Peter Voser became Chief Executive Officer of Royal Dutch Shell on 1 July 2009. He is currently a Director of Catalyst, a non-profit organisation which works to build inclusive environments and expand opportunities for women and business. He was appointed to the Board of Directors of Roche in 2011. Voser is also active in a number of international and bilateral organisations, including the European Round Table of Industrialists and The Business Council. Voser will be a Speaker at SIEW 2011.
CO2 emissions levels, the health of the global economy, and worldwide stocks of water and food will all be determined by the ability of industry, governments and consumers to develop a secure and sustainable energy system. In the same way, policy and investment decisions taken in each of these fields will affect the world's ability to meet its growing energy needs.
Like many in Asia, we in Shell believe in taking the long view. We look ahead to the needs of future generations, not just those of today. So, what is on the energy landscape in the decades ahead, and what are the challenges we have to tackle together"trilemmas". I call these "trilemmas"--not just dilemmas-- as there is a triangle of inter-related concerns. We can't just address one part of the triangle, and ignore the others, without some serious consequences. And as there are three of these trilemmas--you might say we face a "triple trilemma" in grappling with our future energy needs.
The first of the trilemmas
The first trilemma is the 3Es--economy, energy and environment. The recent financial crisis made plain that we cannot take economic growth for granted, both in the developed and developing world. Nor can we expect those in the developing world, who are just getting their first glimpse of a modern lifestyle, to turn their backs on this. People everywhere want jobs, and better lives. So, leaders everywhere know that we need to grow our economies. This means more energy demand, and also greater environmental concerns. This is our first trilemma.
Several driving forces are now at play. By 2050, there will be about 9 billion people on the planet, up from just under 7 billion today. This trend is now unavoidable. Every second, five new babies are born; many of them in the developing world, in Asia and Africa especially. Adding 2 billion more people is like having another China and India on the planet, with basic needs that will have to be met.
On top of this, more people are now enjoying a modern lifestyle, buying their first fridge, computer, or car--things their parents or grandparents could only dream about.
Zone of uncertainty
The upshot of this is clear--energy demand will shoot up.
Shell's Scenario team noted that if we just continued business as usual, then by 2050, energy demand could rise by up to three times the level in 2000. This would leave a big gap between supply and demand, a gap potentially as big as the entire energy industry in 2000!
This gap will have to be bridged by an extraordinary moderation of demand, or a significant ramping up of energy supply, or most likely, some combination of the two. But just how this might be done is uncertain. Our Scenario planners call this the "zone of uncertainty". They noted that this has the potential to be either a zone of extraordinary misery or of extraordinary opportunity, depending on how the world responds. In any case, it signals that we are entering an era of major transitions, some of which will be volatile.
Asia the next big energy user
One key transition will be the shifting of energy demand to the developing world, especially Asia in general and China in particular. According to the International Energy Agency (IEA), by 2035, energy consumption in the developing world could rise by 64 percent compared with 3 percent in developed countries. China, India and Brazil lead the way. They are expected to double their energy consumption over the next 40 years. By then, these three economies could account for a third of global energy use.
This surge of energy demand will also have a big impact on the third E--the environment. We must tackle greenhouse gas emissions. According to the consensus of climate scientists, CO2 emissions should be limited to 450 parts per million to avoid levels of global warming with significant negative consequences. On one estimate (Mauna Loa, Hawaii), they have now reached 390ppm--with just 60ppm to go--and they continue to rise at an annual rate of 2ppm. So, clearly, the clock is ticking.
Planning the cities of tomorrow
Tackling this trilemma of the 3Es is a big challenge and must occur on many fronts. Let me touch on just one--how we plan and develop our cities of the future. Today, over half of the world's population lives in cities. By 2050, this could rise to three-quarters. According to the United Nations Habitat group, this would require the development of a new city of one million people every week for the next 30 years.
Many of these cities will be built here in Asia. How these cities are planned and built could make a critical difference, not least since almost 80 percent of CO2emissions are produced in cities.
