Shell energy scenarios to 2050 - Manicore

Shell energy scenarios to 2050 - Manicore

Shell energy scenarios to 2050 - Manicore


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AcknowledgementsOur thanks go to Shell colleagues andthe many external experts who havecontributed to the development of theseShell energy scenarios.Other Shell scenario material can be foundat www.shell.com/scenariosThe publications “Shell Global Scenariosto 2025”and “Signposts” are availablethrough this website.Designed by Peter Grundy© 2008 Shell International BVAll rights reserved. No part of this publication may be reproduced, stored in a retrieval system, published ortransmitted, in any form or by any means, without the prior written permission of Shell International BV.


?IntroductionHow can I prepare for, oreven shape, the dramaticdevelop ments in the globalenergy system that willemerge in the coming years?This question should be on the mind ofevery responsible leader in government,business and civil society. It should bea concern of every citizen.The global energy system sits at thenexus of some of the deepest dilemmasof our times: the development dilemma– prosperity versus poverty; the trustdilemma – globalisation versus security;and the industrialisation dilemma –growth versus the environment. Therehave always been tensions in theglobal energy system, but it is evidenttoday that the strains are becomingmore acute.market liberalisation, globalisation,and technology had created a globaleconomic engine that was alreadybeginning to engage vast populationsin Asia. Shell scenarios in the 1990shelped people examine and exploredifferent faces of TINA. Then, in 2005,we published scenarios that exploredthe geopolitical crises of securityand trust that accompany TINA, asforeshadowed in the events of 9/11and the Enron scandal. Now, asnoted in our recent Signposts booklet,significant fault lines are developing inthe mindsets and behaviour of majorenergy producing and consumingnations. These intensify the stressesthat population growth and economicdevelopment are placing on energysupply, energy demand and theenvironment. All in all, we are enteringturbulent times for the energy system.In the 1990s Shell scenariosintroduced us to TINA – There Is NoAlternative. The entrenched forces ofSo how might the tensions andcontradictions in the system work out?Well, now is the time to introduce6

ThereAreNoIdealAnswersTINA’s natural offspring, TANIA – ThereAre No Ideal Answers.of the energy system over the nextfifty years.There is a great deal of inertia inthe modern energy system, givenits vast complexity and scale. Theoften lengthy timescales required forplanning and constructing new energyinfrastructure mean that strains withinthe system cannot be resolved easilyor quickly, if at all. It will be severalyears before major changes becomeapparent. But below the surface,the pieces are already shifting. Thequestion is, how to recognise andgrapple with these changes.Scenarios are a tool to help identifysuch shifts, and consider the plausibleinteractions between differentperspectives and possibilities. Theyhelp people to prepare for, shape,and even thrive in the reality thateventually unfolds. This text describestwo alternative scenarios, Scrambleand Blueprints, for the developmentThese are both challenging outlooks.Neither are ideal worlds, yet bothare feasible. They describe an eraof transformation. Everyone knowsthat the energy system a century fromnow will be very different from thatof today. But how will the transitionsemerge over the next few decades?These scenarios bring out the impactof critical differences in the pace andshape of political, regulatory andtechnological change.I trust you will find them stimulatingand instructive. But more thananything, I hope they will helpyou prepare for, and shape,your responsible participation in asustainable energy future.Jeremy B. BenthamGlobal Business EnvironmentShell International B.V.7

1An era ofrevolutionarytransitionsThe world can no longeravoid three hard truths aboutenergy supply and demand.1: Step-change in energy useDeveloping nations, including population giants China and India, are enteringtheir most energy-intensive phase of economic growth as they industrialise, buildinfrastructure, and increase their use of transportation. Demand pressures willstimulate alternative supply and more efficiency in energy use — but these alonemay not be enough to offset growing demand tensions completely. Disappointingthe aspirations of millions by adopting policies that may slow economic growthis not an answer either — or not one that is politically feasible.2: Supply will struggle to keep paceBy 2015, growth in the production of easily accessible oil and gas will not matchthe projected rate of demand growth. While abundant coal exists in many partsof the world, transportation difficulties and environmental degradation ultimatelypose limits to its growth. Meanwhile, alternative energy sources such as biofuelsmay become a much more significant part of the energy mix — but there is no“silver bullet” that will completely resolve supply-demand tensions.3: Environmental stresses are increasingEven if it were possible for fossil fuels to maintain their current share of theenergy mix and respond to increased demand, CO 2emissions would then beon a pathway that could severely threaten human well-being. Even with themoderation of fossil fuel use and effective CO 2management, the path forward isstill highly challenging. Remaining within desirable levels of CO 2concentrationin the atmosphere will become increasingly difficult.8

World population has more than doubled since 1950 and is setto increase by 40% by 2050. History has shown that as peoplebecome richer they use more energy. Population and GDP will growstrongly in non-OECD countries and China and India are just startingtheir journey on the energy ladder.World population 1PopulationYear1950 19501975 197520001 billion peopleOECDNon OECD20252050Climbing the energy ladder400gigajoule GJ per capita (GJ) (primary per energy) capita (primary energy)3002001000010203040USA USAEurope Europe EU EU 15 15JapanSouth Korea KoreaChinaIndiaGDP per capita (PPP, '000 2000 USD)‘Data shown 1970-2005Note 1: All data sources for charts and a glossary of abbreviations can be found on pages 44 and 459

Preparing for the futureWhen all three of the most powerful drivers of our current energy world —demand, supply, and effects on the environment — are set to undergo significantchange, we are facing an era of revolutionary transitions and considerableturbulence. And while prices and technology will drive some of these transitions,political and social choices will be critical. Those choices also depend on howalert we are to the transitions as they happen, especially because for a decadeor so we may be distracted by what appears to be healthy development. Butunderneath this “business-as-usual” world, the transitions are already beginning:governments and companies are positioning for longer-term alternatives;regulatory frameworks are being debated; as there will be no silver bullets,new technology combinations are under development such as intermittentrenewable sources being integrated into existing power supply systems; and newinfrastructures, such as carbon dioxide capture and storage (CCS), are requiredand older inefficient ones need to be decommissioned.People are beginning to realise that energy use can both nourish and threatenwhat they value most — their health, their community and their environment, thefuture of their children, and the planet itself. These deeply personal hopes andfears can intensify and interact in ways that have different collective outcomes,and usher in the new energy era in very different ways.Two possible worldsGiven that profound change is inevitable, how will it happen? Will nationalgovernments simply Scramble to secure their own energy supplies? Or willnew Blueprints emerge from coalitions between various levels of societies andgovernment, ranging from the local to the international, that begin to add up toa new energy framework?10


