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Shell Energy Futures

by Jerome a Paris Thu Jan 24th, 2008 at 05:14:45 PM EST

Below the fold is the full text of an email sent by Jeroen van der Veer to all Shell employees, and explicitly meant for wider distribution.

It is a clear acknowledgement of the reality of peak oil, climate change and of the need for comprehensive policy changes, and is worth reading in full.

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 inthe 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).

Jeroen van der Veer, Chief Executive


Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Thu Jan 24th, 2008 at 06:54:25 PM EST
Shell: Peak Oil at 2015.

Scenario-based thinking about the future seems a bit of a free form exercise. Sure you could come up with more scenarios that are equally plausible.

The blueprints scenario seems to be

'local experimentation under globally set incentives'

Or: fixing the market.

Which is fine, but you still need a large degree of national / supranational involvement to facilitate local solutions. For instance in the energy grid, and the set of rules that govern it.

by nanne (zwaerdenmaecker@gmail.com) on Thu Jan 24th, 2008 at 07:01:11 PM EST
I don't see cap and trade ever working, and I'm a sceptic in relation to carbon capture.

But otherwise it goes to reinforce my long held view (reinforced by a good few years' experience working with both)that Shell is an oil company that produces profits, and BP a profits company that produces oil.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Jan 24th, 2008 at 07:53:48 PM EST
as a long time Shell shareholder I'd beg to differ.  They've been awful compared to Exxon the last 15 years.
by HiD on Fri Jan 25th, 2008 at 05:25:04 AM EST
[ Parent ]
I presume you are looking at it from the point of view of investment returns. If so, I rest my case: Exxon's record speaks for itself.  

I did not say that I found Shell to be efficient, streamlined or particularly good at producing oil.

I did find that I never had a problem (as Director of Compliance & Market Supervision at IPE) with them, and I never had anything else with BP.

The culture at Shell I encountered (when I could penetrate the bureaucracy) was based upon a core purpose of producing & refining oil: the culture I encountered at BP was based upon a purpose of producing & refining shareholder  value.

I never ran into Exxon , cos they never really went near IPE.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 25th, 2008 at 05:42:03 AM EST
[ Parent ]
my short version

Shell -- bureaucratic, fragmented and rather hopeless.  Rather fight internally than with the rest of us.
BP -- Vitol with a better credit rating.
Exxon -- is it 1950 yet?

All I was saying is Shell's share price just keep waving from $40--$65-70 (then recently to $85) since the mid 90's.  Meanwhile Exxon has gone up several factors.  Shell has just been awful at creating shareholder value.

by HiD on Sat Jan 26th, 2008 at 04:04:08 AM EST
[ Parent ]
I prefer your version. Vitol? Marc Rich, surely?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sat Jan 26th, 2008 at 06:08:18 AM EST
[ Parent ]
Vitol was much sleazier than the MR guys.  Now the MR spinoffs were getting pretty close to the bottom of the bbl.  (Trafigura eg).
by HiD on Mon Jan 28th, 2008 at 04:54:09 AM EST
[ Parent ]
What about Chevron, Conoco and Total?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Jan 26th, 2008 at 07:27:32 AM EST
[ Parent ]
conoco was a small company when I was in the mix.  They've merged with Phillips and bought up some independent refiners since.

Total was a minor European outfit as well.  They've merged with Elf and Petrofina since.

Chevron -- I better take the 5th.

by HiD on Mon Jan 28th, 2008 at 04:52:46 AM EST
[ Parent ]
Oilwatchdog:  USGAO: 1997-2007 Oil Mergers (22 to 8)


Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Fri Feb 1st, 2008 at 05:48:18 PM EST
[ Parent ]
He has been, it seems to me, the most honest major oil exec. Is this partially driven by the futures group?


From his OPED last year,

More than half the energy we generate every day is wasted.

What's the point of producing even more energy if we continue to waste most of it? Instead, we should aim to become twice as efficient in our use of energy by the middle of the next century. That is entirely feasible, provided that the will is there.

That bolded sentence, I love quoting ...

Blogging regularly at Get Energy Smart. NOW!!!

by a siegel (siegeadATgmailIGNORETHISdotPLEASEcom) on Thu Jan 24th, 2008 at 09:32:24 PM EST
Shell have always been into scenario planning.

I think their relative open-ness and transparency is based upon the Dutch influence which often tends to ameliorate the worst symptoms of the Anglo Disease.

Just my view.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jan 25th, 2008 at 05:44:26 AM EST
[ Parent ]
My experience, from people I know who went to work there and some who returned, is that is a very particular orginzation. Either you turn into a 'Shellite' when working there, or you leave very fast.


by GreatZamfir on Fri Jan 25th, 2008 at 10:18:36 AM EST
[ Parent ]
As far as I know, Shell scenario making is pretty serious, and they really seem to believe in them, as opposed to just having them for marketing ploys.

But here they seem to rely very much on 'carbon capturing' to prevent global warming, while for all practical purposes this seems a not-yet-existing technology. Not 'underdeveloped' or 'still too expensive', but really not existing. that doesn't mean it's not possible, but don't think anyone has tried on a meaningful scale

by GreatZamfir on Fri Jan 25th, 2008 at 10:23:07 AM EST
Carbon capture to me seems to come in two different packages.

The first one is greenwashing for utilities, who by saying that there is a future (if in reality unrealistic) solution can keep doing what they have always done, without any meddling from the authorities. A bit like hydrogen fuel cells for the auto industry.

The second is a way of earning carbon credits (and hence extra income) for oil companies who are going to use CO2 for enhanced oil recovery in any case.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Jan 25th, 2008 at 10:53:37 AM EST
[ Parent ]
... in which energy inefficiency is mined extensively, nor the positive feedback effects in an era of rising energy costs for those societies that can most effectively support social activity with less energy.

But "with luck, a master framework will be adopted that will divert more and more of national income to avoiding using what we sell" ... would probably not get the most enthusiastic hearing at Shell (let alone Exxon).

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Jan 25th, 2008 at 12:58:53 PM EST
[ Parent ]
to that article: Two energy futures

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Jan 25th, 2008 at 03:59:40 PM EST
It may be worth while keeping separate the business strategy part of the oil companies from their understanding of the energy supply situation. ExxonMobil is openly an "oil" company, but that's a business strategy that they have decided to pursue in light of their understanding of the future of oil supply and demand. The company is perfectly well aware of the supply situation, almost certainly with a lot more technical information than outsiders have available.

If you take this view, you might reach the conclusion that the way to change their strategies is to work on the business side of the argument, not the oil production side...

by asdf on Fri Jan 25th, 2008 at 07:19:39 PM EST

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