Population growth and rising prosperity are creating a major challenge for the global energy system. To address this challenge, energy companies like Shell must work to increase supplies of cleaner fuels like natural gas, increase the contribution of renewables like biofuels, and reduce the carbon intensity of fossil fuels.
In this speech Hugh Mitchell, Shell’s Chief Human Resources and Corporate Officer, explains how Shell is doing this in two key ways: by investing in innovative new technologies like carbon capture and storage, and by recruiting and training a new generation of innovators and business leaders.
The energy challenge and the need for new talent
Good evening. It’s a pleasure to be here.
Scotland has long been important to companies like Shell. Its institutions have trained generations of great thinkers, scientists and engineers. Its natural resources make it a major supplier of energy to the world economy. And its ambition and expertise mean it will remain at the forefront of the development of renewable energy.
As a graduate of this university it’s great to come back and see it thriving. I’m looking forward to a lively discussion later.
Tonight I’m going to begin by discussing the global energy challenge being created by rising demand and climate change.
I’ll then explain what the energy industry can do to help meet it, including driving innovation and developing talented, passionate people like you.
Finally, I’ll end with a few words of advice for those of you thinking about starting a career in business in the future.
The global energy challenge
The last few months have been a turbulent time, with geopolitical upheaval in the Middle East and North Africa, a US credit rating downgrade, lacklustre growth in several economies, and ongoing concerns about the stability of the eurozone.
For business leaders, recent events have served as a powerful reminder that we live in uncertain times. In the short term, the economic outlook remains unclear and volatility may continue.
But over the longer term, we can divine some broader trends which are transforming the global economy.
Population growth is one of these. In the first half of this century, the world’s population will increase by more than a third, from under 7 billion to over 9 billion.
Wealth levels will also increase. As countries like India and China continue their economic development, by 2050 billions of people will be buying phones, fridges and cars which their grandparents would never have dreamed of.
Rising consumption will also put increasing pressure on the environment. Basic commodities like water are expected to become increasingly scarce in some regions. If current consumption trends continue, the world could face a 40% shortfall between global freshwater demand and supply by 2030.
Climate change is another particular concern. According to the consensus of climate scientists, the world urgently needs to curb CO2 emissions if we are to avoid levels of global warming that will have significant consequences for the environment.
For the global energy system, these trends are already having a profound effect. Driven by rising demand and prosperity, global energy demand is set to double in the first half of this century. In China, energy demand could rise by 75% between 2008 and 2035. In India, it could double.
For the industry, keeping pace with this demand will be extremely tough. According to the International Energy Agency, the world needs to invest $33 trillion in new energy infrastructure over the next 25 years – or more than a trillion dollars a year.
We also need to reduce the environmental impact of energy production and consumption.
The recent leak at our Gannet offshore facility emphasised the constant need for vigilance when it comes to environmental protection – I’m glad that we were able to get the problem under control fairly quickly and that there was no lasting environmental impact.
Together, these economic and societal trends are creating a truly global energy challenge. In the future, the world must both produce and consume energy in a more sustainable way.
Because of the scale and complexity of the challenge, we will all have to play a role in solving it.
Consumers can pay greater attention to the environmental consequences of their choices, and perhaps adjust their behaviour accordingly.
And governments must support efforts to build a more sustainable energy infrastructure.
The role of the energy industry
But what should the energy industry be doing? How can major suppliers respond to the energy challenge and meet rising demand in a sustainable way?
At Shell, we believe that the energy industry needs to do three key things: increase global energy supplies, increase the contribution of alternatives like renewables, and reduce the carbon intensity of existing fossil fuels. I’ll now explain each of these in more detail.
First, the industry must continue to develop and deliver new energy supplies. Energy is the lifeblood of modern civilisation. Developing countries will expect access to reliable, affordable energy – and rightfully so.
In order to meet demand, energy companies will have to invest heavily in new capacity to increase production. At Shell, we plan a total of more than $100 billion of investments between 2011 and 2014 in projects which will bring more energy to consumers.
In particular, we are raising our production of natural gas, the cleanest burning fossil fuel. Next year, we expect it to account for more than half of our production.
Natural gas offers clear environmental benefits. New gas power plants emit up to 50% less CO2than modern coal-fired plants, and up to 70% less CO2 than older coal-fired plants, of which there are hundreds in places like the United States and China.
Gas plants also emit lower levels of other pollutants like carbon monoxide, can be built relatively quickly and cheaply, and make an ideal complement to the intermittent power provided by solar and wind. And producing power from gas uses less water than some alternatives.Given this, it’s hardly surprising that global demand for natural gas could increase by 50% by 2030.
