For 40 years, Shell has drawn on its scenarios to enhance business decisions and its ability to respond to change. But the financial crash, the deepest economic slump in 70 years, and a patchy and fragile recovery have changed the world dramatically. We must consider how these events may or may not have altered our energy outlooks. So we have updated our scenarios with some new analysis, Signals & Signposts. This offers our best understanding about the changes brought by the global financial and economic crisis.
The key driver in our scenarios outlook remains growth in global population and prosperity as emerging nations enter their most energy-intensive phase of economic development. Millions are escaping poverty. They are gaining access to commercial energy in the home and benefitting from the industrialised production of household goods and infrastructure.
The energy system will struggle to match this surging demand for easily accessible energy. Supply, demand and environmental tensions will swell and spread. Political, industrial and individual choices will determine whether these tensions can be resolved and whether the solutions will be benign or harmful to us.
Underlying global demand for energy by 2050 could triple from its 2000 level if emerging economies follow historical patterns of development.
In broad-brush terms, natural innovation and competition could spur improvements in energy efficiency to moderate underlying demand by about 20% over this time. Ordinary rates of supply growth - taking into account technological, geological, competitive, financial and political realities - could naturally boost energy production by about 50%. But this still leaves a gap between business-as-usual supply and business-as-usual demand of around 400 EJ/a – the size of the whole industry in 2000.
This gap – this Zone of Uncertainty – will have to be bridged by some combination of extraordinary demand moderation and extraordinary production acceleration. So, we must ask: Is this a Zone of Extraordinary Opportunity or Extraordinary Misery?
Smart urban development, sustained policy encouragement and commercial and technological innovation can all result in some demand moderation. But so can price-shocks, knee-jerk policies and frustrated aspirations.
Timescales are a key factor. Buildings, infrastructure and power stations last several decades. The stock of vehicles can last twenty years. New energy technologies must be demonstrated at commercial scale and require thirty years of sustained double-digit growth to build industrial capacity and grow sufficiently to feature at even 1-2% of the energy system.
Our work on Signals and Signposts highlights some of the new trends and developments we see affecting this area, including, greater economic volatility and cyclicality, more uncertainty and risk, a rapidly changing supply picture for natural gas driven by developments in tight and shale gas, and the opening up of Iraq for investment.
The future of energy is certainly complex, but may well offer extraordinary opportunity. At Shell, we are working hard to make the most of this opportunity to build a better energy future.
Jeremy Bentham, Vice President Business Environment at Shell discusses the challenge. For more, visit Shell's Signals & Signposts