Over the last three weeks I have been working my way from Chicago to Santa Monica on Route 66, some 2,400 miles of lost highway which for decades were the lifeblood of American motoring. Route 66 had its beginnings in 1926 as the US started building a national highway system.
As the automobile became more affordable, Route 66 boomed and the towns along the way became thriving stopovers, with motels, gas stations and diners popping up throughout the country. It was a defining era for the US. The era was also a defining period for the oil industry. Towns like Ash Fork, Arizona, which has never had a population of more than 1000, housed a dozen gas stations, several motels and numerous places to eat. The gasoline stations reflected not only the demand for fuel but also the intense competition that was created to supply it.
But with the decision to build the Interstate system, Route 66 slowly vanished and the towns along the highway were increasingly bypassed. The gas stations closed and the motels slowly vanished. Today, a drive along Route 66 is a treasure hunt for what remains, some of it in ruins and some beautifully restored by motoring enthusiasts for the new tourist trade.
But Route 66 isn’t just about the demand for gasoline, it’s also about the supply. The highway cuts through Oklahoma, an important oil producing region of the US and home to one of the major global oil pipeline hubs. Just north of Route 66 between Tulsa and Oklahoma City sits the town of Cushing. It’s perhaps not a place many people have heard of, but it is the delivery point for a West Texas Intermediate (WTI) oil futures contract purchased on the New York Mercantile Exchange. What happens in Cushing can impact the world as was seen in 2020 with the COVID-19 pandemic underway. WTI prices briefly went negative, reflecting the fact that storage in Cushing was effectively full.
But change is underway. Throughout Route 66 in Texas and New Mexico, wind turbines can be seen in their hundreds, and electric vehicle charging stations are beginning to appear in some of the towns along the route, reflecting the new demand from American motorists.
How Route 66 is shaped by the future remains to be seen, but today it still represents a fascinating historical portrait of motoring and the oil industry in the USA.
This post is a guest contribution by Thomas Akkerhuis, Energy Analyst and Richard Baker, Senior Energy Adviser, both in the Shell Scenarios Team.
As the Brazil hosted G20 approaches and thoughts regarding COP30 in 2025, also in Brazil, start to appear, Brazil’s own climate efforts and energy system are becoming headline news. In a recent article, the Financial Times describes the challenge the country faces in balancing two fundamental ambitions: to be a global environmental leader while also growing its position as global player in oil production.
There is natural skepticism over whether balancing these seemingly contradictory positions is at all possible, with the Climate Observatory stating that “you can’t be a leader on the environment and climate and at the same time become a mega-producer of oil.” Perhaps Brazil is following a very narrow path here, but there are good reasons for doing so.
In June this year the Shell Scenarios Team published a Brazil Scenarios Sketch, which there are now several blog postings about, for example, this one. The Sketch is derived from Shell’s latest Energy Security Scenarios. The Scenarios Sketch shows, among other things, that both ambitions are realistic ambitions for Brazil:
Brazil has enormous potential to manage the world’s carbon emissions through land-use change, and it can help decarbonise the world through the production of biofuels. Emerging global demand for this capacity, because of climate change pressures, are important reasons to make use of those opportunities.
Brazil has significant fossil fuel reserves, with the potential to develop significantly more. There is an important economic argument for developing them. Today, Brazil has a gross domestic product that is below the global average (per capita basis), which is also more unevenly distributed than the global average (Gini coefficient basis). Many other countries have also built their wealth on the production and consumption of fossil fuels.
The sketch is an in-depth study of potential futures for Brazil’s energy and carbon system, through the lens of two scenarios: Sky 2050, and Archipelagos. Both start with the realities of the 2020s, including the struggle to end deforestation in Brazil. As time moves on into the 2030s Sky 2050 takes a normative approach that starts with the desired outcome of global net-zero emissions in 2050 and works backwards in time to explore how that outcome could be achieved. By focusing on security through mutual interest, the world achieves the goal and a global temperature rise of less than 1.5°C by 2100. Archipelagos follows a possible path in a world focusing on security through self-interest. Even so, change is still rapid, and the world is nearing net-zero emissions by the end of the century but the temperature outcome in 2100 is a plateau at 2.2°C.
The starting point for a deeper look at Brazil’s oil production prospects is the anticipated global demand in each scenario. The figure below shows that evolution through to 2060. Demand in 2030 remains at least at 2023 levels in both scenarios, and two decades later in 2050 when Sky 2050 is at net-zero CO2 emissions, the scenario range is still 40-85% of 2023 levels. While a fuel like coal may dwindle quite quickly in a world targeting net-zero emissions, significant oil demand will be with us well unto the second half of the century.
Global oil demand broken down by scenario and use
Oil has an abundance of uses, and for many of them, a lower-carbon alternative is not yet available (at scale). While the world has seen significant progress in electrification of cars and light-duty trucks, and this trend accelerates in both scenarios, the decarbonization of heavy long-haul road freight is a decade or more behind cars: in 2050, oil demand in the road freight sector has not even halved in Sky 2050 and in Archipelagos has even grown.