2ScrambleScramble – overview at a glanceScramble reflects a focus on national energy security. Immediate pressures drivedecision-makers, especially the need to secure energy supply in the near futurefor themselves and their allies. National government attention naturally fallson the supply-side levers readily to hand, including the negotiation of bilateralagreements and incentives for local resource development. Growth in coal andbiofuels becomes particularly significant.Despite increasing rhetoric, action to address climate change and encourageenergy efficiency is pushed into the future, leading to largely sequential attentionto supply, demand and climate stresses. Demand-side policy is not pursuedmeaningfully until supply limitations are acute. Likewise, environmental policy isnot seriously addressed until major climate events stimulate political responses.Events drive late, but severe, responses to emerging pressures that result in energyprice spikes and volatility. This leads to a temporary slowdown within an overallstory of strong economic growth.Although the rate of growth of atmospheric CO 2has been moderated by theend of the period, the concentration is on a path to a long-term level well above550 ppm. An increasing fraction of economic activity and innovation is ultimatelydirected towards preparing for the impact of climate change.13

The unfolding story2.1 Fear and securityNational governments, the principal actors in Scramble, focus their energypolicies on supply levers because curbing the growth of energy demand – andhence economic growth – is simply too unpopular for politicians to undertake.A lack of international cooperation means that individual countries are unwillingto act unilaterally in a way that will damage their own economic growth. Theresult is a relatively uncoordinated range of national mandates and incentivesfor developing indigenous energy supplies where available, including coal,heavy oils, biofuels, and other renewables, which leads to a patchwork of localstandards and technologies.At the international level, Scramble is a world of bilateral government dealsbetween energy producers and energy consumers, with national governmentscompeting with each other for favourable terms of supply or for access bytheir energy companies. There is a strong element of rivalry between consumergovernments, but they align with each other where their interests coincide. In thisworld, national energy companies play key intermediary roles, but themselvesbecome increasingly mired in political machinations. Globalisation exacerbatesthe tensions within and between nations, and distracts policymakers from theneed to take action and build international coalitions to face the energy andclimate change challenges.Although business cycle variations continue, energy prices are generally strong.This is not only because of the intrinsic pressures on supply but also becauseOPEC has learned from the price increases since 2004 that the world can absorb14

higher energy prices relatively easily. In the economic interests of its members,therefore, OPEC manages oil supply to minimise any incipient price weakness.With strong prices and lagging supply, “favourable terms” for importing nationsincreasingly means just some assurance of uninterrupted supply.In Scramble, major resource holders are increasingly the rule makers rather thanthe rule takers. They use their growing prominence in the world to influenceinternational policies, particularly when it comes to matters they insist are internalsuch as human rights and democratic governance. Nations who have hammeredout “favourable” deals with oil-producing nations do not want to rock the energyboat they have just managed to board, resulting in a world in which internationalrelations are mainly a race to ensure continuing prosperity, not the building of amore sustainable international community.There are enormous disparities in the economic and energy performance ofdifferent countries. Developing nations scramble to procure the energy necessaryto climb the economic ladder, while wealthy nations struggle to adapt their energyconsumption patterns to maintain their existing lifestyles. Yet, the scramble forenergy at the national level is constantly hampered by the unavoidable realitythat countries are interdependent. Complex economic and political ties as well asshared transmission structure means that ensuring energy security for one nationrequires some cooperation with others. The problems that inevitably arise aredealt with slowly and inefficiently because of the lack of relevant internationalframeworks and the weakness of multilateral institutions.With growing stresses in the energy system, news media regularly start to reportenergy-related crises in one part of the world or another. Ruling regimes understress in societies that are changing fast easily lose legitimacy in the eyes oftheir people, and there is dramatic political change in several countries. Ina few cases, this is even sparked by misjudged attempts to moderate energydemand through the knee-jerk removal of subsidies. Nevertheless, in spite of theturbulence, the majority of people experience strong material progress duringthese early years. Overall global economic development continues unabated forthe first quarter of the century — in large part because of coal.15

2.2 Flight into coalIn the face of growing energy concerns, political and market forces favour thedevelopment of coal as a widely available, low-cost energy option. Partly inresponse to public pressures for “energy independence,” and partly becausecoal provides a local source of employment, government policies in several ofthe largest economies encourage this indigenous resource. Between 2000 and2025, the global coal industry doubles in size, and by 2050 it is two and a halftimes at large.But coal has its own problems, which environmental pressure groups do nothesitate to point out. In the U.S. and other high-income countries, the building ofeach new coal plant creates a battleground of protest and resistance. In China,local environmental degradation provokes pockets of unrest. And the Chineserailway infrastructure struggles to transport large quantities of coal across thecountry – necessitating significant and costly improvements to the country’srailway infrastructure, as well as coal imports from Australia, Indonesia andelsewhere. Perceived changes in world climate are attributed to the growingcoal industry in China and the U.S. Despite widespread protests against coal,governments – fearful of the potential damage to economic growth – are slowto establish meaningful greenhouse gas management schemes through carbontaxation, carbon trading and efficiency mandates.In an attempt to moderate the demand for coal for power generation, severalcountries conclude that nuclear energy must also grow significantly. In contrast tocoal, however, nuclear is one of the more difficult energy sources to expand quicklyon a global scale. Building capacity for uranium mining and nuclear power stationconstruction takes time. Add to that the difficulty of disposing of nuclear waste.Even in those countries where nuclear facilities are privately owned and managed,significant government support is necessary before companies will take the enormous,long-term financial risk of building new plants. In addition, the relative reluctance toshare nuclear technology with non-friendly states, for fear of contributing to nuclearweapons proliferation, means that the contribution of nuclear power to the energymix in Scramble is much less than its potential might have promised.16

