Speeches

Thank you and good morning ladies and gentlemen.  It is a pleasure for me to be here. Shell Australia is proud to be a relatively new member of the Centre for Energy & Greenhouse Technologies, and we are excited about the opportunities that membership presents. 
Shell describes itself not as an oil company, or even a gas company, but as an energy company.  We have been supplying energy to the world for over 100 years, and we want to be supplying energy for many more centuries to come.  So we obviously need to know what sort of energy sources will power the world in the future.
As some of you will be aware, Shell pioneered the use of long-term energy scenarios – looking out over some 50 years – to help us better understand how energy systems might change.  Scenarios are not an exercise in prophecy, but rather alternative stories of how the world might develop given competing forces. 

Slide 2 (3 fundamental challenges)

The scenarios turn around three fundamental challenges:

• Giving all people access to the benefits of efficient, commercial energy from which nearly a fifth of the world is still excluded;
• Meeting the expanding and shifting energy needs of an urbanising world as economic development raises the living standards of billions of people; and
• Preventing the pollution which damages health, blights environments and threatens vital natural systems.

Slide 3 (3 drivers of change)

In meeting those challenges, there will be three key drivers that have the potential, either by themselves or in combination, to bring about fundamental change in our energy systems:

1. –the ability to find, extract, produce, transport, store and sell energy to customers will continue to be critical, and will determine what energies are viable. 
   
   
2. New technologies will be developed that have the potential to radically change the sorts of energies we use, and how we use them.
   
   

Social and personal priorities – the attitude of governments and the public towards energy security or self-sufficiency will influence the uptake of certain energy sources.  Similarly, personal choices related to values, the environment and lifestyles will dictate which technologies society will choose.

With those 3 common drivers in mind, let me outline for you Shell’s two current energy scenarios.

Slide 4 (comparison of features of two scenarios)

The first, called “Dynamics as Usual” shows an evolutionary progression from the past wood and coal ages, to the present oil age, and then to gas, and possibly nuclear, and thence to renewables.  This scenario is driven by societal concern, to which governments respond – policies, taxes and values are implemented by governments in response to lobbying by different groups in society. The key driver behind this scenario is social and personal preference, particularly as concerns the impact of energy on the environment.  Concerns about supply security and air quality and climate change stimulate the development of cleaner fuels, more efficient engines and ultimately the development of renewable technologies. The energy system becomes a diverse mix of energy sources and technologies, with no clear winners. 

The second scenario, called “The Spirit of the Coming Age”, tells the story of how hydrogen provides a solution that triggers a technological revolution and breaks the evolutionary chain that has gone before. In contrast to the previous scenario, The Spirit of the Coming Age is customer driven.  Government may or may not respond, but their policies are not the driving force of change. In response to customer demand for clean, efficient, easily portable energy, the scenario contemplates the development of ‘hydrogen fuel in a box’, where fuel would come in two litre bottles.  Six bottles will be enough to power a fuel cell car for 400 kilometres, and the bottles can be distributed like soft drinks through multiple distribution channels.  In this scenario, it is technological change, reinforced by social and personal preference, that provides the impetus for energy transition. By 2030, a century long process of developing hydrogen infrastructure will begin, and hydrogen will dominate the energy market thereafter.

Slide 5 (CO2 emissions under each scenario)

Before looking at specific energy sources, I would make the point that both scenarios suggest that the rise in human-induced carbon dioxide emissions can be halted within the next 50 years without jeopardising economic development.  I truly believe that whoever can best master CO2 will win the energy game.  It is concern about global warming and the effect of energy on the environment that will drive us towards new generation fuels, and this thread runs through both scenarios.

 OIL Slide 6 (oil demand under both scenarios)

Interestingly, both scenarios forecast that the way we use oil, and the geography in which it is used, will change in the years to 2050, but for quite different reasons. 

  “Dynamics as Usual” foresees the development of cleaner hydrocarbon fuels and more efficient engines, which require less oil to go the same distance.  “The Spirit of the Coming Age” predicts a decline in oil as a source of primary energy, although it will continue to be used widely in the production of hydrogen.

