Our place in the future energy landscape

Title:  Andy Brown: our place in the future energy landscape

Duration: 12:25 minutes

Description: 

Andy Brown presenting at Cambridge on the place traditional energy companies have in the future global energy landscape.

Andy Brown: our place in the future energy landscape

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[Cautionary note]

Presentation by Andy Brown

[Title]

Upstream Director Royal Dutch Shell

[Andy Brown]

Welcome, everybody. It’s great to be here.

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How traditional energy companies have a place in the future global energy landscape

Andy Brown Upstream Director Royal Dutch Shell

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A satellite graphic of a rotating earth surrounded by starry black space. The Shell Pecten is centred in the upper frame with text displaying below.

[Andy Brown]

I want to talk about how a traditional company like Shell can have a role in a world where, you know, the energy system is transitioning. And I do think the role of companies like Shell are sometimes misunderstood and I really want to lay out a case about how complex it is, and what companies like Shell can do about moving with that transition.

[Video footage]

Footage of Andy Brown speaking from the stage of a lecture hall, a screen showing his projected presentation on the wall behind him. Cuts to footage of the audience seated in successive rows of auditorium seating.

[Andy Brown]

But fundamentally, the world is increasing in population. It’s going from about 7.6 billion to the estimates of about 9.6 billion by 2050. Probably, the energy demand for the world will double between now and 2100. Every day, there are two more Cambridges in terms of people on the planet. That’s a London every 40 days. And how do we manage growing and becoming more prosperous at the same time as decarbonizing the energy system? It is a fundamental challenge.

Now, Shell is a big company. Shell is a company that…

[Video footage]

Footage of Andy speaking from the stage, as described previously. Footage of the audience seated in successive rows of auditorium seating.

[Andy Brown]

…as you can see here, produces about 2% of the world’s oil, 3% of the world’s gas. It’s a company that has… about 50% of its production is actually gas, and it is the largest private company in what’s called liquefied natural gas. So about 22% of all LNG delivered anywhere in the world is through Shell, so it’s a big part of our business. It’s also a company that has a lot of customers. 30 million people turn up on our forecourts every day, 43,000 retail sites across the world.

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A satellite graphic of a rotating earth surrounded by starry black space. Three text boxes run across the screen, displaying text, one below the other, with energy related icons displaying against a yellow shaded background at the far right of each text box.

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3% of the world’s gas and 2% of the world’s oil production

50% of our production is natural gas

57 million tonnes LNG we sold in 2016

8 million barrels of crude oil we trade each day

30 million customers/day at our 43,000 retail stations

30,000 charging points for EVs

3,500 megawatt we trade in renewable energy (N. America)

680 megawatt of wind energy in development

1 million tonnes of CO2 we reduced in 2016

$40 billion cash flow from operations

$15 billion dividends distributed in 2016

$1 billion spent on R&D in 2016

[Andy Brown]

It is a company that also is trading, one of the largest traders in renewable energy, 3.5 gigawatts of renewable energy. It’s a company that has developed one of the largest carbon capture and storage projects in the world, in Canada. And it’s a company that is recently investing in a large wind farm off the Netherlands, 680 megawatt wind farm. So it’s a… it’s a company that has a diversified portfolio, but its root still is fundamentally in oil and gas.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

So how are we going to take this world, that is… needs to decarbonize, forward? How are we going to make sure that the world has more energy with less CO2?

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A satellite graphic of a rotating earth surrounded by starry black space. One text box runs across centre screen, displaying text.

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Energy landscape Substantial and long lasting shifts

The world needs more energy and less CO2

[Andy Brown]

Well, we did a scenario and we issued last year, and that scenario was basically looking at what it would take to get to net zero emissions in the world. So the world is going to have… before the end of this century, have net zero CO2 emissions.

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A satellite graphic of a rotating earth surrounded by starry black space. A smaller and larger circle appear towards frame-left, displaying text in the core of each circle, and energy related icons in the bands of the circles themselves. Extending from the larger circle, and towards frame-right, a text box displays text.

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2015

Net-zero emissions

Global energy demand to double between 2015 & 2100

[Andy Brown]

And to do that, we essentially have to electrify rapidly, we have to grow biofuels, we have to have massive increase in the amount of carbon capture and storage. Why? Because decarbonization is very difficult to do completely. Even in this scenario, we had about 25% of the world’s energy – even at the end of the century – were from fossil fuels, from coal, gas and oil.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

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The previous satellite graphic of a rotating earth surrounded by starry black space, the smaller and larger circle at frame-left, displaying text in the core of each circle, and energy related icons in the bands of the circles themselves, and the text box at frame-right, displaying text.