First coal, then biofuels followed by renewable energy, aresequential supply responses to the increasing energy demand.But no single or easy solution to the energy challenge exists.Government driven efficiency measures are introduced whenstresses become too high for the market to cope with.Updated Charts for Booklet based on v1.1.3.3Final No change energy to page consumption 9 but check missing by head region2025 line (population chart)P176001000exajoule EJ per year (EJ) per yearEJ per year8004006002004002000020002010 20202030204020502000 2010 2020 2030 2040 2050Chart on page 17 !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Primary energy by sourceSub-Saharan AfricaSub-Saharan Middle East & Africa N N. Africa AfricaMiddle Latin America East & N AfricaLatin AsiaAsia America & OceaniaOceania - DevelopingDevelopingAsiaAsia & OceaniaOceania - -DevelopingDevelopedDevelopedAsia North & America Oceania - DevelopedNorth AmericaNorth Eur ope AmericaEuropeEur opeEJ per year1000800600400200Other RenewablesBi BiomassNuclearCoalGas GasOilOil0200020102020203020402050Biomass includes traditional renewables such as wood, dung, etc.17

2.3 The next green revolutionLarge agricultural lobbies are already powerful in developed nations, anda huge push for biofuels develops early in this scenario. This helps meet therapid growth in demand for liquid transport fuels, but also leads to unintendedconsequences. First-generation biofuels compete with food production, drivingup world market prices, especially in those countries that use maize as a staple.And regions with insufficient production potential, such as the EU, import theshortfall and so indirectly encourage poorer nations to destroy large sections ofrainforests and habitats in order to grow palm oil and sugar cane. The result ofthese land use changes is that significant quantities of CO 2stored in the soils arealso released.The reaction to these unintended consequences plays its part in helping toestablish second-generation biofuels by 2020 – those that use the woody partsof plants, including waste products such as stalks and leaves from plants grownfor food production. Certification systems also emerge to promote sustainabilityof both first- and second-generation biofuels. A key advantage of secondgenerationbiofuels is that energy yields are a lot higher, particularly outside thetropical regions. Most OECD countries, being in temperate regions, encourageand eagerly embrace economic routes to second-generation biofuels.18

Biomass represents around 15% of primary energy by 2050.Biofuels become a significant part of this, in particular helpingto diversify the supply of transport fuel. But with acceleratingdemand, fossil fuels remain an important part of the energy mix.Final P19 energy consumption of biomass100EJ EJ per yearP19EJ per year10050Biofuels - 2 nd generationBiofuels - 2nd generationBiofuels - 1 st generationBiofuels - 1st generationElectricity ElectricityTraditional5002000 2010 2020 2030 2040 2050Biofuels - 2nd generationBiofuels - 1st generationElectricityTraditionalTraditional biomass includes wood, dung, etc.EJ per year2000Final energy 2000 2010 consumption 2020 2030 for 2040 transport 2050150100EJ per year2001505010002000 2025 205050 50ElectricityBi ofuelsGaseous hydrocarbon fuelsLiquid fuels fossil-derivedElectricityElectricityBi BiofuelsGaseous hydrocarbon fuelsfuelsLiquid Liquid fuels Liquid fuels fuel fossil-derived fossil-derived02000 2025 205019

2.4 Solutions are rarely without drawbacksHow unconventional oil from oil sands, shale, and coal is developed provides atypical Scramble example of solutions being introduced with immediate benefitsto energy security but some later negative consequences. Throughout the 2010s,investors pour more and more capital into unconventional oil projects that makean important contribution to addressing supply pressures. Nevertheless, theseattract increasing opposition from powerful water and climate lobbies thatoppose the environmental footprint of additional developments. This ultimatelyprovokes a political backlash that challenges even the best-managed projects.As supply-side actions eventually prove insufficient or unpopular in addressinggrowing demand pressures, governments finally take steps to moderate energydemand. But because pressures have already built up to a critical level, theiractions are often ill-considered, politically-driven knee-jerk responses to localpressures, with unintended consequences. For example, the sudden imposition ofstrict energy efficiency standards for new construction delays new developmentswhile builders and civil servants adapt to the legislation. In some instances thisactually slows the trend in overall efficiency improvements.In Scramble, a typical three-step pattern begins to emerge: first, nations deal withsigns of tightening supply by a flight into coal and heavier hydrocarbons andbiofuels; then, when the growth in coal, oil and gas can no longer be maintained, anoverall supply crisis occurs; and finally, governments react with draconian measures— such as steep and sudden domestic price rises or severe restrictions on personalmobility with accompanying disruptions in value chains and significant economicdislocations. By 2020, the repetition of this volatile three-step pattern in many areasof the energy economy results in a temporary global economic slowdown.20

2.5 The bumpy road to climate changeThe focus on maintaining economic growth, especially in emerging economies,leaves the climate change agenda largely disregarded. Despite increasing protestsby campaigners, alarm fatigue afflicts the general public. International discussionon climate change becomes bogged down in an ideological “dialogue of thedeaf” between the conflicting positions of rich, industrialised countries versuspoorer, developing nations – a paralysis that allows emissions of atmospheric CO 2to grow relentlessly.The emerging economic pressures of energy supply and demand tensions makeit even more difficult for politicians to act until they are forced to, despite theirongoing rhetoric of concern. Addressing climate change is perceived as anadditional economic pressure and, given the type of response required, nobodyis prepared to risk being the first to act.Meanwhile, political pressures become intense in those developing countrieswhere rising aspirations are suddenly disappointed. International relationshipscome under strain as well. Russia’s internal use of its oil stifles expected growthin Eastern Europe and the energy have-nots, such as low-income African nations,struggle for access.Eventually, this lack of action creates fertile conditions for politically opportunisticblame for extreme weather events and supply crunches — and triggers knee-jerk,politically-driven responses. These are not only late, but often too small to make adifference on the demand side. In some cases they are disruptively over-reactiveas when a number of nations enact moratoria on the development of certainhigh-carbon energy sources.21

