The Energy Podcast from Shell

Title:

What does today’s crisis reveal about the future of energy? | The Energy Podcast

Duration: 35:51

Description:  

What is the ongoing disruption to global energy supplies revealing about the energy system?

In this first episode of a new season of The Energy Podcast, we step back from the headlines to examine how the system is responding to the shocks prompted by the Middle East conflict, and what it could mean for the energy transition.

With insights from Shell’s Chief Energy Adviser Peter Wood, Chief Economist Mallika Ishwaran, and Chief Climate Change Adviser David Hone, the discussion explores the resilience of global supply, the shifting balance between energy security, affordability and sustainability, and why the energy transition remains complex, uneven and long term.

About The Energy Podcast:

https://www.shell.com/news-and-insights/the-energy-podcast.html

https://www.shell.com/news-and-insights/the-energy-podcast.html

More on Shell Scenarios:

https://www.shell.com/news-and-insights/scenarios.html

Cautionary note:

https://www.shell.com/investors/disclaimer-and-cautionary-note.html

The Energy Podcast – Season Eight, Episode One - Accessibility Transcript

[Background music]

Up-tempo music

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Coming up

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We open with a montage of soundbites delivered at various points throughout the upcoming episode, featuring the episode’s three guests all seated on a grey sofa, as part of The Energy Podcast’s set.

We start by hearing soundbites from Peter Wood, Shell’s Chief Energy Adviser, followed by Shell’s Chief Economist, Mallika Ishwaran, and then Shell’s Chief Climate Change Adviser, David Hone.

Peter:

It reminds us that security is at the top.

Mallika:

Governments look to see how do they reduce the import dependency, and how do they build up their domestic energy sources.

David:

Change in the energy system does actually take time.

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Cuts to ‘The Energy Podcast from Shell’ title sting

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Over the title sting, Bryony delivers the out-of-vision voiceover lines:

The Energy Podcast from Shell - the home of conversation about the energy that powers our world.

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Transitions to shot of Bryony and Nitin sat in yellow chairs in an interview/podcast setting. The camera switches often between them.

Bryony:

Hello, and welcome back to The Energy Podcast from Shell. I'm Bryony…

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Bryony (with a white arrow pointing to her)

Nitin:

… and I'm Nitin…

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Nitin (with a white arrow pointing to him)

Bryony:

… our new co-host!

Nitin:

That's right. Delighted to be here.

Bryony: 

More about you in a second…

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Subscribe now (with white arrow pointing to bottom right-hand corner of screen)

Bryony (continues):

But you've joined us at an incredibly important time. It's obviously been an extraordinary couple of months for the energy system.

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A chapter heading for the episode appears on screen that reads: 

The crisis and why it matters

Bryony (continues):

We've seen unprecedented disruption in the oil market, global gas markets have been severely disrupted, prices have risen, and supplies of diesel and jet fuel, they've also been disrupted as well. There's really no other place to start than to dig a little bit deeper into this energy crisis. But before we do that, I do want to know a bit more about you, Nitin. Tell us about yourself.

Nitin:

Thank you very much, Bryony. So, I support our Trading & Supply business here in London, and I've been a fan of the show for years now, so it's fantastic to be on this side of the mic.

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Bryony:

And you and I are going to be talking a lot about this energy crisis through the rest of this season to the end of 2026. Today, we're going to be stepping back from the headlines to explore what this huge disruption may be revealing about the energy system today, but also what it might reveal in the long-term future, as well. 

Nitin:

Well, no one can say for sure, but we do have the three of the sharpest minds in the business to give us a bit of their take on the crisis.

Bryony:

Yeah, we absolutely do. We'll be joined by Shell's Chief Energy Adviser, Peter Wood, Shell's Chief Economist, Mallika Ishwaran, and Shell's Chief Climate Adviser, David Hone.

Nitin:

All three are part of Shell’s Scenario team. Shell Scenarios, as we know, explore how the future could unfold to help people, including Shell's leaders, make better decisions today.

