VOICE OVER Welcome to the DNV GL Talks Energy podcast series. Electrification, rise of renewables and new technologies – supported by more data and IT systems, are transforming the power system. Join us each week as we discuss these changes with guests from around the industry.
MATHIAS STECK Welcome to a new episode of DNV GL Talks Energy. Today, we want to talk about possible different routes for the evolution of the future energy system. My guest today is Brian Davis, Vice President, Integrated Energy Solutions from Shell International. Welcome Brian.
BRIAN DAVIS Thanks Mathias. I’m very happy to be here and share my insights on the energy transition with your listeners.
MATHIAS STECK Brian, before we get started to discuss the different routes for the evolution of the future energy system, I want to do two things. We have agreed that I will read a brief disclaimer from Shell, and also, I will need you to introduce yourself afterwards, before we jump right into the topic.
So, here it is, before we get started, the brief disclaimer from Shell, saying, in this discussion, we will talk about scenarios used in Shell to challenge perspectives on the future business environment. Shell bases their scenarios on plausible assumptions and quantifications, but wants the listeners to know that scenarios are not intended to be predictions of likely future events or outcomes, and investors should not rely on them when making an investment decision with regards to Royal Dutch Shell. Also, while Shell seeks to enhance its operation’s average energy intensity, it has no immediate plans to move to what is called a net zero emissions portfolio over the investment horizon of ten to 20 years. So, after this, Brian, let’s get started, so we can talk more about what indeed net zero emissions actually means. And before we do so, please kindly give us a brief introduction of yourself as well as what you are doing in Shell.
BRIAN DAVIS Sure. I’ve worked for Shell for almost 30 years now in a variety of roles, mainly in our downstream refining and marketing businesses; and I’ve been fortunate enough to live and work in many countries around the world. My most recent role, I was in corporate strategy where we looked at the long-term developments in the energy system and used those insights to help inform Shell’s strategy as to how we should respond so we thrive through the energy transition towards a lower carbon economy.
I’ve now moved into Shell’s New Energies business, and this business was formed last year to pursue three main areas of opportunities in the energy transition. One relates to new low carbon fuels for transportation – things such as biofuels and hydrogen. The second area of focus we have is renewable power, where we look at deploying wind and solar energy, and importantly, how we can partner those with storage and gas to manage the intermittencies. And finally, we’re looking at connecting customers with new business models for energy, and that’s focused on how we enable changes driven by digitalization and decentralization of the energy system.
MATHIAS STECK Thanks for this overview, Brian. And that gives me a nice bridge into the discussion, for which I had also planned to read a statement from Shell’s CEO, Ben van Beurden, who said, “at Shell, we find the goal of A Better Life with a Healthy Planet to be an inspiring ambition. But navigating the necessary transitions will require extraordinary and unprecedented collaboration with urgency and long-term vision and policy-making and leadership across all sectors of society and the economy.” Can you reflect on this for us a little bit?
BRIAN DAVIS Yes, that quote comes from the introduction to a work we did in our Scenarios team called A Better Life with a Healthy Planet. And for those interested, you can go to our website and search up Scenarios and find that material. But what our team did is look at the work we put together for our most recent scenario thinking which looks at the evolution of the energy system over long periods of time. And we took the most optimistic features of our different scenarios and looked to combine them individually into shifts in policy, technology deployment, circumstances and events that might move the world towards a lower carbon or a net zero emission trajectory, and thought, what does that need to make it happen?
And fortunately, our work showed that – allowed us to at least conclude, rather – that it was… we believe that society’s goal of providing necessary energy to support the lives and livelihoods of a world which will grow towards ten billion people by the end of the century. We think that that’s possible to do in the context of net zero emissions. It’s technically feasible but it’s very challenging.
MATHIAS STECK Yes. Yes, I agree. And Brian, just for the benefit of better understanding this, could you define in a bit more detail what you mean with net zero emissions, and what forms of energy this applies to?
