Helping customers to use less: Today and Tomorrow

I am delighted to be here today to address this conference.

Our theme could not be more appropriate. The energy sector has always been high up the global economic, social and environmental agenda but today it is right at the top.

The world faces an unprecedented challenge. Put simply, we need more energy and less CO2. Achieving those aims will be complex and demanding.  It will also take time.

As transport accounts for a quarter of CO2 emissions, our industry will be at the heart of the work to meet those future energy and environmental challenges. However, while I do not want to underestimate the scale of the challenge facing us, I also want to underline how our industry can offer solutions which can help our customers save energy and reduce emissions. 

Some of those solutions are available today; some are under development for tomorrow.  In my comments today, I will outline how Shell has developed a number of technically advanced products in both fuels and lubricants which are already helping customers use less energy. And we continue to work on developing tomorrow’s products that will deliver further energy reductions for consumers.

If we want these solutions to work to the optimum extent possible, we will need governments, vehicle manufacturers and fuel and lubricants providers to collaborate to achieve them. This cross industry collaboration will need to become even more central to the way we operate in the future and I will explore developments in that area later in my speech. But my overall message is an optimistic one - that we can meet the challenges ahead and that makes it a really exciting time to be in the fuels and lubricants business.
 

I would like to start by setting the wider context. We face three hard truths. The first is that energy demand is accelerating.  We will need to double energy supply to meet the world’s needs in 2050. There will be three billion new energy consumers – many of them in this region. That increased demand will come from all sectors but particularly in transport where the number of cars in the world is forecast to increase from 900 million to two billion [Source: Based on data from WIFO, PIK 2007, WBCSD from a Shell presentation by Andrew Harrison, Future Mobility from a fuels perspective].

The second hard truth is that as a result of that growth, energy supplies, from all sources, will struggle to meet demand. So-called “easy oil” is rapidly depleting and is being replaced by reserves that are increasingly difficult to extract and produce.

The third hard truth is that environmental concerns will not go away and we will be working in regulatory frameworks which demand continuous reductions in emissions, including CO2.

For our industry that means there will be a clear imperative to continue to develop products which help customers use less energy and have less impact on the environment. That will require investment in technology across the whole value chain from engine design to the lubricants and fuels available in the market.

Energy companies, paradoxically, will need to work to help people to use less of their products. We are making real progress in this respect already. In my own part of the business we know that the effective use of lubricants [Shell Rimula R6 LME] in a vehicle engine can improve fuel efficiency by up to 5 per cent, when used in combination with fuel economy gearbox and axle oils. Not much on its own, but multiplied by the number of vehicles on the road– that adds up to a serious reduction.  If we also focus on changing driver behaviour, the savings can multiply further.  For example, the Shell FuelSave Challenge completed in 2007 and 2008 across 10 countries, demonstrated drivers can make fuel savings of 10%, with the best saving 24% when using a combination of fuels with Fuel Economy formula and FuelSave tips. Since then we’ve provided driving advice to over 150,000 motorists around the world with an on-line FuelSave training programme.

What underpins all these developments is a commitment to invest in innovation. We should not underestimate the scale of the investment which will be needed across the whole energy sector if we are to meet challenges of the hard truths. And securing that investment has been made more difficult because of the global economic crisis and the recession that has followed. Governments across the world are grappling with huge deficits and much of the corporate sector has been concentrating on short term survival. And although this region has fared better than many, the picture remains volatile and uncertain and it will take some time for confidence to be restored.

However, the natural focus on these immediate issues does not change the fundamentals. One of those fundamentals is that that this region will continue to be the engine of global growth and play an increasing role on the world stage. The Asia Pacific market is now the largest lubricant consuming region of the world with 34 per cent of the total market and is expected to grow by 2 per cent a year over the next decade. [Source: Kline & Company, ‘Competitive Intelligence for the Global Lubricants Industry, 2008-2018’].

China and India are still seeing GDP growth despite the recession, and they will continue to be key markets. That will be especially true of the transport sector. China has overtaken the US as the world’s largest car market during 2009 [Source: China National Bureau of Statistics] and with only 3 per cent of the population owning a car [Source: China National Bureau of Statistics], the consultancy, Kline, has forecast double digit growth in car sales in the next decade. 

That is why Shell, along with other major producers, is planning for significant volume growth and making major investments in the region. Here in Singapore we have had a significant presence throughout our history and we see Singapore remaining a key hub for the rest of the region.