Bryony:

Scenarios don't make predictions or determine strategy, and nor do they necessarily reflect the thinking or behaviour of the business. Okay… 

Nitin:

Let’s get started.

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Transitions to The Energy Podcast title sting before returning to Bryony and Nitin, joined by their three guests for this episode, all of whom are seated on a sofa facing our hosts. The video will cut between hosts and guests multiple times during their conversation.

Bryony:

David. Mallika. Peter, thanks so much for joining us today. But, before we get started, just give us an overview of your role. So, what you do. David….

David:

Well, all three of us are in the Scenario team…

[Name strap]

David Hone, Chief Climate Change Adviser, Shell

David (continues):

And my part in that is to look at the impact that the longer-term climate issue has on the energy system.

Mallika:

I spend time looking at what's happening in the global macro-economy…

[Name strap]

Mallika Ishwaran, Chief Economist, Shell

Mallika (continues):

…all the developments that we are seeing and how they might impact Shell, as well as spending time looking at what is the economics of the energy transition.

Peter:

And my team basically take the input, particularly from Mallika, but also from David…

[Name strap]

Peter Wood, Chief Energy Adviser, Shell

Peter (continues):

… and, sort of, look at how the energy system might evolve going forward. So, where is the energy coming from, and where is the demand going to be? 

Nitin:

The head of the International Energy Agency described the crisis as “the greatest threat to global energy security in history.”

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A chapter heading for the episode appears on screen that reads: 

How the energy system is responding

Nitin (continues):

But before we dig into that, I just want to hear the high level take from you guys. 

David:

Well, I think it's worth just having a think about what's actually happened. You know, we've clearly lost all the production from Qatar, we've lost the production from Kuwait, most of the production from Iraq. Saudi production is reduced a bit, but a lot of it's going through a pipeline out to the Red Sea. And, of course, Iranian production has been significantly impacted. So, there's quite a, you know, it's quite a tumultuous event. But we've been here before. You know, I'm, I'm older than my esteemed colleagues on the, on the couch and, you know, I remember well the 1990 invasion of Kuwait by Iraq. And, at the time, this was an enormous event. We lost all of the production of Iraq because it was embargoed, Kuwait, of course, had been invaded, Saudi Arabia was being attacked by missiles, and so it was heavily disrupted. You know, on the day it seemed like an event that we just weren't going to get past, and yet the world did. The system is very resilient.  And so, yes, it's a crisis, and yes, it's disruptive, but don't be surprised if the system, sort of, sorts itself out.

Mallika:

So, the economy today is quite different from what it was in the 70s and 80s. You know, the economy overall is less energy intensive than it was then. People spend less of their budget, or their incomes, on energy than they did then. And also what we're seeing today is we have many more alternatives - renewables, low-carbon alternatives, sources of energy. But, that said, we're still seeing that this oil and gas, sort of, disruption that we’re seeing in the Middle East is having a significant impact on the economy.

Peter:

I think, before this happened, if you'd asked us what would happen if The Strait of Hormuz had closed, I think many people would have said, well, it'd be $200 a barrel and, you know, there'll be blue lights flashing everywhere and ‘emergency’. The fact of the matter hasn't really transpired. The energy system, I think, has behaved fairly well for a number of different reasons. It was probably a fair amount of supply around before we came into this. Then we've been able to draw down on reserves and then, as Mallika said, you know, there are other energy sources available. So, the system is, sort of, balanced, so far. In rich countries, you haven't seen too much of an impact. Fuel prices have gone up a bit, but not that much. But, in poorer countries, particularly in Asia, there has been a more profound impact. You know, we have colleagues who are living in India who are, you know, struggling to get ahold of LPG - liquified petroleum gas - to cook with, and it's very evident that air travel has been reduced in Asia. So, quite a big shock. 

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What the crisis tells us about the energy system

Bryony:

So you've, sort of, touched upon there what it's revealed about the energy system, but does it - in your opinion - have an impact on the energy system fundamentally? Is it going to change things?

