Sustainable shipping and the global energy challenge speech

Thank you, Robin.  Good morning, everyone.  I am very pleased to be here. 

Shell has a unique perspective on our theme for this forum.  As well as being involved in finding, producing and supplying fuel and related products, we also have our own international shipping business, managing 18 oil tankers and 33 gas carriers.  In 2007 we were one of the world’s largest spot charterers.

In Shell Marine Products, where I work, we are constantly seeking new ways to contribute to more sustainable, more energy efficient shipping – for example, through our low sulphur fuel oil.  We also provide gasoil and lubricants based on Shell’s advanced gas-to-liquids technology, which deliver lower emissions and higher efficiency.

Sustainable shipping is a top priority for Shell at the highest level – because shipping plays such a major role in our own business, and in the global economy.
Without shipping, today’s world economy would grind to a halt.  More than 90% of the world’s goods are transported by sea.

As we look to the future, shipping remains centre stage.  The current projections of wealth increase and poverty reduction in rapidly emerging economies – not only in Asia, but also in Africa and South America – are very encouraging.  But they depend on shipping to be realised.

As the world economy grows, the world fleet is likely to grow with it – especially in regions where road, rail or air transport can be replaced by shipping to reduce environmental impacts.  This kind of intermodal shift, particularly from road or air to sea transportation, can be a really positive action to produce a net environmental benefit.  Government initiatives such as the EU short-sea and ‘motorways of the sea’ proposals are good examples of such action.

This is because, on a per ton, per mile basis, shipping is usually the most environmentally friendly mode of transport.  Over the last 60 years, huge strides have been made in improving efficiency.

The maritime industry recognises the need to keep making progress.  It has been working particularly hard on reducing the environmental impact of shipping with regard to SOx, NOx and particulate emissions.

Work is now under way to find integrated solutions for CO2, and Shell is engaged in the debate and development of a way forward.

Today I would like to highlight the collaboration across the industry and international organisations that found a way of dealing with Sulphur.  This was a highly effective collaboration, which Shell views as a good model for solving the Carbon challenge.

What I am going to say needs to be seen in the context of the global energy system.  So I will first sketch the challenges that system presents, and some of the choices that consumers, businesses and governments will be faced with as we all follow our human instinct and pursue a ‘better world’.

Hard truths and Shell’s response

Shell finds it helpful to describe where the global energy system is going in terms of three ‘hard truths’.

The first is that global energy demand – for every use, including transport – is accelerating. 

According to projections by the International Energy Agency, world primary energy demand will grow by more than half between 2005 and 2030. 

Developing countries, where both the economy and population are growing fastest, contribute 74% of the projected increase.  China and India alone contribute 45%.  OECD countries account for one-fifth.

Fossil fuels will continue to dominate the energy mix for the next 3 decades at least, and probably to mid-century, largely for reasons of cost and convenience.  Transport is the principal driver of increased oil demand.  Its share of total primary oil use is projected to rise from 47% in 2005 to 52% in 2030.

However, our second ‘hard truth’ is that resources are becoming more difficult to access and develop.

So-called ‘easy’ oil and gas are becoming a thing of the past.  There are still plenty of resources in the ground, but accessing them costs more and requires new approaches.  Partly because of this, coal sees the biggest increase among the fossil fuels between 2005 and 2030.

Innovation will be important to keep energy supply matching demand.

New thinking is also urgently needed to deal with the third ‘hard truth’:  the need to contain the CO2 impact of energy production and use.  The IEA sees rising fossil energy use driving up related emissions of carbon dioxide by 57% between 2005 and 2030.  Clearly, there is much to be done, as it is generally agreed that we need to reduce CO2 levels in the atmosphere if we want to avoid climate change impacts beyond those we are already seeing.

Meeting the energy challenge is not a matter of dealing with one or other of these truths, or of pursuing one single solution.  A portfolio of approaches and technologies will be needed.

Shell sees its role as securing a responsible energy future – one where growing populations are able to satisfy their need for mobility, quality of life and performance, with energy and fuels that strike the right balance of ‘clean’, ‘convenient’ and ‘cheap’.

We don’t underestimate the challenge; but we do believe positive outcomes are possible.  We have been taking on and beating challenges for over 100 years.

For example, Shell scientists came up with a synthetic replica of the protein that stops fish freezing in deep sea temperatures. This synthetic, inspired by fish, is now helping to keep oil and gas moving in very low temperatures.

