Shell’s New Lens Scenarios envisage two paths to a carbon-free world, each with dramatically different implications for society and the energy system.
Even though world energy demand could double within five decades, emissions of carbon dioxide (CO2) could fall to nearly zero by 2100, according to Shell’s most recent global scenarios.
But Shell’s New Lens Scenarios explore two radically different routes to a carbon-free world. In one potential scenario – entitled Mountains – cleaner-burning natural gas becomes the most important energy source globally by the 2030s and action to limit CO2 emissions is taken swiftly. In the other potential scenario – Oceans – action to address climate change is slower, but solar power becomes the single largest source of primary energy by about 2070. Common to both scenarios, however, is the pivotal role technology will need to play in virtually eliminating manmade CO2 emissions – for instance, by burning biomass to produce electricity, and then storing emissions underground using carbon capture and storage (CCS) systems.
Energy Future talked to Jeremy Bentham, vice-president of global business environment and head of Shell Scenarios, to find out more about the work his team does and how the energy system might change during this century.
Energy Future What are Shell’s Scenarios and what is their purpose?
Jeremy Bentham Scenarios are a way of thinking about the world that helps people make richer decisions. It’s not the prediction business. There are no crystal balls. It’s about trying to understand the landscape’s likely features and uncertainties. Our purpose is to advise our leadership on strategic choices by enriching our appreciation of pressures in the external environment.
Also, because our work is of broader interest outside Shell, we share it freely with others, whether they are government policymakers or other important stakeholders, so that they understand our thinking and we understand theirs. This leads to a better dialogue on energy related matters.
EF How do you create scenarios?
JB The Scenarios team had its 40th birthday recently, but Shell has actually been doing scenarios work for almost 50 years – nearly half the life of the company. Some of our scenarios have a global scope looking out over decades. But we do other types, such as recession and recovery scenarios – from the 2008 financial crisis, for example.
Demographic projections are an obvious and easy place to start. In 2050, the world population is estimated to be around 9 billion people – plus or minus; you can project that through. At the same time, though, you’re trying to understand critical uncertainties: emerging markets like China are among the biggest drivers of global energy consumption and there are considerable uncertainties about whether these markets will follow institutional development pathways that enable them to continue to grow rapidly or whether reform in key areas will slow down.
You need to draw on insights and subject-matter expertise from a very broad range of sources. Individuals with great knowledge may have deeply contradictory views, but that helps us understand the uncertainties. Conflicting views reflect the different choices that may be made – individually as consumers or collectively through political choices.
EF How satisfying is it when you get it right?
JB It always gives you a deep sense of assurance when developments occur that are aligned with the outlooks you described. In 2008, like most other people, we weren’t anticipating the collapse of Lehman Brothers, the investment bank – or that we’d be plunged into a global financial crisis. But we had appreciated for quite some time the kinds of pressures that were building up; in 2007, Shell had modelled how a deep recession would work through the energy system and we were able to tune that work up for a finance-triggered recession. Lehman went down on 15 September and, by the end of the month, I had our first recessionary and recovery scenarios in front of the executive committee. Shell’s chief financial officer, Simon Henry, has since said those outlooks were very helpful in Shell neither underreacting nor overreacting to developments. Many other organisations, in his view, were being driven more by the latest article in the Financial Times or The Economist, and weren’t rooted in fundamentals.
EF What’s your assessment of present market fundamentals?
JB The oil price has recently dropped. On the demand side, emerging markets have slipped off their growth path; on the supply side, high oil prices have created greater supply from North America’s liquid-rich shales. Saudi Arabia seems to have made a choice not to act as balancing force, as it has done in the past. This has resulted in a period of low oil prices and it will probably take some time for oil prices to stabilise again.
Looking through a new lens
Shell’s New Lens scenarios – “Mountains” and “Oceans” – explore two different routes to a low- or zero-carbon society (see Figure 1).