Peter:

You can't, or you shouldn't, overestimate shocks in the sense of, in the short term, we're likely to revert back to the mean for the most part. You know, people will go back to cooking with LPG, they will get back into aeroplanes, flying around. I think the question is what will happen in the medium to long term. And there we shouldn't underestimate how a shock can precipitate change, but that will be over potentially decades.

Bryony:

Do you agree with that, Mallika? You’re nodding, yeah… 

Mallika:

I do, but I also think that this - what we’re seeing today - the, sort of, energy crises. And, by the way, this is the second one in five years. Ukraine happened early in 2022. I think it’s a symptom also of the fact that the energy system is evolving. We’re moving towards a more low-carbon energy system. And, during this transition, I would expect, as an economist, that the elasticity of supply, or the ability of supply to accommodate and adjust for disruptions is reduced. And so, even when you have minor, relatively minor, disruptions - and I’m not saying that this is a big one - but if you have even relatively minor disruptions, you’ll see big oil price… energy price volatility in markets because of that inability of supply to adjust.  And what we’re seeing today is a, sort of, symptom of that transition and movement in the energy system to fundamentally change from what it is today to what we expect it’s going to be over the next few decades.

David:

In fact, I was going to say, the oil price has actually been remarkably… not stable, but it certainly hasn’t done what some people were imagining. You know, we were, sort of, in the 60 to 70 dollar range. And although we spiked, very briefly, at 110, bit more, we’ve sort of been, you know, in the 90 to 100 dollar range, which is, you know, a 40 to 50 percent increase. So, I was in Shell Trading back in 1990 and, you know, you talk about volatility… So, the oil price doubled, at least. We even had one day where the oil price doubled and halved on the same day.

Bryony:

On the same day?

David:

On the same day. And not to disagree with Mallika, but I think what we’re seeing, actually, is a system that is quite resilient and has other supply options, both oil and non-oil options. And, therefore, that’s why the price, to some extent, has been… or the volatility’s been muted, I would say, but it’s still been a tough time. I don’t want to take away from that.

Peter:

Energy demand is continuing to rise. It’s driving living standards. People want to travel more. You know, they want a warm house or a cool house, more computers, more data centres, this sort of thing. So I don’t think that will change. I think what’s maybe a more interesting question which we’re looking to is, you know, what will people take away from this crisis and, over the next two or three years, might they start to change, particularly governments, might they change their policies. Little bit more efficiency, more of a push on that. Faster adoption of electric vehicles, exploration for oil and gas. Should we maybe keep those coal plants burning for a little bit longer, because they’ve proven to be very resilient in India, China. So, I think you’ll see policymakers reflecting on this and we will maybe see the impact five to 10 years out when we maybe get a bit of a bend in the curve but, you know, it remains to be seen.

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Mallika:

I mean, one of the things we've learned from past crises, energy crises, is that it usually leads to a structural improvement in energy efficiency. So, the 70s and 80s what we saw the spikes in oil prices led to really, sort of, vehicle efficiency going up, either through the bringing in of mandatory standards for vehicle efficiency, or just in terms of vehicle design and to improve that. So, I think even after this, one of the things I would look for, structurally, is what is happening to energy efficiency. And how is that? Is there a step change that we're seeing in that? 

Peter:

Could I just add to that though, because it's absolutely true. Engines became a lot more efficient, but then vehicles started to become a lot bigger. So, you reduce the consumption for the amount of energy you need, the amount of power, but then you get a bigger car and actually you go back up again. 

Mallika:

Yeah. 

Peter:

So, there's offsetting factors here. 

David:

And, in fact, energy efficiency’s always been a double-edged sword. Obviously, it's the right thing to do - use less to get more. Every time in human history that that has happened, we've ended up using even more energy. This goes back to a famous 19th century economist. It's called Jevons’ Paradox. And he noted that as steel production in the UK became more efficient, and coal use became more efficient, the demand increased. And this will happen again. It's happened through digitisation, it's happened through energy efficiency itself. All of these things quite often lead to more energy demand. 

Mallika:

But a lot of that energy demand would have come, in any case, as countries develop and maybe it came sooner. 

