Shell chairman warns oil firms to prepare for end of hydrocarbon age

By the OGJ Online Staff

LONDON, Oct. 4 -- Royal Dutch/Shell Group chairman Phillip Watts has said that major oil companies should prepare for the end of the hydrocarbon age as alternative energies win over consumers in coming decades.

Watts predicted consumers would move toward hydrogen-powered vehicles and renewable energies, such as wind or solar power.

Speaking at the launch of Shell's Long Term Energy Scenarios forecast, Watts said, "One thing I am convinced of is that the next 50 years is not going to be more of the same. An energy company had better make sure it has the necessary expertise and knowledge."

He spoke in New York City to an audience of businessmen and representatives of nongovernmental organizations, under the auspices of the United Nations Development Program.

Shell, has moved firmly into the same camp as fellow oil super major BP PLC, which has made vigorous efforts to carve out an environmentally friendly public image. The world's largest oil firm, Exxon, has by contrast concentrated firmly on its oil and gas interests.

Shell has pledged to spend between $500 million and $1 billion in the next 5 years to develop new energy businesses, concentrating primarily on solar and wind energy.

"There will be different sources of energy by the middle of the century. It challenges what our portfolio will be," Watts said. "I don't know if Shell will be transmogrified by it, but I wouldn't like the opportunity to pass by default."

Oil currently provides 40% of primary energy use. While that will fall to 25% by 2050, oil will still be the major energy source, above gas at 20%, according to Shell figures.

"We are going to have oil and gas for many, many years," Watts said. "The internal combustion engine is not going to go away. It's going to fight for its life. Under pressure the internal combustion engine is going to develop."

He noted automakers already are selling hybrid cars that combine traditional engines with battery powered motors.

The vast markets of China and India are key examples of how nations and energy firms alike will need to balance rapidly growing energy needs with rising import dependence and environmental effects, Watts said.

Natural gas will initially pick up much of the slack as oil's preeminence wanes, Watts said. After that, the outlook is far less certain as new technologies fight to establish themselves.

"Which ever scenario plays out, we believe that in the medium term, natural gas will move center stage to become what I call the bridging fuel to get us from where we are now to where we will be in the future. In fact, expanding the use of natural gas is perhaps the single most important way of responding to the issue of climate change. And I can tell you the Royal Dutch/Shell Group is uniquely placed because of its technical expertise and geographical spread to be a prime mover in this transitional period.

"We could see an evolutionary progression, the so-called carbon shift, from coal to gas, to renewables, or possibly even to nuclear.

"A second scenario explores something rather more revolutionary; the potential for a truly hydrogen economy, growing out of new and exciting developments in fuel cells and advanced hydrocarbon technologies," he added.

According to one Shell scenario, rapid growth in fuel cells from 2025 -- which produce electricity from hydrogen and cut harmful emissions -- could shift the energy business dramatically away from oil long before it becomes scarce.

Radical changes possible in the energy business means the old order which dominated the last century -- companies such as Exxon, BP and Shell itself -- cannot afford to assume they will dominate for the next 100 years.

"That would be a very complacent view. Longevity in corporations is not the norm," said Watts.

Oil companies will have to be more sensitive to environmental concern, he added. "Companies are not charities but they do have values," he said.

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