In This Issue
Engineering, Energy, and the Future
June 1, 2003 Volume 33 Issue 2
The next industrial revolution will transform energy production and consumption

Meeting Future Energy Needs: Choices and Possibilities

Sunday, June 1, 2003

Author: Ged Davis

Two scenarios of our energy future challenge current corporate strategies and energy policies.

Recent discussions of energy policy have almost inevitably been focused on the short term. The effects of the conflict in the Middle East on oil prices and availability, as well as potential threats to oil supplies from terrorism, require urgent consideration. However, we must not allow our immediate concerns to cloud our vision of the future. Policies to deal with future energy needs and ensure their sustainability must be set in train now.

Future challenges fall into three time frames, each of which presents particular but interrelated policy questions. In the short term, the key issues are the dynamics of oil pricing and our ability to deal with shocks to the energy system. In the medium term (to 2020), we will have to bring new sources of supply to maturity and deal with emergent risks. In the long term (to 2050), the focus will be on the availability of resources beyond the era of hydrocarbons, climate change, and the capacity to meet the energy needs of eight to nine billion people. Analyses of the needs of each time frame should inform what we do now. Providing energy requires long lead times, and we cannot delay making investment decisions without incurring future costs.

This article is focused on possible longer term developments in the energy industry and alternative futures for 2050 based on Shell's current long-term scenarios (Shell International, 2001). These are not projections, predictions, or preferences; they are stories about the future relevant to Shell's business--developed to challenge the underlying assumptions of current corporate strategies and energy policies.

Exploring the future of energy is particularly challenging because we appear to be entering a period of innovation in energy development, and there are several different paths the energy system might take. Between now and 2050, those paths will be determined by a wide range of needs, possibilities, and choices by consumers, business, and governments. Let us start by looking at possible energy requirements.

Links between Energy and Income
Recent UN midrange population forecasts indicate a global population of some eight to nine billion people in 2050, 80 percent of whom are likely to be living in cities. At the same time as the population increases, incomes will rise, and with them the demand for energy. The pattern of economic development throughout the world suggests that, as annual per capita GDP reaches about $3,000 and as industrialization and urbanization take hold, the demand for energy will increase dramatically. By the time income reaches $10,000 per capita, industrialization will be complete; at $15,000 per capita, energy demand will slow; by the time it reaches the current income level of OECD countries, less energy-intensive services will dominate economic growth and energy demand will reach a plateau and could even decline.

At the moment, about one billion people worldwide rely mainly on biomass or animal waste for fuel; these people are not even on the bottom rung of the energy ladder. Another four billion have yet to enter industrial development fully, but by 2050 many of them will have incomes well above $3,000 per capita, meaning that we must be prepared for the global demand for energy to double or triple. Much will depend on whether the future demand in countries such as China and India reaches a plateau at closer to 100 or 200 GJ per capita. In Europe today average annual per capita consumption is close to 150 GJ.

We believe that the fundamental drivers of the patterns of longer term energy use will be the balance between personal and social priorities, resource constraints, and technology options.

Personal and Social Priorities
Energy choices may reflect predominantly personal decisions made through the market or collective decisions made by governments. The attitudes of governments and public opinion on questions such as energy and the environment and energy security will significantly influence the way future energy systems develop. Personal choices that reflect values, environment, and lifestyles will also be influential and will be reflected in patterns of consumption. At higher income levels, these factors tend to override concerns about affordability.

Resource Constraints
The second driver is the availability of energy resources. Some commentators believe that there will be imminent constraints on the ability of fossil fuel resources to meet increases in energy demand. However, we think oil supplies, including unconventional sources and natural gas liquids (NGLs), will not peak before 2025, and could be even later. This view is based on recent estimates by the U.S. Geological Survey that there are some three trillion barrels of ultimately recoverable resources of conventional oil; Shell's own estimate is even higher. In addition, another trillion barrels could come from heavy oils and NGLs.