David:

Well, I think it also opens the door to do more things with energy. You know, we do things today with energy that we perhaps weren't doing in the 80s or the 70s. You just look at your house, look at the… You know, when I was a kid, you had one television. Nobody had four televisions in there. You didn't go into every room and there was a television. Yet today that's… that is not uncommon in many houses. 

Nitin:

When you look back at it in, maybe ten, 20 years’ time, how would you reflect upon this period?

David:

I don't think shocks like this are ever temporary. They leave a long trail of change that… And you think back to even further. You go back to the first oil shocks, which were in the 70s as OPEC was formed. And remember, they had gasoline queues in the United States and in other parts of the world, and it set off a chain of events, in terms of research, development, for solar PV, for example, for wind turbines, for horizontal drilling, which led to, you know, fracturing and fracking and, and so on. And all of those things - here we are, 40, 50 years later - are becoming big commercial vectors for change. And I think that's similarly the case with all of these changes over the… all of these disruptions over the years, they leave a legacy that sometimes it takes a lot to think about that legacy, in terms of that event.

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The energy trilemma

Bryony:

I want to come on to the energy trilemma. And I know, Peter, we've spoken about this on this podcast a few times. So, that need to balance energy security, affordability and sustainability. How does this crisis impact that balance? 

Peter:

Well, it reminds us that security is at the top. 

Bryony:

So, it's not balance, then? Security is at the top.

Peter:

People have a very low tolerance for not getting the energy they want. You can see how hard governments have worked during this crisis. So we were saying, you know, that price hasn't responded that much. That's because supply has and, in particular, drawing from strategic stocks. So, the world's got somewhere between 8 and 9 billion barrels of oil in tanks. Depends a bit how you measure it, but…  We've taken just over 1 billion barrels out of those tanks to allow people to continue living their life the way they want to. Now, that's a lot of resources that have been put there to try and manage and that hasn't managed price everywhere and availability everywhere. I think in Europe, North America, richer countries have done okay, but I think in poorer countries you've really felt this. But I think - as David put it quite well - you know, these things play out over a long period of time. So, the trilemma isn't going away. It's finding a balance. And what you find is that any one moment in time, one thing prioritises over another. So, a few years ago it was very much around climate, then it became affordability, now it's availability and it will, of course, bounce backwards and forwards. And it's been doing that for, I think, the last 100 years, and I expect it to do it for the next hundred. 

Bryony:

Mallika, is that… Are you putting energy security at the top?

Mallika:

I do. I think it's a good rebalance. So, I think it's not that one was, sort of, under… It was just the balance between them was sort of shifted towards climate, that's right. And then now it’s rebalancing towards affordability and security. But what I find interesting is how governments, who are navigating this, are trying to find the synergies. So, we talk a lot about the trade-offs between the three - the trilemma objectives. We're finding them moving more into the space of finding where are the synergies between these three. So, I'll give an example. For example, we're seeing the energy security lens, both as a result of Ukraine and now what we're seeing, and you're seeing governments look to see how do they reduce the import dependency. And, mostly, imported energy is oil and gas. And how do they build up their domestic energy sources? And many of the growing energy markets of the world - the Indias, the Chinas, Asia - the domestic, most abundant domestic source of energy is renewables. So you're seeing a win-win between energy security and sustainability. Now, another example countries are also seeing: Do they have domestic oil and gas resources to develop them, in order to meet economic growth objectives, to poverty alleviation objectives, be seeing it in the context of the build-out of data centres. How do you meet that demand? But also as a way to then cushion the system as it moves towards low carbon, to provide that, sort of, balancing? And so I think we're starting to see more of the synergies coming through, rather than viewing this as a trade-off between the three objectives.

David:

Yeah, I mean, the way we often picture this on a graphic is as a triangle. The geometry of a triangle is locked. The three pieces, they can't just sort of swing or move all over the place. And I think that's true of the trilemma. I mean, I agree with Peter, you know, you have to have energy just to live your daily life.