China, of course, is another key focus for investment. Late last year Shell opened a new lubricants complex in Zhuhai, Guangdong Province. It has an initial production capacity of 200 million litres a year, and the potential to increase to 400 million litres a year, which would place it in our top three biggest lubricants blending plants.

Another important additional development at that plant is our investment in a technical facility. This facility will provide technical services to key customers and the wider automotive industry. This will give them the benefit of technical research, marketing and training services related to their lubricants applications.

I think this kind of development is a very clear indication of the way Shell does business. We are continually investing in technology and the technically advanced products which will help customers reduce their energy use.

All companies in the sector know that our position in the market place will depend on our ability to provide improved products and services for our customers. It is clear that established western companies will face increasing competition from local manufacturers and OEMs. I believe we will see local companies becoming ever more sophisticated and it will not be long before instead of importing technology and machinery those companies will be developing their own products and exporting them back to the western world.

In my own visits to China, I have been very impressed by the commitment to research and technological development. When I visited a Chinese automotive OEM recently and asked how they ensured that they could secure engineering talent to support their rapid growth, they told me that they ran their own university. That’s a big investment and a big commitment but a necessary one. We will need that kind of clear focus on innovation and technology if we are to meet our future challenges.

I would now like to spend a little time giving you a couple of examples from Shell’s own portfolio of technically advanced products that are already helping customers use less fuel and reduce emissions. I will then look at the importance of cross industry collaboration in driving those developments.

One of these is Shell Rimula R6 LME- heavy-duty engine oil for trucks, coaches and buses. The oil was developed in order to respond to customer needs for a low viscosity oil that can improve fuel efficiency.  The product has also been formulated with low levels of Sulphated Ash, Phosphorous and sulphur to help protect the exhaust system catalysts and filters found on the latest vehicles.

In the fuels sector we have developed a product called Shell FuelSave. Shell FuelSave is the most advanced Shell fuel economy product ever and marks a significant step forward in helping customers use less. Shell FuelSave is designed to help customers save up to 1 Litre per tank¹ at no additional cost. It has been launched in five countries to date, including here in Singapore.  And it has been very popular with customers gaining us market share and volume.  That really underlines that there are win-win solutions for us all as we develop more efficient products.

Looking a little further ahead there are a whole range of exciting possibilities which Shell is developing today and will be a realistic option for many of tomorrow’s customers.

These include gas to liquids technology. The Pearl Gas to Liquids plant in Qatar will produce more than a million tonnes a year of high quality base oil for synthetic lubricants from 2011 and enough fuel to fill 160,000 cars a day. This will build on existing demand for those products which can help customers meet tighter emissions standards and tackle local air pollution which is a real challenge in the cities of this region. [Source: Shell Press Release: Pearl GTL: building the world’s largest gas to liquids plant 5/2/09].

Another central advantage of GTL based products is that they can meet the demands of higher performance advanced engines of the future.

While we think oil and gas based products are going to remain a central part of the fuel market for some time to come, we are likely to see an increase in the use of biofuels. Biofuels offer a low carbon, sustainable alternative to conventional gasoline and diesel in the short term and could play a key role in the medium to longer term. The International Energy Agency thinks they might account for 11 per cent of road transport fuel by 2030. 

Shell is already the world’s largest distributor of today’s transport biofuels, distributing 9 billion litres in 2009. We are buying increasing volumes of biofuels and we continue to invest in infrastructure to store, blend and distribute these biofuels before they reach the customer. We are also exploring opportunities to invest in the production of the lowest CO2, most sustainable and cost competitive of today’s biofuels – Brazilian sugar cane. Shell and Cosan S.A have recently signed a non-binding memorandum of understanding that could form a circa $12 billion joint venture for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels.

Shell is also making real progress in the development of future biofuels using new non-food feedstocks and new conversion processes.  Our technology division has a dedicated bio team across four research centres in the UK, US, Netherlands and India. We also have technical partnerships with leading biotechnology companies exploring new technology platforms for the production of future biofuels. These include the processing technology that enables ethanol to be made from straw using enzymes, the development of ‘super-enzymes’ for biofuel production, a pilot research facility to grow marine algae for conversion into biofuel and a development effort to convert plant sugars directly into gasoline and gasoline blend components. These developments could help us make significant progress towards reducing emissions, providing that we can solve the technology challenges and ensure that engines can burn these biofuels without compromising on engine durability or oil drain interval.

These are, in many ways, incremental changes to our current way of doing things. But I know that there is a lot of talk about electric vehicles offering a very different kind of solution to the challenge of achieving lower carbon transport. 