Other heavy-duty transport has even more difficulties moving away from oil: for example, airplanes, ships and agricultural equipment. Electrification is often not possible, and alternatives like biofuels and hydrogen are in their infancy. In Archipelagos, oil demand for these purposes grows over the next 3-4 decades. And finally, oil is essential to the chemicals industry – which is an industry that is set to grow as more and more people in developing countries move into middle income lifestyles.
Given that the world will need solid and reliable sources of crude oil for decades to come, how might Brazil fit into this picture? The charts below show Brazil’s oil production in the two scenarios, compared with domestic demand and natural field decline given no further investment. Remember that Brazil already makes significant use of ethanol for passenger road transport and increasing use of biodiesel for trucks.
Domestic demand and production of oil in Brazil in Sky 2050 and Archipelagos scenarios. Natural decline assumed 4.5% per year.
Both scenarios have short term production growth already locked in, driven by the development of the Buzios and Mero fields with investment decisions already made. The difference is what happens towards 2040 and thereafter.
In Sky 2050, natural decline matches falling domestic demand from 2040 onwards, but still allows Brazil to maintain a 3% global market share of oil production. In this scenario, Brazil becomes adept at managing carbon emissions and reaches net-zero emissions around 2040 and ahead of almost every other country in the world. Maintaining its role as an oil producer and growing exports in the near term does not undermine it’s net-zero goals.
In Archipelagos, oil production is a growing contributor to the country’s economy, exceeding domestic demand, and growing market share to almost 7% of global production. In this case, Brazilian oil is sufficiently competitive to squeeze out market share from other countries. However, this does not just happen: the best fields have already been commercialized, and while extensive underexplored coastline has huge potential, it does not come with guarantees. Additionally, even if not for export, ongoing investment and exploration would be needed just to maintain current levels of energy security.
In both scenarios, Brazil is an important oil producer – at least in the next decade, offering an opportunity to support its growing economy. And after that, Brazil will keep producing oil – at least to satisfy its domestic demand, and possibly to grow its global market share. Additionally, in Archipelagos, Brazil becomes a key regional supplier offering improved energy security for the Atlantic Basin countries, security being an overriding feature of the scenario. Both the Energy Security Scenarios and the Brazil Scenarios Sketch show a similar view for oil production growth for the next decade, before more substantial divergence starts.
Not all the country’s pathways in the sketch are so divergent, as can be seen below. In both scenarios, biofuel production will double mid-century, and in both scenarios, the trend of ongoing deforestation will be broken. In both scenarios, for biofuels, a large market is emerging as sectors and countries seek to replace their oil-based fuels with biofuels – such as in aviation. Article 6 of the Paris Agreement provides the possibility for sectors and countries to invest in land-use related projects in Brazil to offset their own hard-to-abate emissions.
Biofuel production and land-use change in Brazil in Sky 2050 and Archipelagos
It is a narrow path for Brazil, but the country can make the most of its oil resources while also developing its biofuel and carbon management potential. Both have wider benefit given the continued global demand for oil and focus on security of supply, but also the growing global demand for lower carbon fuels and carbon removal mechanisms. The only real difference between the scenarios is the mix and timing.
Sky 2050
Archipelagos
Oil
Now to early/mid-2030s: growth Mid-2030s to 2050: energy security
Now to 2050: growth 2030 to 2050: major exporter
Land-use change
Fast turnaround in emissions, an end to deforestation in 2033
Turnaround in emissions, net-zero deforestation in 2049
Biofuels
Doubled by 2050
Doubled by 2050
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.
In a time when there is much being written about limiting warming to 1.5°C, the so-called normative scenario has come of age. These emerge from a class of scenario analysis where a principal outcome is predetermined, rather than the traditional exploratory scenario which finds an outcome as a result of applied societal and geopolitical trends. In the case of 1.5°C scenario analysis, the story-line and findings are determined by the need to achieve net-zero emissions by 2050 and to limit cumulative CO2 emissions to some specified amount, which is the 1.5°C carbon budget. A further constraint is applied when a scenario with no or limited temperature overshoot is created. In that case the carbon budget would be rigidly enforced such that future atmospheric CO2 removal technologies and practices cannot be applied to correct an excess in shorter term CO2 emissions.
A no-overshoot 1.5°C normative scenario with a fixed carbon budget delivers a prescribed pathway that must be followed in order to achieve that same outcome in the real world; a recipe of sorts. However, picking and choosing certain parts of the pathway and calling for their implementation as policy approaches may be somewhat perilous; it could ignore inter-dependencies that the scenario requires for the outcome it achieves. Such is the case for the call to place a moratorium on new fossil fuel projects.
A new paper from researchers at University College London and the International Institute for Sustainable Development explores ways in which fossil fuel extraction can be curtailed, with their analysis opting for the development of a social-moral norm against completely new fossil fuel projects rather than an attempt to limit extraction from exiting projects or shut existing extraction sites down. The paper was recently discussed in a Financial Times article.