It is interesting to note that neither scenario forecasts the end of oil’s dominance in world energy markets due to us running out of oil.  After all, the Stone Age did not end for lack of stones.  Concerns over the environmental effects of burning oil, coupled with concerns about security of supply, will prompt the world’s energy consumers to adopt alternatives.

So, if the role of oil will decline, what will be the world’s next dominant fuel? 

Slide 7:  the crossover of oil and gas

Our scenarios suggest that natural gas will be the bridging fuel between oil and the energy technologies of the future.  Gas is a fuel with great potential.  It has many competitive advantages, including relative abundance, geographic diversity, cleanliness and lower carbon.

Both scenarios suggest a dramatic increase in the proportion of natural gas in the energy mix from now until 2050, most particularly in the period to 2025, whether as a primary fuel, or a fuel used for generation of electricity or hydrogen.  Consequently, Shell is aggressively growing its gas portfolio around the world, particularly here in Australia.  And there is a recently established connection between the work of the Centre and Shell’s gas aspirations.  Shell Global Solutions, one of our technology arms, recently signed an intellectual property and technology development agreement with Australian company and Centre member Cool Energy in relation to its CryoCell gas sweetening technology.  The partners in this technology are hoping that it will help to open up reserves of natural gas which are currently uneconomic because of their CO2 content, or remote location.  This will have undoubted benefits for Australia – both in terms of additional domestic gas supply and increased LNG export income.

Likely future fuels

However, concerns about global warming, and the effect of energy on the environment mean that the role of fossil fuels will decline over time.  These concerns will drive us towards a greater use of renewables and hydrogen in the longer term – with the only real uncertainty being the pace of change.

I probably do not need to tell this audience about the environmental advantages of renewables – many of you work in this field every day, and could probably teach me a thing or two.  Renewables continues to be the fastest growing source of primary energy, with wind energy and solar PV expected to grow faster than other renewables in the period to 2010.  Our scenarios suggest that renewables could provide up to 10% of the world’s energy needs by 2025, and up to a one third of primary energy by 2050. 

Slide 8: solar and wind energy projects

With this in mind, and remembering that Shell believes itself to be an energy company and not a fossil fuel company, we have made significant investments in renewable technologies.  We will have invested US$1 billion in renewables by the end of this year.  Shell now has one of the energy industry’s broadest new energy portfolios, including solar, wind, geothermal, biofuels, and hydrogen.   We would not be investing this much money in these new energy technologies if we did not think that they would be part of the future of energy.  This is not a PR stunt. 
Even for a company the size of Shell, $1 billion is a significant amount of money – and we expect to get a commercial return on our investment.  Renewables, particularly wind energy, are increasingly cost competitive to conventional fuels, although we are not there yet.   To get us to the point where renewables have sufficient scale to be cost competitive, there will need to be significant levels of government support through incentive schemes, to encourage both investment and consumer uptake.  The countries where we have invested substantial sums of money in renewables enjoy this level of support from their host governments.

Finally, a note of caution: renewables will not be the panacea for the world’s concerns about global warming.  The sheer scale of the task is against them – as an example, the World Business Council for Sustainable Development estimates that to replace one gigatonne of coal fired generation with wind would take more than 300,000 5 MW wind turbines covering an area the size of Portugal.  And we need to replace at least 7 gigatonnes of carbon intensive energy generation to have the desired impact on atmospheric CO2 concentrations.  So, whilst renewables will be part of the solution, they will not be the whole solution.
Accordingly, we are also looking at other technologies.  One in which we are investing large amounts of resources is hydrogen-powered fuel cells.  Shell believes that the hydrogen economy is both feasible and sustainable.   However, the transition to a hydrogen economy will be a long and capital-intensive process.  It will need sustained political will to realise the significant benefits of cleaner air, lower greenhouse gas emissions, and a decreased reliance on foreign energy sources.  Of course, I must point out that hydrogen is not the immediate answer to the world’s environmental issues with fossil fuels, as it is likely that fossil fuels, rather than renewable energy, will be a primary source of hydrogen for a significant time.  However, even in this interim period, hydrogen does offer environmental advantage because the harmful emissions are concentrated at the point of production, rather than dispersed at point of combustion.  This gives sufficient scale to allow those emissions to be candidates for emission reduction technologies. 