Clearly there is potential here but there is much more work to be done before they offer a practical option for a critical mass of customers. The journey range of batteries needs to be extended and there are practical problems to be overcome in terms of recharging. And, of course, battery powered cars have their own environmental impact. They use scarce resources for batteries and the electricity to power them is, in the short term, unlikely to be produced from renewable sources.

All of this means that in the short to medium term, we are probably going to see increased market penetration of hybrid vehicles which combine the low emissions of battery power over short distances with the practicality of liquid fuels for longer trips.

What is clear is that, given the scale of the challenges we face, the process of innovation cannot stop. And collaboration will be key to that innovation.

First that means collaboration with governments. While there is clear customer demand for improved fuel efficiency, their demand for lower emissions and willingness to pay for products which deliver those lower emissions is less clear so governments need to act. There is now evidence that where policy makers, as in Europe, have set tighter emissions standards that has driven improvements in engine design and in the fuels and lubricants they use. That, in turn, has helped to deliver reductions in emissions. By giving the industry a clear framework it helps them focus their energies and make informed decisions about the inevitable trade offs that are required.

However, even more vital to successful innovation is cross industry collaboration and co-engineering. I’d like to give you one example of the approach Shell has taken to work more closely with manufacturers.

ZF, a driveline and chassis supplier, needed an oil to lubricate an advanced automatic transmission. This transmission had a very high specification with the potential to deliver a six per cent improvement in fuel economy. This was a real challenge for us but, by being part of the team from the start and having worked with ZF on previous transmission oils, we had a real advantage in the design process. It also meant we could develop the new product more quickly and coordinate testing and development work. By working together and using our long standing relationship we were able to provide a product which met ZF’s needs and helped their customers use less fuel.

This is just one of Shell’s technical partnerships. We have others with many automotive manufacturers. Each one of these has added hugely to our expertise and is helping individual customers use less.

Looking to the future though I think we have to ask whether that is going to be enough? The common mantra is ‘every little helps,” and that is undoubtedly true. But I think we now need to be bolder, as David Mackay, one of the UK Government’s scientific advisers, said to me recently, ‘every BIG helps.’

So what would thinking BIG look like in the context of vehicles and lubricants? First, given the huge lead times for adopting new vehicle technology across the vehicle fleet, any effort will need to be sustained over the long term. It will also require us to challenge traditional fuel and lubricant specifications.

This brings me back to collaboration. At the moment collaboration tends to mean finding the most effective lubricant that you can for the latest, but already fixed, hardware design. What collaboration should mean is developing the hardware and lubricant together to give the best overall solution.

For example, reducing lubricant viscosity will reduce bearing drag, but it will also reduce oil film thickness making the engine more susceptible to wear. If bearing length and diameter are modified to restore the original oil film thickness, then this co-engineering will have delivered optimised fuel economy whilst preserving durability.

Taking this longer term cooperative view opens the door to a much more innovative world. Could engine oil systems be developed that deliver the lubricant to the engine at its target viscosity independently of operating temperature? Can we devise continuously variable transmission (CVT) systems in which traction is also independent of temperature? Can both schemes be made to operate simultaneously to deliver exceptional economy and performance?

So, my overall message is this, whatever part of the industry you work in, be innovative and courageous – break the specification mould - challenge preconceptions – collaborate and sustain that collaboration to achieve optimised end-to-end solutions.

Conclusion

It is easy in difficult times to be distracted by dealing with the immediate challenges. It is easy to be disheartened by the scale of the challenge. But the energy industry cannot do that. We need to focus on the future. We need to remember that we have a strong track record of meeting challenges that everybody said were impossible.

We will be helped in that the fundamentals will not change. Technology and innovation will remain at the heart of our success. Customers will be ever more demanding and the imperative to meet their demands for further improvements in energy efficiency will drive innovation.

And we must secure increasing collaboration across the industry. As I have outlined, it is vital that the fuels and lubricants producers are involved from the beginning in the design of new and more energy efficient vehicles and equipment and not simply as an add on extra. We can achieve so much more when we get that right, when we think BIG.

It will be a long process. But we have no choice. A sustained effort is required. Whatever part of the industry we work in, we must commit to action to help our customers use less and meet the energy challenges ahead. But I am optimistic that we have a common interest which will help us meet the requirements I set out at the beginning of my speech - more energy, less CO2.
Thank you.

ENDS

¹ Based on a minimum tank size and fill up of 50 litres. Comparison between a standard gasoline with the same characteristics as the previous Shell formula and that same standard gasoline containing our new instantaneous fuel economy formula. Actual savings may vary according to vehicle, driving conditions and driving style.