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The New York Times: Oil Demand, the Climate and the Energy Ladder

New York Times Jeroen van der Veer

Dave Olecko/Bloomberg News
Jeroen van der Veer
 
By JAD MOUAWAD
Published: January 19, 2008

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.

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1 Comment on “The New York Times: Oil Demand, the Climate and the Energy Ladder”

  1. #1 Paddy Briggs
    on Jan 20th, 2008 at 05:57

    The phoney hype from Shell on Scenarios

    And so another Shell CEO is to be feted at Davos as he presents the oil giant’s latest “scenarios” – the hype being , of course, that these scenarios shows the company’s intellectual edge in planning and decision-making. Having been involved in Scenario planning from time to time during my Shell career I can see this phoney exercise for what it is – pompous and self-aggrandising PR which has little or no benefit to any of Shell stakeholders.

    Here is what the Wikipedia entry on Shell’s use of Scenario planning says:

    “Observers of Shell’s use of scenario planning have suggested that few if any significant long term business advantages accrued to Shell from the use of scenario methodology. Whilst the intellectual robustness of Shell’s long term scenarios was seldom in doubt their actual practical use was seen as being minimal by many senior Shell executives. A Shell insider has commented “The scenario team were bright and their work was of a very high intellectual level. However neither the high level “Group scenarios” nor the country level scenarios produced with operating companies really made much difference when key decisions were being taken”. The use of scenarios was audited … in the early 1980s and they found that the decision making processes following the scenarios were the primary cause of the lack of strategic implementation, rather than the scenarios themselves.”

    In my experience this is a very accurate description of what really went on and I have no reason to assume that it is any different today. I worked as part of a small team in Rotterdam on long term scenarios for The Netherlands in the early 1980s. It was very interesting work, intellectually stimulating and directed by very clever people. Over a year or so we created three scenarios (internally consistent possible futures) for The Netherlands each of which addressed economic, social and energy developments over 20 years. The scenarios were launched with much panache, placed firmly in the public domain – and then quietly forgotten. The principle that when considering a major strategic decision you test that decision against possible futures was as far as I know never followed. Later in the decade I was in Hong Kong and contributed to a similar scenario process for China. Grappling with uncertainty (and the future of China was very uncertain at that time) scenarios were supposed to give us the edge – especially when it came to strategic investments. But once again although the scenario work was robust and intellectually meretricious there was no actual use made of the scenarios at all.

    One clear illustration of how decision making in Shell was and is always expedient, self-interested and often hugely over-cautious (as the Wikipedia entry rightly says) is with regard to Russia. Scenarios for Russia in its post USSR mode were certainly under preparation in the late 1980s/early 1990s and although I was not involved I would be surprised if one of the scenarios was not a “Resurgent Russia” story. Under this scenario Russia would pick itself up from its low ebb in 1990/1991 and, driven by high oil prices, recover economically, socially and politically. Under “Resurgent Russia” there would be a strong and popular leader, some watering down of the commitment to parliamentary democracy and a more dirigiste and nationalist approach to financial planning and management. Let’s assume that such a scenario existed at the time of the original Sakhalin negotiations – carried out at a time of extreme weakness on the Russian side in the early 1990s. Had scenario planning meant anything then surely the possibility of the resurgence of Russia would have been taken account of in the negotiations? Surely in those circumstances a deal with Russia which was more equitable to them would have been struck – rather than the unequal contract that so strongly favoured Shell and which President Putin later tore into pieces as Russia became stronger and more confident?

    The invitation to Jeroen van der Veer to speak to world leaders at Davos will no doubt give him a warm glow that he, and Shell, are legitimate movers in the refined air of the “World Economic Forum”. And there will no doubt be approval of the new scenarios as I am sure that they will be as intellectually solid and stimulating as ever. But if pressed (as he should be) to give one example of how these scenarios are actually to be used in Shell strategic decision-making he will struggle. Because there is no evidence at all that Scenario planning has made a hapeworth of difference to Shell’s actions or performance over the years. Like so much of the public face of Shell the rhetoric is a long way from the reality.

    © Paddy Briggs January 2008

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