The second way for the industry to help tackle the energy challenge is by broadening the energy mix.
A lower carbon world will rely on a greater contribution from renewables like solar, wind and biofuels. By 2050, with government support, renewables could provide 30% of the world’s energy needs, compared to 13% today.
At Shell we have a modest wind power business, but our main focus is on biofuels, which fit our traditional expertise in liquid fuels and our retail network. We’re already one of the world’s largest distributors of biofuels. We’ve now moved into production of low-carbon biofuels too, through the Raízen joint venture with Brazil’s largest biofuels producer.
Across the entire lifecycle, the sugar-cane ethanol which we’ll produce emits up to 70% less CO2than standard petrol, meeting rising demand for transport fuel in a sustainable way.
The third industry priority is to reduce the carbon intensity of existing fossil fuels. I’ve already highlighted the vital role that natural gas and biofuels can play.
Carbon capture and storage
Another example can be found right here in Scotland, where we’re working with several partners to develop carbon capture and storage (CCS) technology.
As you may know, CCS involves capturing CO2 emissions from major emitters like power plants and storing them safely underground.
According to the International Energy Agency, if CCS develops rapidly it could account for 19% of the CO2 reduction needed by 2050.
The good news is that much of the technology behind CCS is already well-established. For decades, Shell and other companies have injected CO2 into oil and gas reservoirs to boost recovery.
But taking CCS from the demonstration phase to industrial scale roll-out will require further research and investment, including government support, and the building of public acceptance of the technology.
At Shell, we’re working to develop CCS technology by participating in several planned projects, including in Scotland.
Here at the university, we’re supporting the work of the Energy Technologies Institute and the Scottish Centre for Carbon Storage to develop CCS technology and map the reservoirs available for storage.
There’s still a great deal to do. But by using technology like CCS to make existing fuels cleaner, the energy industry can help address the energy challenge.
The challenge for Shell
As business students, you’ll notice that I’m making this all sound rather easy.
For the industry, the direction of travel is clear. But for individual firms, delivering the changes I’ve just described will present some serious challenges.
What are those challenges? It’s a long list, from raising billions of dollars of capital to operating in unfamiliar growth markets like China.
But I’d like to focus on two in particular – driving innovation, and developing the talented people needed to address the energy challenge. In the end, it will be human ingenuity that will provide the breakthroughs we need.
First, innovation. For Shell, innovation is crucial because to increase energy supplies and develop technologies like CCS we must constantly push the boundaries of technological innovation.
Innovation is also important because in an increasingly competitive market, our technical capacity is one of main the reasons why countries rich in energy resources choose to partner with us.
A good example of this is Pearl, the world’s largest plant for converting natural gas into liquid fuels and lubricants, which we recently built in Qatar.
In partnership with Qatar Petroleum, Pearl will produce enough GTL gasoil to fill over 160,000 cars each day. When blended with conventional diesel in high concentrations, GTL gasoil can reduce harmful emissions and help tackle air pollution. And Pearl will also produce oils for lubricants, and chemicals like naptha, used in plastics.
Pearl is one of the largest industrial developments in the world. At the peak of construction, over 50,000 workers from 50 countries were working on a construction site the size of 350 football pitches. Every month, they installed steel equivalent to 2.5 Eiffel Towers.
For us, it represents the culmination of some 30 years of innovation. To give you some idea of the scale of innovation: we now hold some 3,500 patents related to all stages of the gas-to-liquids process.
For Qatar, Shell innovations are offering a great way to generate additional revenues from natural resources.
And for Shell, it will add as much as 8% to our overall production when it’s fully up and running in 2012, and is one part of our target to boost our cash flow from operations by up to 80% between 2009 and 2012 in an $80 dollar oil price environment. So it’s no exaggeration to say that innovation underpins our competitiveness.
To ensure that we can continue to deliver projects like Pearl, we’ve enhanced our focus on innovation across the company.
In 2009, we opened the new Shell Technology Centre in Amsterdam, where around 1,300 engineers, scientists and consultants work to develop everything from insulation materials to detergents that clean at lower temperatures.
As part of our culture of open innovation, our GameChanger programme helps people like university professors and students develop promising ideas. Since the 1990s, we’ve invested nearly $250 million in more than 2,000 GameChanger products.
We’ve also put a particular emphasis on deploying new technology faster, so innovations get from the laboratory to production as quickly as possible.
