Securing essential energy supplies for Asia’s very large and rapidly developing economies will be a vital challenge –particularly realizing the potential of efficient, clean and less carbon intensive gas.
International energy companies can contribute their capital, technology and expertise as trusted partners. Global energy markets are increasingly complex, competitive and changeful. The impact of liberalization has only begun but markets remain distinct.
Action is necessary to meet Kyoto targets – building on long-term energy trends of increasing efficiency, diminishing pollution and decarbonisation. Extending gas use is the most important medium-term step.
Meeting Asia-Pacific gas needs requires exploiting domestic resources, accessing regional supplies and developing relationships with major resource holders in the Middle East.
The Asia-Pacific LNG system has proved durable in volatile conditions. Sakhalin LNG is a very attractive potential scheme to meet growing demand – soundly based, close to key markets and increasing supply diversity.
Nothing raises concerns about security of energy supplies more than a sharp hike in oil prices.
This concern is naturally particularly strong in Asia - here in Japan with your high dependence on imported energy, as well as in developing economies with their expanding populations, rapid development and environmental pressures.
What is the outlook for energy markets in the early part of the 21st century, particularly in Asia? And how can countries best secure the supplies they depend on?
Let me focus on three aspects:
how energy markets are becoming increasingly complex, competitive, changeful and challenging, the particular challenges of realising the potential of gas, which is so important for Asia, and that energy companies need to be trusted partners.
This focuses on one of the three `E's facing the Asia Pacific region, energy security. But energy is also integral to achieving the other two - economic development and environmental conservation - and I will touch on both.
Changing energy markets: Let me start by taking stock, looking first at the global picture and then at Asia.
Global energy needs have nearly doubled since 1970 and could grow even faster over the next two decades.
This may seem unsurprising in a world that is becoming both more crowded and richer. It conceals important shifts.
The share of energy required by today's developed countries is falling - to perhaps only a third in 2020, when developing countries are likely to consume more than half.
Their citizens, however, will still use much less energy than people in developed countries. Energy needs increase rapidly in the early phases of development - to power new industries, serve growing cities, fuel expanding transportation - but more slowly thereafter.
In mature economies, energy demand may soon peak - as a result of changing industrial patterns, ageing populations, saturating markets, increasing energy efficiency and environmental measures.
A second important shift is in the mix of energy supplies, which are becoming increasingly diverse and competitive.
Gas consumption has more than doubled since 1970 and is likely to do so again over the next 20 years - because of its efficiency, cleanliness and lower carbon intensity, particularly for power generation in combined cycle gas turbines.
Coal and nuclear are hampered by economic, environmental and safety concerns. Here in Japan the Tokaimura incident has raised serious questions about the large planned growth in nuclear capacity.
Oil remains unchallenged as a transport fuel. Burgeoning transport needs in developing countries will boost demand.
Renewable will probably only make a significant contribution after 2020.
Competitive pressures: Energy markets are being transformed by spreading liberalization, as governments seek competitive pricing, flexibility and innovation. Let me make three points about this.
Firstly, this has already had a significant impact - such as the refining rationalization here in Japan and elsewhere. But much more will need to change.
Secondly, deregulated markets still require regulation. Getting that right is both essential and difficult. Californian power markets are a warning.
Thirdly, energy markets remain distinct. Countries have particular needs - such as the value placed on energy security here in Japan, or the huge infrastructure requirements of emerging markets.
Fuels have different characteristics. The complex and continuous gas chain is less flexible than fragmented oil markets.
Liberalization and globalization go together, although oil and gas businesses have long been global. Marcus Samuel began trading kerosene here in Japan in the 1880s and built Shell delivering kerosene from the Caspian to emerging Asian markets.
New information and communications technologies will transform all our businesses. In Shell, we are aggressively pursuing the potential of e-Commerce - in such areas as procurement and trading, and in understanding and serving customers.
We expect e-Procurement to deliver substantial savings and helped found Trade-Ranger as an on-line market-place for energy and petrochemical industries.
Connected and liberalized markets offer new trading opportunities. We are involved in several major on-line exchanges, including Intercontinental for energy derivatives.
And we are pursuing a range of business-to-business and business-to-customer initiatives. For example, in Malaysia the Superkad site helps Shell fleet card customers manage their transactions.
This is all part of the competitive dynamic - constantly improving costs, efficiency, quality, convenience, cleanliness and service.
Businesses also have to respond to societal expectations - about the way they act and make decisions, what they contribute to countries and communities, how their operations and products affect the environment.
