Amid rising gasoline prices at filling stations across the US, energy prices are still too cheap to force dramatic changes in consumption, Shell’s chief executive said recently.
Peter Voser told Silicon Valley investors at a dinner held by the Churchill Club: “For certain things energy prices need to go up otherwise the behavior will not change.
“We have hit the cheap oil peak. So the cheap oil is over. It’s going to be more expensive and energy in general is going to be more expensive.”
Voser said that oil prices would continue to hover at around the $100/barrel mark. “If you look at world prices today I would say that they are too high because they reflect geopolitical issues. But I would also say it will not go down too much because it will not otherwise allow the industry to develop enough to supply.”
Cutting Through the High Gasoline Price Rhetoric
He addressed the heated election issue by saying that global markets and geopolitics determined US gas prices, not individual politicians.
“Fundamentally, the price is driven by supply and demand and also geopolitical issues,” he said. “If your supply is threatened by geopolitical issues like we have at the moment with Iran, it has an impact.
Politicians could make a difference even though the odds were stacked against them because of short political cycles, he said.
“In the energy industry whenever you do things, you do it for 20 or 30 years. But it needs political will and that’s where the average time horizon of a politician doesn’t help.
“A lot starts with having the right policies in place and the right political will to push it through. But it needs to have people who actually stand up and start to change the energy behavior of all of us and it starts will small things.
“Unfortunately, the four-year election period where [years] one and four are lost anyway and two and three don’t work, we need to help that system to get it going again.”
“Big Oil’s” Alternative Energy Activity
In 2006, Shell sold its entire 80MW PV solar production capacity to SolarWorld, making it the largest PV producer in the US. But the company has retained its wind development division and is currently involved in 10 projects, 8 in the US and two in Europe, with around 1GW of capacity.
Shell has also been one of the world’s largest biofuels producers and is working on projects with advanced biofuels companies such as Iogen Energy in Canada and Codexis in California.
Voser said that he would drive an electric car, but not in the US if the electricity came from coal-fired power stations. Advancing emerging technologies to commercial scale needed to happen more quickly and innovation was needed to accelerate progress, he said.
“If you look at new technologies and how long they took to get to 1% global energy market share, you’re taking between 20-30 years. This is not the six-month mobile phone type of change.
Voser said that policy innovation was also required to boost the chances of accelerating advanced energy technologies and welcomed the introduction of California’s cap and trade system, a critical piece of the state’s AB32 climate change legislation.
Factoring a Carbon Price Into Their Business Model
“We are clearly in favour of cap and trade systems,” he said. “We would like to have them globally for a global level playing field. That’s most probably not going to be possible, so we can live for a while with regional or country-specific cap and trade systems.
“Shell has taken the decision not to wait. So all of our projects take into account a charge for C02 of $40 ton to reflect a future price of CO2 in our economics today.
“Long-term if we really want to have the right technologies developed, not having a CO2 price will mean uncertainty and you will not get energy efficiency innovations or projects implemented because only a few can take risk like us to invest over 30-40 years.”
The Industry Needs to Improve Its Environmental Messaging
Shell this week signed an agreement with China National Petroleum Corporation to develop a shale gas field in the southwestern province of Sichuan. But he said that the industry had so far failed to address environmental concerns associated with hydrofracking.
“Shale gas has revolutionized the natural gas market in the US and in our opinion can be developed in a sustainable way,” he said. “[But] we need to do a better job and more transparent analysis of the problems and present the solutions.”
Can the Developing World Grow Sustainably?
Although China’s energy demand was fast accelerating, the government had grasped the need to prioritise energy efficiency to bring the majority of its population out of poverty, but growth in energy demand could come at a very high price, he said.
“As people come out of energy poverty they will go through the most intense energy phase when they buy cars, fridges, air conditioning. The next 20-25 years will be a very energy intensive phase and therefore as we have no solution on the very low carbon energy side there will be more [demand] for fossil fuels unless we do not allow those countries to get out of energy poverty.
“We estimate that the energy demand will double from now until 2050 – 90% of that will be in non-OECD countries and half of that will be in China. This doubling will only happen if we can solve some of the energy efficiency problems.”
He said that energy efficiency could be an area where innovators and investors could make the most dramatic changes.
“I come from Switzerland and grew up turning off a light when leaving a room. This is not rocket science but it saves energy. It’s these types of things but if we don’t have a political system and a societal system with that, we will fail on the energy efficiency side.”
Shell is soon to make an investment decision on its Quest Carbon Capture and Storage project in Alberta, Canada, and also has a joint sequestration project in Australia with Chevron and ExxonMobil. In the UK, Shell is also working with Scottish and Southern Energy on its first gas CCS project at a 385MW combined cycle plant in Peterhead, Aberdeenshire.
Governments Need to Step Up to the CCS Plate
“CCS is a must because it will help to reduce CO2 in the atmosphere in a fast and big way,” he said. “Unfortunately again we’re lacking policies and schemes on how to pay for it. We know all the technologies, but we need to do bigger pilot projects to scale up to see how it works.’
He also said that working in Canada and Australia was more attractive as those governments were prepared to accept liability for the CO2 reservoirs.
…my investors will not accept that risk.”
This is a message to all governments – someone needs to take the liability at the end. As a private company, I cannot take the liability for the next 1m years. I’m happy to do it as long as we’re filing a reservoir. Once it is sealed, it needs to go back to the state or government, because my investors will not accept that risk.”
The Intersection of Water and Energy
Voser also hinted that the company might either diversify or enter into joint partnerships for water management technology development.
“By 2030 if water consumption [rates are] the same, we will have a water shortage of roughly 40%.
For more about the nexus of water and energy from Breaking Energy, read here
“It is a subject which is very close to our main business – providing energy. We’re doing a lot of work on calculating future models of cities and how they’re going to get their energy.
“How we then provide cities with essential needs is going to be a key innovation area where Silicon Valley and other companies, not just Shell, can add a lot of solutions.”
Environmental Groups Not Playing “Nice”
Shell recently attracted criticism by launching “pre-emptive” legal action against environmental “organizations likely to challenge its plan for drilling exploratory wells in the Chukchi Sea this summer”, according to the LA Times. Shell has already spent $4bn on the exploratory drilling project, which lies off the northwestern Alaska coast.
“I have no problem with [open dialogue] rather than through the courts. But not on the last day before we start to drill – that is a tactic which is not that nice therefore I need to use a tactic to bring them to the table early.”