2.6 Necessity – the mother of inventionAlthough change must and does occur, the turnaround takes a decade becauselarge-scale transformations of the energy system are required. High domesticprices and exceptionally demanding standards imposed by governmentsprovoke significant advances in energy efficiency. Eventually, locally developedalternative supplies -- biofuels, wind, and thermal solar -- also contribute on amuch greater scale than before. By 2030, healthy economic growth is restored,with particular vibrancy in the new energy sector that has received a massivestimulus to innovation through this difficult period.The declining share of hydrocarbon fuels in the overall energy mix, the growingcontribution from alternative energy sources, and greater energy efficiencyall moderate the rate of growth of CO 2in the atmosphere. But the subsequentrestoration of economic growth means that vigorous energy consumption resumeswith its accompanying rebound in CO 2emissions – and concentrations are alreadyhigh. A consensus develops around the need for a new international approachto energy security and climate change mitigation – but the world is twenty yearsbehind where it would have been had it set up such a system by 2015. Economicgrowth continues to deliver increasing prosperity to many, but market responsesto greenhouse gas challenges have been delayed by the absence of regulatorycertainty or international agreements. An increasing fraction of economic activityand innovation is ultimately directed towards preparing for the impact of climatechange. Having avoided some hard choices early on, nations now recognisethey are likely to face expensive consequences beyond 2050.22

nieuwe grafieken.pdf 28-02-2008 11:32:54China is already the largest emitter of CO 2and by 2035 China’stotal carbon emissions represent 30% of the world’s total.p23 (key Direct stays CO the 2same) emissions from energy in 203515tonne CO 2 per capita per year10500 1 2 3 4 5 6 7 8 9Population (billion)RussiaNorth AmericaAsia China& Oceania - DevelopedChina Asia & Oceania - DevelopedEuropeEuropeMiddle East N AfricaMiddle East & N. AfricaIndiaIndiaLatin AmericaLatin AmericaAsia & Oceania - DevelopingSub-SaharanAsia & OceaniaAfrica- DevelopingSub-Saharan Africap29 Note changes incl keyGrowth of atmospheric CO 2and other GHGsThe releaseGJ per capita (primary energy)400 of carbon dioxide (CO 2) into the atmosphere due to the use of fossilfuels since the start of the industrial revolution, and the large-scale deforestation ofthe planet that began in the Middle Ages, has changed the carbon balance of the300 planet. The increasing concentration of CO 2and other greenhouse gases (GHGs)in the atmosphere is almost universally accepted as responsible USA for global warming.CO 2has risen from 280 parts per million by volume (ppm) Europe in pre-industrial EU 15 times200 to 380 ppm today and is set to rise rapidly as world economicJapandevelopmentaccelerates. This trend is not sustainable if climate change is to be moderated.South Korea100ChinaIndia00 40 80 12023GDP per capita (PPP, '000 2000 USD)

3BlueprintsBlueprints – overview at a glanceBlueprints describes the dynamics behind new coalitions of interests. These donot necessarily reflect uniform objectives, but build on a combination of supplyconcerns, environmental interests, and associated entrepreneurial opportunities.It is a world where broader fears about life style and economic prospects forgenew alliances that promote action in both developed and developing nations.This leads to the emergence of a critical mass of parallel responses to supply,demand, and climate stresses, and hence the relative promptness of some ofthose responses.This is not driven by global altruism. Initiatives first take root locally as individualcities or regions take the lead. These become progressively linked as nationalgovernments are forced to harmonise resulting patchworks of measures and takeadvantage of the opportunities afforded by these emerging political initiatives.Indeed, even the prospect of a patchwork of different policies drives businessesto lobby for regulatory clarity.As a result, effective market-driven demand-side efficiency measures emergemore quickly, and market-driven CO 2management practices spread. Carbontrading markets become more efficient, and CO 2prices strengthen early. Energyefficiency improvements and the emergence of mass-market electric vehicles areaccelerated. The rate of growth of atmospheric CO 2is constrained leading to amore sustainable environmental pathway.25

The unfolding story3.1 Starting at the grassrootsWhile international bodies argue over what environmental policies should be andwhich policies are feasible, and many national governments worry about energysecurity, new coalitions emerge to take action. Some bring together companiesfrom different industries with a common energy interest. Others involve coalitionsof cities or regions, which begin to take their destinies into their own hands andcreate their own blueprints for their energy futures. Individuals effectively beginto delegate responsibility for the complexities of the energy system to a broaderrange of institutions besides national governments. Cash, votes, and legitimacyreward the successful.It is a slow process at first, two steps forward and one step back. There is almostas much political opportunism as rational focus in early developments. Manygroups try to circumvent, undermine or exploit the new regulations and incentivesfor alternative energy paths. In places, uncertain regulatory outlooks discouragedevelopments. But as successful ventures emerge, halting progress develops intoa larger and larger take-up of cleaner energy such as wind and solar.As more consumers and investors realise that change is not necessarily painful butcan also be attractive, the fear of change is moderated and ever-more substantialactions become politically possible. These actions, including taxes and incentivesin relation to energy and CO 2emissions, are taken early on. The result is thatalthough the world of Blueprints has its share of profound transitions and politicalturbulence, global economic activity remains vigorous and shifts significantlytowards a less energy-intensive path.26

