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Oil Price Volatility Will Remain for Next Decade, Peter Voser Says

BUSINESS CHINA

11 Oct 2011

5 Questions with Shell CEO Peter Voser

Q. At SIEW 2011, you will be speaking on the future of energy. Can you provide us with a sneak preview on where you see the future of energy?

A: The global energy system is in the early stages of a historic transformation. Customer demand for secure and affordable energy is growing, propelled by a rising global population and strong economic growth, particularly in the developing countries. Traditional energy supplies are becoming politically and technically more difficult to reach. At the same time, environmental stresses linked to meeting energy demand are increasing; rising CO2 emissions and pressure on natural resources, such as water.

Meeting the world’s growing energy needs responsibly will be one of the major challenges in the coming decades. What’s clear is that all types of energy will be needed; cleaner fossil fuels will play a part, as will more renewable energy. Ongoing investments and advanced technology are a necessity too. A strong collaboration with industry, government and civil society to meet future energy demand more sustainably for customers will be required as well.

Q. What role do you see Asia playing in the global energy space, taking into account the fast-growing energy demand in this region?

A: One key transition of the global energy system in the coming years will be the shifting of energy demand from the West to the East. By 2025, China’s energy consumption is expected to rise by 75 per cent, while India’s will more than double, according to the International Energy Agency (IEA). China’s motorway building programme and rising prosperity will drive demand growth.

Meeting this demand will require a wide range of energy sources and technologies. At the same time, decisions made about the energy mix must consider the environment, including the impact on the world’s climate and water systems, and food resources.

Coal currently plays a big role in meeting China’s energy needs and will continue to do so. But, the increased availability of natural gas for power generation–including onshore shale gas in China–can help meet future demand at a lower environmental cost than coal. China is also rapidly catching up in deploying renewable energies like wind and solar, and is a world leader in developing battery technology for vehicle electrification. This could help reduce costs for these technologies and develop manufacturing capacity for export.

Our manufacturing assets in Singapore are well-positioned to meet the energy demands of these regional markets. Shell intends to maintain a leading position in the growing Asian petrochemicals market. In May 2010, Shell officially opened our largest petrochemicals investment to date, the Shell Eastern Petrochemicals Complex project, making it our largest, fully-integrated refinery and petrochemicals hub. This integrated site in Singapore takes advantage of our existing manufacturing operations there to bring considerable synergies in terms of feedstock, operations and logistics. The availability of this additional feedstock from our plants will serve to support the growth and diversification of Singapore’s chemicals cluster, as well as meet Asia’s growing market needs.

Q. From an industry perspective, which are the biggest areas for energy investment from your point of view?

A: Heavy investment in all forms of energy production and low-carbon technology will be needed to meet long-term increases in global energy demand while tackling environmental challenges. This includes investments in major oil and gas projects and continued investment in technology to bring CCS to commercial scale and more renewables on-stream.

The numbers are dazzling. If governments implement the policy measures they have already announced, cumulative investment of some $33 trillion will be needed in the global energy supply infrastructure between 2010 and 2035, according to the IEA. Billions more will have to be spent on upgrading electricity transmission networks to handle increased demand and the on-and-off power generated by wind and solar.

These are complex investments that will have to be sustained over many decades. By maintaining investment, energy companies can help to moderate volatility within the sector, and build a path to a sustainable and resilient energy future.

At Shell, we are making a contribution. Between now and 2014, we have plans to spend more than US$100 billion on major projects that will increase our production, especially of gas. Of this, we invest around US$1 billion a year on research and development into advanced technologies and developing alternative energy. Shell’s main focus in alternative energy is in biofuels where we see the biggest contribution to sustainable transport in the medium term. For example, we are investing in the production of Brazilian sugarcane ethanol through our proposed joint venture with Cosan.

Q: Smarter Mobility is one of Shell’s focus areas. What is your vision of “Smarter Mobility”?

A: “Smarter Mobility” is what we call our approach to developing a cleaner, more energy-efficient global transport system. We believe that meeting rising demand for transport fuel and addressing challenges such as climate change will require action in three areas.

Firstly, we will continue to provide consumers with “smarter products” -new fuels and lubricants which are energy-efficient and environmentally-friendly. For example, Shell’s FuelSave petrol saves consumers up to 1 litre of fuel in a 50-litre tank.

Secondly, we encourage “smarter use”, giving people the advice and information they need to consume fuels more efficiently. For instance, our FuelSave Partner programme uses an onboard device that tracks fuel purchases and driver habits. Freight companies can use this information to plan routes and drive more efficiently, cutting fuel consumption by up to 10 per cent.

Thirdly, societies demand smarter infrastructure, evolving the way cities are built and managed in order to make them more sustainable. For example, integrated public transport systems can cut traffic and urban air pollution.

By working together to deliver smarter mobility, governments, businesses and consumers can reduce CO2 emissions while maintaining security of supply.

Q: With oil being a core business of Shell, what are your thoughts on the volatility of oil markets in light of the recent Middle East and North Africa developments?

A: OPEC’s current spare capacity is probably more than double what it was during the 2008 price spike. So in that respect, at least, the world is better placed to cope with any current supply disruption.  But, the current unrest is not the only source of oil price volatility. Another is rising long-term demand: Even before the recent surge to $125 per barrel, prices had increased sharply as demand recovered after the recession, driven by the emerging economies. In fact, in 2010, oil demand increased by 3 per cent. Only twice before has the world experienced such a strong growth rate, in 1976 and 2004.

Looking ahead, energy demand could double or even triple by 2050 on 2000 levels. Even with significant efforts to boost supplies and moderate demand, there could leave a gap between supply and demand equivalents to the size of the entire energy industry as it stood in 2000. Clearly, the risk of price volatility in oil and other energy commodities will remain with us for the next decade and beyond. All of which reinforces the need for the world to maintain heavy investment in new supplies.

Source: www.siew.sg.

Peter Voser became chief executive officer of Royal Dutch Shell on July 1, 2009.  Currently, he’s the director of Catalyst, a non-profit organisation which works to build inclusive environments and expand opportunities for women and business. He was appointed to the Board of Directors of Roche in 2011. Voser is also active in a number of international and bilateral organisations, including the European Round Table of Industrialists and The Business Council. Voser, who will be a speaker at the Singapore International Energy Week (31 October – 4 November 2011), reveals on what lies in store for energy.

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