In the Mountains scenario:
- Natural gas becomes the backbone of the world’s energy system, replacing coal as a fuel for power generation in many places, and becoming more widely used in transport;
- Oil demand peaks around 2035 and, by 2100, cars and trucks powered by electricity and hydrogen could dominate the road;
- CCS technology helps eliminate CO2 emissions from the power sector by 2060, while emissions-free nuclear power contributes a growing share of electricity supply; and
- Greenhouse gas emissions begin to fall after 2030, although they still overshoot the target of limiting the rise in global temperatures to 2°C.
In the Oceans scenario:
- The energy landscape is shaped more by market forces and civil society than by government policy;
- Public resistance and the slow adoption of policies and technology limit the development of nuclear power and restrict the growth of natural gas outside North America;
- Coal remains widely used in power generation until at least the middle of the century;
- Without strong support from policymakers, CCS catches on relatively slowly;
- Relatively high energy prices encourage the development of hard-to-reach oil resources, and biofuels production;
- Oil demand doesn’t reach a plateau until after 2040 and liquid fuels still power about 70% of road passenger travel by mid-century; but
- High prices also spur strong efficiency gains and the development of solar power and solar photovoltaic panels become the world’s largest primary source of energy by 2070. •
Figure 1: Global energy-related CO2 emissions
EF What is the long-term role of oil and gas, and how do you see other forms of energy evolving?
JB The energy system has more than doubled in size since 1970, but the general mix between oil, gas and coal, and other forms of energy, has been relatively constant. Already in the 21st century, though, we’re seeing two other stories emerge: one is of growth in the energy system continuing, as more people in the world who have experienced material poverty are able to experience a higher quality of life; the other is a shift in composition to lower carbon-dioxide (CO2) emissions.
The single-largest component in the energy system, up to 1960, was coal. Since then, it’s been oil and it has the potential to be natural gas for the next period. Natural gas is lower carbon-intensity than coal.
Renewables are still relatively expensive, but some costs are reducing as volume rises, and they will likely be an indispensable part of the future. However, when people think of renewable energy, they think of solar and wind, but these produce electricity, which amounts to approximately 20% of the global energy system. Increasing the electrification of energy systems could lower CO2 intensity, but this takes time, and is more difficult in some areas than others: to get mobility from electricity, it would take a long time to restructure the mobility system; industrial processes need high temperatures, and electricity is often not the most efficient or straightforward way to have those types of uses.
Oil and gas will probably continue to be needed to create the conditions where you can have increasing electricity and use of renewables, and compensate for some of the deficiencies that renewables have, such as low energy density and intermittency.
EF What should oil and gas companies be doing to help achieve the transition to a low-carbon economy?
JB Shell and other companies are always in transition in a sense. People think of us largely as an oil company, but we already produce more natural gas than oil. We were the first really big player to develop liquefied natural gas (LNG) and we remain at the forefront of that frontier through projects like floating LNG.
Also, you need a biofuels component in fuels – largely because it has been mandated – and we have become one of the biggest marketeers of biofuels. We also have a very large joint venture in Brazil producing biofuels and many technology developments around second-generation biofuels, those that don’t compete with food crops, and sustainable biofuels – rain-fed, rather than fresh-water irrigation, for example.
In Germany, Shell is investing in up to 400 hydrogen-refuelling stations for fuel-cell vehicles. In the US, we have quite a large wind business. So we’re engaged in lots of things. But we have learned where we have things to add and where we don’t: others are better at manufacturing solar panels, for example.
EF Why should students consider a career in energy?
JB Energy can be described as being like the oxygen of the economy and our way of life. It underpins so much of the quality of life we have, which is why, as hundreds of millions of people emerge from poverty, demand is so high. It’s so easy to take that for granted.
If you take the energy needed for the kind of quality of life we have and multiply it by nearly 10 billion people, that would be three times the size of today’s energy system. Not everyone in the world is able to enjoy that quality of life, but over the lifetime of today’s students, the energy system is predicted to double in size. So a huge amount of development and technological transition needs to take place. It will most likely involve an element of oil, gas, coal, nuclear energy and solar power. It will express itself through greater electrification, integration of combined heat and power, and cooling, and energy efficiency. It will feature in how cities are designed over time to be more livable and efficient.
All of this will impact on the quality of life of billions of people. Those are inspiring challenges. •