In the early part of the 21 st century, progressive cities across the globe sharegood practices in efficient infrastructure development, congestion managementand integrated heat and power supply. A number of cities invest in green energyas sources for their own needs and energy efficiency. At first, perceptions oflocal crisis help to drive these changes, such as protests about falling air andwater quality. In an increasingly transparent world, high-profile local actorssoon influence the national stage. The success of individual initiatives booststhe political credentials of mayors and regional authorities, creating incentivesfor national and international leaders to follow suit. National and local effortsbegin to align with and amplify each other, and this progressively changes thecharacter of international debate.Perceptions begin to shift about the dilemma that continued economic growthcontributes to climate change. Alongside the quest for economic betterment, airquality and local environmental concerns – rather than climate change or greenentrepreneurship – initially impel action in countries such as China, India andIndonesia. Gradually, however, people make the connection between irregularlocal climate behaviour and the broader implications of climate change, includingthe threats to water supplies and coastal regions. In addition, successful regionsin the developing world stimulate their local economy by attracting investmentsin clean facilities made possible by the clean development provisions of theinternational treaties that replace the Kyoto Protocol which expires in 2012.These allow industrialised countries to invest in emission-reduction projects indeveloping countries as an alternative to more costly projects at home.The key enabler of these energy system blueprints is the introduction of a CO 2pricing mechanism using a carbon emissions trading scheme that begins in theEU and is progressively adopted by other countries, including the U.S. and,later, China. This trading regime gives a boost to new industries emergingaround clean alternative and renewable fuels, and carbon capture and storage.In addition, carbon credits boost income – particularly for those investing inrenewable energy – and reduce investment uncertainties.27

3.2 Paths to alignmentThis critical mass of participation in international frameworks does not stemfrom an outbreak of global altruism. Instead, the new initiatives at the regionaland national levels create incentives for broader change, partly in response topressure from multinationals. Companies argue strongly for clear, harmonisedinternational policies as a way of avoiding the inefficiencies and uncertaintiesthat result from a patchwork of local and national standards and regulations.The U.S. responds to both public and industry pressure by taking significantsteps to foster greater fuel efficiency through three new initiatives: well-to-wheelscarbon assessments of fuels sold; a gradual rise in the U.S. Corporate AverageFuel Economy (CAFE) standards – which lay down minimum fuel economystandards for cars -- to reach European levels of 2007 by 2020; and taxes onthe sale of less fuel-efficient vehicles to encourage the purchase of more fuelefficientcars. Europe, meanwhile, imposes stricter CO 2emission allowancesrather than adding to the already significant fuel taxes, and sets aggressiveemission reduction targets.The Chinese and Indian governments attempt to balance the intense politicalpressures – both domestic and international – to both sustain economic growthand respond to concerns about climate change and energy efficiency. In returnfor their participation in international frameworks, they secure agreements thatwill facilitate technology transfer and investment in energy-efficient plants. Theyalso receive assurances that a substantial proportion of the future revenues raisedthrough international auctioning of emission permits will be channelled to nationson a per capita basis. Behind the scenes, all parties anticipate that such agreementswill ultimately benefit all, through the increasing openness of China and India tointernational markets and investment.These developments bring increasing alignment between the U.S., Chinese,Indian, Japanese, and European approaches to CO 2management. From 2012,a critical mass of nations participates in meaningful emissions-trading schemes,stimulating innovation and investment in new energy technologies and pavingthe way to CO 2capture and underground storage after 2020.28

105Developing economies climb the energy ladder but overall thejourneys of both the developed and developing economies followless energy 0 intensive paths.0 1 2 3 4 5 6 7 8 9Population (billion)p29 Energy Note changes ladders incl to 2050 key400GJ per capita (primary energy) energy)300USAEurope EU 15200JapanSouth Korea100ChinaIndia00 40 40 40 80 80 80 120 120 120GDP GDP per per capita (PPP, (PPP, '000 ‘000 '000 2000 2000 USD)USD)India USAChina ChinaSouth Japan Korea Japan RussiaEurope India EU 15 USA Europe EU 1529

3.3 Developments benefit the energy poorIn Blueprints, the disorderly but early development of innovative solutions andadoption of proven practices from the grassroots benefit low-income nations aswell. Initially, this stems from the dynamics of the oil market: OPEC raises oilproduction to maintain lower prices and defer the development of more costlysubstitutes. Benefits also begin to emerge from accelerated growth in distributedpower generation from wind and solar energy. New wind turbines and morecost-effective solar panels are easily exported to rural areas, and in a relativelybrief time, many African villages have a wind- or solar-powered energy supply fordrawing water from deeper, cleaner wells — and for later development needs.India, too, invests heavily in wind, while China pioneers new developments insolar energy — and these technological developments in both wind and solarare exported back to the west, accelerating the uptake of solar in particular.Government mandates for vehicles with significantly reduced and zero emissions,fiscal incentives to support the build-up of mass production, and ever-more windand solar power all stimulate a surge in electric transport – powered by battery,fuel-cell or hybrid technologies. This growth in the use of electric vehicles allowsmost nations to enter the plateau of oil production without the shocks that theywould otherwise have experienced. In Blueprints, the more efficient end-use ofelectricity and the resulting slower growth in primary energy demand mean thatthe former energy poor enjoy an additional boost in their standard of livingmade possible by the resulting affordable energy prices.30

Chart for page 31High overall efficiency of electric cars reduces demand in theDelete transport Final energy sector and consumption changes the for transport fuel mix.AddGrowth of electricity in transportGrowth of electricity in transport3503503003002502001501005000Passenger distance travelled travelled (world), (world), index index 2000 2000 = = 100 100200020252050Electric transportElectric transportLiquid fuelsLiquid fuelsReplace chart with above, key should be round bullets and text etc should be as per o31