The researchers assess a range of 1.5°C scenarios compiled for the Intergovernmental Panel on Climate Change’s (IPCC’s) Sixth Assessment Report (AR6). For these particular scenarios the demand for oil, coal and gas can be met from fields and mines already in production or under development. The scenarios that they assess are the C1 scenarios (limiting warming to 1.5°C with low or no overshoot), including only those scenarios that do not exceed IPCC feasibility and sustainability thresholds on carbon sequestration. Such thresholds effectively exclude scenarios dependent on high levels of carbon sequestration technologies, such as carbon dioxide removal (CDR), which the authors argue are unproven at scale and which, if they failed to materialize, would pose a risk to the achievability of the 1.5° goal. While a tight limit on future CDR deployment can be a valid scenario assumption, it is a questionable assumption in the real world, given that society is now so close to the 1.5°C threshold.
In any case, the scenarios chosen by the researchers, like the IEA NZE Scenario, make some highly challenging assumptions about the energy system to meet the net-zero, no overshoot and carbon budget constraints imposed within them. These assumptions include reducing the demand for energy services such that fossil fuel demand falls even faster than would be the case based on substitution alone. The IEA had to make the same assumptions in its own NZE 2050 scenario and states the following on its website;
Clean energy technologies are deployed at unprecedented speed in the NZE Scenario, but many CO2-intensive energy assets will still be in use in 2030. Reducing their emissions or replacing them depends on scaling up novel or complex low-emissions solutions and deploying them around the world, and that will take time . . . . . . In the absence of energy demand reductions from behaviour change, achieving the same emissions reductions in end-uses would require ramping up low-emissions technologies at staggering speed. In aviation, the use of sustainable aviation fuel would need to increase more than twice as fast as in the NZE Scenario . . . . . . In road transport, the use of more EVs would require an additional 1.3 million tonnes of critical minerals by 2030 – roughly the amount of critical minerals used in the EV sector today . . . . .
Examples of the assumed IEA behavioural changes come from every sector. In the buildings sector, they include adjusting space heating and cooling temperatures. In the transport sector, they include more public transport and reduced car use in cities, eco-driving on highways and switching from planes to trains or videoconferencing.
As already noted, these behavioural changes mean that oil, gas and coal demand fall even faster than would be the case for a mitigation or substitution only story, which in turn allows the scenario to meet the carbon budget and no-overshoot constraints. This also means that the need for new fields and mines for fossil fuel production is reduced, to the extent that the scenario designers can then make the claim that no new fossil fuel production facilities are required.
We then come to the UCL/IISD report. Within the paper there is no mention of the need to see a long list of behavioural changes emerge across global society; rather, it launches into an analysis and discussion about the policy framework that should be implemented to limit development of further fossil fuel resources. The authors reach the conclusion that state and non-state proponents of ambitious climate action should engage in policy and advocacy aimed at diffusing and institutionalizing a social-moral norm against new fossil fuel projects. The researchers note that a social-moral norm is a standard of appropriate behaviour that is expected of an agent with a particular identity.
The problem with this argument is that it tackles the result of energy demand, rather than the cause. Simply shutting off supply will of course limit fossil fuel use, but the outcome could be very disruptive and have unintended consequences, such as limiting energy access to those most in need. If the solution to the carbon budget problem involves curtailing energy service demand, then surely the social-moral norm that the authors should have argued for is around limits on energy service use. This is basis for the so-called Flygskam in Sweden, a word that literally means “flight shame”. The movement discourages people from flying to lower carbon emissions. Japan used such a mechanism quite effectively after the Fukushima nuclear accident to encourage higher temperatures in buildings in the summer, therefore lowering the need for energy for air conditioning.
But shaming and aggressive persuasion aren’t always welcome and may have a limited duration before reversion kicks in. The Sierra Club argued in a 2023 article that climate-obsessed travelers should ditch the guilt and support efforts to cut aviation’s carbon footprint. They saw three problems with the shaming approach – it puts the burden on individuals, rather than accelerating the systems changes that will cut carbon from flight; it simply won’t scale as flying is a large and growing sector, and we live in a diverse, interconnected, and increasingly mobile world; finally, other solutions do exist and need to be scaled rapidly. The article concludes that society needs to support the kinds of policies and investments that will allow fossil-fuel-free travel. But then the aforementioned IEA issue of speed of deployment crops up and the carbon budget is under threat once again.
While the arguments put forward in the UCL/IISD paper are cogent and thought through, they do over-simplify a complex problem. In fact, there isn’t a simple solution to the 1.5°C issue, even though many argue that there is. Perhaps the root of the problem is a gospel like belief in extreme normative scenarios that only deal with the period from now to 2050, rather than attempting to understand the alternative solutions and outcomes that full century exploratory scenarios can highlight.
