Global energy mechanics is headed for an interesting transition in the coming years. Shell has explored the possible ways in which the 21st century world energy system could unfold. While one scenario sees natural gas becoming the most important energy source globally by the 2030s, the other sees solar becoming the top source by 2070. Jeremy
Bentham, vice-president, Global Business Environment, Shell International, in an interview with FE?s Santosh Tiwari, explains what it means for India. Excerpts:
The basic idea behind the scenarios you have projected appears to be outlining the options policymakers have in terms of planning energy production, supply and consumption in a realistic way. Isn?t it?
In the energy industry, the decisions and choices you are making right now about the power systems or even about planning or not planning cities will effect your energy system for decades. You have to think about technology, technology deployment and innovation. You have to think about the resources (global resources) and how they might be developed. You also have to think about how policy works, how markets grow and how markets work as well.
You have talked about the possibility of the US and China forming the core of global energy scenario with divergent interests, and countries like India also being very important in the whole system. How will this work?
The two largest economies, the US and China, remain particularly influential. They have a wide range of divergent interest in the reasonable functioning of the global economic system. In that scenario (?mountains world? in Shell scenario), there are rigidities in all societies, and if you think about a fast emerging nation like China, anything that is emerging quickly is much more economically complex and so your economic sophistication increases every year. So, you need waves of structural reforms for reforming the financial sector or the way the economy is structured, political reforms, you need market reforms, each of these is needed to sustain the growth. In the ?mountains world? you get a number of fast emerging nations, a number of them will get caught up in what so many economies got caught up in the 20th century middle-income trap. So, this is a world in which you have some economic disappointments, which can promote protectionism because of the kind of nationalism that develops in such a scenario. This is the world of relatively sluggish economic development. That takes some of the tensions out of the supply-demand pressure?in the overall world context, this is a moderated energy crisis. So, you are thinking about a energy price world which is not dissimilar from what it is in the oil price world in which new supplies such as the global capacity to develop shale gas and tight gas would be adding more capacity to the system. So, the energy system is developing around somewhat more relaxed supply-demand tension globally. Oil demand is growing but it is not surging ahead globally and you have also got moderate prices so those countries that depend on oil revenues, there the society will be more challenged and some will struggle in that kind of world. Whenever you have political struggles, you have oil price volatility, so this would be a world in which you will have future volatility and a world in which you have more moderate supply-demand tension than what was seen in early 2000s.
This would be helpful for India as the country will have to spend less on importing oil. How do you see India placed in this scenario?
Yes. You would be spending less, because global energy prices would be lower, but there are also, in that world, assumptions that there would be strong aligned interests between governments and major producers of energy to get some majors projects developed. Those who have political influence and those who have business capacities would be able to, first of all, create incentive frameworks for investments and bring forward supplies. For example, in places outside North America, there will be frameworks encouraging the development of tight gas or shale gas. There will be frameworks for what is clearly a major issue for India, that is the way urbanisation takes place. I can?t stress enough how significant that is for energy demand. If you look at sprawling cities with poor public transport and compare them with compact cities, the difference in energy consumption is huge and the difference in the water stress and the land stress is also huge, so for India how you develop efficient infrastructure is very important. For example, the average US citizen uses three times as much energy for personal transport as compared to a European. It turns out that people in the US drive twice as far as compared to Europe, and they do it because their cities have poor public transportation and it happened because those cities developed at a time when there seemed to be space and when the outlook for energy prices was that it was going to be low with lots of energy availability. And so capacity for a country like China or India where you have got massive urbanisation to do, which is going to have huge impact on demand-side of energy policy, I think that is not deeply appreciated in policymaking.
How would you link this to the investment and production in oil and gas?
At the global level, until 1910, primary energy source was traditional biomass. From 1960s, it became coal, and it is oil since. But in ?mountains world? in which you have encouragement for development of gas, natural gas would become primary source by 2030. Whereas in the ?oceans world? (another Shell scenario), which does not have that kind of attention to infrastructure, management and is driven much more by the markets, there would be prolongation of the oil-coal age and solar also, but higher prices are brought in through solar energy. In India, where you have a lot of question-marks about infrastructure and question-marks about centralised versus distributed energy and you have got a lot of solar resource, it wouldn?t surprise me to see that solar plays a larger role earlier, but you are still going to be heavily developing your wealth and prosperity on the back of coal, oil and gas.
As a company, where do you think maximum investment can come in the energy sector in India?
Clearly, there are opportunities for diversifying energy sources in terms of imports, sources like gas, and investing in import facilities and some good oil and gas resources which haven?t been developed as quickly as they might have been done. You have other resources where technology can play a big role; for example, enhanced oil recovery can significantly boost up what you can achieve from a significant resource. I think in the Indian situation you have to look at capacities to invest in not only plants and field-developed but also in encouraging application in technology.