Shell World Online

Q&A with Jan van der Eijk

July 13, 2007

Q:    How do you see the energy scene today ?

A:    As I see it, we’re on the eve of an energy technology revolution, triggered by a number of factors. Firstly, concern about the security of energy supply – society wants more energy sources so as to be less dependent on a limited number of energy exporting countries. Secondly, current “easy oil” will become exhausted in due course, already leading the industry to look at more difficult, unconventional resources. And thirdly, society simply expects that alternatives will be developed in response to climate concerns.

Q:    How is the energy industry responding to these challenges?

A:    We’re seeing rapid developments in several fields of science relating to energy production. Examples are biotechnology, which will give rise to new biofuel production processes, and nanotechnology, which is delivering new materials and catalysts for cleaner processes.

Competition in the energy industry will become far more intense, due to the combination of high public expectations and rapid scientific development. Until recently, the bulk of energy know-how and research lay with the international oil companies and their suppliers. But more and more players are entering the arena –  national oil companies, mining and chemicals companies like Sasol, technology corporations like General Electric, or venture capital firms like Goldman Sachs. On the bio side, food companies and agricultural businesses are also getting involved. In such a highly competitive arena, it is essential to carefully select the areas in which you want to lead. It’s impossible to win on all fronts. And a key aspect of my job is to advise Shell on those choices.

Q:   Why were you appointed?

A:    My appointment reflected Shell’s drive to excel in technology. We’re now involved in technology and innovation battles in many theatres. In addition to conventional oil and gas including liquefied natural gas (LNG), we’re active in unconventional hydrocarbons such as oil sands, oil shale and tight gas, we have renewable energy and biofuels businesses, we’re pursuing carbon dioxide (CO2) capture and sequestration solutions; and we’re extending our leadership in technologies for converting organic matter intoa range of energy and chemical products using synthesis gas. I’m currently reviewing the technology associated with this portfolio – its volume and affordability, among other things.

Q:    Is affordability a real issue for a company that generates billions in cash flow?

A:     Affordability doesn’t seem to be an issue at first sight, given the size of Shell. But you have to look further than research alone: it’s followed by development, demonstration and finally full-scale application. As soon as you start building demonstration plants, your spending starts rising sharply. The question you have to answer at an early stage is whether you have the money – and the determination – to first build post-research and development (R&D) demo plants and then to go for subsequent full-scale application.

We’re now spending $1.2 billion per year on technology, and that comprises the costs of generating options, developing technology and testing prototypes. That figure will rise, but by how much will depend on the choices we’ll be making.

Q:    How important is it to work in partnership with others?

A:    In technology there’s always the make-or-buy question. Making a conscious decision is important. In R&D the term “open innovation” refers to the art of rapidly identifying new external developments, through open forms of partnership, and then utilising them for your own business. We intensively explore the benefits and drawbacks of this approach.

In the oil industry the dominant principle is “own technology first”, backed up by a strong patents position. The strength in technology at Shell is partly reflected by the large and growing number of patents we hold – more than 26,000. We can be justifiably proud of our technology track record. Our patents will remain very important in the future. I also see a growing role for large-scale international partnerships with private companies and public bodies. Energy transition requires R&D efforts and technology investments far exceeding the capabilities of individual companies. A good example of such a partnership is the UK Energy Technologies Institute where several major companies, including Shell, and the UK government are working together. There are similar initiatives in other countries as well.

Q:   If oil won’t go on for ever, what are the best alternatives – and how soon will they be viable?

A:    Shell has said we will have a substantial fourth business by 2015 to go with our Exploration & Production, Gas & Power and downstream businesses. Biofuels is a leading candidate. Another option is wind, where we’ve already developed a considerable position. In terms of cost price, wind is closest to the economic break-even point of conventional power generation.

Society has high expectations of new technology developments in the production and use of energy, and I think rightly so. But the mistake is to overestimate the pace at which technological developments will lead to a transition towards new and sustainable energy sources. That pace will be slower than many people think. This is due to the sheer bulk of the energy sector. Many people do not appreciate this. The existing infrastructure can only be replaced slowly: consider the entire production infrastructure, refineries, pipelines, LNG systems, retail networks and power stations. The gigantic scale of operations and the huge amounts of money locked up will make energy transition a relatively slow process. People aren’t so much mistaken about the direction of developments but about the rate at which they will take place.

For many years to come, oil and gas will continue to dominate our energy supply, and leading oil and gas companies will likewise continue to contribute towards the development of global prosperity. According to the best-informed forecasts, this will be so for at least 50 years or more. As a company, it’s good to start thinking now about our possible business portfolio in a future period when fossil energy will play a smaller role, but we must do so with all due modesty. Looking ahead that far is a difficult task. As a mental experiment, let’s just recall the world of 50 years ago and how we envisaged the future then. In several respects we were quite wrong.

Q:    As a lifelong technologist, do you believe technology can solve every problem?

A:     I am a technology optimist: I know that mankind has an enormous capacity to innovate, and also has practically unlimited adaptability. But I’m concerned about the earth being exploited by that same mankind, and no, I do not share the belief that technology can solve all the world’s problems. My personal values are also involved. If people aren’t prepared to give up the idea that they can use anything they find on earth, without considering the consequences for future generations, technology won’t be able to resolve the problems that will result.

Of course, the aim must be to distribute prosperity across the world more broadly and fairly, and to do that more energy consumption is needed. So technology is also needed to generate more energy and consume that energy as sustainably and affordably as possible. But we also know that as people become more affluent, they spend their extra money on energy-intensive products and services. It will be extremely difficult to halt that trend. This can’t be achieved by new technology alone – people will also have to look at life differently. How can you get people to assert their social status not by having a bigger car than their next-door neighbours, but by having a smaller car burning cleaner fuel or - to make a point - no car at all. I’m optimistic that mankind is capable of great technological achievements, but genuine sustainability will also require a change of mindset.

*Jan van der Eijk spoke to Piet de Wit

→ back to Shell World Online home