“The energy transition presents great opportunities for oil and gas companies to develop new forms of energy and gradually move away from fossil fuels”, says Jeroen van der Veer, former CEO and Chairman of Shell in an exclusive interview for World Energy Focus, a monthly publication of the World Energy Council produced by Energy Post. But the former Shell boss rejects the idea that the oil companies are in danger of ending up with large “stranded assets”, as some investors fear. “A country like Saudi Arabia may be concerned whether they can exploit all their resources, but the assets on the balance sheets of the international oil companies are resources they will develop over the next 20 years or so.”
As Chief Executive from 2004-2009, Jeroen van der Veer (68) successfully led Royal Dutch Shell through turbulent times, overseeing the integration of the Dutch and British arms of the multinational into one company. Since his retirement in 2009, Van der Veer is, among many other things, Chairman of ING Group, one of the largest Dutch financial institutions. Because of his wide experience in both the energy and financial sectors (he was also Supervisory Board Member of the Dutch Central Bank), he was asked by the World Energy Council to become Chairman of the Project Team of the Council’s Financing Resilient Energy Infrastructure working group. This group is undertaking a series of three reports which assess new risks to energy infrastructure, in particular related to extreme weather risks, the Energy-Water-Food Nexus and cybersecurity. The reports are prepared with Swiss Re Corporate Solutions and Marsh & McLennan Companies, with insights from the European Bank for Reconstruction and Development.
The first findings of the Energy-Water-Food Nexus report, which were presented on 17 March in New Zealand, highlight that the availability of water is a key issue in energy production – and this will only become more urgent in the future. It also makes it clear that some energy production technologies do better than others when it comes to water stress. Wind, solar PV and gas tend to score better than coal, biofuels, nuclear power or CCS.
“We need to develop renewable energies that are much cheaper than they are today”
For van der Veer, the most important value of the project is that it demonstrates the importance of an integrated approach to energy issues. “Decisions often have unintended consequences that people may not always see”, he says. “Policymakers need to be aware of this, but NGO’s, too. They often push only one issue. For example, nuclear power has a very low CO2 impact, but a fairly high water footprint.”
Central Bank for CO2 allowances
Van der Veer is acutely aware of the huge investment challenges facing the energy sector today, to meet the needs of a growing global population on the one hand and reduce greenhouse gas emissons on the other. But he is convinced those challenges can be met. “Some people say there is not enough money, but I don’t agree. Investments can be spread out over many years. What is more, investment also means more business, jobs. And when I look at interest rates, I can only conclude that there is enough money available. The bottleneck is not the amount of money that’s needed, but to have enough commercial projects that companies can profitably invest in.”
According to Van der Veer, the main factor holding back investors is volatility in the market, in particular the instability of CO2 prices. “Companies are willing to invest, but if you have no idea what the CO2 price will be over the next 20 years, while this is essential for the profitability of the project, you will not commit your capital to it. Energy investments are highly capital-intensive, so it is essential to have some certainty about this from the outset.”
“That significant amounts of coal will have to stay under the ground, I can understand”
In Europe, Van der Veer would like to see the EU set up a “Central Bank” to run the EU Emission Trading Scheme (ETS). Set up in 2007, the EU ETS, the first largescale emission trading scheme in the world, has suffered from permanently low CO2-prices. As a result, the prestigious project has failed to provide incentives to energy and industrial companies to invest in carbon reduction technologies. A central bank for emission allowances could maintain a “price corridor”, says Van der Veer, reducing the number of allowances if prices become too low, and increasing them if prices become too high. “If this is done, I am convinced investment will follow.”
Industrial sectors such as steel or chemicals that could find their international competitiveness undermined, could be assisted with money from the ETS system.The rest of the world, Van der Veer adds, might follow the European example if it is successful.
Three pillars
Van der Veer’s vision of our energy future is based on three pillars: energy savings, natural gas and the increased use of low-carbon or zero-carbon electricity.