Slide 9: hydrogen projects

Shell Hydrogen is participating in projects in all three of the key hydrogen markets – North America, Europe and Japan.  These demonstration projects will facilitate the early development of standards for the construction of a hydrogen refuelling infrastructure, as well as familiarising the public with hydrogen as a safe, clean and acceptable transportation fuel.  We were very excited to host President Bush earlier this year at our very first combined hydrogen and gasoline refuelling station in Washington DC.  This service station serves a fleet of 6 General Motors built hydrogen fuel cell powered cars, and is part of a collaboration between Shell and GM to demonstrate hydrogen fuel cell vehicles and refuelling infrastructure technology.  This is very exciting technology, and one that I hope Shell can bring to more countries around the world.

 Bridging technologies

As well as these alternative energy sources, there are also technologies that we are involved with that will help alleviate the adverse environmental outcomes associated with traditional hydrocarbon energy sources.  These technologies have the potential to support the ongoing use of fossil fuels until such time as the uncertainties associated with the new alternative energy technologies have been resolved. 

These technologies include coal gasification, coal to liquids, gas to liquids and the development of oil sands and tar sands extraction technology.  The potential of the coal related technologies is huge, particularly in places like Australia and China, which has huge indigenous deposits of coal and a rapidly growing demand for energy. Coal gasification and coal-to-liquids technologies would enable coal to be burnt more cleanly, with dramatically reduced emissions to the atmosphere.  Here in Australia, Shell has been selected as the technology partner with Stanwell Corporation to investigate the possibility of coal to gas technology coupled with Geosequestration being used in Queensland.

As well, there are other technologies which enable us to contain the potential harmful emissions before they are released to the atmosphere.  I am thinking particularly of geological sequestration of carbon dioxide gases in underground reservoirs.  Shell and our Gorgon joint venture partners are committed to pioneering the use of geological sequestration to contain the carbon dioxide that will be associated with the production of gas from the Gorgon gas fields off the north west coast of WA.  Overseas, and together with the CSIRO and other partners, Shell was part of an exciting project in Poland that demonstrated that it is possible to successfully store carbon dioxide in coal beds – a project that hopefully will have application in Australia.  And, to prove that waste can be a valuable resource, Shell is working on a patented product called “Shellment”, which converts captured C02 into building materials. 

Nuclear

You may have noticed that I have not yet mentioned the role for nuclear power so far.  I believe that this is an energy source that the world, including Australia, cannot afford to ignore.  Our scenarios suggest that nuclear will have some role in the energy mix out to 2050. If society is truly serious about reducing emissions, and combating global warming, then, unless new technologies break through early, we must consider nuclear energy.  It is the only technology available today which offers low emission energy, and is able to be commercially scaled up to meet significant demand.  However, as you will all be aware, the use of nuclear energy raises a whole host of social and environmental concerns. But - if global warming is the primary concern of society, will these environmental and social concerns be overcome to allow nuclear to provide the answer? I am not presumptuous enough to suggest that I know what the right answer for Australia is – however, I believe that we must have the debate now, and that people must be prepared to make the hard decisions about balancing our priorities.

In fact, this question of finding the right balance takes us back to the development of our scenarios in the first place.  Our scenarios remind us that any society is subject to competing forces.  Where we end up depends on the trade-offs between those forces, and the choices that we make.  This is very much the case for the future of energy.  The choices we make now will determine the sort of world our grandchildren will inherit.  And, like any choice, we want to be as well informed as possible, and to have as many choices available to us as possible.  Which is why the work of the Centre is so important, and why we are proud to be associated with the Centre.  The technologies that they will help to bring to market will broaden, and I believe improve, the possible choices available to us.  Which can only improve the ultimate outcome for us as consumers and citizens.

Thank you for your attention this morning.  I would be happy to take questions about my presentation or any other aspect of Shell’s energy business.