Shell Energy Transition Report
How are we driving our business strategy in the context of climate-related risks and opportunities?
We recognise the significance of climate change, along with the role energy plays in helping people achieve and maintain a good quality of life. A key role for society – and for Shell – is to find ways to provide much more energy with less carbon dioxide.
Our lives depend on energy wherever we live. But in order to prosper while tackling climate change, society needs to provide much more energy for a growing global population while finding ways to emit much less CO2.
Shell has long recognised the climate challenge and the role of energy in enabling a decent quality of life. We believe that, while technological developments will emerge, effective policy and cultural change is essential to drive low-carbon business and consumer choices and opportunities. The transition to low-carbon solutions is best underpinned by meaningful government-led carbon “pricing” mechanisms.
We welcome efforts made by governments to cooperatively reach the global climate agreement and support long-term climate goals that balance environmental pressures with development opportunities. We particularly welcomed the United Nations Paris Agreement on climate change, which came into force on November 4, 2016. The agreement seeks to limit global warming to well below 2 degrees Celsius by managing climate and environmental pressures while ensuring economic development.
Today, Shell is still primarily an oil and gas company, but we have a long tradition of innovation. We know that long-term success depends on our ability to anticipate the types of energy and fuels people will need in the future and remain commercially competitive and environmentally relevant.
Our natural gas businesses give governments the option to reduce emissions from electricity, by replacing coal, and we have an interest in a wind business with over 1,000 megawatts of capacity. We have also invested heavily in the lowest-carbon biofuel, through our Raízen joint venture with Cosan in Brazil, and we continue to explore second-generation biofuels options. In 2016 we created a New Energies business to further explore investment opportunities in energy solutions that combine wind and solar power with gas, for example, and new ways to connect customers to energy.
Shell is a long-time supporter of government-led carbon “pricing” mechanisms. We have a number of vehicles to support investment in new technology, such as Shell Ventures – a venture capital body with an investment focus on a mix of traditional oil and gas, clean and green technology. In recent years, Shell Ventures has supported both solar-based and wind businesses.
We are also committed to reducing our emissions intensity and continuing efforts to improve the energy efficiency of our operations as well as ending continuous flaring. Read more about our Net Carbon Footprint ambition.
Shell Scenarios* envisage a future where renewable energies could eventually become the largest component of the global energy system. But, despite the rapid growth of renewables, they anticipate that it will only be possible to provide the full range of energy products by combining renewables with cleaner hydrocarbons such as natural gas, and deploying technology to capture and store emissions of CO2.
To achieve such an outcome for a global population of at least 9 billion by mid-century will require an enormous global undertaking supported by effective policy, a sense of urgency, and long-term vision.
According to Shell Scenarios, the energy system of the future will be something of a patchwork. Some countries and sectors of the economy could de-carbonise in the coming decades, while others – such as energy intensive heavy industries – will likely require more time to develop technology solutions.
Ways society can move towards a lower-carbon future include improving energy efficiency, switching from coal to natural gas, increasing electrification and the use of renewables. Further options include boosting the use of low-carbon fuels, rethinking land-use and agrarian policies, and improving low-carbon infrastructure planning for cities and transit systems.
Shell Scenarios suggest that the world will require means of achieving “negative” emissions in some sectors to offset remaining emissions. One way to do this is to combine sustainable biomass gasification with the capture and storage of carbon dioxide (CCS) in power generation.
Read more about ways to help reduce CO2 emissions, and where Shell is active.
Natural gas, the cleanest-burning hydrocarbon, produces around half the carbon dioxide (CO2) and just one-tenth of the air pollutants compared to coal when used for power generation.
Shell converts natural gas into products, such as liquid fuels, hydraulic fluids and lubricants, and is always working to make them as efficient and reliable as possible. Natural gas can also act as a partner for intermittent renewable energy, such as solar and wind, to maintain a steady supply of electricity, because gas-fired plants can start and stop relatively quickly.
The International Energy Agency (IEA) estimates that global demand for gas will grow by 1.5% every year in the period to 2040. Shell is one of the world's leading suppliers of natural gas and liquefied natural gas (LNG), through our operated and non-operated joint ventures, and is safely tapping into resources of natural gas known as shale gas.
Shell believes the world will need to find ways to deploy carbon capture and storage (CCS) – a combination of technologies to capture and store CO2, preventing its release into the atmosphere – to achieve its ambition to tackle climate change.
According to the IEA, CCS remains the only technology capable of delivering significant reductions in emissions from the use of hydrocarbons.
There are 21 large-scale CCS projects in operation or under construction globally. The combined CO2 capture capacity of these 21 projects is around 40 million tonnes per annum (Mtpa), according to data from the Global Carbon Capture and Storage Institute.
