Achieve universal energy access by adopting a rigorous commercial mindset
May 9, 2017
Speech given by Maarten Wetselaar, Integrated Gas & New Energies Director at Shell, at Stanford University in the USA on May 9, 2017.
One in every six people on the planet still has no access to electricity, according to the World Bank. A billion more only have access to unreliable and unsafe power networks. In this speech at Stanford University, Maarten Wetselaar argues that looking through a competitive, commercial lens is the best way companies can rise to the challenge of ensuring energy for everyone.
Ladies and gentlemen, good morning.
In 2015, world leaders agreed on 17 Sustainable Development Goals.
They range from ending poverty to combating climate change, ensuring access to clean water, wiping out hunger, and promoting decent work for everyone.
The United Nations has identified a common link that it regards as “crucial” for achieving these ambitious global goals. That link is energy.
Its transformative power has benefited and continues to benefit billions of people across social and economic aspects of their lives.
Benefiting billions of people is a big achievement. But it’s not enough because it’s not everyone. Far from it.
According to the World Bank, one in every six people on the planet still has no access to electricity. That’s 30 times the population of California. A billion more only have access to unreliable and unsafe power networks.
They are not scattered all over the world. More than 95% of those with no electricity access live in sub-Saharan Africa and south Asia.
The consultancy McKinsey predicts a bleak future for many in these regions unless this status quo is overturned. It expects the number of people in sub-Saharan Africa without electricity to go from 591 million in 2010 to 935 million in 2030. That increase is greater than the population of the United States today.
Looking further out, the Africa Progress Panel, chaired by Kofi Annan, argues that it will be 2080 before everyone in the continent has access to electricity.
Continuing the status quo is clearly an unacceptable outcome. So current trends must change.
How can that happen?
How can countries in these regions access and use electricity, while sticking to their respective climate commitments agreed at the historic UN summit in Paris?
There are two parts to addressing this challenge.
First, bringing energy to those living in rural communities.
Distributed renewable solutions are already having a significant impact, especially small scale solar, paired with simple storage solutions.
The challenge is one largely of formulating financing and delivery models that are affordable and sustainable. Efforts such as the World Bank-led Sustainable Energy for All programme are making great strides in this area.
In the case of renewables, in east Africa and south Asia we have seen the incredible growth in small-scale energy systems created by mobile payment technology.
Off-grid communities can now pay for energy services from their mobile phones, in increments small enough to match their wallets. Innovative companies are already leapfrogging the grid to deliver these services, servicing a market of almost 90 million people today.
In the Philippines, Shell’s major focus is on operating Malampaya – an offshore project that meets up to 20% of the country’s electricity needs.
But we have also worked with the government agency responsible for the wellbeing of indigenous Filipinos to identify a local community that is likely to remain off the national grid.
We set up a system which provides reliable power to the remote village of Kalakuasan which had no electricity supply. We installed a generator that runs on hydropower from a nearby river, and is complemented by solar panels and linked to rechargeable batteries.
Reliable power supply has had a positive impact on livelihoods, health and education. Since the implementation of the project, 90% of suspected malaria cases can be diagnosed within 24 hours, 84% of children have lights in their classrooms, and sales of handicrafts have increased by 40%.
The project’s goal aligns with the government’s development plan for the area.
That leads me to the second critical need for the developing world – bringing cleaner, resilient energy to the urban environment.
We all know that the world’s population will continue to grow rapidly – reaching 11 billion by the end of the century, up from 7.5 billion today. Three quarters of that growth will take place in cities.
In China, almost 1 billion people will live in cities by mid-century – 350 million more than today. To put that into perspective, it’s equivalent to the creation of 35 new cities the size of Seoul in South Korea.
So we need to bring a lot of energy into densely populated, rapidly growing urban environments.
Commercial and technical innovation are critical in meeting this challenge. Every time I look, the costs of solar and wind technologies have come down further. This positive trend will continue to drive their necessary growth.