[Name strap]

David Hone, Chief Climate Change Adviser, Shell

David (continues):

But, ultimately, if you pay enough, you can always get energy. But that's not the reality of the world. We can't just all pay what we want to pay, just for the energy that we need. And, you know, the environmental consequences of whatever we do, they may play out over the short term or over a much longer term. So, I think the three remain locked in step, and there's not really an order of priority in the sense of, well, this is most important, and then this, this is second or we don't really worry about that till later. They are, they are… they sit together. 

Bryony:

Sit together.

David:

Yeah. 

Mallika:

And just to say on that, you know, paying…

[Name strap]

Mallika Ishwaran, Chief Economist, Shell

Mallika (continues):

We sit in the West here and we're, sort of, able to pay for a higher cost of energy but, in a lot of parts of the world, what we've seen is that it's just physically… First of all, they aren't able to pay for it. The affordability issue is huge. Energy is just physically constrained in those economies.

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Resilience, diversification, and system design

Nitin:

Following on from that then, what are we learning about the system’s resilience? And, of course, when we talk about the system’s resilience in the context of the energy industry, we're talking about the need for markets or countries to insulate against crises like this. What is it showing? Is it showing that there might be a change in where it might come from in the future?

Peter:

I actually want to start with reliability and then resilience. So, reliability is how… how... you know… often this stuff comes.

[Name strap]

Peter Wood, Chief Energy Adviser, Shell

Peter (continues):

And if you look in a rich country, energy is extremely reliable, you know, Think of a time you’ve been to a petrol station and there wasn’t any available. It’s very little. Electricity? You have downtime of about half an hour a year. Natural gas networks? About two minutes a year. It’s extremely reliable. And that’s the basis for prosperity, both in terms of how we create wealth, but also how we consume. Resilience is how we recover from shocks. So, why’s that important? Well, we’ve spoken about shocks. You know, the last 50 years you’ve had wars, you’ve had a coal miners’ strike in the UK, you’ve had nuclear outages, you’ve had storms. And that’s just the subset of stocks. There are other shocks that we haven’t experienced. There could be electromagnetic storms, there can be volcanic eruptions that disrupt the atmosphere, keep it cool for a year. So, the system has to be able to absorb all of that. And I think if you look on the molecular side, the starting point is storage. It’s relatively easy to store it. So, it’s piles of coal, tanks of oil and LNG, underground gas storage, and other fuels that you keep as back-up. On the electricity side, it’s much more expensive to store electricity. People talk about batteries, but they’re not such a big thing yet for long durations. So there you manage it by redundancy. You have lots of different generation sources. So, you’ve got fossil, you know, coal, gas, but you’ve also got nuclear, you’ve also got renewables, you’ve also got hydro. And you have enough redundancy that, at any one time, one of those will be able to deliver. That’s how you’re resilient. Now, I think the other thing which we’ve touched on already is the rise of renewable energy and I think, probably, nuclear going forward. These are, you know, predominantly homegrown energy, and we’re going to see more emphasis on resilience that they can bring to a system. But, at the same time, coal is also getting a bit of a pat on the back here. In many countries, it’s helping them get through this shock. So, the idea that we’re going to be able to shut down coal plants and it’s all going to go away tomorrow, I think that’s got delayed as well.

Bryony:

Yeah.

Mallika:

So, if I can insert another lens on this. As you’d imagine, I come with a slightly different lens. As an economist, I think diversification is going to be the push for most governments, most countries, to get resilience. And diversification is diversifying away from the Middle East. And then I think the other is diversifying from fossil fuels. So, again, the renewables, nuclear. I think it’s energy security that’ll drive it.

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Mallika (continues):

So, I think you just…. The drivers for change. I think that we’re moving into a world where the transition is looked at through its core benefits that it provides. So it’s not doing the energy transition for its sake. It’s about what does it do, in terms of energy security, what does it do, in terms of industrial competitiveness, what does it do, in terms of local air pollution and other, sort of, issues. So, in some sense, this widening of the drivers of energy transition to the core benefits actually makes it a little bit more resilient, that it’s likely to happen. It’s not just, sort of, hinging on the fact that countries have made commitments to reduce emissions.  There are other really, sort of, economic benefits that they are getting out of it which, to me, makes it a little bit more resilient, the transition itself.

