Thriving through the energy transition
As a UWA graduate it's with some nostalgia that I write a piece for Uniview. Nostalgia because my mind immediately went to my time at UWA and the question of what has changed in the world since graduating.
The most obvious change for me – aside from family life with three children – is how we all receive information about the world, and the issues that dominate our attention.
Here I notice a step change since the 1990s when I graduated from engineering at UWA – an era typified by a cynical optimism towards George H Bush’s ‘new world order’ and the recent collapse of communism.
I recall our attention being dragged in numerous directions without a single issue to galvanise society’s attention.
It seemed for a short time that Cold War fears had disappeared, and made way for the free flow of information assisted by the dawn of the internet and mobile communications.
Fast-forward to today, and despite huge growth in information sources, including social media, we seem to be focused on a smaller number of issues that dominate both digital news and conversations.
Today’s newsfeed (a term that didn’t exist in the 1990s) is filled by geopolitical threats in places like the Korean peninsula, by the rise of China, by Brexit and by news coming from Donald Trump’s White House.But the biggest issue for me is climate change. There is no other current issue with the potential to disrupt both our society and the energy industry on such a deep and fundamental level.
Many of the businesses at the centre of debate around energy transitions – particularly energy companies – are portrayed as dinosaurs: old-fashioned and slow-moving.
Regardless of whether that is accurate, one thing is undeniable; it is the energy industry that most adapt most to thrive. And it is the willingness to adapt from the top of these businesses that will dictate both the pace and the success of that adaptation.
As an employee I was excited to hear my CEO, Ben Van Beurden, make it clear that Shell has an emissions ambition to make sure society meets the aims of the Paris Agreement, and a recognition that to do so, we will have to stop adding greenhouse gases to the atmosphere by 2070.
That is a path likely to require society to roughly halve the amount of greenhouse gases produced for each unit of energy used by 2050.
Shell’s net carbon footprint ambition is aimed at keeping the company in step with society’s progress. These ambitions cover not only the emissions from our own operations but also those produced by our customers when they use the energy that we sell.
For Shell it is through our products that we can make the biggest difference on emissions because, as Ben put it, “what matters is the effect we have on the world, and most of that is down to the products our customers rely on to live their lives.”
Energy customers rely on oil and gas, and I have no doubt they will continue to do so for many decades. But over time this carbon footprint ambition will transform the product mix of energy companies.
If we are going to make a meaningful transformation, we must first understand what we are trying to transform.
Today the oil and gas industry supplies around half of the world’s energy – that is 50 per cent of the energy used by industry, and 90 per cent of all the energy used for transport.
When we add the other half of the energy mix from sources like hydroelectricity and coal, the size of investments adds up to $55 trillion.
Put simply, the entire US economy is around $19 trillion, so today’s energy system has nearly three times as much money invested in it as the value of every single product and service in the United States over a 12-month period.
So as we move to decarbonise our energy system, we need to either transform or replicate not only the $55 trillion currently invested, but also the additional energy to help more than one billion people who currently live without electricity – along with growth from both population increases and greater demand.
This is the challenge of the energy transition. How do we alleviate the energy poverty of one billion people, providing them with access to the basic services we take for granted, like refrigeration and internet access, and all in a carbon-constrained environment?
The solution to that challenge is unknown today, but as a business leader in Australia in 2018 there are two things I do know.
Firstly, the economic scale of the challenge means the players in this game must be profitable. We are businesses, not charities.
It is only by driving strong financial outcomes that companies will continue to be viewed as investments by their shareholders. Shell’s ambitions are about thriving as the world’s energy system changes, by being both financially and environmentally sound. Not by abandoning oil and gas – the world will still need it – but by finding business opportunity in the changes taking place.
This recognises that it is only by shareholders continuing to invest in companies that they will have the capital needed to help transform the global energy system and meet carbon ambitions.
Secondly, energy companies must secure society’s support for what they do, because without that support they will achieve nothing.
Many engineering organisations have for too long told the world about how clever they are – using terms like ‘deepest’, ‘longest’ and ‘greatest’. In truth, not many outside the engineering community marvel at these achievements. What most customers do care about is how we enable modern life.
Over more than a century, Shell has enabled Australians to bring crops to market, travel to school, heat homes in winter and power factories that have employed thousands of hard-working Aussies.
So just as the energy landscape is changing fast, so must energy companies. To do so we will need to stay in step with a society that will continue to evolve as fast as it has since I left UWA more than two decades ago – if not faster.
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