The outlook for natural gas is more complex. As much as two trillion barrels of oil equivalent conventional natural gas are potentially available. However, there is more uncertainty about the precise amount we will be able to recover, because half of the estimated gas has yet to be discovered. In addition, there may be very large reserves of unconventional gas, as well as the emergence of new technologies to convert both coal and oil into gas. This means the range of resource availability is extremely wide; it could peak as early as 2025 or not until well after 2050.

A further challenge will be to provide the infrastructure to bring those resources to market. Much of the world's gas supply is situated in remote areas far from end-users. The investment required to construct pipelines and to transport gas to European and Asian markets will be substantial and will have a very long payback time. To ensure that investments are timely, commercial and political drivers will have to be aligned and decisions made soon.

Renewable energy sources (called "renewables") offer a variety of alternative energy sources with the potential to meet all of our energy needs. Geothermal and solar energy alone could each supply 250 GJ per year to 10 billion people, assuming economically viable technology is available. With the exception of Asia and Europe, most regions of the world could be self-sufficient. However, widespread use of these intermittent sources of energy will depend on the development of new forms of energy storage and competitive economics.

Technology Options
Technology has always been a key determinant of energy requirements. For example, over a period of 250 years, advances in steam engine technology increased the thermal efficiency of the transformation of coal 25 fold; over any 50-year period, it increased by 2 to 7 fold.

We now appear to be entering a very innovative period in energy development when more resources than ever before will be devoted to scientific research and technological development. Information and communications technology offer new ways of analyzing information and sharing knowledge. We could see advances in biotechnology and materials technology, such as carbon nanofibers and computing, that would support the development of biofuels, fuel cells, and new energy carriers (such as hydrogen), micropower networks, and new solar technologies. Each of these developments has the potential to have a major impact on the energy system. However, it is difficult to predict which technologies will make the biggest contribution.

Traditional fuels could also benefit from technological innovation. With technological advances, coal, which currently has significant environmental disadvantages, could reemerge as a fuel for power generation. New approaches to carbon sequestration could provide solutions to increased concentrations of atmospheric carbon dioxide from emissions. And what if we had a publicly acceptable, safe nuclear option?

It seems clear that advances in technology play a central role in energy transitions. But these changes are more discontinuous than evolutionary. The steam engine, electric dynamo, internal combustion engine, nuclear fission, and combined-cycle gas turbines all succeeded by offering superior or new qualities--often transforming lifestyles as well as energy supplies.

Scenarios for 2050
In our scenarios,
Dynamics as Usual and Spirit of the Coming Age, we set out two alternative future energy stories for 2050 that explore the impacts of some of these technologies. Both scenarios recognize the potential for discontinuities and the emergence of new manufacturing technologies.

The Dynamics as Usual scenario focuses on choices by citizens for clean, secure, increasingly sustainable energy. As resources become increasingly scarce, these choices lead to reliance on renewables. The alternative scenario, Spirit of the Coming Age, focuses on energy choices by consumers in response to revolutionary new technologies that transform the energy system. In this scenario, there is a surprising increase in the use of fossil fuels and the development of worldwide carbon sequestration.

These two scenarios, which are discussed in more detail below, reflect differences in energy resources, the timing and nature of developments in technology, and social and personal priorities. Although they outline distinctly different paths, they have important common features, including the vital role of natural gas as a bridge fuel for at least the next two decades; pressures on the oil market as new vehicle technologies are adopted; a shift towards distributed heat and power supply for economic and social reasons; and the potential for renewables (if robust energy storage solutions are found).

Dynamics as Usual
Dynamics as Usual the policy emphasis for the coming decade is on energy security and environment, with government as the clear leader in setting priorities. The urgent demand for secure, clean, sustainable energy stimulates a drive for energy efficiency. The bias is towards reinforcing existing technologies, particularly the internal-combustion engine. Advanced internal-combustion and hybrid engines are developed that can deliver the same performance as standard vehicles using as little as one-third the fuel.