“First, the world is still not doing enough to save energy. Second, for large parts of the world, natural gas is the best transition fuel, as it is widely available and a lot of infrastructure has been created for it. It’s not perfectly clean, but it scores very reasonably on greenhouse gas emissions and on water footprint. Thirdly, as the world is using more and more electricity, we need to develop renewable energies that are much cheaper than they are today. This means we need to develop new technologies first and then build large-scale projects.”
Nuclear power has certain disadvantages now, says Van der Veer, but a move to thorium and other innovations could change that picture. Coal without CCS should be phased out, he says. “The world understands that we cannot continue to build new coal-fired power stations without CCS.”
“Most politicians are too optimistic about the speed of the transition. Most businessmen are too pessimistic”
But is all this enough to stay within the 2-degree limit that has been agreed upon at the climate summit in Paris? Van der Veer is aware that most future scenarios of the energy industry lead to outcomes that are not sufficient to prevent dangerous climate change. Within the World Economic Forum, the famous high-level platform for public-private cooperaton, he is a member of a working group that is currently developing scenarios “that stay within 2 degrees, but that the energy industry can believe in.” The results, which will be published soon, show a decline of oil in the global energy mix from 31% now to well under 20% in 2050, says Van der Veer. The share of gas will stay at slightly over 20%.
What will be the consequences for incumbent oil companies like Shell of such a scenario? “There are two schools on this topic”, he says. “The first is that as the new global business environment changes, this will offer opportunities for big energy companies to develop new forms of energy. Then you won’t produce fossil fuels anymore at some point in the future. The second school says the mission of oil and gas companies is to produce oil and gas, and if this mission ends, then the companies end too. Then you pay out the dividend to the shareholders and stop.” He adds: “I belong to the first school”.
Jeroen Van der Veer is the former Chief Executive (2004-09) of Royal Dutch Shell. He remained a non-executive Director at Shell until 2013. He is a leading authority on energy, leadership and management, and his advice is widely sought by a range of industries. He has been Vice-Chairman and Senior Independent Director of Unilever. He is now Chairman of ING Group and Chairman of the Supervisory Board of Philips. He has just been elected member of the Board of Statoil. He was a Supervisory Board Member of the Dutch Central Bank, and World President of the Society of Chemical Industry (2002-04). Appointed Vice Chairman of the Executive Committee of World Business Council for Sustainable Development (2006-09), he was also Vice-Chairman of a group of experts who advised on a new strategic concept for NATO (2009-10). In 2012, he was appointed Chairman of New Energy Architecture WEF (World Economic Forum), a Member of the Executive Committee of the Governing Board of the EIT (European Institute of Technology), as well as Chairman of the Rotterdam Climate Initiative.
Stranded assets
Van der Veer is well aware that most of the oil majors, including Shell, did make attempts in the past to invest in alternative energies, with little success. “I think we were too early once or twice. But the time may be ripe now.” Shell in its most recent Annual Report, published in mid-March, said – for the first time in recent years – that it would start looking for new opportunities in wind and solar power, among other things. In March the Dutch press reported that the company is planning to take part in a bid to build an offshore wind farm off the Dutch coast. This would be Shell’s first offshore wind venture since 2007, when Shell and Dutch utility company Nuon (now part of Vattenfall) started up a 108 MW offshore wind farm in the North Sea. In 2008, Shell pulled out of the 630 MW London Array project, which was inaugurated in 2013.
“There is no discussion anymore on the direction we need to move in. The big discussion now is on the speed of the change”
But the former Shell boss rejects the idea that the oil companies are in danger of ending up with large “stranded assets”, as NGOs and many investors are increasingly concerned about. “I think there are many misconceptions about the idea of stranded assets. That significant amounts of coal will have to stay under the ground, I can understand. And a country like Saudi Arabia, which has more than 100 years of oil in the ground, may also be concerned whether they can exploit all their resources. But the assets on the balance sheets of the international oil companies are resources they will develop over the next 20 years or so.”
