Three actions can be taken now to get China and the world on the road to a more sustainable, cleaner energy system, according to Shell CEO Peter Voser.  In this speech to the Central Party School of the Communist Party of China, Voser cites the critical role natural gas, carbon capture and storage technology, and smarter urban planning can play in creating a more sustainable energy system.  He also explains how partnerships between international oil companies like Shell and China’s national oil companies are helping China achieve its energy goals.

The path to a more sustainable energy future

I understand there is a saying in Chinese that “an old friend met in a distant land is like having rain after a drought”. This is how I feel when I return to Beijing every year. So thank you, my friends, for inviting me back. It is always a sincere honour and pleasure to address this distinguished forum.

Today I want to share some thoughts about our collective future – in particular, about the challenges we face in developing a secure, more resilient and more sustainable energy system. I am also here to learn from you, so I am looking forward to a robust discussion following my remarks.  

To begin, I would like to share three things with you.

First, I will provide an overview of the latest report from Shell’s scenarios team. It provides a detailed analysis of how economic, social and political forces might play out through this century and how those forces could affect the evolution of the global energy system.

Second, I will focus on China and the steps the government is taking to deliver more energy and cleaner energy.

Finally, I will briefly discuss the ways in which Shell and China are working together to meet the energy objectives of the Chinese government.

New Lens Scenarios

Let’s begin with what we at Shell are calling the “New Lens Scenarios”.

For 40 years, our scenarios team has sought to understand how the future might unfold, to improve our understanding of global developments and their potential impact on our energy system. The scenarios cannot predict the future, but they can give us the tools to anticipate what could happen. In other words, they deepen our strategic thinking. And we share this thinking with governments, researchers, academia and the public around the world.

It’s clear the combination of a growing population and rising prosperity as millions more people emerge from poverty will continue to drive a sharp increase in global energy demand. By 2060, our planet could be home to 9.5 billion people, up from 7 billion today.  That is the equivalent of adding one new city of nearly 1.5 million people every week for the next four decades.

In the next seven years alone, the world’s additional energy demand could be equal in size to China’s entire energy demand today. Rising demand will also place more stress on our water and food systems, and on the climate and our environment. That is because these resources are all tightly interconnected.

To reduce greenhouse gas emissions, many governments have introduced stricter environmental legislation and incentives to drive the development of renewable energy sources. Shell’s scenarios team estimates that by 2035, the world’s renewable energy sources could grow by at least 60% or even double. By 2060, renewable energy could supply up to four times more energy than today, which would be a staggering rate of expansion.

Even so, fossil fuels will continue to supply the majority of energy demand for decades to come due to the sheer scale of that demand. Our scenarios team expects fossil fuel consumption to rise by about one-third over the next two decades. And by 2060, fossil fuels are still likely to meet around 60% of global demand, though that would be down from about 80% today.

One of our scenarios sees a world strongly shaped by market forces in which oil, gas and coal continue to play a major role, as do renewables after 2030. But in this scenario, coordinated action to address climate change comes slowly. As a result, coal use continues to rise for decades with a resulting rise in CO₂ emissions.

In the other scenario, the world is strongly influenced by government policies and the abundance of natural gas. Natural gas becomes the most important energy source globally by the 2030s. This is combined with coordinated global efforts to limit CO₂ emissions, such as government support for carbon capture and storage.

Three step we can take now

In looking at our future energy challenge, we believe three actions can be taken now to get us firmly on the road toward a more sustainable energy system:

  • First, we need to take advantage of the world’s abundant natural gas resources and reduce coal consumption;
  •  Second, governments must support development of carbon capture and storage technology to make fossil fuel use cleaner;
  • And third, we need to promote smarter urban planning to reduce energy demand, especially in transportation.

I am convinced natural gas will play a major role in fostering a cleaner and more sustainable energy system.

Gas is the cleanest-burning fossil fuel; its supply is abundant and diverse. The International Energy Agency estimates there is enough technically available gas to last 250 years at today’s consumption levels. In fact, our scenarios team estimates gas could become the world’s largest energy source by the 2030s.

When used to generate power, natural gas produces about half the CO₂ emissions of coal. We can see the evidence of this benefit in the United States. The abundance of low-cost gas there – thanks to the revolution in shale gas – has led electric utilities to switch from coal on a broad scale. This in turn has contributed to a significant reduction in CO₂ emissions.

Natural gas is also a natural ally to renewables. Solar power and wind need a back-up because they are intermittent sources. Gas-fired power can keep the electricity flowing when the sun doesn’t shine and the wind doesn’t blow, in part because gas-fired power plants can be turned on and off quickly.

Carbon capture and storage also must be part of a cleaner, more sustainable energy system.

This technology captures CO₂ from power stations and other industrial plants and stores it safely underground. It will be critical to take CO₂ out of the power sector over the next 50 years. Carbon capture and storage can help us meet the demand for cleaner energy at a time when renewables are still being deployed on a relatively small scale.

But the technology remains in the early stage of development. It needs major government financial support and strong mandates around the world to get off the ground.

The third way we can begin to address our global energy challenge is to promote more effective, efficient city planning. This is a tremendous opportunity here in China as this country continues its journey towards becoming a more urban society.