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2015

Net-zero emissions

Global energy demand to double between 2015 & 2100

[Andy Brown]

But it’s not just what’s going to happen in Northwest Europe. It’s what’s going to happen across the rest of the world. What’s going to happen in the developing nations? Because 20% of the world consumes 50% of the energy. The other 80% of the world are looking for the lifestyles we enjoy. And it’s what’s happening to the developing world, where they’re using 20 to 50 gigajoules per year per person, and aspire to have the amount of energy that we’re able to have at our disposal, in order for heating, for cooling, for transport, for the way we just go about life.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

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Text displays at the left of the screen, alongside which three images display with text and blue horizontal bars below each image which indicate quantitative information relative to the text. The three images, from left to right, are of an individual lying on an expansive lawn with upmarket houses in the background, a high angle view of a city street with multiple lanes filled with vehicles, and finally, a young Asian girl seated cross-legged on grass with a laptop on her lap.

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Energy systems growth with lower emissions / Energy security / Energy affordability / Environmental sustainability

High income 150-300 GJ/person/year

Fast growing 100 GJ/person/year

Developing 20-50 GJ/person/year

[Andy Brown]

And the sustainable development goal seven is all about delivering reliable, affordable and sustainable energy. And that’s going to be our big challenge. 1.1 billion people in this world have no electricity. Another billion have intermittent electricity. And so this energy transition change has to change fundamentally in the developing world at the same pace that it is starting to happen in the developed world.

And lastly, on transport, because I want to address transport because everyone thinks that Shell is all about transport, and what happens with electric vehicles and how fast does that progress?

[Video footage]

Footage of Andy speaking from the stage, as described previously.

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Previous graphic displays fleetingly before moving off upper frame as another slide graphic moves up. Four images display in the four quadrants of the screen, with text also displaying in each quadrant. The four images are, from left to right and top to bottom, an aerial view of city buildings and skyscrapers by night; a front view of an aeroplane on the runway with a man dressed in safety gear in the foreground; a close-up of machinery on a factory floor; a close-up of a hand turning a dial on a large panel of switches and dials.

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Buildings / Transport / Industry / Power generation

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

So if we look at transport and if we look at how easy it will be to decarbonize transport, the passenger transport, we can see electric vehicles growing now, and we can see they’re starting to become competitive. I don’t think there’s any dispute about that. But freight is going to be more complex. Marine is going to be even more complex to electrify. And aviation as well.

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Previous graphic displays fleetingly before zooming to the Transport quadrant, the image of the front view of an aeroplane on the runway with a man dressed in safety gear in the foreground filling the screen. This image moves off of upper frame as another slide graphic moves up.

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Transport

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The slide graphic displays title text, with a key below the text showing four symbols used to indicate hydrocarbons, hydrogen, electricity and wind. Below this, five circles of increasing size display alongside each other with numbers inside the circles, and with the four symbols appearing in various shaded areas of the circles as quantitative indicators. Below each circle, explanatory white graphics display. The graphics are, from left to right, a train, a ship, an aeroplane, a car and a truck.

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Scenario for a plausible net-zero emissions world / Transport energy consumption

Energy consumption in Exajoules per year towards 2100

Hydrocarbons / Hydrogen / Electricity / Wind (Sail)

5 / 19 / 30 / 64 / 67

Source: Shell Analysis

[Andy Brown]

And we don’t see those transitions, even in our scenario for the end of the century, fully being able to decarbonize. Now, clearly, battery technology is advancing fast and the costs are coming down, but not of the scale and size for some of those much larger transport vehicles.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

So then, if we look at electric vehicles and we look at their penetration rate, about 1% of the world’s vehicles are now electric. The ones sold. By the middle of the next decade – and this is quite an aggressive scenario – we see about 10% of the world’s vehicles, so actually about 11 million vehicles a year will be electric vehicles. And probably 35% – this is in the world, this is not just the UK – 35% sold in this scenario by 2035. By then, about 20% of the world’s vehicles will be electric – in this particular scenario. But as you can see on the right there, the number of vehicles has grown very fast. So in this aggressive scenario, there’s more internal combustion engine vehicles in 2040 than there are today.

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Previous graphic displays fleetingly before moving out of frame as another slide graphic moves in. A still image at extreme frame-left shows a petrol pump nozzle inserted into the petrol tank opening of a vehicle. Alongside the image, title text displays, as well as subtitle text above two column graphs, where the columns indicate quantities of vehicles across an expanse of years. More text displays below the column graphs.