In Shell, we put much effort into this response - emphasizing our principles, raising standards, engaging with others, contributing to sustainable development.
But all involved in energy face a particular challenge. It is to respond to our understanding - made even clearer at the recent IPCC meeting in Shanghai - that the energy systems on which the world depends may threaten our future. Society expects us to offer solutions.
Demanding solutions: We need to act now to begin fulfilling the agreement reached over three years ago at Kyoto. I believe this can be done without jeopardizing the economic growth on which living standards everywhere depend.
Doing so requires recognizing two things. That it is a long-term problem, needing long-term solutions. And that these depend on continuous learning and adaptation.
Getting the international framework absolutely right now is neither necessary nor possible. We need to get started and be prepared to change track as we learn.
We are building on three long-term energy trends:
increasing efficiency,
diminishing pollution, and
decarbonisation of energy supplies.
Increasing steam engine efficiency is not just an historical curiosity. It reflects the continuous technological learning curve.
This powerful drive is strengthened today by concerns for the environment, as well as for energy security and prices.
It goes together with increasing cleanliness. Major reductions in emissions and discharges have been achieved in developed countries - although not yet in emerging economies.
Increasing use of gas will play an important part in continuing decarbonisation of energy supplies.
There is huge scope for innovation.
After a century of remarkable success the internal combustion engine is still advancing. The Toyota Prius uses a hybrid gasoline-electric engine, sophisticated engine management and regenerative braking.
But the ICE age could be coming to an end. We are pursuing hydrogen fuel cells as one possible alternative, for power generation as well as vehicles.
Last November I had the honor to share a platform here in Tokyo with Dr Shoichiro Toyoda, the Honorary Chairman of Toyota. The occasion involved the Sustainable Mobility project set up by nine global companies under the auspices of the World Business Council for Sustainable Development.
Our aim is to develop a vision of how society's ever-increasing desire for mobility can be met sustainable.
The value of this project is that it involves companies able to make a real contribution to change.
I don't just call on others to take action. As well as pursuing the possibilities of hydrogen and renewable energy, Shell companies are working hard to reduce their greenhouse gas emissions.
Delivering resources: The energy to supply expanding needs will not, of course, arrive by itself. It requires investment and innovation.
Some foresee imminent resource constraint. We think it will be possible to continue meeting growing demand for liquid fuel - focused on increasingly efficient transportation - for at least the next two decades.
As well as oil this will involve liquids from gas and heavy oils, which are becoming more competitive. Shell Canada's Athabasca oil sands scheme will start delivering high-quality fuel to North American motorists next year.
Resources of gas are less understood, although estimates have been rising. I think there is much still to find. Only 11 percent of the estimated resource has been produced, compared with 24 percent of the oil.
Delivering this resource requires continuing advances in developing and applying technology - better subsurface understanding, more productive wells, simpler engineering, new conversion processes.
There are abundant renewable resources. Shell is building commercial businesses in such areas as solar, wind and biomass.
We have had a very successful joint venture with Siemens - an industry leader - here in Japan and hope to develop the relationship globally.
Continued volatility: OPEC countries retain a decisive influence on oil markets. But managing oil prices is very difficult. The speed and complexity of markets has increased, as has their susceptibility to shocks.
Price volatility is a fact of life for oil companies. We must learn to live with it, setting a steady course over the long-term. One aspect has been the powerful competitive drive to reduce development costs. Almost all non-OPEC oil resources are now viable above $16/bbl.
As well as curbing demand, high prices encourage development of new supplies and investment in alternative forms of energy.
Volatility also affects gas. Asian LNG prices are linked to oil. In the United States, continuing low prices discouraged investment. Prices have risen sharply as demand outpaces supply.
OPEC countries - particularly those with large and growing populations - need oil revenues to support economic development. Major producers are harnessing the capital, technology, and expertise of international energy companies.
In the Islamic Republic of Iran, we were honored to be chosen by the National Iranian Oil Company to contribute to the development of the Soroosh and Nowrooz fields. We look forward to building on this important relationship.
We also recently signed a Letter of Intent expressing our keen interest in helping to develop gas resources for domestic use in the Kingdom of Saudi Arabia.
Fulfilling such a role requires understanding the aspirations and sensitivities of your hosts, and adding real value to very competent national energy companies.
Phil Watts, Managing Director of The Shell Petroleum Company (The "Shell" Transport and Trading Company, plc) and Group Managing Director of the Royal Dutch/Shell Group of Companies at the Symposium on Pacific Energy Co-operation 2001, Tokyo, Japan
Source: Shell.com
© 2001 Mena Report (www.menareport.com)
