Shell’s Voser Talks About Food, Water, and Energy; Calls for Carbon Price; Stresses Need to Explore

Peter Voser, the chief executive officer of Shell, sees a world where energy, food, and water resources face increasing stress, and where businesses can offer the leadership that national governments have failed to provide in the search for solutions.

Shell is sponsor of National Geographic’s Great Energy Challenge, an effort to engage and enlighten readers on the question of how the world will meet its growing energy needs in a responsible, equitable, and sustainable way. Shell’s own actions are closely scrutinized; it is one of the world’s largest energy companies, producing 3.2 million barrels of oil and 9 trillion cubic feet of natural gas per day.

Voser sat down for a wide-ranging interview with National Geographic last month in Rotterdam, the Netherlands, not far from the international company’s headquarters in The Hague. He discussed the role of natural gas in the global energy mix and the need for regulation, his own company’s launch of drilling in the Arctic this summer, and what nations could and should be doing to ensure both affordable energy and protection of the environment and climate.

The interview took place at a business forum that Shell hosted on global environmental stresses, so Voser began by noting the United Nations’ forecast that global population will grow from 7 billion to 9 billion by 2050. Between that growth and the fact that 1.5 billion people today lack access to modern energy or adequate food, Voser said he believes growing demand for fuel and power is inevitable. The following is an edited transcript of our conversation.

Why is Shell bringing together businesses to talk about energy, water, and food?

When you drive new energy demand you automatically will drive water demand as well, because a lot of energy components will need water to be produced. It’s clear that the stress on water, the stress on land, the stress on agriculture, and the stress on energy is going to intensify. I think it’s time that through collaboration, different industries and governments and NGOs [nongovernmental organizations] need really to work together [on] how we use these resources in the longer term. Because if you all just go and use the maximum, there’s not going to be sufficient [resources]. We need to put money into innovation and collaboration.

(Related: “Growing Food Demand Strains Energy, Water Supplies” and “Quiz: What You Don’t Know About Food, Water and Energy“)

Nations have had such a difficult time collaborating on something like climate. Is there anything businesses can do, that nations and governments haven’t quite been able to do, when it comes to shared resources?

This is about a bottom-up approach. Because the top-down approach, in climate and in other areas, across boundaries, hasn’t always worked. From a business perspective, through pilot projects, through working together and collaborating, we can actually start at local levels to influence the policymakers, regulators, and NGOs, by actually demonstrating that we can do it. I think there’s a role for us to play: to drive these pilot projects, to bring our thinking together, and to share the thinking.

(Read about examples of corporate pilot projects: “Shining a Light on the Linked Stresses for Food, Water, and Energy”)

We built a gigantic gas-to-liquids plant in Qatar. That needs—and produces—a lot of water. If you would take water from Qatar, a country where water is not that readily available, that would be a drain on their total water [resources]. Now we have actually a completely closed system [using only the water produced by the plant’s own processes]. So we don’t take water from Qatar. This needed R&D, innovation, design. It cost us more money to do so, but I think it’s an example of where a country worked together with us in a big project to actually design it in the right way.

Natural gas is so transforming the energy picture, certainly in my country. What do you think is the potential around the world for natural gas?

We have, against current production or current demand, 250 years of gas reserves in the world. Gas has, from a climate change point of view, the enormous advantage that it is a much lower CO2 [carbon dioxide] fossil fuel. Therefore it’s an ideal destination fuel to produce electricity. Our assumption is that gas demand will increase significantly going forward, because it has  all these positive components in it.

(Related Coverage: “The Great Shale Gas Rush” and Graphic: “Breaking Fuel From Rock“)

Shale gas has obviously entered this field as well, which makes gas now even more important, because we have much more. I think the emotional discussion in Europe about the impact of developing shale gas resources is at a much higher level than in most other countries. I think we, as an industry, but also governments, have a lot of education still [to do], so these very valuable resources can be actually developed.

There are many companies doing shale gas development—more than 60 in Pennsylvania alone. What’s Shell’s view of the need for regulation to ensure the development is handled responsibly?

We have taken the very unprecedented step last year of making our operating procedures, guidelines, and policies publicly available, with the objective to lift overall operational standards. As you say, it’s a very fragmented, competitive environment. It’s not only to lift the operating standards, but also to give the regulators, which are mainly at state level, an idea of what global top world-class standards could look like, which they could actually use in setting the regulations.

