Maarten Wetselaar, Integrated Gas & New Energies Director at Shell, challenges the view that oil and gas represent the past, not the future. He argues that meeting global energy demand while lowering emissions requires a pragmatic path forward. This includes maximising the role of renewables, while embracing natural gas – the cleanest-burning hydrocarbon – and bioenergy as critical sources of energy in the future energy mix. Excerpts from his speech at the Aspire Forum in the USA on May 9, 2017:
“Get out of the way. You are old news. Time to move on.”
Not only are these the regular chants my children hurl at me as I take them on at soccer. They’re also criticisms levelled at companies like Shell which extract, produce and sell oil and natural gas.
These energy sources are seen by some as representing the past, not the future. Ironically, this view is potentially damaging to efforts to meet rising global demand for energy while moving to a low-carbon future. This transition must happen to avoid the serious consequences of climate change. But dismissing the role oil and gas will play in the future energy system is not the solution. So what is? Here is my take on the changes which need to take place.
Renewable sources of energy, such as wind and solar, must continue growing to meet increasing demand for electricity, while lowering emissions.
Shell is putting money where its mouth is. Within my portfolio is our New Energies business, which explores commercial opportunities in areas such as biofuels, hydrogen and renewables. We expect to grow our investment in this business to $1 billion a year by the end of the decade.
Just last month, we set up an office in San Francisco, which is home to an expanding team focusing on business opportunities in low-carbon and renewable energies.
But Shell also believes that natural gas – the cleanest-burning hydrocarbon – is and will continue to be important when used alongside renewable sources of energy to generate electricity.
Modern gas-fired power plants take less than a third of the time a coal plant needs to ramp up to full operation. That means they can quickly respond to an increase in demand for electricity or when the sun does not shine and/or there is limited wind.
Here in the US, use of renewables has risen significantly. And gas is being used in place of coal. These trends are good news from an environmental perspective.
In fact, the International Energy Agency has said that the US power sector has led the world in cutting carbon dioxide emissions over the past decade. Fatih Birol, the Agency’s Executive Director, told an audience at the World Economic Forum in Davos that this is thanks largely to natural gas displacing coal.
This is an important transition for the US, which uses 18% of the world’s energy supply and emits 16% of the world’s total greenhouse gas emissions.
State-level and market-driven momentum
So far, moves in the US energy mix to cut emissions have not primarily been driven by an overarching national policy. It’s the actions of individual states, the price of gas, and industry initiatives which are proving key to moving the country to a lower-carbon, higher efficiency energy future.
A separate piece of analysis by IHS recently concluded that market-driven changes in the mix of energy sources will result in around two-thirds of the States’ meetings goals set out in the Clean Power Plan. This will happen, the report states, without a national policy, as long as renewable tax credits remain stable and state policies are supportive.
It’s worth adding that while vital, state policies aren’t everything. As ever in the US, market forces and innovation are essential to maintaining the momentum. As new technology is developed. This leads to lower costs. And hey presto – demand from consumers increases.
Innovations in wind power, for example, have lowered costs time and again over the past few years. So much so that in the oil and gas homeland of Texas, there are now more than 11,000 wind turbines.
Shell’s trading position
Shell has a big presence in the US – from our 14,000 branded retail stations to the 411,000 barrels of oil equivalent a day that we produce in both oil and natural gas. Shell, through its wholly owned subsidiary Shell Energy North America, is also the second largest wholesale marketer of power in the US. As part of our portfolio, we manage more than 10,000 megawatts of power generation capacity. That’s enough to power around 5 million homes.
One third of the generation capacity we manage in the US is from renewables, including hydro, wind and solar. The rest is gas fired.
By leveraging our strong trading position, we are able to help companies meet bold sustainability goals. For example, several companies represented here today are members of the RE 100 – a group committed to using 100% renewable-powered electricity.
They’re typically doing this by contracting directly with large renewable projects.
We are able to help them manage the challenging risks associated with these variable renewables, thanks to our broad portfolio.
Growth of power sector
Getting the transition to a low-carbon future right in the power sector is critical. But it’s not everything.
As things stand, the power sector only accounts for around 20% of the energy system. This could increase to take up 30% of the market share by 2050, according to a plausible path outlined by Shell Scenarios. Then by the end of the century electricity will take up around half of final consumption.
That’s a big increase. And given renewables chiefly produce electricity, this shows a huge opportunity for their growth, and the consequent lowering of emissions. But what about the other sectors of the global economy where energy is consumed, and that produce significant CO2 emissions? Transport, buildings and industry.
Switching to using electricity powered by low-carbon or renewable energy sources is possible in some parts of the economy, but not in others.