3.4 Both disaggregation and integrationBy 2050, one of the key revolutionary transitions observable in Blueprints is thateconomic growth no longer mainly relies on an increase in the use of fossil fuels.It is increasingly a world of electrons rather than molecules. Electric vehiclesare becoming the norm in the transport sector because of their attractiveness toconsumers and cost-effectiveness once governments have incentivised the buildupto mass production. Power generation from renewable energy sources isgrowing rapidly, while utilities that still rely on coal and gas are required toimplement strict carbon abatement technologies. In the developed world, almost90% of all coal-fired and gas-fired power stations in the OECD and 50% in thenon-OECD world have been equipped with CCS technologies by 2050. Thisreduces overall CO 2emissions by 15 to 20% compared to what they wouldhave been without CCS. New financial, insurance, and trading markets arealready emerging that help finance the major investments necessary to build thisnew infrastructure. Europe’s lack of indigenous fossil fuels does not place it at adisadvantage, thanks to the emergence of these new renewable technologies.It does well economically in spite of its shrinking population and the fact thatcapital stock was replaced earlier to meet tightening efficiency requirements.In Blueprints, a second, more profound transition occurs at the political level,where there is increased synergy between national policies and those undertakenat the sub-national and international levels. While details may differ from nationto nation, international organisations – concerned with the environment, globaleconomic health and energy – increasingly agree on what works and whatdoes not. This makes “big-picture” action more possible than ever. Unlikelypartnerships begin to form across political divides. Cities across the worldcontinue to share experience and create broader partnerships. The C-40 groupof leading cities, which continue to grow in number, identifies best practices inurban development and eventually rural areas begin to join these coalitions – inpart to avoid becoming the dumping grounds for old technologies.32

Reducing CO 2emissions through electrification triggers stronggrowth in the power sector and pulls in renewable energies.By 2050, over 60% of electricity is generated by non-fossil sources.Carbon capture and storage can make an important contributionto reduce emissions but is not a silver bullet.P31New chart to comeFinal energy consumption of electricityP33EJ per year r2001501005002000 2010 2020 2030 2040 2050Other RenewablesOtherWindRenewablesWindSolarSolarBiomass + WasteBiomass + + WWasteHydroelectricityHydroelectricityNuclearNuclearCoalCoalGasGasOil OilOilCarbon dioxide capture and storage (CCS)There are many technical options for capturing CO 2. Once captured, CO 2can bestored underground (in aquifers or in certain oil and gas fields), or used in someindustrial processes. However, capturing and storing CO 2is energy intensive andexpensive. CCS is technically feasible with today’s technologies but has not yetbeen deployed on a large scale. Its development will require the creation of asubstantial CCS infrastructure, incentives for greenhouse gas emission control(e.g. CO 2pricing or emission intensity targets), and the addressing of regulation,permitting, safety and liability issues.Given these requirements, large-scale deployment of CCS is not expected to take placeuntil at least 2020. Even then, CCS is not without drawbacks: its use inevitably reducesthe efficiency of power stations and so increases the pressure on the energy system.Reaching an annual storage capacity of 6 gigatonnes of CO 2– a substantial contributionto efforts to lower emissions – would require an enormous transportation and storage siteinfrastructure twice the scale of today’s global natural gas infrastructure. Nevertheless,by 2050 CCS can make an important contribution to CO 2management.33

Closer cross-border cooperation increases the speed of innovation. Because ofincreased synergy between local, national and international regulations, newtechnologies become competitive more quickly and are rolled out over the globemore easily.A significant role is played by a kind of strategic self-interest that results in, forexample, Russia and the Middle East developing sources of alternative energy fortheir own use and reserving their conventional fuels for more profitable export.Other nations continue to develop coal, but adopt clean coal technologies and CCS.Increasingly, coal-exporting nations, especially in the OECD, require CO 2permitson exports, and this extends further the reach of the frameworks for managinggreenhouse gas emissions. These developments help reduce CO 2emissions to alevel leading towards a more sustainable atmospheric concentration.Multinational R&D expenditures, higher transparency and more reliability inenergy statistics, effective carbon pricing, and predictable regulation – fosteredby new industry-government cooperation – reduce investment uncertainty. Thisin turn encourages entrepreneurs and investors to invest yet more in R&D and tobring innovations more quickly to market.This is a world of steady economic development and global economic integration.Yet the grassroots pressures and growing transparency that characterise Blueprintsalso put relentless pressure on governments to become more accountable in bothdemocratic and authoritarian countries. In some cases this facilitates orderlytransitions. However, the accelerated pace of technological and regulatorychange in this scenario adds additional stresses, and the more rigid societiesand political regimes struggle to adapt. Tensions between urban and ruralcommunities increase and there is dramatic political change in several countries,particularly where governance is poor. Unless they have acted and investedwisely, this affects even the wealthier energy-exporting nations when exportsand revenues eventually begin to decline. This is a world of increasing globalalignment coupled with ongoing, widely distributed, political turbulence. But thisis turbulence that has progressively less impact on the functioning of the globalenergy system.34

Meaningful CO 2pricing stimulates energy efficiency andelectrification of the energy system, reducing the demand onconventional hydrocarbon resources.P35Final energy consumption by sectorP35600EJ EJ per yearEJ per year60040040020020002000 2025 2050 2050Non-energy UseNon-energy Use UseResidentialResidentialTransport TransportNon-energy UseServicesServicesResidentialAgriculture & Other & Other Industry IndustryTransport Agriculture & Other IndustryHeavy Heavy industry industryServices Heavy industryAgriculture & Other IndustryHeavy industry02000 2025 2050Primary energyEJ per yearby source1000800 EJ per year1000600800400600200400200002000 2010 2020 2030 2040 2050Other RenewablesBi omassNuclearOther RenewablesOther Other Coal RenewablesBi BiomassGasNuclearNuclear OilCoalCoalGas GasGasOil OilOil2000 2010 2020 2030 2040 2050Biomass includes traditional renewables such as wood, dung, etc.35

3.5 Blueprints for climate change responsesAgreements on how to address climate concerns are not the result of a miraculouschange in the behaviour of political leaders. They reflect the way that grassrootsvalues are now imprinting themselves on political agendas through the mediaand international pressure groups. They also stem from pressure exerted byindustry eager for regulatory clarity and consistency. Such pressure results inbreakthroughs in an international architecture for managing energy securityconcerns in parallel with options for climate change mitigation and adaptation.After the Kyoto Protocol expires in 2012, a meaningful international carbontradingframework with robust verification and accreditation emerges from thepatchwork of regional and city-city schemes. Consistent U.S. policy support fortechnology investment and deployment pays dividends in providing tangiblebreakthroughs for effective change. More reliable energy statistics and betterinformed market analysis allow carbon-trading futures markets to reflect clearerlong-term price signals. Because of these frameworks, markets can anticipatetightness in CO 2emission allocations and plan for them.By 2055, the U.S. and the EU are using an average of 33% less energy per capitathan today. Chinese energy use has also peaked. India is still climbing its energyladder, but as a relative latecomer, it has to be resourceful in following a lowerenergy-intensive development path. The political and bureaucratic effort to harmoniseand align energy policies is difficult and requires a great deal of up-front investment —but in Blueprints, in a critical mass of countries, people support national leaderswho promise not only energy security but also a sustainable future. Initial pain hasreduced uncertainty and prepared the way for long-term gain.36