BRIAN DAVIS Sure. I think, firstly, the important thing to highlight is that the energy system is more than just the electricity system. Electricity is one way energy is delivered, but energy is also delivered in the form of fuels. Think about liquids for transportation and gas and even wood and biomass. The concept of net zero emissions is an important one because as we model the global energy system, we will see that different sectors will continue to emit CO2 and greenhouse gases. And in order to be able to achieve society’s goal of zero emissions, we actually think what will be important is that where there are emissions, they are offsetting negative emissions such that the overall world is in balance.
MATHIAS STECK That leads me to another question, Brian. Obviously today, the countries around the world are at a very different stage of development and projected growth / decline of energy consumption. One could say that the developed world had their emission peak already, whereas developing countries are heading towards the climax of emissions. So, net zero emission is something which will happen in a different way at different places in the world, and not at the same pace. Is that correct?
BRIAN DAVIS That’s right. I think firstly, at the overall global level, we need to achieve net zero. But in country by country, sector by sector, you could have different outcomes. We expect a mosaic of outcomes, where countries will respond and adjust their energy mix and their policy in line with their own circumstances. Likewise, we expect the pace of change will be different across different sectors – some sectors are easy to decarbonize – and also across different economies. You’ll have a different approach for countries which are developing and looking to provide affordable energy to power their growth; and those countries which are more mature and are looking to transition from their existing energy system to one that’s cleaner and more sustainable.
MATHIAS STECK Yes, I wold like to talk a bit more about the sectors you just mentioned. So, what are the most important sectors to work on to achieve net zero emission?
BRIAN DAVIS We need to take action across all four pillars of the energy system. And those four are the power system, the industrial use, transportation, and the built environment or buildings. If I take maybe each one of those in succession and talk a little bit about the characteristics, I think you’ll get a sense of how energy is used, and some of the opportunities and challenges of moving them towards a lower carbon outcome.
Firstly, we look at the power system. Electricity today is about 20% of final energy consumption. And most of that electricity comes from fossil fuels – things like gas and coal, also nuclear and hydro. And we see that electric renewables, like wind and solar, are growing very dramatically and taking an increasing share of power generation around the world. You will regularly hear about stories of days where wind or solar are powering the economies in many places of the world. But we do see much more to be done to properly integrate electric renewables into the system, and particularly managing issues of storage and intermittency, which your programme has covered very well in previous podcasts. If we look at the industrial sector, they need quite a lot of energy in the form of both power and heat. And the heat aspect is the one that needs consideration for how can you decarbonize that. Some industries that make things like clothes, food, paper – they can be relatively easily electrified. We have places, examples in the world where that is done. But there are currently no easy replacements to fuel in heavy industries such as iron, cement, and steel manufacture, where extremely high process temperatures are required. And indeed, in some, you know, coal is used for smelting steel and produces CO2 as an outcome of that process. So, to reduce the carbon intensity of those sectors, we need to find alternatives, lower carbon molecules – maybe things like biogas or maybe hydrogen that’s produced by electrolysis from renewable energy. Now, those are possible. But right now, they’re not yet an economic alternative to the current processes.
If I move onto the third pillar which is transportation, then clearly today, transportation is primarily powered by oil. But we see that there’s a trend towards electrification of transport, starting in the light duty passenger road transport sector, that’ll be the easiest to electrify, with battery vehicles or, indeed, hydrogen fuel cell electric vehicles. And they could potentially reach 80% of the global passenger fleet over the coming decades. But we think that oil and gas will continue to be used for certain transportation uses – things such as heavy, long-distance transportation. Think of trucks and ships and barges – they’ll need oil for quite some time to come. And likewise, aviation fuel for aeroplanes. And the opportunity here to reduce carbon intensity in those sectors are through again the use of hydrogen, but also the deployment of advanced biofuels. And there’s some more work needed to develop the technologies to be able to produce those biofuels with the right carbon intensity in an economic and affordable way. And finally, buildings. Buildings today are responsible for nearly a third of all energy consumed around the world. And that energy is mainly used for things like heating or cooling, for lighting, for cooking, all of which can be powered by electricity. So, technically, it is possible to, and relatively straightforward to electrify buildings completely, especially when you do it when they’re designed and new, and you install the right equipment, you know, well insulated buildings, well designed buildings, from day one. I think the bigger challenge in the building sector is the wider socio-political challenge that there’s a large installed base of homes and offices today. So, how do we go back and retrofit and modify those buildings so that they’re able to consume their energy in a more efficient manner and moving from, say, an existing system to a lower carbon electrified system?
