Shell's Scenarios: Blueprints or the Scramble  

The New York Times has an article on the outcome of Shell's latest set of scenario modelling exercises, with their vision of the future focusing on 2 likely outcomes, which they call "Blueprints" and "The Scramble". The Scotsman has a similar story, talking about the new scenarios and emphasising that Shell isn't getting out of fossil fuels (in fact they think fossil fuel usage will increase), just that it sees where the wind is blowing.

All in all this is partially positive - they see that action is required on global warming, and that resource wars are best avoided - but they aren't yet wiling to grasp the nettle and admit that we need to switch over completely to renewables.

Energy demand is expected to grow in coming decades. Jeroen van der Veer, 60, Royal Dutch Shell’s chief executive, recently offered his views on the energy challenge facing the world and the challenge posed by global warming. He spoke of the need for governments to set limits on carbon emissions. He also lifted the veil on Shell’s latest long-term energy scenarios, titled Scramble and Blueprints, which he will make public next week at the World Economic Forum in Davos, Switzerland. Following are excerpts from the interview:

Q. What are the main findings of Shell’s two scenarios?

A. Scramble is where key actors, like governments, make it their primary focus to do a good job for their own country. So they look after their self-interest and try to optimize within their own boundaries what they try to do. Blueprints is basically all the international initiatives, like Kyoto, like Bali, or like a future Copenhagen. They start very slowly but before not too long they become relatively successful. This is a model of international cooperation.

Q. Your first scenario looks very similar to today’s world, with energy nationalism, competition for resources and little attention to consumption.

A. It depends where you live. I realize there are different opinions about Kyoto in the world. But if you think about Bali, Bali is a good outcome if people can agree how to have useful discussion in the coming two years and the United States, China and India are on board. The Blueprints world is maybe a world that starts slowly and is not that easily feasible, but you see some early indicators that it is a realistic possibility.

Q. The world seems to be at some form of inflection point with a big shift in demand.

A. The basic drivers are pretty easy and they are twofold. You go from six billion people to nine billion people basically in 2050. This combination of many more people climbing the energy ladder, which is basically welfare for a lot of people who live in poverty, creates that enormous demand for energy.

Q. How will the demand be fulfilled?

A. Many politicians think we have to make a choice between fossil fuels and renewables. We have to grow both fossil fuels and renewables. And that will be a huge effort for both.

Q. More energy means more carbon emissions. How do you deal with that?

A. That is absolutely the crux of the matter. The principal way we see is that in the very short term, man-made carbon emissions will increase. But over time people will figure out ways — and we work very hard on that — that while using fossil fuels you try to find carbon dioxide solutions. For instance, carbon sequestration. The problem is that many of the renewables, if you take the subsidies out, are still too expensive. That is the dilemma we face now.

Q. Fossil fuels are still going to represent the lion’s share of the energy mix in the next century?

A. First, there is no lack in itself of oil or gas, or coal for that matter. But the problem is that the easy-to-produce oil or easy-to-produce gas will be depleted or with difficult access. But if you look at difficult oil or difficult gas, which we in the industry call the unconventionals, such as oil sands or shales, they may be exploitable. But per barrel, you need a lot more technology and a lot more investments, and per barrel you need a lot more brain to produce it. It’s much more expensive.

Q. What kind of alternatives can compete?

A. The competition is partly true competition — markets, inventions — and part of it is governments. I think if you can price carbon dioxide, probably you can stimulate carbon capture and sequestration. If you tax a certain form of energy, over time it gets more expensive and you may use less of it.

Q. It still seems there is a gap that is hard to bridge.

A. If carbon is the real bottleneck, as a world it makes sense that we use our money where we get the biggest reduction for the lowest cost. You get more carbon reduction for less money by tackling the power sector and maybe the building sector.

Q. It is still hard to see that people are willing to pay more for greener energy.

A. I am a strong believer and strong advocate of free enterprise. If you would like to solve the carbon problem in the world, free enterprise has to work in close cooperation with governments to form the right framework. How you tackled the sulfur dioxide problem in the United States was the basic inspiration for the European trading system of carbon. So there are examples from the past we can apply to overcome that problem. But we can’t do it on our own as an industry. We need cooperation from governments.

Q. How close are we to an understanding globally that climate policy and energy policy are all interrelated issues?

A. Thanks to Al Gore, and many others, the awareness is there. There is a kind of sense of urgency. Secondly, there is a preparedness to do things. Thirdly, do we agree who has to take what action? I think that is still a huge problem.

Q. There was a lot of disagreement at the Bali climate conference.

A. That is correct. I realize that Bali is still very difficult. I am not a pessimist. I see it as a very difficult start-up. The crux of the matter is, if the people say, “Hang on, we are really concerned about the climate and we’d better do something on carbon emissions,” that is in the end the powerful force which politicians and companies cannot ignore. And I think we are past that point.

Rumour has it that yesterday, Shell's CEO sent out the email below to Shell employees, to explain the new direction to them. I'm assuming this is real and not a fake, but I don't really know one way or the other - but it matches what the press reports are saying above.