Concerted global efforts reduce CO 2emissions but do not preventeconomic growth. Nevertheless, stabilising GHG levels in theatmosphere at or below 450 ppm of CO 2-equivalent - a levelscientific evidence suggests is necessary to significantly reducethe risks of climate change - remains a significant challenge.P37Direct CO 2emissions from energyGt CO Gt 2 CO per 2 yearper year50 5040 40302010302010Sub-Saharan AfricaAfricaMiddle Middle East East & N N. & Africa N AfricaLatin Latin AmericaAmericaAsia Asia & Oceania & - Developing- Asia Asia & Oceania & - Developed- North North AmericaEuropeEurope0 02000 2000 2010 2010 2020 2030 2030 2040 2040 20502050Reducing the growth of atmospheric GHGsToday, more attention is being paid to all GHGs, not just CO 2. Methane, for instance, isanother important GHG and its levels are rising. Limiting the increase of total GHG levelsin the atmosphere is expected to reduce the probability of dangerous climate change.Reversing the growth of emissions requires meaningful carbon pricing to shape choicesand encourage greater efficiency in energy use, and effective policies to acceleratethe demonstration and deployment of low-emission technologies. Energy-related CO 2emissions today account for around two-thirds of all GHG emissions from humanactivity, so transforming our use of energy is a major priority. This will require early andwidespread implementation of CCS, large-scale development of renewable electricity,second-generation biofuels and rapid penetration of electric vehicles after 2020.Limiting GHG concentrations to 450 ppm CO 2-equivalent is expected to limit temperaturerises to no more than 2°C above pre-industrial levels. This would be extremely challengingto achieve, requiring an explosive pace of industrial transformation going beyond eventhe aggressive developments outlined in the Blueprints scenario. It would require globalGHG emissions to peak before 2015, a zero-emission power sector by 2050 and anear zero-emission transport sector in the same time period, complete electrification ofthe residential sector, with remaining energy-related emissions limited to niche areas oftransport and industrial production (of cement and metals for example).37

Three Hard Truths4Scenariotimeline1Step-change inenergy use2Supply willstruggle tot keeppace3Environmentalstresses areincreasingBlueprintsWorldwide emission tradingscheme evolving post KyotoNuclear slowdownGlobal CO2 trading schemeCCS deployed commerciallyElectric vehicles entermass marketNuclear revivalCentralised solar PVNon-OECD reaches two-thirdsof world primary energydemandA fifth of all coal and gasfired power generationequipped with CCS201520202030ScrambleChina overtakes U.S. asmajor CO2 emitterFlight into coalStrong growth in CO2 emissionsWind takes offMandated biofuelsStrong growth in unconventionalsModest nuclear growthCoal hits constraintsCO2 emissions moderateFurther rise in biofuelsCO2 emissions on the rise againSolar expansion38

What can we expect from the future?The presentto 2015Turbulence2015-2030?The future2030-2055Nuclear comebackIndia overtakes U.S. as majorCO2 emitterEnergy related CO2 emissionsdecline but atmosphericconcentrations continue to riseClimate adaptionmeasures beginBiofuels ~30% of liquid fuels50% of all new vehicles salesare electric or hydrogenModerate uptake inunconventionalsElectrification of thetransport sectorDecoupling of world GDP& energy growthContinued growth inunconventionals30% of transportation needsare met by alternative fuels?2040World populationpasses 9 billion2050Blueprintsneed 13% lessprimary energythan ScrambleSlowdown in unconventionals205539

4ScenariocomparisonsWhat are the energy-relateddifferences between thetwo scenarios?DemandResourcesTechnologyEnvironment40

DriversScrambleBlueprintsChoicePricesEfficiency technologyEfficiency behaviour• Mandates• Externalities not included• Mandates• Necessity• Market driven but incentivised• Externalities included• Economic incentives & standards• Designed inOil & gasCoalNuclearElectric renewablesBiomass• Constrained growth• Flight into coal• Modest uptake• Sequential - wind, solar• Strong growth• Long plateau• Coal not wanted unless “clean”• Continued growth• Incentivise early stage technologies• Complements alternative fuel mixInnovationImplementationMobilityPowerIT• Strongly guarded• National “docking points”• Hybrids & downsizing• Efficiency• Supply optimisation• Extensively shared• International “tipping points”• Hybrids & electrification• Carbon capture & storage• Demand load management systemsLand usePollutionClimate / BiodiversityWater• Energy vs. food principle• Important locally• Background global concern• Energy production & climatechange impact• Sustainability principle• Important• Prominent local & global concern• Factored into developmentframeworks41

!Shell energy scenarios:concluding remarksThe Scramble and Blueprints outlooksare both rooted in detailed analysesof energy supply, demand, andtechnology fundamentals. Of course,it is impossible to condense the fullrichness of scenarios into a briefoverview, but we trust this booklethas given you a good flavour of themain insights of Shell’s latest energyscenarios, along with the choices to befaced and their key implications.Neither of the scenarios is comfortable,which is to be expected given thehard truths we are facing. Whileboth portray successful economicdevelopment and the globalisationthat accompanies this, both also havebranching points that could potentiallylead towards escalating geopoliticalchaos. They create different legaciesfor future generations, with both goodand disturbing features. Together,however, they sketch the landscape ofpossibilities, constraints, opportunitiesand choices for this era of revolutionarytransitions in the global energysystem.Some readers may find one scenariopreferable to the other, or one moreplausible than the other. This should notbe surprising as readers will approachthese outlooks with their own uniqueexperience and interests. In truth, wehave found all possible combinationsof reactions to the two storylines aswe have developed and discussed thescenario material with specialists andgroups from different backgroundsacross the globe. This has confirmedto us that both are realistic and bothare challenging.To get the most out of the storylines,we recommend reviewing them witha number of specific questions inmind such as: “what are the potentialmilestones or events that couldparticularly affect us?”; “what are42