Shell recognises the critical importance of renewables. We expect to grow our investment in the New Energies business, which I run, to $1 billion a year by the end of the decade. New Energies explores business opportunities in areas such as biofuels, hydrogen and renewables.
But despite their importance, renewables are not the sole solution.
For one thing, intermittency is inevitable.
Beyond that, renewables mainly produce electricity. And while electricity is important, it cannot meet all the world’s energy needs.
In urban environments, in particular, integrated solutions are needed to ensure that modes of energy delivery contribute to overall liveability and resilience.
Natural gas is uniquely well positioned to contribute in multiple ways to the development of the city of the future – through managing renewable intermittency, as well as by cleaning the air by replacing diesel in the heavy duty road transport sector.
In addition, distributed energy systems such as combined heat and power systems have proven to greatly deepen city resilience in times of emergency in cities, such as New York after Hurricane Sandy.
More broadly, think of heavy-duty transport on land and sea, which moves people and goods. Think of the creation of steel. Of concrete. Of plastics. They all require dense energy storage and high temperatures that hydrocarbons provide.
True energy access means benefiting from all this and much more.
This is why natural gas needs to be embraced alongside renewables to offer a holistic solution for meeting the world’s energy needs.
It provides reliable power. But beyond that, it is also one of the few energy sources that can meet all other aspects of a country’s energy needs, from transport to heavy industry.
Consider the role that domestic gas production has played in the industrial growth of countries such as Malaysia, the Philippines and Thailand.
In addition, the continuing rise of liquefied natural gas means that countries no longer need to be dependent upon of specific exporting countries.
The rapid spread of Floating Regasification and Storage Units, which are both flexible and scalable, has led to the rapid growth of LNG into the developing world. Today, emerging markets can access a global gas market with a product that can serve anyone, anywhere, anytime.
And LNG doesn’t need to be delivered in massive volumes. Gas is becoming more and more accessible to those with relatively small demand.
It could fit in emerging energy systems in sub-Saharan Africa and South Asia at varying scales, from conventional centralised power through to distributed energy systems, as well as industrial use.
Competitive, commercial lens
The International Finance Corporation has placed a market value of more than $39 billion on current spend on providing energy to people living off the grid.
In some respects, it feels crass to refer to the 1.1 billion people in the world who live without electricity as a “market”.
It’s not. Looking through a competitive, commercial lens is the best way companies can rise to the challenge of ensuring electricity for everyone. Governments in emerging economies cannot do it alone.
Efforts such as Shell’s project in the Philippines are small but important. They should form part of broader work which ensures the value of extracting domestic resources is shared by businesses and citizens alike.
But these kind of projects alone, vital as they are, are not nearly enough. They benefit a limited group of people. To reach the much larger number we’re all focused on today, a commercial mind-set is required.
What does this mean for companies in practice?
Seek out effective partnerships
For one thing, it means working effectively with other companies, with governments and with international organisations to get indigenous energy to a country’s citizens.
The Sankofa gas project in Ghana is a good example of this.
A few years ago, Ghana was becoming more and more dependent on expensive imported liquid fuels for its power sector.
There were constraints behind the development of domestic oil and gas fields due to differing requirements from the government and the energy companies involved. But they worked together, the World Bank got involved, and they agreed a way forward.
The World Bank provided a guarantee of $700 million to reduce the risk of investment for Eni and Vitol. This acted as the green light for those two companies to deliver the project with the Ghana National Petroleum Corporation.
The end result is more affordable and more reliable power supply for Ghanaian’s. All told the project will provide 1,000 megawatts of power generation to help meet growing demand for energy in the country.
Now there is more energy for domestic consumers. It’s more affordable than what was available before. The government can slash the subsidies it was paying out. More than $2 billion of revenue will be created for Ghana. And Ghanaian consumers get more reliable power supply with less rationing.
Focus on the system
What else can companies focus on? I think they have a key role to play in strengthening the reliability of a country’s power system.
