Three hard truths

It is a pleasure to visit Beijing so soon after the great success of the Olympic and Paralympic Games, and to share Shell's best understanding of the future energy landscape.

Nothing about the future is certain, but Shell has 40 years' experience in developing scenarios and using them to test, challenge, and improve the quality of our strategic decisions.

We also share significant aspects of our scenarios with others in the hope they can help decision-makers to shape a sustainable energy future.

For the past three years we have worked on the Shell Energy Scenarios to 2050. These describe two different responses to the Three Hard Truths that are already shaping the world's future energy system.

The first hard truth is that global demand for energy is on a path toward doubling by 2050. This increase in demand is driven by global population growth and the entry of emerging economies into their most energy-intensive phase of growth.

China's total energy use has already overtaken that of the European Union, and China will probably overtake the United States as the largest energy user within the next five years. By 2025, China will probably account for one quarter of global energy consumption. But government policy to reduce the economy's energy intensity is still a success.

Without policies to reduce the energy intensity of the economy, China would now be on a path to using four times as much energy in 2050 as you use today.

The second hard truth concerns energy supplies. The growth of easily accessible oil and gas supplies will not keep pace with demand growth, because of geological, political, and financial limitations.

To keep up supplies, the world needs energy from all possible sources - including (ultra) deep-water, unconventional oil and natural gas, wind, solar, nuclear and more coal. As regards renewable energy, China has huge potential for wind and solar.

The third hard truth is that more energy means more CO2 emissions at a time when climate change is already a critical issue. The world is currently on a path to atmospheric greenhouse gas concentrations that scientists consider unsustainable.

Shell has worked together with climate experts at the Massachusetts Institute of Technology. They studied our scenarios and added the impact of non-energy greenhouse gas emissions.

While our "orderly world" (Blueprints) scenario came out relatively well, the overall message was that managing climate risk will require strong, cross-border effort at a pace that exceeds even the fastest that currently appears plausible. Of course, nothing is impossible: China is currently installing wind power more rapidly than we had assumed in our scenarios.

Our two energy scenarios that look out to 2050 are called Disorderly World (Scramble) and Orderly World (Blueprints).

In a disorderly world, governments focus almost entirely on securing energy supplies. Difficult decisions to promote energy conservation and energy efficiency are postponed until pressures build up and lead to energy shocks. The risk of climate change is largely ignored until problems become severe.

In an orderly world, cross-border coalitions of countries, cities and companies recognize the economic and social advantages of addressing all three hard truths simultaneously.

There is growing international alignment on CO2 pricing and cap-and-trade systems.

Shell prefers the orderly world because it provides a more stable business environment, with faster take-up of new technology, higher energy efficiency, and lower greenhouse gas emissions. We also believe it would help China to reduce import dependency, have stable economic growth and reduce environmental stresses.

You may ask, what is Shell doing to meet this challenge? Well, through our investments and collaboration with partners, Shell will continue to develop oil and gas resources, deliver liquefied natural gas, clean-coal technology, and advanced transport fuels and lubricants that help our customers be more energy efficient.

We aim to operate energy-efficient facilities with best-in-class environmental performance. A good example is the Nanhai chemicals plant, where CNOOC and Shell are partners. We will invest in technology to strengthen our positions in biofuels, wind and other low-carbon energy sources, and we will participate in the construction of CO2 capture and storage projects.

The author is vice-president of Global Business Environment and head of Shell Scenarios. The views in the article are his own.

(China Daily 10/06/2008 page5)