Peter:

Yeah, so I think maybe we can learn a bit from the past. If you look at a country like Japan. Japan was pretty heavily impacted by the oil crises of the 1970s. It, sort of, set about: How can we make ourselves a lot more resilient? Now, Japan doesn't have a lot of fossil fuel resources, and its renewable resources are maybe not as strong as some places, but look at what Japan has done. So, it went big in nuclear. It diversified its suppliers. So, big in LNG, but sourcing from a number of different places. Big in oil, sourcing from a number of different places. Big strategic reserves. Big push on efficiency. If you go to a Japanese city, see how small the cars are, see how compact the living is. They have built a society that is structurally more efficient and more resilient to shocks than many European countries. Now, they've done that by government and industry working together. So, I think, going forward, we're going to see more of those behaviours in European countries. 

Nitin:

Fascinating. 

David:

There's another great example actually coming from the 70s, as well, which is Brazil. They were hit hard in the 70s because they were completely reliant on oil at that time, particularly coming into the country, and the price of oil. And, as a result of the oil shocks in that era, they've become a biofuel economy and a biomass economy. Brazil started the journey towards putting ethanol in cars - ethanol made from its abundant sugar cane. And that has only continued to the point today where most of the cars in Brazil run on ethanol, or at least an ethanol-gasoline mix. They've developed their own oil industry, and they are a major producer in the region. They've expanded hydroelectricity across the country and built grids that, you know, other countries would look at awe in, and wish they had them as well, including some of the major OECD countries. All of this, you know, it's part of Brazil's development journey, but it's also got in it the seeds of a real shock in the 70s that they've worked towards assuring doesn't happen again.

Nitin:

Right, so what I'm generally hearing is that crises like this teach us to reduce single source reliance and go towards diversification?

Mallika:

Yes. Diversification, in terms of where all and gas is coming from, and diversification in terms of the energy sources, broadening it out to low carbon also to meet your needs. 

David:

And look who the world's biggest producer of oil and gas is today. It's the United States. 20 years ago, parts of the US economy were worried that production was falling so quickly and to such a low level that they'd have to reserve some supply for domestic use. Now they've become an exporter.

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What happens next

Bryony:

What does this moment mean for the pace and the pathway of the energy transition?

David:

So I think this is where our other discipline comes in that we haven't mentioned yet, which is Scenarios. 

Mallika:

That's right. 

David:

So, all three of us, as you've said, work in the Shell Scenario team. There is no single answer to this. And we shouldn't just imagine that because you get a shock and therefore because everything, sort of, looks a bit pear-shaped, that therefore it's all going to change and go to something else. If you look at the current energy security scenarios that were updated and published again in January of this year, I think there's two scenarios that really stand out. One is, we call, Archipelagos, and that is a world of quite some security tensions, a bit like what we're seeing at the moment. It actually leads to a less pacy transition. And I'm not going to say a slower transition, because then people will think that it slows down. It's still quite a rapid transition, but it's not as fast as you could imagine, and certainly not as fast as the other scenario that I’ll mention in a moment. So, what happens in Archipelagos is that, you know, countries hunker down, they draw on their coal reserves, they look at the domestic resources they have, such as in North America, the abundance of oil and gas, and they start producing more. And this is the fastest pathway to ensuring real security. It's a security scenario in the, sort of, the difficult sense, not just in the “I haven't got enough energy for my plane ride today.” And so, as a result of that, the transition slows down. It's a more fraught scenario. So, there's lower global growth and therefore there's less money to put into things like the transition. So, all of this leads to a less pacy transition. On the other hand, we've got another scenario called Surge, which you can see bubbling up. And we had a great example of it bubbling up fairly recently with the IPO of SpaceX. There's a lot of excitement about new technologies, about AI, about digitisation around the world. You get a surge in growth, hence the name of the scenario. You get a very rapid energy transition because the resources become available and the manufacturing techniques and the technologies become available to drive change. And both of those scenarios could emerge from where we are today.

