By 2050, our planet could hold more than 9 billion people.

That’s a tripling of the world’s population in less than a century.

This growth, combined with an improving standard of living for millions of people in places like China and India, means demand for energy will rise at a rapid rate, putting added stress on our energy resources.

At the same time, we need to safeguard the environment for future generations. That means finding ways to reduce CO2 and being smart about how we extract and use our resources.

Shell’s energy strategy

At Shell, our energy strategy is built upon three pillars:

  • cleaner energy;
  • more energy, and
  • smarter energy.

In terms of cleaner energy, it’s critical that we broaden the global energy mix by expanding the contribution of renewable energy resources, while also working towards cleaner fossil fuels. 

We’re optimistic that up to 30% of the world’s energy could come from renewables by 2050, although it will require a large amount of effort and sustained investment to reach that goal.

One of Shell’s major efforts in this area is biofuels.

We have spent many years researching and investing in renewables, including solar and wind power. 

In the end, we recognised that others were better equipped than we were to develop these businesses.

On the other hand, it makes tremendous sense for Shell to focus on biofuels, because of our traditional expertise in fuels and our large, global retail network.

Among all the low-carbon transport fuels, biofuels can make the biggest contribution to reduce CO2 emissions from vehicles over the next two decades. 

We recognise there are substantial social and environmental issues with biofuels, but we also believe they can be overcome. We are addressing these by working with NGOs to push for international standards for the sustainable sourcing of biofuels. We also have set sustainability standards for our own biofuel suppliers.

Shell is producing more natural gas, the cleanest fossil fuel.  In fact, next year we expect more than half of our production will be natural gas.

When you look at generating electricity, the fastest, cheapest and smartest way to reduce CO2 emissions is to replace coal-fired power with natural gas.

Natural gas plants emit up to 70% less CO2 than an old coal-fired plant, with much lower levels of pollutants like carbon monoxide. And over the long term, carbon capture and storage technology could reduce natural gas plants’ CO2 output to near zero.

Next, we must continue heavy investment to develop and deliver new energy supplies.

This is not optional.

We estimate the world will need to produce 40 million barrels of oil a day by 2020 from fields we haven’t even developed yet, due to the combination of increasing demand and falling production rates.

For perspective: That’s four times what Saudi Arabia produces today;10 times the current production in the UK and Norwegian sections of the North Sea.

Shell currently is in the midst of one of the most ambitious investment plans in industry history: 

  • We’re investing more than 100 billion dollars between this year and 2014.
  • At the same time, we are developing technologies to get more oil and gas from existing sites, and to go into deeper and more challenging locations to deliver more energy in the future.

Our other priority is smarter energy.

Shell is working to create products and services that help consumers “get the most out of every drop” of energy. These include fuels, lubricants, detergents, and road-surfacing products that help save money and lower CO2 emissions.

One good example is Shell FuelSave, the most advanced fuel-economy product on the market.

So that is a snapshot of Shell’s energy strategy.  But meeting these challenges will be neither easy nor painless.

The future energy challenge

Consider that population figure I gave you a few minutes ago: 9 billion people by mid-century. 9 billion!

That’s like adding another China and another India to the world -- or the equivalent of adding a new city of 1 million people (or two Hagues) every week for the next 30 years.

Most of that growth will be absorbed into fast-growing cities in Asia.

For our industry, keeping pace with this surging demand will be tough. By 2050, we could be facing tremendous tension between supply and demand.

Innovation and competition will moderate demand and accelerate supply somewhat. 

But we estimate the world will still have a gap between “business-as-usual” demand growth and supply growth, a gap roughly equal to the size of the entire energy system in 2000. 

It’s what we call the “zone of uncertainty”.

Of course, supply and demand always balance. In this case, it will be through some combination of extraordinary demand moderation and extraordinary supply moderation.

On the demand side, we will need policies to improve energy efficiency -- not just of cars and buildings, but of entire cities and their infrastructures.

And with massive investments in new infrastructure to accommodate growth in Asia, and to replace aging systems in the developed world, we have a great opportunity to reduce this gap.

As we have developed our thinking around this “zone of uncertainty,” we recognised something quite significant.  
This concept applies not just to the energy system, but to various other social-ecological systems as well. 

As a result, we are looking closely at how these systems are interconnected ... particularly water, energy and food. 

When you think about it, the basic interconnections are obvious: 

  • moving and treating water uses energy;  
  • water is needed for almost all forms of energy production;
  • and producing food takes energy and water.

A systems approach

There’s a growing awareness that the path to a more sustainable energy future will require society to take a more integrated approach that considers all three of these systems and how they relate to one another.

We know that in the coming decades, population growth and urban sprawl could create a food and water crisis.

The World Economic Forum estimates the world could face a 40% shortfall between freshwater demand and supply by 2030 if current consumption trends continue.

At the same time, there could be 40 to 50% growth in food needs. Oxfam estimates these stresses could lead to a doubling of food prices by 2030.

At Shell, we are particularly interested in the connection between water and energy:

  • Energy is required to supply, purify, distribute and treat water and wastewater. In the United States, for example, 75% of the cost of water comes from energy.
  • Energy producers are amongst the largest industrial consumers of freshwater.  
  • And water is needed for drilling, flooding wells, refining crude and producing biofuels, for power generation and transportation.

To help us prepare for the future energy-water challenge, Shell is leading a project in partnership with the World Business Council for Sustainable Development.
We’re exploring the water use associated with different energy types, on a lifecycle basis.  That includes looking at water used for electricity, transport and heating.
What we can say from our early findings is that technology is the key differentiator, whether you’re talking about tight-gas production, power generation or biofuels production.

The good news is the energy industry already is employing effective water technologies, and they continue to improve.
For example, we are getting better at recovering and recycling water, including waste water from communities near our operations.

At our Groundbirch tight gas development in British Columbia, Canada, we are operating water storage and recycling facilities to store fracturing and gas processing water for re-use. Pipelines transport the water to where it is needed in the field, limiting the use of trucks. We are also funding a water recycling plant for the nearby city of Dawson Creek to treat its water so it can be reused in our operations and for other industrial and municipal uses ... such as water for sports fields.

And at our Pearl gas-to-liquids plant in Qatar, we have a system that uses water and heat generated from the plant’s chemical reaction to create steam, which is in turn used to drive the plant’s equipment. 

So there’s some good news on the water front.

But our work on the water-energy-food connection has reinforced the fact that many of today’s solutions also come with trade-offs.
The complexity of these interconnections requires additional understanding of these trade-offs and their implications.

So we have brought together experts from the fields of energy, water and food to begin to map the links -- a huge undertaking. We want to understand if there is a subset of critical issues, issues that merit more attention and investment for potential creative solutions.

A new level of collaboration

As I said earlier, our energy challenges are unprecedented. 
We need to produce more energy for a world with more people, millions of whom are breaking out of poverty and climbing up the energy ladder. 

At the same time, we need to develop a more stable, sustainable energy system that generates less CO2.

To succeed, we will need a new level of collaboration and leadership -- collaboration that brings together scientists, urban planners, businesses, governments and society to develop workable policies and solutions.

Looking at the political environment today, that may be our biggest immediate challenge. 

But we really have no choice. 

We have a huge opportunity now to address this “zone of uncertainty” in ways that avoid unnecessary pain and misery. 

Though it will not be easy, I am optimistic we will succeed. The human race has faced many big challenges in the past and surmounted them with ingenuity and creativity.

Shell will continue working hard to be part of the solution. 

I look forward to hearing your thoughts on how, together, we can overcome these unprecedented challenges.

Thank you.