Shell, working with its joint venture partners, has a large-scale CCS project in Canada called Quest, which captured and safely stored one million tonnes of CO2 in its first year of operation. We are working on CCS research programmes with partners around the world, and sharing knowledge with working groups and coalitions.
But wider uptake of CCS is needed. The International Energy Agency says: “CCS is central to a 2°C pathway: As part of the least-cost portfolio for power and as an essential mitigation solution in industry”.
In its 2°C scenario (2DS), CCS delivers 94 gigatonnes (Gt) of CO2 emissions reductions in the period through 2050. This amounts to 12% of the cumulative emissions reduction task in the energy sector. The IEA also says that without CCS the transformation of the power sector will be at least $3.5 trillion more expensive.
Renewable energy sources including hydroelectric and biomass, and zero emissions nuclear power currently supply around 19% of global primary energy, of which around 1% comes from wind and solar, according to the International Energy Agency. The remaining 81% of primary energy comes from hydrocarbons.
Shell has a decade of experience in wind power, with an interest in a wind business in North America and Europe providing over 1,000 megawatts of capacity. Natural gas, as a complement to renewables, also addresses the current shortcomings of renewables in volume, availability, intermittency, storage and energy density.
In Brazil we have made a substantial investment in the production of sugar-cane ethanol, which is the lowest-carbon biofuel. We continue to explore second generation biofuel options. Our recently-created New Energies business will explore investment opportunities in energy solutions that combine wind and solar power with gas, for example, and new ways to connect customers to energy.
Shell Scenarios suggest that society will need to grow its renewable energy share to around 80% of an energy system much larger than today’s if the world is to complete an energy transition and achieve a long-term goal of near net-zero emissions by 2100.
Shell supports the establishment of government-led carbon “pricing” mechanisms that deliver a meaningful cost on CO2 emissions, necessary to create a shift to a lower-carbon power and fuel options.
A carbon “pricing” mechanism is an effective way to stimulate investment in the development of low-carbon technologies and to create new energy choices. Government carbon “pricing” policies are designed to change the cost of goods and services, to favour those that result in lower emissions.
Both CO2 taxes and emissions trading systems could generate new revenue for governments and ensure that consumers are not affected by higher energy costs. Ideally this could create a virtuous circle in which emissions fall, while living standards continue to rise.
We believe that a wide range of low-carbon transport options is needed. For example, greater use of electric vehicles in cities could help to reduce pollution, while hydrogen could become a viable and affordable transport fuel for electric vehicles.
Meanwhile, biofuels, liquefied natural gas (LNG) and other liquid hydrocarbons will continue to play a significant role in road, sea and air transport.
In addition to pilot projects bringing LNG to shipping and trucking customers, in 2017 we announced the opening of Shell’s first UK hydrogen filling station, following the success of sites in Germany where Shell is part of a joint venture with an ambition to open a network of up to 400 hydrogen sites by 2023. We are also under consideration for the installation of seven hydrogen refuelling stations in the US state of California.
Greater use of low-carbon electricity to power our lives and economies is key to creating a lower-carbon future. Electricity’s share of the global energy total could grow significantly, spurred by greater use in heating and transport.
This increased use of electricity will need to come from lower-carbon sources, including renewables and natural gas if the world is to meet its energy needs and address climate change.
*Shell Scenarios are part of an ongoing process used in Shell for 40 years to challenge executives on the future business environment. We base them on plausible assumptions and quantification, and they are designed to stretch management to consider even events that may be only remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities.
How are we driving our business strategy in the context of climate-related risks and opportunities?
The Sky scenario illustrates a technically possible, but challenging pathway for society to achieve the goals of the Paris Agreement.
The former financial regulator Adair Turner on why he is chairing the Energy Transition Commission.
It is crucial that the Paris agreement remains in place, says Shell’s Chief Climate Change Advisor David Hone. It underpins the need for the ongoing energy transition to also deliver a world of net-zero emissions.
How could the world meet future energy demand while reducing net carbon emissions to zero?
Read about the carbon capture and storage projects we are involved in around the world.
The world needs to adapt to the extreme weather events linked to climate change, particularly flooding and water shortages caused by droughts.
We are working hard to reduce our own carbon dioxide emissions across our manufacturing sites and in our shipping operations.
David Hone, Shell’s Chief Climate Change Adviser, takes a personal view on climate change in his blog and short books.
How will the world produce more, cleaner energy to power our homes and cities, and fuel our vehicles in decades to come?
We are helping to power lives around the world with natural gas, the cleanest-burning hydrocarbon.
The energy future is not just in the hands of governments and businesses, argues Laszlo Varro. Consumers also have a huge role to play.