For a big company like Shell a more realistic location would be: Down to Earth. ‘Sky’ sounds ambitious but lacks solid ground. Having read the complete document as published on the internet thoroughly, it leaves one worried.
Shell did a lot of research, engaged high end institutions such as MIT, and produced a smart presentation. They claim a scenario is not a prediction.
“Scenarios are not policy proposals– they do not argue for what should be done, nor forecasts – what will be done. They are not predictions, nor business plans, and investors should not rely on them to make decisions.”And then continue: “Scenarios can reveal useful insights and show us potential pathways the world might take. Some pathways are more plausible than others, but all challenge society to make tough decisions”.
But readers will see it at least as a roadmap for the future of energy transition and reducing carbon emissions. Directions and advice are needed for all involved to make the necessary decisions. The above wording gives the impression it is orchestrated by the Legal Department. “Don’t bind us, it is only a scenario”.
However, this scenario for the next 80 years, with some waypoints at 30 and 50 years, looks more like wishful thinking than a masterplan for transition to sustainable energy. That such a transition is needed is certain. Shell, and other oil giants, are aware of the need to change and are working on it. Shell itself writes:
Sky recognises that a simple extension of current efforts is insufficient. The relevant transformations in the energy and natural systems require the deployment of disruptive new technologies at mass scale within government policy environments that strongly incentivise investment and innovation.
A bold and true statement but not in-line with a transition period of 50 years, to make the change to renewable and sustainable energy?
The goals of the 2015 Paris agreements are already outdated and many organisations urge for faster action. Climate change, biodiversity loss, pollution problems and deforestation need to be addressed immediately. Slow action will make us run out of time. It is not just about rising temperatures, whether 1.50or 2.00, but this is also linked to all the environmental, socio- and political economics.
A scenario that allows companies like Shell a time path of 50 years or more to make the transition to sustainable energy suits their needs. However not the needs of environment and climate and thus, the needs of humanity.
In ‘Sky’ Shell claims not to have any “stranded assets”. Not with such a long transition, no. A faster transition of 5 or 10 years however can have a different outcome. It is said that Shell uses very conservative and safe budget planning. Depreciate within 3 to 5 years. Mega companies as Shell can have a different budget planning as normal companies. But still large assets as “Prelude” and “Appomattox” are to last and contribute to the profits for long periods. Shell is focussing much on LNG which has less emissions and which usage will and has to last longer as oil. That is a good thing for investments as “Prelude” and “Appomattox”.
But when no stranded assets are involved then they can make a very fast transition. Others might be reluctant to accept loses of stranded assets and risk their survival. This cannot be the reason for a slow transition? But what is it then that makes the predictions so far in the future? They have the funds and large investment funds as pension funds are eagerly looking for sustainable and safe investments. Reputed companies as Shell and other oil majors would be preferred partners. But now large sources as pension funds are attracted to new disruptive players which might struck a goldmine, leaving a major behind.
Energy transition will focus on Electrification and that will challenge combustion engines. And thus challenge oil. For chemical production other sources will become available as well. Coal is the first to be phased out in favour of LNG for generating electrical energy. Then comes oil to be phased out as ICE are ousted. Extinction Rebellion will grow and make that we can no longer chose for the cheapest short-term solution. So even with a low oil price the transition will take place. Here is another example of how Shell is creative in it’s scenario.
Shell foresees some take up of Hydrogen technology for the transport sector to start in 2040.
That will be 20 years too late.
New market disrupters like Nicola Motor Corp builds big semi-trucks running on hydrogen for the US and plans to expand to the European market. By 2028 700 fuel stations throughout the country are planned to cover the whole of the US. 12 Years before the start predicted by Shell.
Maersk announced to take its first carbon free vessel by 2030 and be complete zero by 2050. But Shell shows a start of hydrogen for shipping only in 2065 and a very slow further uptake. And these are only two examples.
In its own presentation Shell states “Some promising low-carbon technologies are currently stalled, with hydrogen, perhaps, being the most notable example.”But what will make hydrogen to come in development in 25 years from now? New research, new investments? Why not make these now so that it will contribute sooner. What is the reason for a stagnation of 20 to 30 years and then it suddenly takes off? Shell participates in further developments on the Northsea of Windfarms. But windfarms are ideally suited for the production of stored energy by hydrogen. The ideas and plans are ready to start. So why wait? And now in June 2019 IEA publishes a new report and recommendation, The Future of Hydrogen: Seizing Today’s Opportunities. It is feared that other reasons for Shell are playing in the background not to develop the potential of hydrogen.
Transition periods are also known as “Crossing the Valleys of Death”. Taking a period of 30 to 50 years to cross will mean Death. Now the question comes up “Will Shell survive in 20 years from now?”. A bold question but in-line with the above. When one has to cross such valley one cannot be a laggard. Others will act faster. Hydrogen technology is already on its way up. Has to be further developed, but that will come down the road. When large outsiders as Ørsted, GE. Mitshibisi and Hitachi are joining forces with innovative start-ups matters can and will accelerate. When oil majors think it will take another 20 years before the effort of these outsiders bear fruit, they will be very wrong.
They have to make up their mind, either do it slowly and risk to fail or stay at the head of the pack and be part of the new and sustainable economy. Scenarios as Sky show that Shell doesn’t dare to jump. Then failure is the most likely outcome.