History is filled with examples of how innovation has changed things for the better. Starting with the Industrial Revolution, think of all the ways in which ever more useful goods and services have come through advances in materials, chemical processes and manufacturing practices – capped most recently by advances in information technology.
The mix of fuels in the world’s energy system has likewise changed over time thanks to innovation. To some degree, new fuels were simply added to the mix. But to some degree, fuels have also replaced each other: coal replacing wood; oil replacing coal; and gas replacing oil.
Take natural gas, which has recently become an energy source of choice. It’s the cleanest fossil fuel. It’s also abundant. Innovative seismic-survey methods, innovative drilling techniques and innovative production technology have made possible its new-found bountifulness. We have also seen liquefied natural gas – LNG – become an established global industry and gas-to-liquids chemistry emerge from the laboratory.
These developments can now be integrated into projects that extract gas from previously inaccessible places, process it and deliver it in a useable form to where it’s needed most: in population centres all around the world.
But the world’s energy transition is speeding up into the next phase, and it needs to accelerate faster.
Let me explain why.
Projections show that the world’s primary energy demand will expand anywhere between 20 and 35 percent over the next 15 years. Most of this expansion will take place in non-OECD countries. There, it will put the basics of modern life – cooking, refrigeration, lighting, telecommunications, mobility – within reach of perhaps a billion people or more.
The question is: How can we assure the supply of energy that meets this increase in global demand? Will we redouble our commitment to fossil fuels or to nuclear power? Can we make do with a lot more wind turbines and solar panels, perhaps?
The answer has to be “all of the above”. To supply the energy, it’s not one source or the other; the world needs them all. The demand cannot be met otherwise. At the same time, however, we have to reconcile the need for more energy with the protection of the environment.
Innovation holds the key to solving this conundrum. It enables us to balance environmental impact on the one hand with availability and affordability on the other.
Oil & gas
Allow me to continue a moment longer with crude oil and natural gas.
It’s an inescapable fact of the industry that, as soon as a field is brought fully on stream, its production rate begins to decline. Every year, the industry invests hundreds of billions of dollars in oil and gas exploration and production. The International Energy Agency estimates that more than 80 percent of that investment goes just to offset the production decline of existing fields.
If we were to stop investment in oil exploration and production today, the gap between supply and demand could reach 70 million barrels per day by 2040. That’s the equivalent of six times Saudi Arabia’s 2013 production.
Now…add to this stark situation the global imperative for the industry to manage the environmental impacts of its operations – particularly those related to the emission of greenhouse gases.
There seems to be little choice. We will have to grow as well as decarbonise the energy system over the coming decades. Fossil fuels will need technologies like carbon capture and storage (CCS), and we will have to accelerate the introduction of affordable renewable energy sources. So we need innovation in energy now more than ever.
The “downstream” sector of our industry will also have to adapt innovatively as it goes through an era of mixing-and-matching energy sources: natural gas and electricity will join petrol and diesel as a means for powering vehicles.
Biofuels will certainly have a role to play there too. Shell is already producing low-carbon ethanol from sugar cane in a joint venture in Brazil, and we’re working on advanced biofuels that have the potential to emit even less net CO2 into the atmosphere.
Another promising solution for road transport is hydrogen – the most common element in the universe. But you may have noticed that presently there are very few filling stations for this alternative fuel.
It is important to realise that the world’s energy system is not a zero-sum game: no one has to lose in order for someone to win. The inexorable growth in global energy demand – and the imperative to manage carbon dioxide emissions – provide plenty of opportunities for mutually beneficial co-operation, even among fellow energy companies.
Regardless of whether we’re talking about oil and gas companies, biofuel companies or hydrogen companies, strong value-driven partnerships are the best way to address the world’s energy challenges.
Shell has a long history of advancing technology through industrial collaborations. But as the business world has become faster moving and increasingly interconnected, the case for more of what we call “open innovation” has become compelling.
Nowadays, many of the best and brightest ideas come from unlikely partnerships outside of traditional industries. For example: Shell has signed agreements with companies in the video-gaming world to help enhance our techniques for visualising seismic data.
But open innovation, in and of itself, will not be enough to get us through the energy transition. To make a difference on a global scale, world-scale deployment is necessary. A new invention will do little good to the world if it sits on a lab workbench. It has to be scaled up, commercialised and mass produced.
I mentioned earlier that natural gas will have an important role to play over the next few decades. But to extend that role indefinitely, CCS will have to be made to work at an industrial scale.
That’s why Shell is currently finalising the construction of the Quest CCS project in Canada, and is collaborating with Scottish and Southern Energy in the UK in a project that aims to develop the world’s first full-scale CCS facility at a gas-fired power plant. Both these projects receive significant government support, which is what we need to move CCS projects from pilots to demonstration plants and into the commercial domain.
Or take the example of hydrogen-fuelled transport I mentioned. Drivers may want vehicles that can run on hydrogen, but automotive companies won’t manufacture them unless the infrastructure to produce and distribute hydrogen is in place.
One way to overcome this impasse is for manufacturers, retailers and governments to set up the conditions for a working market. Something like this is happening now in Germany, where we are working together to put in place the technology and infrastructure for what eventually could be 400 hydrogen filling stations.
Some parting questions
Let me end by posing some questions that might provoke further discussion among the panellists.
If we all agree that innovation will allow us to give the world more energy while keeping its environmental impact in check, then how can we make sure tomorrow’s generation is equipped to deliver it? In other words, how can we get more young people into science and engineering?
A company that depends heavily on new technology – even one that is an advocate of open innovation, as Shell is – has certain know-how that it wants to keep for itself, to maintain a competitive edge. What measures can we take to foster collaboration while at the same time defend intellectual property?
Finally, let’s consider what makes for effective policy-making. What recipe of fiscal regimes, feed-in tariffs, carbon pricing, government regulations and R&D funding will best get us through the energy transition?
Ladies and gentlemen: These are not easy questions to answer. But answered they need to be. I look forward to hearing the panellists’ perspectives on them and to a lively and constructive debate.
Thank you very much.