I think we need regulations. We need, specifically, monitoring systems, be it on water usage or groundwater contamination issues, on the chemicals which are used, and [on] monitoring methane, which is the other subject we are discussing in the United States at the moment.

(Related: “International Agency Calls for Action on Natural Gas Safety” and “Air Pollution from Fracked Natural Gas Wells Will be Regulated Under New U.S. Rules“)

We have been fracking in the [United States] for the last 78 years, and we didn’t experience any groundwater contamination because, if you do it the right way, there is no groundwater contamination. The methane issue can be monitored. For example, at Pinedale [Wyoming] we built infrared sensors into our operations to detect any leakage of methane so that we can immediately stop it. The technology is out there. It’s about focusing on it, monitoring it, and actually investing in it.

We’re already seeing gas displacing coal for electricity in a dramatic way in the United States. What is your view of the potential for gas to replace oil in transportation?

I think you will see gas entering into many areas. This will drive, in my opinion, the energy policy, the electricity policy of the [United States] in the years to come.

Gas can be used in transport. I would see it more in the heavy truck business than in the normal passenger car business, because I think consumer behaviors are slightly different in the U.S. compared to some other parts of the world. We are running pilot projects on energy in transport. We are looking at one pilot project at the moment in Canada, the green corridor coming from Edmonton going to Vancouver; we’re building fifty refueling stations there for gas. We are looking at various projects in the U.S. We are looking here in Rotterdam actually at gas for shipping. So I think gas in transport will be key. In heavy trucking and shipping, I can clearly see it.

(Related: “Trading Oil for Natural Gas in the Truck Lane“)

There are infrastructure issues.

Some needs to be built. So we’re building gas-gathering stations and we’re building pipeline systems that will be small-port transport systems. But I think that can be done. I see gas in transport specifically for the U.S., and for China, by the way, and for the global shipping industry.

In the United States, our driving has plateaued, and we’ve displaced gasoline with ethanol. Our cars are getting more efficient, and yet from the point of view of the American driver, our gasoline prices are still high and going higher. Is there any point to all of these steps that we’ve taken? Are we going to see higher prices in the future, no matter how much we conserve?

I was just in Washington last week. You can clearly see gasoline prices are high on everybody’s mind. But let me first give you a global long-term view on energy prices. I think energy prices will go up—because of the demand pressure, because of scarce resources that are more costly to develop. And renewables, which are entering the market the market—it could be for electric cars or whatever—they’re just going to be more expensive than what we are using today. So I think long-term [energy prices] are going to go up.

U.S. gasoline prices are still cheap compared to the rest of the world. One needs to understand that. Therefore the consumption, either per capita or per consumer, is actually much higher. The energy behavior in the U.S., compared to for example Europe, or some of the emerging countries, is different by a high factor. That brings me to energy efficiency and energy usage. Some change in cultural behavior will have to happen in the U.S. over time. And therefore I think, yes, higher prices in the long term. But I think if you combine that with the efficiency gains we still can achieve, and with maybe some cultural behavioral changes, the net of the energy price may actually not go up that much.

(Related Quiz: “What You Don’t Know About Gas Prices“)

The  cost of your energy might not go up [even if the price goes up]?

Yes, what your cost of energy is at the end. So if you are in Texas, with an eight-cylinder big type of vehicle—you could [use] a diesel engine or a [natural] gas engine or a hybrid, I think they are as fast or as big, but they will be much more efficient, and therefore can actually absorb higher energy prices.

But globally, if you look at the demand picture globally, the energy prices will be going up just because the demand is?

Shooting up, yes. We have a billion cars at the moment in the world. We think this will go to 2 billion over the next 40 years. And as I said, we have still 1.5 billion people without access to electricity, and there’s 2 billion more to come. We have 1 to 1.5 billion poor people: no access to food, no access to many things. They will [improve] their [living] standards, and that will drive demand as well. So I think there is no way that we can provide the energy at the same price over the next 30 to 40 years.

What’s the most important thing that nations can be doing, or should be doing, to ensure that energy stays affordable?

There are three things:

I think nations need to drive energy efficiency . . .  housing construction standards, gallons per kilometer or per mile. There is plenty we can do on the energy efficiency side. Energy efficiency is key.