The Shell Energy Security Scenarios offer such insight. Sky 2050 is a blend of normative and exploratory, in that it does meet the goal of net-zero emissions in 2050 and does adhere to a 1.5°C carbon budget, but it explores the possible outcomes more holistically, embracing near term stubbornness (for change) in the energy system, land use reform, future industrial removals and carbon credit trading, all part of a world also transitioning rapidly towards a new energy system. Archipelagos is an exploratory only scenario. It recognizes the accelerating rate of the energy transition as multiple pressures are placed on it, including climate action, supply disruption and price volatility. Both scenarios extend their analysis beyond 2050 and chart a course through the second half of the century, a necessity to fully understand where the energy system is ultimately headed. The often used end-point of 2050 for energy system scenario analysis is now too near for such scenarios to offer an appropriate solution set for the Paris Agreement goals.
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.
A guest post by my scenarios team colleague Richard Baker – Senior Energy Adviser
There is widespread consensus that a marked decline in the use of all oil and gas over the coming decades is required if the world is to meet the goals of the Paris climate accord. Any discussion of technology that is perceived as prolonging investment in their usage is invariably greeted with condemnation. Recently, in the run-up to COP28 in the UAE, the incoming COP President, Sultan Ahmed Al-Jaber, was criticized in some sections of the media for stating that the world needs to focus on tackling emissions from fossil fuels rather than simply eliminating their use.1
But technologies that reduce emissions from oil and gas play a critical role in a transition to net zero and the incoming COP President was correct to address this. To understand why, Shell’s recently published Sky 2050 scenario provides a useful framework. In this scenario, net-zero emissions (NZE) is reached in 2050. Although the temperatures in the scenario rise to 1.7ºC, as modeled by MIT, negative emissions in the second half of the century result in a temperature rise of 1.2ºC above the pre-industrial average in 2100.
Sky 2050 does not make unrealistic assumptions about near-term oil and gas production or a rapid decline in demand for oil and gas. Global demand is yet to start declining and it is difficult to envisage upstream projects already operating or currently under development being paused or canceled. To that end, the Sky 2050 scenario sees demand mostly plateau this decade, but then rapidly decline in the 2030s and 2040s, with oil at 45 mb/d (million barrels per day) and natural gas at 1.9 Tcm (trillion cubic meters) by 2050, which are both slightly less than half of today’s levels. A demand led trend towards zero oil and gas by 2050 isn’t realistic as we are still far from having a complete set of technologies to replace all the uses for oil and gas.
In fact in Sky 2050 it isn’t until 2100 when the world has largely left the era of fossil fuel energy behind, although even then oil and gas are still used for making things, from solvents to plastic water bottles.
While Sky 2050 in 2050 clearly shows a reduction from today, this is nowhere near zero. Instead, Sky 2050 relies on significant use of industrial carbon capture and storage and negative emissions that use a combination of technological and natural sinks to reach net-zero emissions. The technological storage of carbon dioxide is significant by 2050 and beyond; in Sky 2050, the size of the carbon capture utilization and storage (CCUS) industry is ultimately bigger than the natural gas industry today in terms of the volumes of gas handled and direct air capture (DAC) plays an ever more prominent role in the second half of the century.
Yet moves to capture and store carbon dioxide emissions are not universally popular. Some argue that it gives the industry carte blanche to carry on producing at today’s levels. But continuing to invest in the industry, including emission reducing technologies, is not the same as maintaining or growing production.
Reservoir decline rates are hard to quantify as they are rarely left without any intervention to simply decline. Rates of 4-5% are often quoted, but this usually includes drilling additional wells or installing pumping equipment, and the true rate is probably higher. But even using a 4-5% decline rate from now would give production levels of 23-30 mb/d in 2050 for oil and 0.9-1.2 Tcm for gas, significantly below the demand levels modelled in Sky 2050.
This gap will need to be filled by ongoing investment. Objections to new projects often raise the International Energy Agency’s (IEA) landmark Net Zero study as evidence, but the report is usually misquoted. The report does not say that no investment in oil and gas is required, but instead states that “no new oil and gas fields are required beyond those that have already been approved for development” and the required investment levels reported, which average $500 billion per year this decade, are more or less what the industry is currently spending. Even in the 2030’s, the IEA calculation of required spending levels of $300 bln per year is considerable. And the context behind the IEA statement is almost never included. The scenario from which the statement emerges not only requires a huge investment in new energy systems but very importantly, a world making significant efforts to reduce overall energy demand, through important changes in behaviour (e.g. cycling more, not flying etc.), extreme efficiency measures in the built environment and even some energy austerity. Most of that isn’t happening or at best, isn’t happening fast enough or in a sustained way.
Whether the required oil and gas investment could be focused only on existing fields, or if new developments are required, is a matter of debate. A cursory glance around the world today would find no shortage of oil and gas assets with large resources that are struggling to maintain production, even when incentivized by the recent uptick in oil prices. For many countries, geopolitical and local factors are restricting investment, and in some cases the technical expertise previously provided by international oil companies is lacking.
So how is the industry responding? There are two pathways playing out.