Over time the costs of these vehicles decreases until they are lower than those of conventional cars. The large-scale market penetration of these superefficient vehicles disrupts oil markets, leading to weaker oil prices. As demand for transport and heating fuels grows in developing countries, oil prices recover. These price pressures also spur advances in oil recovery techniques thus expanding recoverable reserves. Oil demand then grows steadily, though weakly, for another 25 years.

Also in the coming decade, with strong government support in OECD countries, renewable energy grows rapidly for two decades through established electricity grids. As turbines increase in scale, exceeding 3 MW, the costs of wind energy continue to fall. The commissioning of a 200 MW photovoltaic manufacturing plant before 2010 dramatically reduces manufacturing costs. By 2020, a wide variety of renewable sources supplies 20 percent of the electricity in many OECD markets and nearly 10 percent of global primary energy.

By 2020, growth stalls because rural communities that were happy to accept a few windmills refuse to accept hundreds of them. A shortage of land and environmental concerns prevent the large-scale development of electricity from biomass. With little progress on energy storage, concerns about the reliability of the power grid block further growth of wind and solar power. Although the public supports renewables, limited electricity growth constrains expansion in OECD countries. In developing countries, renewables are still not fully competitive with low-cost conventional resources.

In the 2020s, as renewables stagnate and security concerns about gas increase, it is not clear what the main source of future energy supplies will be. Nuclear energy makes a partial comeback, particularly in Asia. Investments in energy efficiency buy some time, but it is becoming increasingly difficult to meet rising environmental standards with established technologies. In the 2020s, deep energy policy dilemmas must be confronted.

The use of natural gas expands rapidly in the early part of the century--reflecting economic and environmental advantages in liberalized markets. Where gas is available, it fuels most new power generation and accounts for three-quarters of incremental increases in OECD capacity until 2015. Older coal plants that cannot meet tightening emissions standards are increasingly replaced by gas.

The rising costs and logistical complexity of expanding coal deliveries from northern mines prompt China to embark on major gas import projects. Pan-Asian and Latin American gas grids emerge, and the large-scale liquefied natural gas trade is increasingly competitive. By 2020, gas is challenging oil as the dominant source of primary energy. However, because many users import gas, unease about supply security is growing. Uncertainties about the availability of long-term resources and fears of political disruption in supplying countries begin to slow the growth of gas use.

At the same time, new nuclear plants are also having trouble competing in deregulated markets. Most existing nuclear capacity is maintained, but nuclear power steadily loses market share in OECD countries. There is limited expansion in some developing countries, but there is little public or political support for new investments in technologies that might reposition nuclear energy as a premium clean fuel.

So how are energy policy dilemmas resolved? A new generation of renewable technologies emerges in the 2030s. The most important are organic and thin-film, embedded solar materials. New ways of storing and using distributed solar energy are developed. By 2050, renewables supply one-third of world primary energy, as well as incremental energy needs. As hydrocarbon-based liquids become scarce in the 2040s, advances in biotechnology, together with vastly improved vehicle efficiency, enable a relatively smooth transition to liquid biofuels.

In summary, this scenario shows a steady decline in the use of oil and coal, an increase in the use of gas in the early part of the century, then a decline after 2025, and a sharp increase in the use of new renewables and biofuels. This takes place in a very competitive environment characterized by the rise of new energy industries.

Spirit of the Coming Age
The second scenario,
Spirit of the Coming Age, outlines a world in which new and superior ways of meeting energy needs are developed to meet consumer preferences. The scenario is characterized by experimentation and many failures. Solutions trigger technology revolutions, and discontinuities arise from seemingly mundane parts of the energy system.

In the early twentieth century, a new engine technology, coupled with a portable, dense fuel, transformed transportation. This revolution began with fuel in a box, sold in local hardware stores, that was adequate for limited travel along the few paved roads. Efficiency considerations drove the development of today's fueling infrastructure--now a valuable economic asset, as well as a barrier to change.

Developments in the early twentieth century were based on remarkable discoveries and inventions in the 40 years prior to 1910--from tires and gasoline engines to gas turbines and airplanes. Each of these developments became possible through the entrepreneurial drive to bring new products to market. A century after the technology that made personal transport possible, mobility is considered essential to the freedom, flexibility, convenience, and independence people want, and increasingly expect. Today time is precious.