Clearly no country can achieve total energy access without a strong power system in place. And yet often when looking at access it’s easy to focus on things like how a particular pipeline reaches a remote area.
Important stuff. But secondary to the wider need to build up baseload power with a reliable energy source.
In South Africa, the Energy Minister announced a programme to introduce gas into the country’s economy. Part of this programme involves inviting companies to make a pitch for an integrated solution using LNG to generate power.
This move has a number of aims, including ensuring secure supply for electricity and reducing carbon emissions when gas replaces coal. It supports the country handling the increased penetration of renewables – this is a good example of gas going hand-in-hand with renewables.
Shell has teamed up with Enel, which has existing renewables projects across South Africa, to put in a bid.
What’s the link between this large, industrial project and energy access? Our goal is for this potential project to strengthen South Africa’s energy system and energy markets. We play a role in strengthening the links in the chain that convert power into social and economic development.
This makes the system more attractive to other investors and creates knock-on effects that improve energy access much more widely.
Drive down methane emissions
Another key area of focus for companies is to ensure the environmental credibility of gas is not compromised.
A choice for gas by governments must not mean ignoring the environmental pledges they made in Paris.
It certainly shouldn’t. After all, gas is the cleanest-burning hydrocarbon.
But if there are high levels of methane emissions across the value chain, it would clearly undermine the credibility of gas.
Companies working at every stage of that value chain across the gas industry must not let that happen.
They must measure emissions rigorously. They must report those emissions publicly. And they must continuously look for ways to drive them down even further.
Anything less is a failure. Not just for the industry. But for the people who stand to benefit from gas.
Relentless focus on cost
Beyond ensuring its product remains far cleaner-burning that coal, the gas industry also need to relentlessly drive down costs.
If gas is not cost-competitive, why should a government recognise it as the best option for ensuring new energy supplies.
The industry has not done a good enough job over the past decade of keeping costs down.
This trend is being tackled.
By improving the competitive scoping of a project. By stamping out waste to deliver a project in time and on or under budget. By seeking out existing and emerging technology to improve different aspects of a project. And by not working in isolation.
It’s going to take more hard graft on all these fronts – now and in the years ahead – to ensure gas is resilient through price cycles.
I will continue to bang the drum on these points – both within Shell and to the wider industry. Because the market is rightly dismissive of a product that costs more than others which deliver the same thing.
Value of gas must be shared
In conclusion then: the true locus of energy poverty is in sub-Saharan Africa and South Asia.
Renewables are critical. But gas must also be at the heart of efforts to achieve universal access. It’s a reliable and flexible energy source which emits 50% less carbon dioxide and less than one tenth of the air pollutants than coal does when burnt for power.
A recent McKinsey report states that gas could account for 40% of the electricity generated in sub-Saharan Africa from 2020.
For countries without gas reserves, they can capitalise on the expanding global LNG market. Last year, global demand for LNG reached 265 million tonnes. That’s enough to power 500 million homes a year.
As for countries with domestic gas reserves, there are huge opportunities. Look at Mozambique. It has a staggering 150 trillion cubic feet of gas resources off its coast. A significant chunk of these resources will be exported to generate revenue for the country. But this will also be a vital source of energy for meeting domestic demand and powering economic and social development.
As far as companies are concerned, it’s a strong commercial mind-set that will lead to universal electricity access.
So what will drive investments? For starters, they obviously need to be commercially attractive. In addition, a stable regulatory environment, an integrated vision from governments, and support from multilateral institutions like the World Bank are all vital.
Companies should work with each other, with governments and with international organisations to figure out how a country’s citizens can benefit from domestic reserves. They should focus on building up a strong and secure power network, which can act as a foundation for additional energy access efforts. They should cut methane emissions to maintain the environmental credibility of gas. And they should hammer down costs, so it remains a competitive source of energy.
Clearly, providing energy comes at a cost. But the cost to society of not having energy is so much more.
Ultimately, it’s a big market. And one which needs to be seized. Companies will benefit from this opportunity. So will everyone who currently lives without the advantages energy brings.