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Modelling disruption potential of Electric vehicles (EVs) An aggressive EV scenario

Global vehicle sales – Million vehicles/year

Global vehicle fleet – Million vehicles

Internal combustion engine (ICE) / Plug-in hybrid EV (PHEV) / Battery EV (BEV)

EV share in new sales may grow from 1% today to reach 10% by 2025, displacing less than 0.8 mboe/d

Source: Shell Scenario

[Andy Brown]

Now, that’s not an excuse for an oil company. That is just a reality of how fast it’s going to take to penetrate the world with electric vehicles, and how quickly this transition will occur in all parts of the world – not just, you know, what’s going to happen in Norway or here in the UK. And I think that’s an important, kind of, challenge that we face, is the pace of that change.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

And if we go to some of our forecasts and look at the demand for oil, going forward – and this is not quite as aggressive in terms of penetration of electric vehicles – this is how oil is consumed. So about 90 million barrels a day. You see that actually, the passenger cars in this scenario are going down. Although there are more internal combustion engine vehicles, actually, the demand in the passenger area is lower. But because of the… how difficult it will be to decarbonise the much larger vehicles, you see that things like freight and aviation and marine will mean there’s a chance – and we’re not saying, you know, this is something we’re looking forward to…

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A still image at frame-left shows a rear view still shot of a tanker on a highway while title and subtitle text display at frame right as well as a horizontal bar graph shaded in various colours along with some numbers. Below the bar graph, similarly shaded icons display which relate back to the bar graph. The icons are, from left to right, a yellow car, a blue truck, a green ship, a red aeroplane, a violet train and mustard-coloured factory buildings

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Continued growth in heavy duty transport and non-energy – Oil demand by sector

2040 / 104 mln bbl/d

2015 / 88.8 mln bbl/d

Source: Shell Analysis

[Andy Brown]

…there’s a chance that oil demand may even be higher in 2040 than it is today. Now, that’s not consistent with the 2 °C world.

Now, I’m not showing that because I’m going, you know, look at this, isn’t this great? That is a reality about how energy systems change and how long they’ll take to change. And for me, who’s responsible for Shell’s oil and gas production, the existing fields decline at about 5% a year. So even if we go flat in demand, we need six Saudi Arabias, by 2040, of new production from new projects because it’s a depleting resource base. So activity levels in oil and gas business are going to remain quite high if they’re going to meet that world demand. So we don’t create the demand; we deliver a product that the world demands.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

Now, that said, the system is in transition. And actually, that said, everyone in the leadership of Shell is determined that Shell thrives through our transition. It also is incumbent on us to make sure that we help in that transition and we’re part of the solution.

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Previous graphic displays fleetingly before moving out of frame as another slide graphic moves in. A still shot fills the screen, showing a close-up of a wind turbine against the background of blue seas, with an oil platform visible in the ocean in the distance. Text displays at centre screen.

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Energy system in transition

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

Now, if you look at what it takes to get to 2 °C, we are going to need massive efficiency improvements. So this is the biggest lever. It’s just how we go about our business. It’s just how well insulated our buildings are. It is fundamental efficiency. It’s how we pool logistics.

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Title text displays at upper frame-left, together with subtitle text and bullet points. Below this, a line graph appears with colour-coded segments denoting emissions from different types of energy, with a key to those colours appearing to the left of the graph.

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Global CO2 emissions reductions by technology area – Reference Technology Scenario (RTS) to 2 Degrees Scenario (2DS)

Requires: High energy productivity / Electrification / Decarbonisation of power

Renewables 35% / CCS 14% / Fuel switching 5% / Efficiency 40% / Nuclear 6%

Source: IEA, Energy Technology Perspectives 2017

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

The second thing is going to be renewables. And penetration of renewables in this aggressive 2 °C scenario is going to require solar and wind probably to become five to ten times cheaper than it is today. It’s going to require batteries to go from about $300 per kilowatt to 100, so a third the cost of batteries.

[Graphic]

Title text displays at upper frame-left, together with subtitle text and bullet points. Below this, a line graph appears with colour-coded segments denoting emissions from different types of energy, with a key to those colours appearing to the left of the graph.

