About That Peak Oil Theory…

From: Jeroen van der Veer, Chief Executive
To: All Shell employees
Date: 22 January 2008

Subject: Shell Energy Scenarios

Dear Colleagues

In this letter, I’d like to share reflections about how we see the energy future, and our preferred route to meeting the world’s energy needs. Industry, governments and energy users – that is, all of us – will face the twin challenge of more energy and less CO2.

This letter is based on a text I’ve written for publication in several newspapers in the coming weeks. You can use it in your communications externally. There will be more information about energy scenarios inthe months ahead.

By the year 2100, the world’s energy system will be radically different from today’s. Renewable energy like solar, wind, hydroelectricity and biofuels will make up a large share of the energy mix, and nuclear energy too will have a place.

Mankind will have found ways of dealing with air pollution and greenhouse gas emissions. New technologies will have reduced the amount of energy needed to power buildings and vehicles.

Indeed, the distant future looks bright, but getting there will be an adventure. At Shell, we think the world will take one of two possible routes. The first, a scenario we call Scramble, resembles a race through a mountainous desert. Like an off-road rally, it promises excitement and fierce competition. However, the unintended consequence of “more haste” will often be “less speed” and many will crash along the way.

The alternative scenario, called Blueprints, has some false starts and develops like a cautious ride on a road that is still under construction. Whether we arrive safely at our destination depends on the discipline of the drivers and the ingenuity of all those involved in the construction effort. Technical innovation provides for excitement.

Regardless of which route we choose, the world’s current predicament limits our maneuvering room. We are experiencing a step-change in the growth rate of energy demand due to population growth and economic development, and Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.
As a result, society has no choice but to add other sources of energy – renewables , yes, but also more nuclear power and unconventional fossil fuels such as oil sands. Using more energy inevitably means emitting more CO2 at a time when climate change has become a critical global issue.

In the Scramble scenario, nations rush to secure energy resources for themselves, fearing that energy security is a zero-sum game, with clear winners and losers. The use of local coal and homegrown biofuels increases fast.

Taking the path of least resistance, policymakers pay little attention to curbing energy consumption – until supplies run short. Likewise, despite much rhetoric, greenhouse gas emissions are not seriously addressed until major shocks trigger political reactions. Since these responses are overdue, they are severe and lead to energy price spikes and volatility.

The other route to the future is less painful, even if the start is more disorderly. This Blueprints scenario sees numerous coalitions emerging to take on the challenges of economic development, energy security and environmental pollution through cross-border cooperation.

Much innovation occurs at the local level, as major cities develop links with industry to reduce local emissions. National governments introduce efficiency standards, taxes and other policy instruments to improve the environmental performance of buildings, vehicles and transport fuels.

As calls for harmonization increase, policies converge across the globe. Cap-and-trade mechanisms that put a cost on industrial CO 2 emissions gain international acceptance. Rising CO2 prices accelerate innovation, spawning breakthroughs. A growing number of cars are powered by electricity and hydrogen, while industrial facilities are fitted with technology to capture CO 2 and store it underground.

Against the backdrop of these two equally plausible scenarios, we will only know in a few years whether December’s Bali declaration on climate change was just rhetoric or the beginning of a global effort to counter it. Much will depend on how attitudes evolve in Beijing, Brussels, New Delhi and Washington.

Shell traditionally uses its scenarios to prepare for the future without expressing a preference for one over another. But, faced with the need to manage climate risk for our investors and our grandchildren, we believe the Blueprints outcomes provide the best balance between economy, energy and environment.

For a second opinion, we appealed to climate change calculations made at the Massachusetts Institute of Technology. These calculations indicate that a Blueprints world with CO2 capture and storage results in the least amount of climate change, provided emissions of other major manmade greenhouse gases are similarly reduced.

The sobering reality is that the Blueprints scenario will only come to pass if policymakers agree a global approach to emissions trading and actively promote energy efficiency and new technology in four sectors: heat and power generation, industry, mobility and buildings. It will be hard work and there is little time.

For instance, Blueprints assumes CO2 is captured at 90% of all coal- and gas-fired power plants in developed countries in 2050, plus at least 50% of those in non-OECD countries. Today, there are none. Since CO2 capture and storage adds cost and brings no revenues , government support is needed to make it happen quickly on a scale large enough to affect global emissions. At the very least, companies should earn carbon credits for the CO2 they capture and store.

Blueprints will not be easy. But it offers the world the best chance of reaching a sustainable energy future unscathed, so we should explore this route with the same ingenuity and persistence that put humans on the moon and created the digital age.

The world faces a long voyage before it reaches a low-carbon energy system. Companies can suggest possible routes to get there, but governments are in the driving seat. And governments will determine whether we should prepare for a bitter competition or a true team effort.

That is the article, and how I see our challenges and opportunities. I look forward to hearing how you see the situation (please be concise).

Jeroen van der Veer, Chief Executive

(emphasis added)

If you didn’t pick up on this in the memo, Mr. van der Veer is CEO of Royal Dutch/Shell Group.

