INSIGHT: Energy ride may be rocky

28 January 2008 17:04  [Source: ICIS news]

By Nigel Davis

A rocky road ahead for the global energy system?LONDON (ICIS news)--The road to a low-carbon economy is likely to be difficult and claim casualties along the way.

Rapidly rising energy prices and price volatility could make life extremely difficult for all energy users and rattle the global economy. But could more haste down this road ultimately mean less speed?

Energy giant Shell Group seems to think so and is plumping for a less painful change scenario that tries to look out 50 years.

Doubtless the energy mix of the latter half of this century will be radically different from today, with renewables taking a larger share.

And Shell CEO Jerome van der Veer says that the distant future - out to 2100 - looks bright.

“But much depends on how we get there,” he said in a statement released prior to his chairing of the energy summit at this year’s World Economic Forum in Davos.

Shell thinks that after 2015 easily found supplies of oil and gas will no longer keep up with demand. But it also believes that energy consumption will double by 2050.

The global energy challenge is, in its own words, formidable.

Just how much more challenging is envisaged in its latest energy scenarios that provide two different views of the future.

The energy giant thinks its ‘Blueprints’ scenario provides the best balance between economy, energy and the environment. It suggests that coalitions take up the challenges of somehow achieving economic devilment and energy security while protecting the environment.

Much local innovation feeds into greater cooperation to control CO2 emissions and international policy harmonisation helps battle climate change.

The second, 'Scramble' scenario is a bit like an offroad rally through a mountainous desert, Van der Veer says.

“It promises excitement and fierce competition. However the unintended consequence of ‘more haste’ will often be ‘less speed and many will crash along the way',” he says.

According to the latter prognosis, countries rush to secure energy resources for themselves. Homegrown biofuels use increases fast. Energy consumption and greenhouse gas emissions are not taken seriously until major shocks trigger political reactions. The severe, overdue responses lead to energy price spikes and volatility.

It is more than seven years since Shell last developed a set of energy scenarios. It will release more details of the thinking behind its current alternate views of the future towards the end of March.

The company has, in the past, tended to develop three possible scenarios when it looks at the world either from a geopolitical and social basis or in terms of its core businesses.

These energy futures are different in that there are only two of them. That does not so much mean that the choices facing the world’s energy companies are stark but the choices facing the world’s policymakers are.

Shell’s Blueprints scenario (the climate change calculations made in it were sense checked by the Massachusetts Institute of Science and Technology (MIT)) assumes widespread carbon capture and would be costly to realise.

But Van de Veer says it offers the world the best chance of reaching a sustainable energy future unscathed.

The road towards greater energy sustainability could be rocky or a lot smoother. Companies such as Shell would clearly prefer the latter. Whether the political choices are made at the national and international level to facilitate that ride remains to be seen.

By: Nigel Davis
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