The first is that existing fields are attracting investment to maintain production, but there is also some new field development underway. The IEA report also goes on to say that ‘minimizing emissions from core oil and gas operations should be a first-order priority for all oil and gas companies’. Many operators are doing just that, seeking ways to reduce their own production emissions, including the electrification of facilities (and generating that electricity from renewable sources) and aiming to eliminate flaring, amongst others. And there is widespread effort underway to clamp down on fugitive methane emissions with techniques such as drone technology, but particularly from aging infrastructure where such initiatives are helping to identify the worst culprits. The counter argument is that for oil, where 85-90% of most emissions come at the point of combustion in a car, plane, or ship’s engine, reducing intensity in the upstream has a relatively small impact on reducing total emissions. But given that Sky 2050 sees 250 Gt of CO2e emissions from oil use in the next 27 years, addressing 10-15% of the issue still adds up to 25-40 Gt, equivalent to global emissions from a single year.
The second pathway is the focus on developing carbon capture and storage for the so-called Scope 3 emissions, or the emissions from the actual use of oil and gas. Many such projects are in the pipeline but there is also real innovation emerging. For instance, Occidental plan to inject CO2 captured directly from the air into reservoirs in a technique known as Enhanced Oil Recovery. The company claims that more CO2 is injected than is subsequently released when the fuel is combusted, and regulators agree; oil produced via this method will qualify for the low-carbon (45Q) tax credit. For now, it’s the only project under development, but if successful, it may provide a blueprint for others to follow. For gas, where combustion tends to be more concentrated in a power plant or industrial unit, there is significant scope for point source capture and there are many projects in development, although not yet on a par with the scale in Sky 2050.
It’s often said that CCUS is an unproven technology when, in fact, the capture and re-injection of CO2 have both been practiced for decades. According to the IEA, of the 40 Mt captured in 2021, around 75% was captured from oil and gas operations. The question is whether commercial drivers, including carbon taxes, can help deliver the scale envisaged in Sky 2050. The issue with carbon capture and storage has never been the technology, but always the business model to support the investment.
While in Sky 2050 there will be reduced demand for oil and gas in sectors that can be electrified, like transport, by mid-century there will still be sectors of the economy that are using oil and gas because the alternatives are not deploying at sufficient scale. The demand from these sectors is greater than natural decline alone would allow, requiring further oil and gas investment.
Dr Al-Jaber was right to point out that the production that remains will need to be as low carbon as achievable, while a global negative emissions industry needs to be built. These two parts of a burgeoning carbon management industry will require continuous investment as well as policy support. The challenge for the upstream oil and gas sector is to deliver both and that could even mean a combined production and carbon capture sector that is bigger in the second half of the century than the stand-alone oil and gas production sector today.
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.
As the EU grapples with the challenge of displacing Russian oil and gas and meeting immediate needs as Russian supplies are cut, the question of the scale and speed of the energy transition emerges. How fast can Russian supplies be displaced by the transition itself?
The two charts below show the current situation. Prior to the Russian invasion of Ukraine, oil and gas supplies from Russia and into Europe contributed to about 40% of overall European demand, with local production making up much of the balance in the case of gas, but just about half the balance in the case of oil. In the case of gas, the flow to Europe is about a quarter of Russian supply, but for crude oil and oil products it’s nearly half.
Both charts show that European production has declined over twenty years and in the case of oil reached an apparent plateau around 2012. It’s unlikely that local production increases could make up for the cut in Russian supplies, so that leaves three immediate options;
Immediately cut overall energy demand, which in turn could translate to a reduced need for Russian supply.
Find supplies elsewhere.
Accelerate the energy transition to reduce the overall need for oil and gas in the energy mix.
While it’s clear from recent announcements that the EU strategy will embrace all three options in the short term, the longer term strategy will almost certainly rest with the transition itself. But such a transition could well take all of this decade, and probably longer, to complete.
Gas supply is perhaps the more problematic issue, as supply is less flexible globally than oil due to pipeline constraints, LNG capacity (the availability of shipping, liquefaction and regassification facilities) and long term storage. While gas has become a flexible commodity in the 21st century, it still remains easier to reorganise, redirect and store oil. However, gas may be faster to displace than oil from an energy transition perspective.
The gas chart above also shows how the rapid deployment of wind energy across Europe could be used to offset Russian gas requirements, but it’s a journey that takes the best part of a decade. This assumes a compounding growth rate in wind deployment of 10% per year, slightly above current levels of 8%, but equivalent to the growth rate from 2010 to 2017. However, with a much larger installed base, 10% growth in 2029-2030 means installing some 50 GW of wind in that year versus the 15 GW installed in 2017 and again in 2021. So the annual installation rate has to at least triple. Of course wind isn’t the only technology, there is solar PV as well, at least for the southern latitudes of Europe.
Further to the above, if rapid growth in renewables is focussed entirely on displacing Russian gas or filling the void left by the absence of Russian gas, less progress will be made in displacing the current use of coal in the EU. This could make meeting the EU 55% by 2030 emissions reduction goal more challenging, as eliminating coal for a given electricity production can deliver twice the emissions reduction versus the same shift for gas.
By contrast, displacement of Russian oil through the energy transition looks to be a slower process, although it may turn out to be less necessary. Oil is a more flexible commodity in terms of source and destination, although there could still be pinch points in the system, for example inland east European refineries tied to Russian crude via pipelines. The largest portion of EU oil demand is for transport and within that the capacity for replacement in the 2020s sits with electrification of passenger vehicles, vans and city buses. Alternatives for larger trucks, ships, barges and planes are not yet mature enough for fast large scale deployment.