ThereAreNoIdealAnswersthe most significant factors that willinfluence our environment and howcould these play out?”; and “whatshould we do in the next five yearsto help prepare for, or shape, theturbulent times ahead?”We are pleased to share our thinkingwith you. Together, we all face thefuture of TANIA over the next fifty years.Though there are no ideal answersto the coming challenges we will,however, be required to address manydifficult questions. The more clearlywe can see the complex dynamicsof tomorrow’s world, the better wemight navigate through the inevitableturbulence. We hope these scenarioswill make a modest contribution tohelping us all do so.“If historians now seethe turn of the 19 thcentury as the dawno f t h e i n d u s t r i a lrevolution, I hopethey will see the turnof the 21 st centuryas the dawn of theenergy revolution.Rob RoutsExecutive DirectorDownstreamRoyal Dutch Shell plcApeldoorn, June 2007“Jeremy B. BenthamShell International B.V.43

GlossaryAbbreviationsboe = barrel of oil equivalentCCS = carbon dioxide capture and storageCO 2= carbon dioxideGt = gigatonnekWh = kilowatt hourmbd = million barrels per daymt = metric tonneppm = parts per million by volumeInternational System (SI) of unitsMJ = megajoule = 10 6 jouleGJ = gigajoule = 10 9 jouleEJ = exajoule = 10 18 jouleConversion between units1 boe = 5.63 GJ*1 mbd = 2.05 EJ/year1 million cubic metre gas = 34 700 GJ*1 tonne coal = 25 GJ*1 kWh = 3.6 MJ* This is a typical average but the energy content of a particular carrier may vary.44

GlossaryData sourcesThe principal data sources used in the development of Shell’s scenarioanalyses and charts in this booklet are:• World Bank WDI• Oxford Economics• UN Population Division• Energy Balances of OECD Countries © OECD/IEA 2006• Energy Balances of Non-OECD Countries © OECD/IEA 200645

Summary quantification2000 2010 2020 2030 2040 2050ScrambleEJ per yearOil 147 176 186 179 160 141Gas 88 110 133 134 124 108Coal 97 144 199 210 246 263Nuclear 28 31 34 36 38 43Biomass 44 48 59 92 106 131Solar 0 0 2 26 62 94Wind 0 2 9 18 27 36Other Renewables 13 19 28 38 51 65Total primary energy 417 531 650 734 815 8802000 2010 2020 2030 2040 2050BlueprintsEJ per yearOil 147 177 191 192 187 157Gas 88 109 139 143 135 122Coal 97 137 172 186 202 208Nuclear 28 30 30 34 41 50Biomass 44 50 52 59 54 57Solar 0 1 7 22 42 74Wind 0 1 9 17 28 39Other Renewables 13 18 29 40 50 62Total primary energy 417 524 628 692 738 76946


Disclaimer statementThis document contains forward-looking statementsconcerning the financial condition, resultsof operations and businesses of Royal Dutch Shell.All statements other than statements of historicalfact are, or may be deemed to be, forward-lookingstatements. Forward-looking statements arestatements of future expectations that are basedon management’s current expectations and assumptionsand involve known and unknown risksand uncertainties that could cause actual results,performance or events to differ materially fromthose expressed or implied in these statements.Forward-looking statements include, among otherthings, statements concerning the potential exposureof Royal Dutch Shell to market risks and statementsexpressing management’s expectations,beliefs, estimates, forecasts, projections and assumptions.These forward-looking statements areidentified by their use of terms and phrases suchas ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘estimate’’,‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘objectives’’,‘‘outlook’’, ‘‘probably’’, ‘‘project’’, ‘‘will’’, ‘‘seek’’,‘‘target’’, ‘‘risks’’, ‘‘goals’’, ‘‘should’’ and similarterms and phrases. There are a number of factorsthat could affect the future operations of RoyalDutch Shell and could cause those results to differmaterially from those expressed in the forwardlookingstatements included in this document,including (without limitation): (a) price fluctuationsin crude oil and natural gas; (b) changesin demand for the Group’s products; (c) currencyfluctuations; (d) drilling and production results; (e)reserve estimates; (f) loss of market and industrycompetition; (g) environmental and physical risks;(h) risks associated with the identification of suitablepotential acquisition properties and targets,and successful negotiation and completion ofsuch transactions; (i) the risk of doing business indeveloping countries and countries subject to internationalsanctions; (j) legislative, fiscal and regulatorydevelopments including potential litigationand regulatory effects arising from recategorisationof reserves; (k) economic and financial marketconditions in various countries and regions; (l)political risks, including the risks of expropriationand renegotiation of the terms of contracts withgovernmental entities, delays or advancements inthe approval of projects and delays in the reimbursementfor shared costs; and (m) changes intrading conditions. All forward-looking statementscontained in this document are expressly qualifiedin their entirety by the cautionary statementscontained or referred to in this section. Readersshould not place undue reliance on forward-lookingstatements. Additional factors that may affectfuture results are contained in Royal DutchShell’s 20-F for the year ended December 31,2007 (available at www.shell.com/investor andwww.sec.gov). These factors also should be consideredby the reader. Each forward-lookingstatement speaks only as of the date of this report,March 18, 2008. Neither Royal Dutch Shell norany of its subsidiaries undertake any obligationto publicly update or revise any forward-lookingstatement as a result of new information, futureevents or other information. In light of these risks,results could differ materially from those stated,implied or inferred from the forward-looking statementscontained in this document.48

Shell International BVCarel van Bylandtlaan 162596 HR The HagueP.O. Box 1622501 AN The HagueThe NetherlandsVMS The Hague H7133, 2008. 2nd edition.

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