Shell pictures a disruptive future for oil and gas

03 October 2001 18:02  [Source: ICIS news]

How important will hydrogen be to the future world economy? Everyone would like to know now that, of course, not least the chemical industry’s methanol producers but it is not difficult to envisage a world in which hydrogen plays a much greater role linked directly to the widespread use of fuel cell technology.

An alternative world would be one in which hydrogen use advances only slowly; renewables are introduced latterly into the energy economy and there are major discontinuities in oil supply/demand balances. Very much a business as usual future.

Royal Dutch/Shell chairman Philip Watts launched Shell’s new energy futures scenarios in New York on Wednesday and placed some of these questions in perspective. The new Shell scenarios look at a future in which current energy use advances relatively unchanged and one in which hydrogen use comes clearly to the fore. Both represent considerable challenges to producers and users of primary fuels and highlight the fact that fuel use change and development will have a critical impact on chemicals over the coming decades.

Shell firmly believes in the growing importance of natural gas to the world’s energy mix and that it will be what Watts calls a ‘bridging fuel’ to get us from where we are now to where we will be in the future. The ‘dash to gas’ has hardly begun with all the ramifications that has for gas-based chemicals producers. Speaking to an audience comprising businessmen, non-governmental organisations, academics and regulators meeting under the auspices of the United Nations Development Programme, Watts suggested that expanding the use of natural gas is perhaps the single most important way of responding to the issue of climate change.

Shell has built on its 1995 long term energy scenarios and created two new updated views of the future. One it calls ‘Dynamics as usual’ and is perhaps the most disturbing.; the other called ‘The spirit of the coming age’ explores the potential for a ‘truly hydrogen economy’ growing out of new and exciting developments in fuel cells, advanced hydrocarbon technologies and carbon dioxide sequestration.

The scenarios are challenging and perhaps uplifting in terms of the potential there may be to change the ways in which energy is delivered for transport and other use. The 1995 long-term energy scenarios recognised that the energy system was anything but static. Normal market dynamics could reduce greenhouse gas emissions in two ways they suggested and renewables would start by supplying niche markets. The scenarios suggested how nuclear energy and coal use might develop.

The new ‘dynamics as usual’ scenario looks to the prolonged use of existing technologies, particularly the internal combustion engine. Fuel cells are introduced from 2005 but from 2010 to 2015 the spread of super-efficient vehicles causes turmoil in oil markets, and keeps prices weak. Markets eventually firm with growing demand for transport and heating fuels in developing countries. Price pressures also spur advances in oil recovery techniques expanding recoverable reserves. Oil demand grows steadily – although weakly – for another 25 years. Under this scenario, by 2010 gas has overtaken coal and by 2020 it is challenging oil as the dominant source of primary energy. However, because it is imported by many users, there is growing unease about supply security although tough competition keeps prices low. The scenarios suggests that natural gas imports grow significantly by 2020 – from 7% to 20% of total energy consumption in the European Union (EU), from 9% to 16% in Japan, and from 1% to 3% in Northeast Asia.

The spirit of the coming age scenario pictures a world of experimentation and many failures, Shell says. The automobile industry breaks its reliance on oil by developing the new ‘fuel in a box’ and by 2025 a quarter of the OECD vehicle fleet uses hydrogen cell technology. The higher the demand for fuel cells, the cheaper oil becomes making it much more attractive for heat and power production. The key point of this scenario is the potential for new technology to emerge from different parts of the energy system. This may appear chaotic and in the early years of the scenario it is difficult to see winners or winning technologies emerging. A new infrastructure logic does emerge but only later in the scenario period – which is to 2050.

The scenarios are very different but they have some similarities, particularly in the medium term with the uptake of natural gas as the fuel bridge. They illustrate the difficulties of identifying winning technologies over this period and they also point to the strong pressures and volatility oil markets will face as new vehicle technologies become more widespread. They give some indication of the risks and rewards facing energy producers and others keen to see fuel cells become more widely adopted and they begin to lay a foundation for more detailed study of the future for different parts of the energy economy mix.

By: Nigel Davis
+44 20 8652 3214

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