Mallika:

I completely agree with that. And I would just add that what we are seeing is different countries are choosing different pathways. So, there isn't one top-down formula. So, depending on whether it meets their resource endowments, whether it meets their industrial competitiveness, whether it meets their energy security goals, they’re choosing different pathways and different priorities. So, I would agree that having a fragmenting world does create headwinds, but at the same time it creates pockets where you can actually have acceleration on certain technologies or certain sectors. So, it's a little bit uneven.

Peter:

I think you've got to be careful not to overestimate what shocks can do for you in the short term, but also not underestimate what they might do in the long term. So, if you think about Covid. We were all at home, sort of, we learnt to run our company from our spare bedrooms, basically. Yet here we are, six years later, and we're all, sort of, being called back to the office at least three days a week. And you can see that in fuel usage. We've lost about half a million barrels a day of gasoline demand. Out of 25 million barrels a day, we've lost half a million barrels because people are working from home a bit more, predominantly in North America. Relatively small change. So, you see at the time when the shock is going on, the world is going to change fundamentally, and then you come out of it and it reverts back and you think, well, nothing's changed, but actually you go further out, things have changed. So, it's getting those two different things in your mind.

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David:

And there is a reason behind that, as well. And the big reason is that change in the energy system does actually take time. You know, it takes about a generation. So, you know, 20, 25 years for a nascent laboratory technology to maybe get to one percent of the energy system, and it takes another 25 years for that one percent to grow to some meaningful and tangible level, you know, 20% or whatever the number happens to be. So, you know, that's two generations of change to go from something that really didn't exist to something that has found its place and that's, you know… so you're now thinking 50 years out, 2075, 2076, to see potentially something fundamentally different that people might ultimately say, you know, if the events of the 2020s hadn't been the way they were - and let's be clear, not just the current events, but we've had the Ukraine event, we've had Covid - so, we had lots of events of the 2020s…

Mallika:

I would trace it back to the financial crisis, even…

David:

Yes, that too, yes. You know, it might be 50 years before we look back and say, well, we're here in this completely different energy system and really it’s…  you can trace it back to these things that happened at some point in this, sort of, 10 or 15 years. 

Nitin:

I want to ask you to actually reflect on what that means for a company like Shell. Of course, a global energy company at the heart of a system under strain, right? What extent does a crisis like this require maybe a change in focus?

Peter:

I don't think it requires a change in focus in the short term. I think it requires a doubling down of focus in the short term. So we serve, I think, around 30 million people a day in our service stations, our petrol stations. We have other customers, but let's just take that group. They want their fuel. So, as an organisation, we need to double down on being able to deliver that. So, you know that's safe operations. We have a number of… several thousand people working in the Middle East. It's keeping our assets going. It's making sure our Trading & Supply businesses have the resources that can manage the volatility. Keep people fueled, that will keep your company healthy. Look at your performance, that will keep your balance sheet in shape. And then you'll be able to see through another crisis. 

David:

Yeah, there's a famous line that, sort of, I'm thinking of and, since I've talked about it a couple of times, you go back to the 1990 energy crisis because of the Iraqi invasion of Kuwait. And there was a famous line that Margaret Thatcher supposedly said to George Bush, which is: “This is no time to get wobbly.” And I think that's true today, as Peter, you know, really highlighted by Peter that, yes, our customers are relying on us today. They need the products that we produce. And, you know, the last few months I've been immersed in aviation because we've just released an aviation scenario, and I've had a few people come up to me who are from airlines and with slightly worried looks on their faces: “Well, you know, we're all going to get our jet fuel, aren't we?” So, this is a… because jet fuel prices have escalated. There's a lot of jet fuel production in The Gulf. And so there's a concern amongst customers, and they look to a company like Shell to be that provider in good times and tough times.

Mallika:

So, I'd say three things, to me, come out of this. Firstly, that oil and gas is required for the next few decades. And that's something our scenarios show. Even with a… ambitious decarbonisation trajectory, you still need oil and gas.