Our monotower technology allows us to access gas cleanly and cost-effectively from ever smaller deposits.

We have helped to pioneer the liquefied natural gas sector since the 1960s, in order to ensure that gas – the cleanest burning fossil fuel – can be brought wherever it is needed in the world. 

We are also involved in progressing the technology of Floating LNG.  This offers the potential of lower cost development for small gas accumulations located far from shore.  It also considerably reduces a project’s environmental footprint.
Our gasification technology can now turn virtually any coal into synthesis gas, a mixture of hydrogen and carbon monoxide that burns as cleanly as natural gas.

In the search for cleaner fuels and lubricants, Shell also pioneered the development of the gas-to-liquids technology I mentioned earlier.

Scenarios

These are just a few examples of problem-solving, turning challenges into opportunities.  We are proud of our technology heritage in Shell. 

However, we are not resting on our laurels.  No one can afford to be complacent.  In a world that is changing all the time, and full of uncertainties, past success cannot on its own guarantee future performance.

That is why, for the past 30 years and more, Shell has developed scenarios.
It is important to be clear about what we mean by scenarios.  They are not forecasts or predictions.  They provide us with descriptions of alternative possible futures that are both plausible and challenging.

Our latest scenarios look at how the global energy system may change between now and 2050.  They are based on detailed, complex analysis of current trends and informed projections; they embrace social, environmental and political factors as well as economic and commercial ones. 

Two scenarios have emerged from this analysis.  We call them ‘Scramble’ and ‘Blueprints’.

Scramble is a world in which events outpace actions. Decision-making is reactive and local; it is shaped by fears about security of energy supply and of losing economic ground.

For the first 10 years between now and 2050 in the world of Scramble, people join in the debate about energy and climate change, but no one pushes for action on a large scale.

Governments tend to choose local solutions to their energy issues.  So, for example, they prefer indigenous energy sources, giving coal a big come-back. Meanwhile, drivers stay with liquid fuels.

However, the Scramble characteristic of maintaining the status quo has a downside. By 2020 this has become a volatile and uncertain world, with tight energy markets.  The severe weather events taking place are blamed on previous inaction about climate change.  Societies are unhappy and vocal about it. 

Governments respond in their own ways, but don’t coordinate with each other.
Even this uncoordinated response, however, has positive effects.  Due to enforced containment of energy demand, combined with individual local efforts to boost renewable energy, greenhouse gas emissions start to fall.  Nevertheless, the Scramble world in 2050 is a long way from sustainability.

Our second scenario, Blueprints, is in a sense the opposite of Scramble: in this world, actions outpace events.  Already, there are signs of Blueprints in the real world – for instance, the collaboration in California by venture capitalists, farmers, politicians, and other diverse groups to engage profitably in action on climate change.

Blueprints is not a world of altruists.  It’s a place where people recognise shared interests and new opportunities for profitable business.  They can see the benefits of taking action before it’s forced on them.

The early years of Blueprints contain a lot of diversity – different approaches to promoting energy efficiency, and the development of different technologies. Some governments choose taxes as their main instrument; others use mandates. In some regions the emphasis is on voluntary action by businesses and consumers.

This diversity makes it difficult for businesses to operate across geographies.  Investment decisions become very complicated and not very efficient.  So a lot of lobbying goes on, to move towards harmonisation.

When it comes, it enables best practice to spread more quickly – in terms of energy efficiency, emissions trading schemes, meaningful carbon dioxide pricing, and technologies.  Progress is especially marked in renewables and carbon capture and storage, which becomes viable in Blueprints after 2020.

The Blueprints world sees renewable energy sources competitive by 2040.  Mid-century, with carbon capture and storage well established, the world is on a downward path for carbon emissions.

The Blueprints world has its difficult times, as Scramble has.  But its characteristics of collaboration, successful carbon policies and faster technology deployment make Blueprints more sustainable, by 2050, than Scramble.

That is why Shell has broken with 30 years of tradition, and is expressing for the first time a preference for one of our scenarios over the other.  We are advocating a Blueprints approach to addressing the global energy challenge, because we believe its outcomes offer the best hope for a sustainable future, and because the challenge – ‘more energy, less carbon’ – is so urgent.