And we’ve backed all this up with some serious investment: Shell has spent more than $1 billion on research and development in each of the last three years; more than any other international oil and gas company.
It’s innovation that delivers projects like Pearl. And it’s projects like Pearl that deliver new products to new markets, helping tackle the energy challenge.
Managing human resources
The second key challenge for businesses is making sure we have the talented, passionate people we need to transform our business.
Why is this important? Well, innovation will require a deep pool of workers with technical expertise in everything from geology to biochemistry.
We’ll need skilled people to run new businesses in new markets.
And they’ll need to be recruited and developed all around the world.
Pearl again offers a good example. A huge project meant huge HR challenges.
Expatriate experts had to be relocated to Qatar. Local recruits had to be coached in the right technical skills. And thousands of people had to be supervised, housed, fed and kept safe in a desert environment where temperatures sometimes exceeded 45 degrees Celsius.
So you can see that behind the energy challenge, for companies like Shell there also lies a big people challenge.
Recruiting new talent
At Shell, we’re tackling these HR challenges in a number of ways. One of the most important is through recruitment.
As a global company, we start with a truly global approach. We continually assess which of our businesses will grow, which will decline and how our geographical footprint will change over time.
We then assess the demographic profile of our 93,000 employees against these requirements, and recruit not just the skills we need today, but those which we’ll need tomorrow.
To remain competitive in the longer term, for example, we’ve maintained graduate recruitment during the recent recession. Even during a corporate restructuring which cut around 7,000 jobs, we’ve aimed to recruit around 1,000 new graduates worldwide each year.
Just as important as recruitment is how we develop our employees after they’ve joined us.
For graduates, we don't recruit into a generic scheme, but match people to individual roles based on their own skills and interests and our business needs.
This personalised approach is one reason why Shell is ranked as one of the top 25 graduate employers in the UK, and one of the top 50 employers in the world.
We also develop high potential employees by giving them exposure to important markets and businesses.
After starting work for Shell here in Scotland, I worked in England, in Brunei and now in the Netherlands, with regular business travel everywhere from China to Brazil to South Africa.
A new recruit joining us today could follow a similar trajectory, for example joining our CCS team in Aberdeen and then working on projects in Norway, Australia and the Netherlands.
By developing talented people, we can play an effective role in addressing the energy challenge.
Advice for students
So that’s what we’re doing. But what about you? What role can you play?
As I’ve explained, to tackle the energy challenge we’ll need talented, passionate people with the skills and imagination to transform our business.
I hope that some of you will be among them. So as an Edinburgh alumnus, perhaps I can now offer some advice about how to find a job you love with an employer like Shell.
A strong academic record is important. I’d encourage you to not just work hard, but think carefully about the jobs you’d like to do and tailor your studies accordingly.
For example, the Carbon Finance and Carbon Management courses here at the Business School and the CCS Masters at the School of Geosciences offer great routes into growing industries.
Many companies, including Shell, offer an online degree matcher to help identify the career paths most suitable for you.
But academic qualifications aren’t everything. We also want to see evidence that applicants have tested themselves outside the classroom. That could mean work experience, travel, learning languages or other voluntary activities.
The Force Edinburgh student racing team here at Edinburgh is a great example.
Under their own initiative, with financial support from Shell, students formed a team to build cars which compete in the Formula Student competition at Silverstone. You may have seen their car at the Shell Pit Stop Challenge in Bristo Square recently, alongside a Ferrari Formula One car.
Because it blends academic study with hands-on experience, the scheme is exactly the kind of thing which can help you stand out from the crowd.
Internships are another good way of gaining experience. At Shell, we offer students the opportunity to spend between eight weeks and 12 months doing real work in real Shell teams.
Interns are paid a salary and more than three-quarters of them end up getting a permanent job. Many other firms offer similar schemes. I’d encourage you to participate.
Finally, be prepared. It may be early in the academic year, but it’s never too soon to research your options.
The university runs regular events attended by employers like Shell, including the Edinburgh Careers Fair on 11 October. Attend recruitment days, talk to recruiters, look at firms’ websites.
In a competitive job market, it’s worth planning ahead.
As I explained at the start, the world in 2050 will be very different from the world today.
The energy system which supports it will also be very different.
Climate change and rising demand are creating huge challenges for companies like Shell.
To tackle them, we’ll need to harness the skills and imagination of a new generation of leaders and innovators.
And that new generation is your generation.
Whether as consumers, business leaders, innovators or policymakers, it will be people like you who continue to tackle challenges like climate change and energy poverty.
And in that spirit, I look forward to hearing your questions.