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The Times: High hopes and hard truths dictate future

Royal Dutch Shell Plc CEO, Jeroen van der Veer

(Wall Street Journal image reproduced
in accordance with our Fair Use Notice)

Efforts to fight global warming will be wasted unless we concentrate on energy efficiency

By Jeroen van der Veer
June 25, 2007

When it comes to the future of energy, the world needs a reality check. Contrary to public perceptions, renewable energy is not the silver bullet that will soon solve all our problems. Indeed, in the decades ahead, three hard truths will generate turbulence in the global energy system.

We all know that global demand for energy is growing, but the reality of how fast hasn’t really sunk in. The first hard truth is that demand is accelerating. Energy use in 2050 may be twice as high as it is today, or higher still. The main causes are population growth, from six to more than nine billion people, and higher levels of prosperity. China and India are entering the energy-intensive phase of their development. This is the point when people buy their first television or car, or board a plane for the first time, and start to consume much more transport fuel and electricity. And most people in China and India have never boarded a plane yet! The pace of change is startling. Last year, China enlarged its electricity capacity by roughly the equivalent of Great Britain’s entire stock of power stations.

The second hard truth is that the growth rate of supplies of “easy oil”, conventional oil and natural gas that are relatively easy to extract, will struggle to keep up with accelerating demand. Just when energy demand is surging, many of the world’s conventional oilfields are going into decline. The problem is not the availability of resources as such. Overall, the International Energy Agency believes that there could be roughly 20 trillion barrels oil equivalent of oil and natural gas in place. This includes both conventional and unconventional resources, such as oil shale and sands. In theory, this is enough to keep us going for about 400 years at the current rate of consumption. In practice, though, less than half can be recovered with existing technology. The world now produces 135 million barrels oil equivalent a day of oil and natural gas. We could still raise that number with new technologies, but only gradually and certainly not indefinitely.

The third hard truth is that increased coal use will cause higher CO2 emissions, possibly to levels we deem unacceptable. The IEA believes that coal use could grow by around 60 per cent in the next 20 years. The main reason that countries turn to coal is energy security. China and India will continue to exploit their domestic coal reserves to be less dependent on oil and gas imports. So will the United States, which even now generates more than half its electricity with coal. But burning coal for electricity generates twice as much CO2 as burning natural gas. Gasifying coal, instead of burning it, reduces emissions, but still this is not enough to solve the problem.

In our battle against greenhouse gas emissions, taking the CO2 out of fossil fuels, especially coal, is crucial. It will be a huge challenge: to keep greenhouse gases in the atmosphere well below 550 parts per million, the upper most bound of where science tells us we should be, Shell works with models that assume carbon capture and storage is installed at 90 per cent of all the coal and gas-fired power plants in the rich countries by the year 2050, and at 50 per cent in nonOECD countries. Time is short: it will take a decade to test the technology in pilot projects before we can move to larger-scale projects.

So what about renewables, such as wind and solar energy? The share of renewables in the global energy mix could go up from its existing very low base of about 1 per cent to about 30 per cent by the middle of the century. The number of wind turbines, for instance, may grow from about 30,000 today to one million and their capacity will be significantly larger than the ones we have built so far. This assumes that the hunt for technological breakthroughs to make renewables cheaper will be successful. But even then, fossil energy will still make up most of the remaining 70 per cent. However, this is out of sync with what opinion polls show that most Americans and Europeans believe – that renewable energy will have replaced most fossil energy by 2050. As the hard truths make clear, this simply isn’t going to happen.

That is why energy efficiency is so important. More than half the energy we generate every day is wasted. In an average car, about 20 per cent of every unit of petrol goes into moving a car forward, the rest is lost as heat. For an aircraft during take-off, the figure is 8 per cent. Only 35 per cent of burnt coal in a power plant becomes electricity; the rest, again, is lost as heat. What’s the point of producing ever more energy if we continue to waste most of it? Instead, we should aim to become twice as efficient in our use of energy by the middle of the century. That is entirely feasible, provided that the will is there.

The world’s energy system is entering a turbulent phase, and the only question is: how turbulent? A cooperative world will respond more effectively than a fragmented one. Provided governments create the right rules and incentives, and don’t throw up barriers, the global market will direct money and brainpower to the best solutions. The alternative is a global market failure, and future generations would pay the price.

The author is chief executive of Royal Dutch Shell

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article1980585.ece

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