We don’t expect the world to evolve exactly as Blueprints describes it.  We do stress the importance of coordination and collaboration; of constructive action that anticipates needs; of seeing the wider perspective and the interconnectedness of outcomes in different regions; and of taking decisions with a longer term view.

Sulphur

The approach taken by the maritime sector and others to deal with Sulphur is an example of a Blueprint world in action.

In this approach, we have seen different interest groups working together, listening to each other, debating, informing, analysing, considering options, and arriving at an implementable solution with environmental benefit.  And they have allowed room for further changes if necessary.

The key points agreed by this year’s meeting of the Marine Environment Protection Committee, MEPC 57, provide a clear way forward on Sulphur. Essentially, they prescribe phased reductions in the permitted Sulphur content of marine fuel used in SOx Emission Control Areas, or SECAs.  They also specify phased reductions in the global cap on Sulphur content in marine fuel used outside SECAs.

The MEPC 57 agreement is scheduled for formal adoption in October this year.

It represents a model solution in a number of aspects.  For one thing, it is recognised that the impacts from ship emissions decline sharply when the distance from the ship to shore increases.  That is why Shell has supported the principles embodied in Annex VI of the MARPOL convention, for the use of emission control areas that have more stringent fuel requirements where an environmental or human health need has been demonstrated.

The outcome of MEPC 57 also recognises commercial reality: the fact that companies need time to make the investments and changes necessary to ensure their processes and assets are ready and able to deal with new requirements.
Shell welcomes the work of all those involved in the MEPC 57 meeting.  We congratulate the IMO on achieving an outcome that maintains a global framework for regulation of shipping emissions and marine fuel sulphur content, while addressing local impacts and commercial reality.  These goal-based standards encourage the investment and innovation needed.

Carbon

Through recent initiatives like this in the International Maritime Organisation, the industry has embarked on a way forward where emissions related to SOx, NOx and particulate matter will all be dealt with by means of technology and regulations.  This leaves the CO2 issue as critical.

Finding a solution for CO2 is a high priority.  However, the task is very challenging, for several reasons.

Before a truly robust, sustainable solution can be found for Carbon, there are several drivers that need to be addressed.

For one thing, CO2 emissions from shipping are difficult to quantify accurately.  A critical first step, therefore, must be prioritising accurate measurement.

It is also worth noting that shipping contributes an estimated 3% of total CO2 emissions in the world.  So it cannot, on its own, solve the global CO2 challenge.

Man-made emissions of CO2 are subject to legislative and regulatory action, as well as public attention.  Both of these have global reach.  So a coordinated global solution is required.

The progress that has been made with sulphur and other emissions underlines how the shipping industry shares the concern of other industry sectors for the environment.  And it shows the effort the industry is prepared to put into finding solutions to address that concern.

The industry recognises the Carbon challenge.  It is open to playing its role in defining and achieving targets that contribute to resolving that challenge.

Unfortunately, there is no viable large-scale alternative to carbon-based fuels in the short or medium term.  Consequently there is no technical solution that can eliminate the CO2 issue.  Aggressive means of fuel saving and/or a switch to fuels with lower relative CO2 emissions are therefore the only immediate ways forward.

As a group of companies, Shell is committed to taking the Carbon issue as seriously as we took the Sulphur issue.  We are committed to working with industry, within industry and with government to find a sensible path forward.  And we are committed to being transparent about the progress made.

We are convinced that this path needs to lead to a holistic solution, one that will work for the affected countries as well as ship owners, refiners and others.  Any alternative will have only short term benefits.

After all, the need to reduce carbon emissions is a problem faced by all the world’s industries.  Some industries are better positioned to achieve reductions than others.  Similarly, the ability to address the problem will differ from nation to nation; the developing world faces the largest challenge. 

A holistic solution is therefore necessary to provide the incentive to change, while at the same time recognising that not everybody is starting from the same point.  So it is vital to promote a coordinated global approach, complementary regulations and implementation periods, and recognition of the need for multifaceted solutions that contribute to the single goal of reducing carbon emissions.

Closing

Let me close by emphasising again: Sustainable shipping is not just a shipping industry issue.

Solving it requires alignment across industries and countries.

Such a holistic solution takes time to develop.

But it is time we must spend.  We need to get the answers ‘right’, not get them ‘quick’, if we are to create the better future we all aspire to.

Shell is fully committed to collaborating in finding the holistic answers that will help realise that future. 

Thank you.