Van der Veer believes that the climate conference in Paris may well be a turning point in energy history. “It is the first time that everybody agrees about the problem and has committed to tackle it.” There is no discussion anymore on the direction we need to move in. The big discussion now, he notes, is on the speed of the change. “Most politicians”, he adds, “are too optimistic about that. Most businessmen are too pessimistic.”
Editor’s Note
This interview was first published in World Energy Focus, the free monthly digital magazine of the World Energy Council produced by Energy Post. Republished with permission.
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cyril widdershoven says
Fully agree with Van Der Veer, seems to me a rational approach. Also, analysts should address sometimes the other issue: “why change a profitable market, when other options don’t yield the same ROI”. As long as companies are listed on stock exchanges, majority of shareholders will look at profitability…this will be for the foreseeable future the USP of oil and gas”. Even if transportation will be slowly taking the renewables road (or electricity), the overall demand for petroleum products will still stay in the market. At same time, am not even negative about coal, just will depend on technology. We all are optimistic about renewable energy and technology developments, this will be the same for coal, if there is a need, there is a market. Fossils have one major advantage on all others (except Nuclear), they don’t loose energy during transport. Electricity transportation or storage is still the main culprit that constraints full development of electrification of energy sectors.
SUM says
The assumption in your argument, that coal has an advantage, “because it does not loose energy during transport” is simply wrong. How do you transport the coal to the place where it is needed, mostly the powerplant??? This moving of coal consumes a considerable amount of energy and should be — of course — part of the integrated energy balance of any coal power plant.
In fact the best (most economical) option is to avoid moving coal and moving the energy as electricity. E.g. see the following study: https://wpweb2.tepper.cmu.edu/ceic/pdfs/CEIC_03_04.pdf
Mike Parr says
Good article and fair points by the Shell chap. I guess it comes down to rate of change. Transport accounts for 66% of oil demand. Our predictions are: move by road/goods transport to CNG and then SNG (= carbon neutral). In the case of passenger cars: Musk is doing with Tesla what the Euro OEMs did with 4x4s in the 1990s/2000s – selling them as fashion items (there is no rationale for owning a 4x$ outside of farming). If EVs take hold – the future for sucking fossils out of the ground/refining and selling looks bleak. & this is where I part company with the Shell cahp – I think it will come sooner & be far less “manageable” than he thinks. Time will show who is right. by the way Jeroen, PV companies are going cheap at the moment – now might be a real good chance to buy.
Lyn Harrison says
As a windy editor I first spoke to Jeroen van der Veer in 1999, when he rather crossly and abruptly told me he could see “no opening for Shell in wind power.” A year later Shell had invested in Britain’s first two offshore wind turbines at Blyth and operated two further turbines at its refinery in Harburg, Germany. Another year on and we were reporting Shell’s investment in a 50 MW wind project in Wyoming, a sizeable project at the time. Shell’s then renewable energy manager said the company had changed its mind and intended to become a first tier player in wind with a worldwide portfolio. I was thus surprised when some years later Shell retreated from wind across the board, including its offshore wind investments. Recollecting Van der Veer’s first words to me and noting the reluctance of Shell middle management to talk openly about the company’s still existing wind group, I sensed the existence of an ideological struggle at the top of the company. So it is with pleasure I read the commendably pragmatic views expressed by Van der Veer in this interview. I agree with Mike Parr and other commentators here, however, that the rate of change is likely to be faster than Van der Veer believes. Neither do I see the need for investment in “new” clean technologies when wind and solar are advancing so rapidly, also in cost reduction. Van der Veer’s influence is clearly still significant. It’s good to know he’s a man who is willing to change his mind to keep up with the times.