Smaller, compact, cities use energy more efficiently than sprawling low-rise ones, recent research shows. Better use, and integration of, public transport can make a big difference to energy demand. For example, the average American motorist drives twice as much and uses three times as much energy as his European counterpart. Why"hardwired" into energy consumers, who are less likely to make the most efficient use of energy.
Similarly, these findings also show that large government subsidies to keep energy prices low can shape consumer behaviour. They encourage consumers to be less energy-efficient. In all, governments spent over US$300 billion on fuel subsidies in 2009, according to the IEA. Removing these subsidies completely by 2020 would save enough energy to meet the needs of Japan and Korea, with enough left over to provide for New Zealand as well. By all accounts, lower subsidies lead to greater efficiency, and savings, which ultimately benefits the consumer.
The second trilemma
Our second trilemma relates to the 3As--availability, accessibility, and acceptability. As energy demand rises, not only will we have to find new sources of energy, we will have to develop the technology to harness them. We will also have to ensure we do so in ways that are acceptable to consumers and communities.
For instance, giving natural gas a more prominent role in the energy mix will enable countries to reduce air pollution and greenhouse gas emissions. Natural gas is the cleanest-burning fossil fuel, emitting between 50 percent and 70 percent less CO2than coal-fired plants. Natural gas power plants also cost less and can be built faster. These plants can be switched on and off easily, making them an ideal complement to the intermittent power from wind turbines and solar panels. In short, natural gas is the fastest way and lowest cost for countries to manage their CO2emissions, even as they meet growing energy needs.
IEA: Gas resources enough to last 250 years
According to the IEA, the world now has enough technically recoverable gas resources to last 250 years. Technological advances over the past decade have made tight gas, shale gas and coal bed methane accessible and economically viable.
But while gas may be available and accessible, it could remain underground unless policies encourage its use. As you know, the Chinese authorities plan to nearly double the share of natural gas in the country's energy mix. That's a very powerful driver. Other measures, such as an appropriate price on carbon--perhaps through cap-and-trade systems--will also help ensure the switch to gas takes place.
The third trilemma
Our third trilemma relates to the growing nexus between the world's energy and water and food needs, all of which will rise dramatically by mid century. Growing populations will raise demand for food. Growing affluence will also see people consume more food, including more meat and dairy products, which require much more water to produce.
If current water consumption trends continue, the world could face a 40 percent shortfall between global water demand and freshwater supply by 2030.
Meeting the world's water and food needs contributes to the rise in energy demand I mentioned earlier. Large amounts of energy are required to process, transport, desalinate or recycle water for consumption. Modern methods of agricultural are energy- and water-intensive. They require heavy use of fertilisers, which are derived from fossil fuels. Producing this energy also requires water, which is needed for drilling, flooding wells, and refining crude.
So, there is a clear nexus between water, energy and food production. The energy industry's share of water consumption is relatively small compared with other large users, especially agriculture. But this will grow as global energy demand rises.
In the years ahead, we will have to look at this nexus in a more holistic way, not least since more countries face mounting pressures on water supplies. How we produce energy, or what foods we chose to grow and eat, might have to take into account the availability and cost of water. The reverse also applies: Efforts to conserve water will help manage the demand for energy and reduce CO2emissions. For a start, those of us in the energy industry can play our part. We can do so by ensuring that we make the most out of every drop, not just for fuel, but also of water.
As my Asian friends often tell me, opportunities and challenges go together. Growing populations and rising affluence will push up demand not only for energy, but also for water and food, thereby putting added strains on our environment. We will need to address these triple trilemmas urgently, and as a whole.
A daunting but surmountable challenge
Similarly, when we say that world energy demand may double or even triple by mid-century, it is worth bearing in mind that energy supplies grew by as much over the last half century, albeit from a lower base. This helps put things in perspective. It reminds us that whether we end up with a zone or misery or zone of opportunity is very much in our hands.
BY : Peter Voser, Royal Dutch Shell CEO