Rich Karlgaard, Forbes Staff
This year will likely be the first time in history that a company tops $500 billion in sales. Two oil companies are good bets to pass the mark: the U.S. ExxonMobil and the U.K.-registered, Netherlands-headquartered Royal Dutch Shell. In late March I talked with Shells CEO, Peter Voser, onstage at a Silicon Valley Churchill Club event.
How did an economist become CEO of Shell? I started out at Shell but left to become the CFO of [Swiss-based] ABB. In 2004 there was a crisis at Shell, and I came back in as CFO.
What was the crisis? The company had overstated its oil reserves in the ground. A few heads rolled for that.
Ouch. And then you became CEO in 2009. Yesit was a shock to the company! I was the first non-Dutch or non-Brit [Voser is Swiss] to head the company. The second shock was having an economist, not a technologist, at the top. So that gave me a few challenges in the beginning. I had actually said no to the job a few times.
What convinced you to accept the CEO job? The Shell board kept up an ongoing conversation with me. Shell had turned 100 years old in 2007, so we talked a lot about how to make Shell a world leader for the next 100 years. By 2050 the world will have 9 billion, not 7 billion, people; global energy consumption will be at least double what it is now; and China will have 600 million or more cars. The question is how should Shell evolve to serve this new world?
You became CEO in June 2009, during a global economic crisis. What was that like? I saw it as a great opportunity. Shell had become too slow. Wed built up a lot of structures, hierarchies, fat. I wanted to change that from the first day I became CEO.
Speed of transformation is high on every CEOs list. What are the keys? Two things. First, you have to communicate right from the startand very clearlywhat you want to do. Then, when you start to make changes, you start at the top. We took 20% of Shells top management out in order to make the company fitter, with faster decision trees, more accountability further down. Then I took the unusual step of asking the top 14,000 people at Shell to reapply for their jobs.
How long did it take to change Shells organizational structure? Seven months. I wanted it in six, but I was happy with seven. When you decide to change, you have to move fast.
Where is the worlds energy going to come from? Lets start with the facts. We estimate that energy demand worldwide will double by 2050. Ninety percent of the new demand will come from non-OECD countriesand half of that from China. The numbers Ive given you assume gains in energy efficiency. If we dont have those gains, then energy demand will triple by 2050. Remember that energy demand rises fastest in countries that are coming out of poverty, with people buying their first cars and refrigerators. We must assume that the next 20 to 25 years will be a very intensive energy phase.
And your view is that nothing can really replace fossil fuels in 20 to 25 years. Correct. We can achieve efficiency gains rather quickly on the demand side, but big changes on the supply side take decades.
Some futurists say you underestimate the pace of change in wind, solar and biofuels. If you look at the history of new energy technologies, youll see they take 25 to 30 years just to get to meeting 1% of global demand. This is not the six months mobile-phone-type of change. Biofuels just met 1% of global energy needs. Solar will meet 1% pretty soon. These are not new technologies. The innovation we really need is in process innovation that cuts speed of adoption. Its a tough nut to crack.
Why so tough? The global energy system is complex, with incredible logistical challenges.
Have we hit peak oil? Weve certainly hit the cheap-oil peak. Its going to get more expensive. All energy is going to get more expensive.
Will Shell always be an oil company? Let me share two areas I think about. One is the relationship among energy, water and food. As the world grows to 9 billion people and also grows more affluent, its not only the demand for energy that will double but also the demand for water and food. The second thing I think about is urbanization. Today 50% of the worlds population lives in major cities; in 30 years 75% will. During this period a new 1-million-person city will be created each week. How we get energy, water and food into these cities will be the great challenge of the next several decades.
Would the CEO of Shell ever consider buying an electric car? Not as long as coal is the source of most electricity!