Bryony:

So you see that as fundamental?

Mallika:

I think that's right. And that's what this crisis has also brought home. I think volatility is here to stay, for the reasons I mentioned earlier. This, sort of, inelasticity in supply means we are just going to have to get used to a period of just volatility for the next decade, say. And the third thing is, picking up the longer term, the transition is happening, but it's happening in a very uneven way in different parts of the world in different sectors. So, we need to be able to keep an eye on what those developments are and be able to assess and seize those opportunities when they suit us. So, I think it's also, it's a very dynamic kind of environment that we're going into.

David:

And I think, you know, Shell will change over time. In my career, which is considerably longer than you guys probably... 

Mallika:

I was still around in the 90s…

David:

Yes. 

Mallika:

Just to say.

Bryony:

We were all here in the 90s. Well, maybe… (BRYONY GESTURES TOWARDS NITIN)

David:

Yes, but my career predates that. You know, when I joined, Shell was very much a production and refining company, with refining actually - ‘big R’ and a ‘smaller p’. We were a refining company. Today, you know, we're an LNG company, we’re a production company, we're probably the world's biggest trading company, and we've got a huge retail presence. We had a big retail presence then, of course but, you know, the pillars on which the company sits have shifted over, over, you know, over the decades. And that will continue, I think. But it's something that you measure in decades, not in years. But also we won't wake up tomorrow morning and go “oh, the energy system changed”, you know, and we're not there, because the energy system has got to go through quite a long journey. And, even coming out the other side of a major transition that may take 50 years, there’s still also going to be a very long tale of oil and gas that goes probably into the next century. That doesn't mean we're dependent on it as the major energy source, but this tale will go on for a long time. 

Mallika:

I mean, when people talk about it, they talk about energy supply like, you know, you just change energy supply. But that's not, I mean, you're changing the whole system, So, you're changing how demand, how it's consumed. You're also changing how it's moved around or stored because you're moving from one system to a very fundamentally different system. And that takes time. It's not just like, oh, we just stopped doing oil and gas. No, no, no, you need to have the demand there for the electrons, or whatever the low carbon molecules are. You need to have the infrastructure, grids, you know, CO2 pipelines or hydrogen pipelines. You need to have all of this in. And that's going to take a while to build out. It's not going to be something that you just click your fingers and you're done.

David:

And LNG is a good example of that. You know, the first LNG cargoes were in the late 50s, I think…

Peter:

Even before you started working…

David:

Even before I started working…Closer to when I was born. But the point is that, you know, LNG is an important part of the energy system today, and it's grown and developed and expanded. When Shell first got into LNG, back in the, I think it was in the 70s, people were questioning: “Oh, what are you doing that for?” You know: “That's never going to work.” And yet look, today, it's one of the pillars of the company. 

Bryony:

Yeah. I feel like it's ended on a positive note. And Peter… Peter’s smiling. 

Peter:

And if there's any young people listening, please come and join us, help us. 

Bryony:

David, Mallika and Peter, thank you so much for joining us today. 

Peter / David / Mallika:

Thank you.

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The Energy Podcast - Epilogue wipe. Then transitions back to Bryony and Nitin in their chairs. The camera cuts between them multiple times.

Bryony:

Such an interesting discussion. Of course, we’ll continue to explore the implications of the energy crisis in the episodes ahead. 

Nitin:

Absolutely. So follow the show wherever you get your podcasts. And, if you're watching on YouTube…

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Subscribe now (with white arrow pointing to bottom right-hand corner of screen)

Nitin (continues):

… make sure to hit that ‘Like’ and ‘Subscribe’ button, so you don't miss out on what's coming next. 

Bryony:

Remember, you can find Shell's cautionary note and the statements in relation to Shell’s Scenarios on Shell’s website. The link to that is in our show notes.

Nitin:

Thank you for joining us.

Bryony:

Bye for now.

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Transitions to ‘The Energy Podcast from Shell’ closing sting.

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The closing sting transitions to:

[Shell endboard with logo]

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