In the Spirit of the Coming Age scenario, governments are reluctant to intervene. They do not subsidize renewables, and they allow energy choices to be made through markets. New energy options made possible by new technologies are critical. In the first decade, the demand for stationary fuel cells--with businesses willing to pay a premium to ensure highly reliable power--helps drive fuel cell system costs below $500 per kW.

Low-cost fuel cells provide a platform for transport uses, stimulating further cost reductions--until they are well below the cost of conventional power and heat technologies. At this point, suppliers of home appliances turn to fuel cells. Commercial and residential buildings install low-cost systems--fuelled from the established natural gas grid--and trade spare peak-time electricity through markets. Hot water is provided by surplus fuel-cell heat.

As fuel cell costs drop, interest in transport applications increases. Initially, liquid fuel--from oil, gas, or biomass--is reformed into hydrogen in vehicles. Fuel cells help sustain the demand for personal mobility and offer environmental benefits for urban transport. The new economics of fuel cells and breakthroughs in cheap hydrogen storage in the second decade provide a basis for rapid commercial development. By 2025, one-quarter of the OECD vehicle fleet uses fuel cells, which also account for one-half of new vehicles in OECD countries and one-quarter of new vehicles worldwide. The global automobile industry rapidly consolidates around the new platform.

In the second quarter of the century, China uses advanced hydrocarbon technologies as a bridge to a hydrogen economy. By 2025, China's huge and growing use of vehicles is creating an unacceptable dependence on imported oil. Concerns about the sustainability of regional gas resources and the reliability of external suppliers encourage the use of indigenous coal, but this creates logistical and environmental problems. The scarcity of land limits opportunities to develop biofuel. India faces similar problems, and growing global demand for gas and hydrogen spurs advances in in-situ extraction of methane and hydrogen from coal and oil shales.

These advanced hydrocarbon developments build on established infrastructure and technologies, as well as on the cash flow and resources of existing fuel suppliers. China is able to make use of these technologies--as well as indigenous advances--to extract energy from its coal resources and deliver it by pipeline rather than by many thousands of trains. A new industry based on mine-mouth hydrogen production and carbon sequestration is developed, which enables the development of transport and power systems based on fuel cells.

Hydrogen is widely produced from oil, gas, and coal with an increasing trend toward the extraction and sequestration of carbon dioxide at the source. The demand for gas continues to grow and finally outstrips the demand for oil. However, renewables become increasingly important in the second quarter of the century, and sequestration peaks at 2.3 billion tonnes per annum by 2050, one-fifth of total emissions.

In summary, in the Spirit of the Coming Age scenario, energy supplies continue to evolve from solids through liquids to gas (first methane then hydrogen), supplemented by electricity directly from renewables and nuclear power. Large-scale renewable and nuclear energy schemes to produce hydrogen by electrolysis become attractive after 2030. Renewable energy becomes a bulk supply business and expands rapidly. Hydrogen is transported in gas grids until demand justifies investment in dedicated hydrogen pipelines. A century-long process of hydrogen infrastructure development begins.

Although these two scenarios explore different energy paths, emissions of carbon dioxide turn down by 2040 in both. Emissions slow earlier in
Dynamics as Usual in response to social pressures but then accelerate again after 2025. In Spirit of the Coming Age, they rise faster initially but peak earlier--and sharply decline with the expansion of carbon sequestration. Atmospheric concentrations remain below 550 ppmv for the remainder of the century and appear to remain on track to stabilize below this level.

The way both scenarios develop depends on decisions we make now and on technological breakthroughs. As important as it is to focus on short-term and medium-term challenges, we must also pay attention to preparing the energy industry for the long term to ensure sustainability and security. This will require not only well crafted policies, but also astute political leadership.

Shell International. 2001. Energy Needs, Choices and Possibilities--Scenarios to 2050. Available online at:

About the Author:Ged Davis is vice president of Global Business Environment at Shell International.