The second thing is that we need a price for CO2. This will help us to invest, actually, much more in the longer term. We need that certainty on how CO2 is priced because this will also help us to invest in different technologies in the longer term. It needs a global approach. You cannot have isolated approaches in terms of CO2 pricing. CO2 doesn’t recognize our borders. It’s as simple as that.

And the third thing—where governments are very important—governments should design energy policies and give us the framework of what they want to achieve. But governments should stay away from giving an energy policy that chooses the energy components. Because we don’t know yet in the world which energy component in the longer term will deliver lower carbon-footprint energy. And governments have a tendency to pick and choose, and that doesn’t let innovation and R&D actually develop the right policy for the longer term. So we’re developing today things like offshore wind, which is by far too expensive. It doesn’t make sense compared to some other forms with low-carbon footprint energy you can already do today. So what they should say, actually is how much carbon they want, how much CO2 they want in their energy policy, how much they want to have produced inside their country, for example, and how much they want to import, and then start to give us the framework. I think businesses and NGOs together—and academia—can actually work on the solutions. Today it’s too prescriptive, and we get nowhere.

You’d have to convince the politicians of the advantage of a CO2 price over subsidizing different types of energy.

I get this question a lot: “Where do you see a good energy policy in place?” I don’t see it in the West anywhere but if I go to China, I have a very good energy policy. I know what to do. So I think there’s also some learning for us in the West. If you can get agreement and can get a good energy policy, the industry will align and work for it. But the political dimension of agreeing on a policy—in your country, getting any alignment over the next 12 months—is probably going to be difficult.

In China, they have the imperative to produce energy, but do they have the protections in place?

Oh yes, they have 17 percent CO2 savings in their five-year plan. [Editors’ note: China’s 12thfive-year plan is to cut carbon intensity—the amount of emissions per unit of GDP—by 17 percent by 2015.] They double [natural] gas from 4 to 8 percent [of the nation’s energy mix], which contributes to that as well. Big drive for solar and wind development. They make the funds available. Big targets on energy efficiency. All these components are in their five-year plan. One thing you can’t accuse the Chinese of is that they are not delivering their five-year plans. They deliver it.

(Related Photos: “A Rare Look Inside China’s Energy Machine“)

I wanted to ask you about the Arctic. I’ve seen Shell’s plans, and the protections you plan to have in place, but I think people who are concerned about the Arctic wonder what can be done to make sure that the Arctic eventually doesn’t look like offshore Louisiana. There’s so much oil and gas potential there, they worry it will alter the Arctic in ways that we don’t want for that very special environment.

Indeed as you say, the expected resources in Alaska or in the Arctic, let’s use the Arctic because it’s not just Alaska, there’s Norway, Russia, et cetera. I think the resource potential is tremendous—oil and probably gas. My base assumption is these resources will be developed, because people will need it. And therefore, I think it is absolutely key that reliable operators with a sustainability track record actually develop these resources. I would see us as one [company] which takes a lot of care in terms of sustainability. It needs, clearly, the best preparation to actually develop these resources. We have spent a lot of time over the last few years to, for example, further develop our drilling ships. We have further developed potential containment systems. We have further developed our blowout preventers. We have learned out of Macondo [BP’s Gulf oil spill] how to apply that. So there’s a lot of preparation that has gone into this.

I think we need now to explore, because people do kind of forget from time to time that what we are doing now is to explore. To know what is there, in order then to design the right development plans. We are not yet in the development plan, to produce. We are exploring to find out how we will build the system in the longer term. We have taken great care so far. Let’s also be clear: this is shallow water, and it’s not high-pressure, compared to the Gulf. To take your Louisiana example, that’s deep-water and high-pressure in some parts. Therefore the risks involved in Alaska, from a pure technical point of view, are different. In terms of nature, I invite all the NGOs, local communities, to work with us in order to actually develop the right systems in the longer term.

We are a very transparent company. We have used a lot of time to work with communities and NGOs now. We can actually develop the best solutions for the longer term. So I think from that point of view, we do this in a very transparent way, we use our best technologies, we have a track record, we already build sub-Arctic in Russia, for example. We were first in Alaska . . . 1918, I think? It’s close to 100 years. So I think we’ve really prepared ourselves with a lot of local stakeholder engagement, a lot of work with the regulators in the [United States], improved the systems, and I’m confident that we can do this in a sustainably acceptable way.

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