Exploring alternative futures

With the three most powerful drivers of the energy world - demand, supply, and effects on the environment - all set to undergo significant change in the coming years, the industry stands at the brink of an era of significant transition. When investing in operational improvements in the short or long term, refiners need to consider a range of issues and how they directly impact on their business. While price and technology will certainly play a major role in helping to drive these changes, political and social choices will arguably have the biggest impacts.

The International Energy Agency (IEA) estimates that over the next 25 years $8 trillion will need to be spent on developing new oil fields in order to meet the world’s anticipated oil needs. At the same time, refiners need to take into account the sulphur paradox, as feedstocks typically contain increasing levels of sulphur, but specifications for the cleanliness of fuels are ever-tightening.

With higher sulphur crude going into refineries, more hydrogen sulphide, SOx, COx and NOx are being produced. Refiners must ensure that they have hydroprocessing technologies in place that are able to process more sour crude into high value products so they can meet shifts in demand without infringing new legislation.

In order to survive and thrive in this transitioning environment, refiners need to consider cutting edge technology solutions - like Shell Global Solutions’ Sulphur Technology Platform - to ensure that they can compete in the new energy world whilst continuing to meet emissions standards and product specifications.

Energy scenarios

Shell has been using energy scenarios for almost forty years to explore possible developments in the future of energy and to test strategies against those shifts. Decision makers use these scenarios to gain insight into the uncertainties ahead that concern them most, and explore the ways in which discontinuities might unfold. Scenarios enable better decisions today which will drive better performance in the midst of greater uncertainty.

Scenarios for the energy system differ from traditional forecasting techniques because they offer a long-term analysis from different perspectives. The approach is critical because the rate of change depends on the time needed to develop new equipment, obtain permits to deploy, and also for the lifecycle of existing capital stock and equipment to expire. It takes on average three decades for a new technology to emerge in the energy system and reach a maturity level whereby it can deliver around one per cent of global energy provision.

Given that it can take a long time for the energy systems to evolve, the choices we make today influence the way the energy system plays out over the next 20 to 30 years.

The Three Hard Truths

To develop scenarios, it is important to consider a range of different elements including consumer choices, government policies, the availability of energy resources and developing technology trends. However, before we factor in these variables there are three elements in the energy and environment space that cannot be overlooked. Shell calls these the Three Hard Truths:

• Global energy demand is accelerating in developing economies, notably in the East. By 2050 the UN forecasts that the global population will grow by 50 per cent to 9 billion people, which will see energy demand increase from current levels of around 250 million barrels of oil equivalent a day to around 300 to 400 million barrels a day;
• Conventional sources of energy supply will struggle to keep up with demand growth; and
• More energy means more emissions at a time when climate change looms as a critical global issue.

Within the boundaries of our Three Hard Truths, society and governments exercise choices, leading to many possible outcomes for the energy system. Our scenarios explore two very different possibilities:

Scenario one: Scramble

Scenario one: Scramble

Scramble represents a world where action takes place on a national level, with each government focused on securing energy for their own particular needs over concerns relating to the impact of energy on the environment and society. The choice of the term Scramble for this scenario is significant as it highlights how the world is always trying to catch up with growing energy demand by pursuing the easiest, cheapest and most plentiful resources available.

With a pervasive short-term mindset, the demand for readily-available coal continues to grow very quickly. However, as the emissions challenge becomes more extreme, people are inevitably forced to consider other energy sources. At this point the next area of growth will be biofuels, since the technology is mature and can be implemented relatively quickly at a time when fast solutions are required, although that may have unintended consequences.

Shortly after, there will be a recognition that nuclear is probably the best solution for electricity supply. However, as nuclear power takes time to build and is relatively expensive by comparison, there will be an energy supply crunch in which countries are forced to take action to manage demand, by imposing taxes and mandates to reduce energy consumption.

Scenario two: Blueprints

Scenario two: Blueprints

Blueprints represents a world where a patchwork of solutions to tackle energy demand, supply and climate stresses emerge at a local and regional level and coalesce into mainstream solutions. It is a world in which people think more strategically about global energy needs and plan for a future that includes taking action in relation to climate change and more efficient use of energy.

In a Blueprints world, less coal is used in favour of cleaner natural gas resources and renewable energy sources are developed and deployed more quickly.

Investment in technology and market-based systems continues to help increase the number of emissions reduction schemes and build on the success of carbon capture and storage projects as the primary means of abating the effects of CO2 from fossil fuel energy. The majority of coal and gas plants will have carbon capture and storage associated with them, either installed new or retrofitted.

Technologies like the Sulphur Technology Platform provided by Shell Global Solutions also enable refiners to manage the ever-growing level of sulphur produced in refining processes despite processing ever-heavier crudes. By employing such solutions, it is easier for refiners to measure reactions. As a result, security of supply is more easily assured as demand is better managed on a global basis.

Preparing for the future

64 mb/d of gross capacity needs to be installed between 2007 & 2030 - six times the current capacity of Saudi Arabia - to meet demand growth & offset decline

Today, the fundamental long-term energy drivers and uncertainties remain largely as anticipated. However, when we consider all the factors together and impose on them the enduring economic uncertainty, it’s clear that the energy system will be even more volatile over the next three to five years and possibly beyond, impacting refiners along the way.

There will be new competition from other energy sources for transport fuels - although this will not happen consistently across the world - raising challenges in terms of refinery footprints and also in meeting demands for specific products and increasing trade.

Transition is inevitable in the world energy system as we strive to provide more energy using sources that produce less SOx, COx, and NOx emissions. However, there are also real opportunities for positive change if we can begin to use energy more efficiently. Overall, 30 per cent of the total energy produced today is lost when converting it from source to a state where it can actually meet energy demand.

Long-term scenario planning is vital as the choices that we make over the next two, three, four, five years will lock in the way the energy system will play out over the next 20 to 30 years. Like others seeking to shape the future energy environment, refiners are faced with a range of uncertainties within their business as it undergoes radical transition. Integrated, comprehensive and customised technology solutions such as those which make up the Sulphur Technology Platform can help them adapt to the changing energy world.

Scenario planning enables refiners to navigate the energy landscape, but the next step is to provide refiners with a template, enabling them to help improve operations and meet the challenges presented by the sulphur paradox. This is explored in the next article, which demonstrates how theory can be put into practice.