Kent Doering says
Living in Munich which is already 50% renewable and which will be 100% renewable for power and district heat by 2025, I think the ex-CEO of Shell is far too conservative and severly underestimates the coming impact of “aqueous fuel systems” which will displace petroleum products in a number of power-heat, and transportation applications.
A number of drivers are already running their vehicles with “hho” systems, either partially or fully, and these do work to cut consumption.
Let´s take diesel as another example. Without any modifications whatsover, today´s diesel engines can handle a diesel-water emulsion of up to 40%. With an additional hho “Brown´s gas'” system that can go to 50’%. There are successful experiments running diesel engine cars – trucks and busses- utilitizing- both hho brown´s gas systems, and in vehicle Cottel sonic emulstion boosting the water content of diesel from 10% to 50% with no compromise on the power output, but which reduces the co², so², and no² emissions.
Magnetic Resonance Stean Dissociation is a low energy input system which dissociates steam to inlammable hydrogen and oxygen.
In the not too distant future, German automotive manufacturers will be offering “dual fuel systems” which start off diesel or gasoline, and then shift to 100% aqueous fuel systems after initial engine warm up, slashing fossil fuel consumption and emissions by between 90 to 95%. Two tanks: a small gasoline or diesel tank for starts and engine warm up, plus an insulated, engine heat, heatable water-as-fuel” tank – where pblytap water goesonto the tanl.
Brake energy recycling powers the browns gas generation system, the water punp fpr the steam lines, the electro-catalytic deminineralisation right in the vehicle, and the pumps to brown´s gas and the magnetic resonance ionized steam dissociation- unit which energy efficiently- breaks down steam to highly inflammable hydrogen and oxygen.
The energy transition is happening a lot faster than people originally projected. Munich where I live is already 50% renewable for power and district heat,- enough to suppy all private households in the region, plus power its mass transit subway, streetcar, and the Deutsche Bahn`s suburban commuter rail lines.
Over 60.000 buildings are already hooked up to “district heat” supplied by “waste to power” and combined cycle power heat plants for near 100% efficiencies.
Experimental small in building combined heat power- ice units are already being tested- which are “‘100% aqueous using stored, rooftop runoff rainwater. (Free fuel delivered by mother nature.) Retrofitting all 6.5 million German oil heated buildings with “aqueous fuel” combined heat power- amortizes itself as it progresses- each unit amortizing in only six years. At an average “consumption” of about 3.500 liters per unit- that alone will mean a cut in demand- of close to 144.000 million barrels per annum. It will put an additional- 97.5 gw of SMART GRID, SWARM coordinated “clean energy power” on the German grid, and supply while putting about 150 gw of heat into German buildings.
Only about 6000 farms in Germany are equipped with manure methane recapture systems for power and village district heat. In other new initiatives, – limiting the amount of power such a system can put out- to about 12 hours a day- not needed from 11.00 p.m. to 6 .p.m. as a backup baseline to installing solar and wind- doubling the capacity on each unit- and making them “aqueous fuel aided, mean that the rural bio-gas – aqueous fuel systems- have a potential to be putting out over 80 gw of power by 2040 to match thesolar and onshore amd offshore wind build out.
Germany is still the global leader per capita when it comes to energy efficiency plus renewables. The country as a whole is exiting both fossil and nuclear, replacing with renewables and energy efficiency systems at the rate of about 5.2 % per annum. In 2014, the renewable percentage was 27.9 % according to Agora Energiewende, and a stunning 33 % in 2015. 5.2% reductions or higher are expected through 2025.
Lets add up-38.2 % in 2016, 43.4% in 2017, 48,6% in 2018, 53.8% 2019, 59% in 2020, 64.2% in 2021, 69.4% in 2022, 74.6% in 2023, 79.8.% in 2024, and 85% renewable for power in 2025.
Thanks to things like the “merit order effect”, I am very bullish about the German Energy Transition as it shifts into full gear, even with the exit from nuclear power.