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Visions of the Future: Shell launches new Global Scenarios looking forward to 2025

06/06/2005

Jeroen van der Veer, Chief Executive of the Royal Dutch/Shell Group of Companies ("Shell"), will be at Chatham House, London, this evening, June 6th, to launch Shells new Global Scenarios that look forward to 2025.

Jeroen van der Veer, Shell’s Chief Executive, said “
Energy companies, more than most businesses, need to take a long-term view. In  order to do this it is crucial to understand critical trends and uncertainties that may affect the future business environment. That is why Shell has been producing scenarios for more than 30 years. These new Global Scenarios provide a tool that helps us to explore the many complex business environments in which we work and the factors that drive changes and developments in those environments. This information plays a vital part in the judgements and decisions we make about our business and its future”.

Two crises, 9.11 and Enron, have unfolded since 2001 that highlight crucial issues around, national security and trust in the marketplace. Both are examples of vulnerability in our globalised world. Western societies now look to the State, more than in recent decades, to lead the restoration of physical security and market integrity. This brings into sharper focus the power of the State to regulate and to coerce, in a role involving both direct intervention to fight terrorism and police the market, and a more general emphasis on transparency disclosure and good governance. The new Global Scenarios explore how the forces of market incentives, community, and coercion and regulation by the State interact and impact policy and business decision-making.

Three possible scenarios are identified and examined in the Shell Global Scenarios to 2025. All three scenarios see continuing globalisation in the simplistic sense of the word: continuing economic growth and an increasing movement of people and ideas across the globe. The focal question, which runs throughout all three scenarios, is how the ‘triple dilemma’, or ‘Trilemma*’ posed by trying to achieve efficiency, social justice and security,objectives that can sometimes require conflicting solutions, can be resolved in a globalised world?

 
‘Low Trust Globalisation’ is a legalistic ‘prove it to me’ world in which the market does not provide solutions to the crisis of security and trust. Cross-border movements of goods, people and knowledge are hampered by rules and intrusive checks and controls. A stronger role for the market goes hand in hand with a stronger regulatory role for the state, and powerful states seek globalisation on their own terms. This is a world in which global economic growth is, on average, 3.1% per year and where global bond markets and private equity develop far more than cross-border equity markets.

 ‘Open Doors’ is a pragmatic world that emphasises social cohesion and efficiency, with the market providing solutions to the crises of security and trust. Regulatory harmonisation, mutual recognition, independent media, voluntary best practice codes and close links between investors and civil society are all present in a world of Open Doors. Economic growth is as high as 3.8% per year, on average and energy demand higher than in other scenarios.

‘Flags’ is a dogmatic ‘follow me’ world where security and community values are emphasised at the expense of efficiency. Dogmatic approaches, national preferences and conflicts over values and religion exacerbate fragmentation and put a brake on globalisation. In a world of Flags individual countries look inwards rather than outwards for answers.

Energy Security and the triple discontinuity
The energy scene will be reshaped by the combination of three discontinuities: a relinking of energy consumption and economic growth as a result of the faster development of emerging countries, the emergence of carbon as a commodity in its own right, and the search for energy security. The latter will remain a key consideration during the scenario time span, potentially leading to far more politicised energy relations and creating new sources of tensions among countries as well as new opportunities for entrepreneurship and cooperation. Ambiguity will persist as to what the term “energy security” covers: physical supplies can be threatened by rising international insecurity as well as by depletion of supply sources. Insecurity can also result from the lack of investment in enhanced recovery of existing sources, in new energy sources and/in infrastructures.

In Low Trust Globalisation energy security is achieved in large part through proactive policies seeking to diversify supply and to reduce vulnerability to external shocks. OPEC continues to follow the strategy that it seems to be pursuing today – supporting prices at a high level by somewhat constraining production and restricting investment in new productive capacity. Hybrid vehicles as well as renewable and unconventional energy sources are encouraged through tax credits or R&D support. Concerns for energy security may create indirect support for carbon taxation and for cap-and-trade schemes for carbon emissions such as Kyoto.

In Open Doors, energy security is first and foremost a matter of heightened investment. OPEC does not wane away as new oil and gas production comes increasingly from non-OECD countries. Consumer countries look for ways to strike “win-win” deals with producers thus applying a non-threatening counterweight to OPEC’s increasing market power. This is a world in which energy prices internalise environmental effects, with Kyoto like mechanisms making carbon management an essential part of energy development and use. Yet keeping carbon emissions below the prudent long-term limit of 550ppm requires more than this, and higher levels of investments in carbon sequestration are essential for this objective to be met.

In Flags a large number of producing countries may opt to pursue a set of national or populist goals that keep energy markets fragmented. Consumer countries encourage their national energy companies to trade “security of demand” (i.e. long term purchase agreements) for security of supply. Flags is the scenario where energy security becomes an almost routine part of diplomatic and military relations.

*The analytical map put forward by the Shell scenario team – the Trilemma Triangle – highlights policy and regulatory trade-offs, rather than the usual utopias that can be developed around each of these objectives. It enables scenarios to be positioned against a comprehensive map of possible futures and can also be used to contrast national contexts, chart medium-term change and think dynamically on transitions from one scenario to another.

NOTES TO EDITORS:
Shell scenarios are used to help review and assess strategy. Scenarios are not forecasts but rather efforts to understand the possible interplay of different types of change. They provide a way of mapping how critical uncertainties may be resolved as we move into the future. During the 1990’s, as market liberalisation accelerated, the Shell Global Scenarios explored increasing globalisation, the onrush of new technology and market liberalisation

Related links

www.shell.com/scenarios - opens in a new window - opens in new window

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The following presentation/press release/speech contains forward-looking statements, that are subject to risk factors associated with the oil, gas, power, chemicals and renewables business. It is believed that the expectations reflected in these statements are reasonable, but may be affected by a variety of variables which could cause actual results or trends to differ materially, including, but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, the risk of doing business in developing countries, legislative, fiscal and regulatory developments including potential litigation and regulatory effects arising from recategorisation of reserves, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates.

Please refer to the Annual Report on Form 20-F for the year ended December 31, 2003 (as amended) for a description of certain important factors, risks and uncertainties that may affect the Companies' businesses.  Neither of the Companies undertake any obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or otherwise.

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