It’s simple, really:  Cities with higher population density are more energy-efficient than sprawling cities. They encourage people to use public transport and drive less.

Intelligent urban planning could transform the entire global transport system over the next 50 years. It can do so by providing an infrastructure for vehicles mainly powered by electricity, hydrogen and natural gas. But for all of these changes to happen, we will need far-sighted government policies and far more collaboration between governments and businesses.

China: more energy, cleaner energy

In China, we have already seen pragmatic energy policies being put in place to prepare for a future in which energy demand will soar. Since 1980, China’s population has grown by more than a third while its prosperity has soared. These trends have quadrupled domestic energy consumption.

China has gone from being a coal and oil exporter to one of the largest importers of both resources. The 12th Five-Year Plan shows a will to diversify China’s energy sources with a view towards ensuring a cleaner, more sustainable energy system. The government has set out to increase the use of coal-based natural gas, hydropower, nuclear power, as well as solar and wind. 

One of the government’s most significant steps is the promotion of natural gas. According to the International Energy Agency, this strong policy push boosted natural gas in the overall energy mix to 4% in 2009 from 2% in 2000. China now plans to double this share to 8% by 2015. Using more gas will help address China’s environmental challenges by reducing sulphur-oxide and nitrogen-oxide emissions, as well as particulates.

The government has an initiative in which more than a dozen “model cities” have been chosen to transition to natural gas from coal and oil.  One of these cities, Hangzhou, is reporting better air quality and soaring tourism revenue as a result.

China is also backing carbon capture and storage technology to address the rise in greenhouse gas emissions. The Global CCS Institute reports China has the most pilot projects for this technology in the world. This is important as coal remains a dominant energy source. Coal accounted for 70% of China’s total energy consumption in 2009. This means a lot of CO₂ is being released.

Internationally, China has committed to cooperative exchanges to address issues such as climate change and promote global energy security. Last year, a white paper from the Office of the State Council expressed the desire to see countries engage in mutually beneficial cooperation in international energy exploration.

Partnering with China

China already is working with global energy companies to access its abundant natural gas resources. Shell and China’s national oil companies have several successful partnerships that are helping to achieve the government’s objectives.

Shell has always been a company built on international relationships and technology. Today, mutually beneficial relationships with state-owned national oil companies are at the heart of the energy industry. They are driving progress and unlocking resources.

At Shell, we are developing strong relationships with all of China’s national oil companies. Our ongoing cooperation with China is underpinned by four strategic priorities:

First is developing China’s tight and shale gas resources to meet rising demand with cleaner fuels.

According to the IEA, China has technically recoverable shale gas reserves of 25 trillion cubic metres. In 2009, Shell and PetroChina agreed to explore for shale gas in the Fushun block. We developed this relationship further last year when we signed a shale gas Production Sharing Contract for this project. It was a milestone for our partnership and the industry.

Our second priority is helping Chinese enterprises grow overseas.

One example is Gabon in West Africa, where Shell has two offshore exploration blocks. Last year, CNOOC acquired a 25% interest in these blocks, giving it an opportunity to work with us on a major exploration project outside China.

Our third area of shared focus is international co-operation to import energy to China.

In 2010, Shell and CNPC jointly bought Arrow Energy in Australia, a company that develops gas trapped in coal seams, then processes and sells it. While Arrow continues to supply gas and power in its domestic market, it is also working to turn coal-seam gas into liquefied natural gas which can be exported by ship to China and other international markets.

Our fourth strategic priority is co-operation on research, development and technology.

For example, last year Shell signed two joint agreements with the research arm of CNPC for cooperative research on unconventional gas exploration and development, and enhanced oil recovery.

And in the next few months, we will launch a China Energy Study, a two-year project jointly carried out by Shell and the Development Research Centre of the State Council. The study will provide valuable insights into China’s energy developments.

Shell also is proud to be one of the partners involved in the China Development Research Foundation’s energy and environment initiative. This initiative has proposed a series of policy recommendations to help China reach its long-term energy goals.

In the years to come, we look forward to more close partnerships with China’s national oil companies. These partnerships show how business and government can collaborate to deliver a cleaner, more secure energy system.

I am convinced partnerships will play a growing role in helping China make the most of its extensive resources, especially its natural gas, for the benefit of its people, its economy and its environment.

An incredible challenge

In conclusion, the world faces an incredible challenge to meet our future energy demand, to reduce greenhouse gas emissions, and manage the stresses on our water and food resources.

Governments and industry can take far-sighted actions now that will reap benefits for decades to come. These actions include taking advantage of the world’s abundant natural gas resources, supporting carbon capture and storage technology, and focusing on smarter urban planning.

The Chinese government is to be commended for already taking steps to address these energy challenges, steps that will lead to a cleaner and more sustainable energy future.

Finally, I invite you to review the latest report of Shell’s scenarios team. I hope it will contribute to addressing our global energy challenge and help to strengthen the coalition between business and government towards building a more resilient energy future.

At Shell, we remain committed to working with your government and national oil companies to realise China’s ambitious energy objectives.