MATHIAS STECK An earlier series of this podcast, or episodes, I should say, we had discussions about the disruptive nature of the energy transition in which many things need to happen in parallel without having 100% clear picture how the future looks like. What is your view? How can the industry be successful in that transformation?
BRIAN DAVIS The energy system will indeed witness an extended period of disruption and co-evolution between the established and emerging technologies. When we put the sector by sector analyses together, something of a logical order of priority of actions to decarbonize the system starts to emerge. The first thing that we need to do is to redouble our efforts around energy efficiency measures, and extending the electrification across the economy in a more… wherever and whenever possible. Secondly, we need to sustain the momentum of renewables production growth, particularly solar and wind, and maximising the ability of the grid to handle their intermittency and provide a reliable electricity system.
The third thing we see is accelerating the switch from coal to gas, because that immediately helps reduce power sector emissions. And we’ve seen that happen in a number of countries around the world. And it’s a way of keeping cumulative emissions to a minimum during the transition. Fourthly, we need to be working on buildings and city infrastructure to lower the energy service demand significantly, and that’s both for existing cities but also… obviously, we talked about before, we also need to consider new infrastructure. And then finally, we need to accelerate government directed efforts towards promoting new low carbon technologies and infrastructures that’ll be required for the long-term solution. And there are things such as carbon capture and storage, the hydrogen transportation economy, you know, responsible bioenergy and sustainable forestry policy and indeed, also, looking at things such as agricultural and land use practices.
MATHIAS STECK So, those were five measures you just mentioned. Looking at the timeline, what do you think, how long will it take before these measures become effective?
BRIAN DAVIS So, the global energy system is large and it takes quite a while to make changes. So, our analysis suggests that by the 2035 to 2050 period, the first three of the actions could bring the world more than halfway to their goal of net zero emissions, you know, where much of the growth and energy demand will have been realised and the relatively easily decarbonisation actions will have taken place. But decarbonisation efforts could run out of steam at this point, unless work gets underway now, in earnest, on the fourth and fifth areas of action which, by their nature, are longer term and often require decades to plan and implement.
00:15:04 MATHIAS STECK Right. Brian, unfortunately we are coming already to an end of this episode, but I have one last question. In your eyes, what is essential for this journey to be a success?
BRIAN DAVIS So, in spite of the many challenges, the practical details of providing enough energy for a better life for everybody, with net zero emissions, can be envisaged. And that’s reassuring, even inspiring. But getting there won’t be easy. Successful and orderly transitions will require a combination of urgency and long-term vision in policy-making and leadership. And critically, sound policy must recognise environmental objectives but also economic development, encouraging a range of solutions to include both cleaner hydrocarbons as well as renewables as we go along the journey and transition. And above all, success will require the active cooperation of millions of citizens, of policy-makers, of civil society leaders and businesses across the planet. So, we hope that the work we’ve done on A Better Life with a Healthy Planet provides a constructive and helpful contribution to this most important global discussion.
MATHIAS STECK Brian, thank you very much for your time today, and thank you for sharing these very interesting insights.
BRIAN DAVIS And it’s been great to be here on your podcast today, Mathias, to share some of our thinking on this important topic.
MATHIAS STECK Indeed important. And thank you once again, Brian, and thank you also, everyone listening in. This was Brian Davis, Vice President Integrated Energy Solutions of Shell International.
VOICE OVER Thank you for listening to this DNV GL Talks Energy podcast. To hear more podcasts in the series, please visit dnvgl.com/talksenergy.