With the manufacture of food and clothes, for example, low temperature processes and mechanical activities are needed. This makes the move over to electricity relatively straightforward.
It’s also possible to make the switch in the buildings sector. The growth of electricity will depend on how efficiently new buildings are designed, and how fast and to what extent existing buildings can be retrofitted.
But in industries that produce iron, steel, cement, plastic and chemicals it won’t be possible to use electricity. That’s because of the extremely high temperatures, chemical reactions or dense energy storage needed. These can currently only be provided by hydrocarbons.
As for the transport sector, while passenger road travel can be increasingly electrified or rely on hydrogen, longer-distance freight shipping and aviation will continue to need energy dense liquid fuels, including oil, biofuels and liquefied natural gas.
By 2050, electricity could take up 30% of the energy system – up from around 20% today. Fast forward to the end of the century and it could make up around 50% of final energy consumption.
Given energy demand is likely to double this century, that leaves a huge chunk that can’t be met by electricity.
Gas – which emits around half the carbon dioxide and less than one tenth of the air pollutants that coal does when burnt for power – should play an increasingly important role in powering sectors of the economy which can’t be electrified.
Bioenergy will also be critical. Our Scenarios team has calculated a possible future where bioenergy accounts for 15% of total energy demand by the end of the century.
Of course, the fact that some sectors can’t currently be electrified is no excuse for sitting on our hands. There’s a lot that governments and energy companies like Shell need to do.
Impact of policies
First, governments. Many other countries around the world can’t rely as much on the market-driven force seen in the US to bring about change.
In these countries, government-led carbon pricing mechanisms must be introduced. They are a key policy tool that can help slash emissions. They drive efficiencies and provide an incentive for lower-carbon business and consumer choices.
Look at what’s happened across the pond in Europe.
Last year, coal-fired power generation in Europe fell by around the same amount that gas-fired power increased. This shift is, in part, due to recent policies such as the UK government’s carbon price floor of £18 a tonne of carbon dioxide.
The growth of gas in place of coal led to a 4.5% drop in CO2 emissions from Europe’s power sector compared to 2015, according to analysis by the European think tanks Sandbag and Agora Energiewende.
Just last month, the UK went a day without using any coal to generate electricity. What a remarkable milestone for a country in which the first steam-driven public power station was opened more than 130 years ago.
That shows the impact governments can have, by introducing policies which tackle decarbonisation directly.
Role of companies
What about companies like Shell? What can we do to help tackling the challenge of meeting increasing global demand for energy while lowering emissions? In the near-term, the biggest contribution we can make to reducing global emissions is to continue our focus on gas.
In our natural gas business, we will continually look for ways to boost the efficiency of our operations. There’s an obvious commercial incentive here. It will also inevitably further improve the environmental footprint of gas.
The industry has to continue to cut methane emissions across the full supply chain. High levels of methane emissions would clearly undermine the credibility of gas.
Shell – indeed the whole gas industry – must not let that happen.
But it’s not just about improving our core business, important though that is in the future energy mix. We’re also investing in low-carbon and renewable energy sources.
Our efforts in this regard aren’t just focused on the power sector. For example, we’re also looking at opportunities in the transport sector. It accounts for more than one quarter of the world’s total energy use, and one fifth of global energy-related CO2 emissions.
In San Diego, London and Hamburg, we’ve worked with customers to ensure they avoided charging their electric vehicles at times of day when there is most demand. We remotely controlled the charging of their electric vehicles and shifted it to times of the day when renewables made up a significant portion of the power generation mix.
This was a win-win. We got paid by the grids to help balance overall power demand. Customers avoided the higher costs of charging their vehicles at peak times. And there was less pressure on the power grids supplying these cities.
Across the global economy
The speed of the global energy transition to a low-carbon future will depend on the policies successive governments introduce – at national and state level. It will also depend on the actions of energy companies, big and small.
I can’t impress enough the importance of the world embracing this transition across all sectors of the global economy. It’s right to have a strong focus on the power sector. Especially as electricity’s share of the global energy system increases. But transport, buildings and industry must not be ignored.
And end to fossil fuels now will not help the world meet global energy demand, while transitioning to a low-carbon future. It creates a false impression. The world needs holistic solutions, which maximise the role renewables should play, and embrace natural gas and bioenergy as critical sources in the future energy mix. Everyone in this room has a powerful voice on the global stage to highlight the pragmatic path forward.
So, no. Shell will not get out of the way. We are not in the way. We’re a part of the transition to a low-carbon future. And that’s exactly where we plan on staying throughout this century.