From: Jeroen van der Veer, Chief Executive
To: All Shell employees
Date: 22 January 2008

Subject: Shell Energy Scenarios

Dear Colleagues

In this letter, I'd like to share reflections about how we see the
energy future, and our preferred route to meeting the world's energy
needs. Industry, governments and energy users - that is, all of us -
will face the twin challenge of more energy and less CO2.

This letter is based on a text I've written for publication in several
newspapers in the coming weeks. You can use it in your communications
externally. There will be more information about energy scenarios in
the months ahead.

By the year 2100, the world's energy system will be radically
different from today's. Renewable energy like solar, wind,
hydroelectricity and biofuels will make up a large share of the energy
mix, and nuclear energy too will have a place.

Mankind will have found ways of dealing with air pollution and
greenhouse gas emissions. New technologies will have reduced the
amount of energy needed to power buildings and vehicles.

Indeed, the distant future looks bright, but getting there will be an
adventure. At Shell, we think the world will take one of two possible
routes. The first, a scenario we call Scramble, resembles a race
through a mountainous desert. Like an off-road rally, it promises
excitement and fierce competition. However, the unintended consequence
of "more haste" will often be "less speed" and many will crash along
the way.

The alternative scenario, called Blueprints, has some false starts and
develops like a cautious ride on a road that is still under
construction. Whether we arrive safely at our destination depends on
the discipline of the drivers and the ingenuity of all those involved
in the construction effort. Technical innovation provides for excitement.

Regardless of which route we choose, the world's current predicament
limits our maneuvering room. We are experiencing a step-change in the
growth rate of energy demand due to population growth and economic
development, and Shell estimates that after 2015 supplies of
easy-to-access oil and gas will no longer keep up with demand.

As a result, society has no choice but to add other sources of energy
- renewables , yes, but also more nuclear power and unconventional
fossil fuels such as oil sands. Using more energy inevitably means
emitting more CO2 at a time when climate change has become a critical
global issue.

In the Scramble scenario, nations rush to secure energy resources for
themselves, fearing that energy security is a zero-sum game, with
clear winners and losers. The use of local coal and homegrown biofuels
increases fast.

Taking the path of least resistance, policymakers pay little attention
to curbing energy consumption - until supplies run short. Likewise,
despite much rhetoric, greenhouse gas emissions are not seriously
addressed until major shocks trigger political reactions. Since these
responses are overdue, they are severe and lead to energy price spikes
and volatility.

The other route to the future is less painful, even if the start is
more disorderly. This Blueprints scenario sees numerous coalitions
emerging to take on the challenges of economic development, energy
security and environmental pollution through cross-border cooperation.

Much innovation occurs at the local level, as major cities develop
links with industry to reduce local emissions. National governments
introduce efficiency standards, taxes and other policy instruments to
improve the environmental performance of buildings, vehicles and
transport fuels.

As calls for harmonization increase, policies converge across the
globe. Cap-and-trade mechanisms that put a cost on industrial CO 2
emissions gain international acceptance. Rising CO2 prices accelerate
innovation, spawning breakthroughs. A growing number of cars are
powered by electricity and hydrogen, while industrial facilities are
fitted with technology to capture CO 2 and store it underground.

Against the backdrop of these two equally plausible scenarios, we will
only know in a few years whether December's Bali declaration on
climate change was just rhetoric or the beginning of a global effort
to counter it. Much will depend on how attitudes evolve in Beijing,
Brussels, New Delhi and Washington.

Shell traditionally uses its scenarios to prepare for the future
without expressing a preference for one over another. But, faced with
the need to manage climate risk for our investors and our
grandchildren, we believe the Blueprints outcomes provide the best
balance between economy, energy and environment.

For a second opinion, we appealed to climate change calculations made
at the Massachusetts Institute of Technology. These calculations
indicate that a Blueprints world with CO2 capture and storage results
in the least amount of climate change, provided emissions of other
major manmade greenhouse gases are similarly reduced.

The sobering reality is that the Blueprints scenario will only come to
pass if policymakers agree a global approach to emissions trading and
actively promote energy efficiency and new technology in four sectors:
heat and power generation, industry, mobility and buildings. It will
be hard work and there is little time.

For instance, Blueprints assumes CO2 is captured at 90% of all coal-
and gas-fired power plants in developed countries in 2050, plus at
least 50% of those in non-OECD countries. Today, there are none. Since
CO2 capture and storage adds cost and brings no revenues , government
support is needed to make it happen quickly on a scale large enough to
affect global emissions. At the very least, companies should earn
carbon credits for the CO2 they capture and store.

Blueprints will not be easy. But it offers the world the best chance
of reaching a sustainable energy future unscathed, so we should
explore this route with the same ingenuity and persistence that put
humans on the moon and created the digital age.

The world faces a long voyage before it reaches a low-carbon energy
system. Companies can suggest possible routes to get there, but
governments are in the driving seat. And governments will determine
whether we should prepare for a bitter competition or a true team effort.

That is the article, and how I see our challenges and opportunities. I
look forward to hearing how you see the situation (please be concise).

Regards
Jeroen van der Veer, Chief Executive