If we assume a very rapid deployment of electric vehicles (EV), to the extent that all new sales are electric by late in the 2020s (a rate faster than the current goal of 2035 for all EV sales), only about 50 million tonnes per year of oil is displaced by 2030, or about a fifth of the oil that comes from Russia. This is because of the time it takes to turnover the exiting stock of vehicles. Within Europe there are some 250 million passenger cars (Source: Eurostat), but new car sales are in the range 12-16 million vehicles per year, so in eight years only about half the total stock will be replaced anyway. With EVs currently comprising about 10% of new sales, albeit that share growing rapidly, replacing even half the total vehicle stock with EVs will take longer.
In the end, a rapid energy transition can contribute significantly to the EU weaning itself off Russian oil and gas, but this won’t happen in the next few years. By the end of the decade significant progress can be made, especially for gas, but it will likely be well into the 2030s before the same is achieved for oil.
Last week the Climate Change Committee (CCC) in the UK released its much anticipated report which is recommending that the government revise its emissions goal to net-zero in 2050. The Committee notes that this is an appropriate UK contribution towards the global need of meeting the goals of the Paris Agreement. The recommendation also follows in the wake of the IPCC Special Report on 1.5°C, which identified 2050 as the year in which the global economy should attempt to reach net-zero emissions in order to limit warming to 1.5°C with a 66% probability.
The recommendation is a shift from the current UK target which would see the country reach an 80% reduction by 2050, in support of which the country is broadly on track to deliver the first 3 interim carbon budgets to 2022. However, as it looks past 2022 the CCC notes there is insufficient early development of some technologies for the heavy lifting ahead. Examples of this include carbon capture and storage (CCS) and hydrogen for a variety of uses.
Nevertheless, the state of technology development, deployment and availability has shifted since the time of the first UK target back in 2008. The cost of wind and solar has dropped significantly, offshore wind is now a viable proposition, many electric car models are available and while not in the UK, some 20 CCS facilities are now running in various parts of the world. All of the technologies required to do the job set out by the CCC are in plain sight, although a number still require significant UK development for deployment in this country. The CCC report is also very clear on this issue.
2050 is just over thirty years away and that same time period reflecting backwards marks the time that I first arrived in the UK with Shell. In the next 30 years the whole energy system will need to shift to achieve net-zero emissions, but how does that compare with the changes seen over the last 30 years. While two thirds of that period has not been covered by the Climate Change Act and its carbon budgets, all but three years have been covered by the UK ratification of the UN Framework Convention on Climate Change.
The Sankey diagrams below reflect the change over the period, although the most recent from the IEA are 2016, so they won’t show the last two years of renewable energy development.
Overall primary energy consumption has fallen, with the most visible change being the shift away from coal and towards natural gas in power generation. Both bioenergy and renewables have also added to the generation mix. Nuclear plays an important and steady base load function. Natural gas is now the dominant contributor to the current power generation sector and in the past year there have been periods where coal has not played a role at all. Back in 1989 coal made up most of the generating capacity. Oil demand within the UK has hardly changed over thirty years (slightly up) although production has halved.
As noted above, one feature that has surged since 2016 is the proportion of renewable energy in the generation mix. Recent figures from BEIS show that wind and solar have now exceeded nuclear on a quarterly basis.
In the final energy system, the changes are more nuanced. The overall share of electricity has moved from 16.7% of final energy to 20.4%, or a shift of 3.7% points in 27 years. The global rate of change is tracking at 2% points per decade, so the UK is well short of that pace of transition. A net zero emissions economy would likely need electricity to be the major component of final energy, say around 60%, so the UK rate of change will need to shift from 1.37% points per decade to around 11% points in each of the coming decades.
Transport hasn’t shifted at all in the past 30 years, with oil use in transport slightly increasing. Electricity is just starting to creep into this mix, but pure electric vehicles have reached only 0.7% (2018) of new car sales. Worryingly, the total number of petrol and diesel cars registered in the UK in 2018 was unchanged from 2013, a period which has seen the first major push to get consumers to go electric. Reaching net-zero emissions by 2050 will not just mean seeing all new purchases as electric, but seeing all new purchases from about 2035 onwards as electric. It can take up to 15 years to completely turn over the entire on-the-road fleet, although a future government could presumably accelerate this process with a buy-back-and-scrap scheme.
In the industrial sector, energy consumption has dropped by nearly a third, presumably through efficiency improvements as industrial output has hardly changed (see chart below). Importantly, electricity use has stayed largely the same. This means that the sector is gradually electrifying, although again the pace of change is below that required.
UK Industrial Production (1970-2019).
Then there are the tricky bits, where the UK has made only limited progress. The CCC notes that radical change is needed in home heating, including a shift to hydrogen and heat pumps, with support from much better home insulation. But residential natural gas use has marginally increased in 30 years, despite significant improvements in boiler efficiency and the use of electricity instead of gas for new apartment buildings. One highlight in this area is the recent milestone of one million homes now being supplied with biomethane.