This is one of the more pessimistic public estimates to come out of one of the oil majors, who usually fall back on the CERA-esque ‘plateau after 2030’ view. 2015 isn’t that far away…

I got this from The Oil Drum. This is a very important message IMO, and should be shared as widely as possible. When another of the oil majors gets pessimistic (remember Chevron’s “Will You Join Us?” campaign?) people need to sit up, take notice and start using their noggin to think about what’s coming down the road at us. The less we think, the less we act, the more likely we are to get a government ‘solution’ (think green fascism) rammed down our throats.


6 Responses to About That Peak Oil Theory…

  1. mike says:

    Well, ‘green fascism’ might not be so so bad. We’ve had corporate, energy, auto, and military fascism for the last good while. 🙂

    The only kind of ‘green’ fascism that would come out of a government solution would be where the ‘green’ is tied to pork projects and special interests, no different than today – cash will be king, and the golden rule will still prevail – he who has the gold, will rule.

    Pessimistic on my part, for sure – but on a cold Saturday morning here in the NE its hard to think fuzzy warm thoughts about our country, its leaders, and the motives (or lack thereof) of its people.

    Love the MEOW, thanks for writing.

  2. Bart says:

    Hi Mike,

    Thanks for your comment & kinds words. 🙂

    Kevin at Cryptogon has been riffing on ‘clean, green fascism’ for some time now. The idea being that new clean energy technologies being ushered in will be both expensive and controlled by the military-industrial-congressional complex as it were. There’ll be plenty of scope for waste & inefficiency as well.

    I’m more concerned about how it will tie in to the surveillance society that we are building today.

  3. mike says:

    I see where you were coming from now… absolutely agree – the only ‘green’ solutions that will work will be when we empower our local communities to do the things they should be doing – educating children, growing food, and taking care of business so that we don’t pollute ourselves to death.

    ‘new energy technologies’ – I love this – as if somehow we’ll just put a for sale sign on the sun. Its right up there with the idea of ‘financial products’. Someone is selling me money? What a deal!

    Not sure a technical fix is gonna work – no matter how many wind farms and tide farms and solar wind space induced power generating stations we build – we can’t keep having our cake and eating it too. How many wind turbines does it take to make a wind turbine? Or solar panels? If we determine that we have a limited amount of juice left in the Earth’s easy to get to energy battery – we might consider using that juice in slightly more selective ways – but talk of fascism… where would put the energy to use if we only had 50 barrels left? Would we save it for medical reasons? Growing food? Developing softer technologies? Entertainment so we can forget about the fix we’re in? Consumer goods so I can have a few more dollars in my trust fund?

    We live on a world with finite resources and for the most part these resources are being controlled by a financial system that needs to continue ‘growing’ in order to keep everyone and everything in motion. We get extra credit for how many of our assets we cut up, dig up, plow over, dam up, incinerate, pollute, and destroy. Ask a financier to do that with the cash in their bank account (assets) and it wouldn’t happen! Yet we take the only real ‘cash’ we have to work with – natural assets and our planet’s ability to generate and regenerate them – and we burn em up at an ever increasing rate to help the bottom line and feed the consumptive society. It can’t and won’t go on.

    At some point we will need to realize that we are consuming ourselves and our very ability to exist… or nature will take care of ‘limits’ for us.

  4. It may really interest both of you to read Eric Janszen’s The next bubble: Priming the markets for tomorrow’s big crash in the February 2008 issue of Harper’s (sorry, most of it is behind a subscription wall at the moment.) In it, Janszen argues that alt.energy is primed to become the Next Big Bubble, following on the heels of the dotcom and housing bubbles. I’m not enough of an economist to know whether he’s just blowing smoke, but it is a thought-provoking read.

    Meanwhile mike, here’s a quote to go with the last two paragraphs of your second comment:

    The “environmental crisis” is a misnomer, since it is (of course) a crisis of ourselves, not of the environment. — Wendell Berry

  5. Bart says:

    Mike: You’re preaching to the choir… We are so dependent on *cheap* oil and coal for our way of life that I doubt any sort of Techno-fix will keep things going for that long. What we’re starting to see now are spot shortages of energy in the Third World. We grumble about the rising costs of gas, but at least we are able to access as much as we care to. Others in Africa & Asia are less fortunate. As time goes on, world supply will stay stable for a while and then decline while world demand keeps rising. Eventually obtaining access to enough oil to keep things going will become more of a dicey proposition. I’m sure the government is counting on a ‘market solution’ to this problem… i.e. prices rise high enough to cut demand, and if you can’t afford gas, too damn bad. You’ve just become one of life’s losers.

    We will reorganize our society when it becomes obvious that we have no other choices. We are too invested financially & psychologically in the current paradigm to voluntarily leave it for a what is seen as a drop in the standard of living.

    Mauricio: Thanks for the tip. I’ll check out the magazine at the local library next time I go.

    We’re seeing the start of an alt.energy bubble right now with the mandate for more ethanol production. My guess (and it’s just that: a guess) is that any alt.energy bubble is short-lived, since the limit of what we can do with current technology is way short of what would be needed to replace even half of our current petroleum consumption. That said, fiat currency systems always have boom & bust cycles… so why not alt.energy?

  6. My pleasure. That same article is the subject of JHK’s post this week, and he asks, among other things, whether Janszen draws any distinction between a boom and a bubble…

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