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Global CO2 emissions reductions by technology area – Reference Technology Scenario (RTS) to 2 Degrees Scenario (2DS)

Requires: High energy productivity / Electrification / Decarbonisation of power

Renewables 35% / CCS 14% / Fuel switching 5% / Efficiency 40% / Nuclear 6%

Source: IEA, Energy Technology Perspectives 2017

[Andy Brown]

It’s going to require also CCS. It’s going to require 300 world-scale carbon capture and storage projects every year, like the one we built in Canada, in order to achieve the objective of this 2 °C scenario. So it’s going to require all of us and all governments to create the frameworks that people will invest against that scenario.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

Now, we actually believe that gas is an important part of this. Actually, the UK has done fantastically well in the last… from 15 to 16. And one of the reasons was the conversion of coal to gas.

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Previous graphic displays fleetingly before moving out of frame as another slide moves in. Title text appears, centred, at the top of the slide, with six still images appearing below, all tagged with a text description in the upper left of the image. The six images, from left to right, top to bottom, are of an icy landscape, a line of wind turbines against a sunset sky, close-up of a gas cooking flame, high angle view of an illuminated city skyscraper, a Shell LNG sign outside a service station, bird’s eye view of a smoggy cityscape,

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The case for natural gas

Lower CO2 / Complements renewables / Affordable / 235 years of reserves / Innovation / Improves air quality

[Andy Brown]

Why? Because of the CO2 tax. The US has improved massively, as we saw earlier. Why? Because of coal to gas transitioning, because of very cheap shale gas. So gas is going to have a really important role. And actually, we see gas demand increasing over this time. Gas also is great to work with renewables around intermittency. So you can bring a gas power plant on very quickly. Gas has half the CO2 of coal and a tenth of the harmful emissions – particulates and other emissions. So gas is going to be a really important part of that… of that transition and that’s why… you know, one of the reasons we bought BG, one of the reasons we built such a large LNG portfolio.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

But we are doing other things. So we are building significant solar arrays, particularly in our joint venture in Oman. We have the wind farm. We’re building 400 hydrogen stations in Germany in order to seed and try and develop a hydrogen economy. We have our CCS portfolio of projects.

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Previous slide displays fleetingly before another slide transitions in. Title text appears, centred, at the top of the slide, with nine still images appearing below, all tagged with a text description at the bottom of each image. The nine images, from left to right, top to bottom, are of a Shell LNG sign outside a service station; a petrol pump with an attendant holding the nozzle; illuminated plant infrastructure; a wind turbine seen against a blue sky; trucks in lower frame with a form of parachute seen above against grey skies; a white and a red arrow, one pointing to the sky and the other pointing below ground, planted in a paved area; close-up of data displayed on a stock exchange LED screen; panoramic cityscape with the sun shining above in a cloudy blue sky; seven men wearing business suits stand abreast of each other against a branded white backdrop.

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Shell’s activities in the energy transition

Developing our gas business / Biofuels business / R&D in low carbon technologies / New Energies business / Shell Technology Ventures / Developing CCS / Advocate CO2 pricing / Scenarios & thought leadership / Coalitions & government advisory

[Andy Brown]

But also, we’re an extremely strong advocate for a CO2 price, which seems odd, for an oil and gas company to want a CO2 tax, but we do need the economic signals, that we invest in the things that will make the 2 °C happen. It won’t come just because we’re financially strong; it will have to have an investment signal behind it.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

And that’s why we believe it’s going to be really important that we get the right advocacy. So we’ve been advocating for a CO2 price for a long time.

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Previous graphic displays fleetingly before zooming to the still shot of the panoramic cityscape with the sun shining above in a cloudy blue sky. Text displays at centre screen.

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Partners in thought leadership

[Andy Brown]

We did sign up to the… to the Governor of the Bank of England’s initiative on the transparency around our financial disclosures. We are one of the leaders in the Carbon Pricing Leadership Group and the Climate Leadership Coalition. We are working with ten governments around the world about setting regulation that will help this energy transition take place.

Now, clearly, for Shell, you know, we have a challenge in our business in the system transitioning. But we’re very keen to work actually with universities like Cambridge on the innovation, on unlocking the potential that we have through innovation, to go through this energy transition.

[Video footage]

Footage of Andy speaking from the stage, as described previously.

[Andy Brown]

But also, the role we see in great universities like Cambridge – to help companies like Shell with that energy transition. Thank you.

[Video footage]

Footage of the audience seated in successive rows of auditorium seating. Footage of Andy speaking from the stage, as described previously.

[Audio]

Applause

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Previous graphic displays fleetingly before transitioning to the satellite graphic of a rotating earth surrounded by starry black space. Text displays at centre screen. The Shell Pecten appears above the text.

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Let’s make the future