The overall change in 30 years has been one of continually falling greenhouse gas emissions, with much of the gain coming from natural gas replacing coal and a fall in industrial energy use. While the impetus for change over the last 30 years was perhaps not as great as it is now, the overall shift is symptomatic of typical energy system dynamics; rapid adjustment has never been a feature, primarily due to the large capital stock involved. Outside the energy sector change over the same period has been dramatic. In 1989 there was no internet, no social media, hardly a mobile phone to be seen and televisions were defined more by their depth than their width. So can the UK reach these sorts of transition rates and achieve the goal of net-zero emissions by 2050?
In the power generation sector, zero emissions should be entirely achievable in that time frame. Renewables are surging and new nuclear capacity is now under construction (although even getting that started took a decade). Similarly, with the models on offer or on their way, passenger vehicles could be entirely electric and various cities across the UK have demonstrated that electric buses are now a viable option. But there is no real sign of change for heavy goods vehicles, shipping or aviation. Perhaps the biggest challenge sits with the use of natural gas in homes and industry. It is easy to use, clean, provides a very high heat load and is backed by extensive infrastructure. Hydrogen and electrification are potential pathways forward, but as noted the electrification rate of change has to shift by nearly an order of magnitude. For hydrogen there are promising signs of change with the government now funding a major programme on supply and conversion of existing facilities away from natural gas.
Finally, there is carbon capture and storage (CCS), which may be a simpler solution in many applications than attempting to dislodge natural gas. CCS in combination with direct air capture (still a nascent technology) may also be needed to balance out emissions in sectors such as aviation. Even the production of hydrogen may be easiest at scale from natural gas, which would then also require CCS. The UK has tried and tried again with CCS, but there is still no operational facility to show for all the efforts made. Yet the UK is both pipeline dense and geologically gifted in terms of storage potential, so deployment could proceed given the right incentives to begin.
The Climate Change Committee have put forward a bold recommendation, but it is not without immense challenge. It ought to be possible to achieve the 2050 goal of net-zero emissions, but it won’t happen without some significant nudging by the government in a number of key areas. Policy decisions over the coming five years may well set the scene for the next twenty, so there is everything to play for.
Over the past three weeks I have been on a voyage from Cape Horn to the Cape of Good Hope, specifically Ushuaia to Cape Town. With good weather for most of the trip, we were fortunate to stop in the Falkland Islands, South Georgia and Tristan da Cunha (some pictures below). Each of these have communities ranging from a few people to two thousand in the case of Stanley and each has found its own solution to providing energy. Of course the other remote activity out here is the need of the ship itself which will have travelled for some 20 days without refuelling and carried 400 passengers and crew across the South Atlantic.
The Falkland Islands has the major settlement of Stanley, a couple of very small towns, a military garrison and numerous remote farms. The Islands have settled on wind power to displace diesel generators, achieving an average of 35-40% displacement and a peak of 54%. Rural wind power has also been a success for the remote farms. The next step is to look at the potential offered by modern energy storage technologies, although flywheels have been used since 2010 for some storage in association with the wind turbines. Given the geography and climate, neither solar or hydro have been a success, apart from some niche applications. But the Falkland Islanders also have a history of burning peat for heat, although this is in decline. Kerosine and diesel are the most common fuels used today.
South Georgia is completely different. Since 2008 South Georgia’s two settlements Grytviken and King Edward Point (KEP) have been powered by hydro electricity. On the slopes above Grytviken there is a dam, originally built by the whalers at the turn of the 20th century. The dam increased the capacity of Gull Lake to feed water to the first hydroelectric power plant in 1914. The electricity produced then was mainly used for lighting the whaling station. The plant was expanded in 1928 to reduce the station’s reliance on imported coal for steam to power the factory. The electricity produced was then used to power winches and other factory equipment. The new turbine house has been built just off the pathway from the settlement to Shackleton’s grave, with the only visible sign of it as a generating station being the small stream of water seemingly running from under the building and into the bay.
Tristan da Cunha has a single settlement of about 270 people and an export factory to process the fish and lobster that are caught around the island. Although much of the electricity system was replaced about a decade ago after a fire, an entirely diesel based system was rebuilt. In recent years some changes have taken place with the installation of a few home solar water heaters, saving on bottled LPG which is used to heat water in Tristan houses. A small solar farm was also constructed west of the fishing factory. It consists of 26 solar panels, aligned to face the northern midday sun and each capable of generating 250 watts, so a combined capacity of 6.5kW. The connection to Tristan’s electricity grid was made on 30th April 2015. There are further plans for change, but the logistics of getting equipment to Tristan is enormously challenging. The island can only be approached by sea and few ships stop there. As we discovered on a second stop there (to pick up a local government person so we could land on Inaccessible Island), weather can quickly close the port and conditions can persist for days. But the case for further change is strong, given the community dependency on the import of diesel fuel and LPG. The eventual solution for Tristan may be a combination of parts. Although there is excellent wind, it can be ferocious at times, bordering on hurricane conditions, which perhaps isn’t ideal for turbine operation. Solar can also be challenging, with thick cloud shrouding the island at times. And although there is ample rainfall, collecting this and channelling it through a hydro plant would also be very difficult given the geography.
This then brings the focus to the key dependency for all remote activities, the transport to get there and transport once there. As was the case for our vessel, all these locations are completely dependent on long distance, self-powered transport and that remains almost entirely powered by liquid fuels coming from petroleum. While renewables are starting to provide local energy solutions for remote activities, the energy for the transport associated with such activities has no immediate zero emission alternatives. Synthetic fuels, either from a biomass / biowaste starting point or formulated from hydrogen and carbon dioxide offer a simple drop-in possibility, but the bio-alternatives are still relatively small scale and the pure synthesis route is still at the pilot plant stage of development. It should be noted that large scale synthesis of fuels from hydrogen and carbon monoxide does exist, but the starting points are coal (SASOL in South Africa) or natural gas (Shell in Qatar). For a net-zero emission synthetic fuel, the hydrogen would need to be produced by electrolysis of water using renewable energy and the carbon extracted from the air as carbon dioxide.
Apart from synthetic fuels, the best prospect for change is perhaps hydrogen itself, in that there is good experience containing and carrying it and fuel cells can power even large motorised vessels such as ships. Nuclear exists on ships in the military, but after an attempt to demonstrate the feasibility of nuclear powered commercial ships in the 1960s, nothing more has come from this form of propulsion. The challenge will lie with the providers of heavy transport; shipping companies, airlines and aerospace companies and large road haulage entities. Perhaps like the remote activities themselves, different solutions will emerge over time for the various requirements faced. Some remote locations may even be well placed to provide hydrogen in that they could have an abundance of renewable electricity to put towards hydrogen production via electrolysis. Scotland’s Orkney Islands are starting to experiment with such a route forward, as recently reported by the BBC.
Albatross chick on West Falkland
King penguins on South Georgia
A king penguin colony on South Georgia
King penguins on South Georgia
Me on Tristan da Cunha
The worlds most remote inhabited island, Tristan da Cunha
Northern rockhopper penguins on Gough Island
Fur seal on Gough Island
Fur seals on Gough Island
Inaccessible Island
Birds returning in the evening to Nightingale Island
A new tool from the Shell Scenarios Team provides new and unique insights
Those who follow my blog postings will have noted that I regularly use energy data, typically extracted from sources such as the IEA, the US Government EIA and even other energy industry company databases. The data I use is often resource based, such as in my piece, Infinite Solar, a bit over a year ago. Now, that data is available in the new Global Energy Resources (GER) database from the Shell Scenarios team.
This database provides an overview of resource potential across gas, oil, coal and renewable energy types, fossil and non-fossil, including oil, gas, coal, hydro-electricity, biomass and biofuels, geothermal, wind and solar.
A user-friendly interface allows for quick comparisons of data across countries and regions, as well as aggregation regionally and globally. You can access it on computers, tablets and smartphones, and the full database is also downloadable as an Excel spreadsheet.
The underlying data has been compiled using a rigorous research process combining raw data with expert assessment. The oil and gas database was constructed from analysis of external source data. It is supplemented by Shell’s extensive knowledge and technical assessment of sub-surface resource potential.
The renewables database was developed through a collaboration between the Shell Scenarios team and Ecofys, a Navigant company and leading international energy and climate consultancy. It seeks to reflect a realistic assessment of resource potential rather than the perspective of technical potential that commonly characterizes academic literature. The dominant renewables, wind and solar, were evaluated on a grid-cell basis, providing a detailed analysis spanning the globe.
Our analysis suggests that there is no lack of potential energy resources to support a decent quality of life for the 10 billion people expected to live on the planet towards the end of the century. However, differences in resource distribution will result in local and regional constraints, creating a myriad of energy consumption, production, and international trade patterns. These patterns trigger complex policy and socio-economic choices around the energy transition which will ultimately govern successful (or failed) transitions towards a net zero emissions world.
We hope that you find the GER database valuable, whether for quick investigations or for more systematic analyses of this most fundamental pillar of the global energy system, namely the distribution of energy resources across our world.
The Scenarios are a part of an ongoing process used in Shell for 40 years to challenge executives’ perspectives on the future business environment. We base them on plausible assumptions and quantifications, and they are designed to stretch management to consider even events that may only be remotely possible. Scenarios, therefore, are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. It is important to note that Shell’s existing portfolio has been decades in development. While we believe our portfolio is resilient under a wide range of outlooks, including the IEA’s 450 scenario, it includes assets across a spectrum of energy intensities including some with above-average intensity. While we seek to enhance our operations’ average energy intensity through both the development of new projects and divestments, we have no immediate plans to move to a net-zero emissions portfolio over our investment horizon of 10-20 years.
Disclaimer: Scenarios are not intended to be predictions of likely future events or outcomes and investors should not rely on them when making an investment decision with regard to Royal Dutch Shell plc securities. Please read the full cautionary note in www.shell.com/scenarios
