Shell’s Van Der Veer Gets Refreshingly Honest

So Who says Peak Oil is not about to become a reality? It must be true; Shell’s biggest cheese, Jeroen van der Veer, effectively says so.

In an e-letter to staff that must surely be splattered right across the Big Oil community by now, and be doing the rounds of NOCs (national oil corporations), Shell’s CEO basically says that conventional oil output will peak in seven years – oh, and gas shortages are on the way, too.

That’s not really fresh news. But what is significant is that van der Veer has essentially joined the now growing cadre of upstream bosses who are gradually admitting that the clock is ticking and it’s five minutes to midnight.

Aggravating the emerging energy crisis is the incredible pressure being exerted by the fast-growing and increasingly urbanised human population. And van der Veer has finally recognised the cracks that are appearing.

His staff e-mail provides a fascinating insight as to what must be going on in the Shell boardroom, as all present continue to sanction share buy-backs, in line with other Western majors, to help bolster stock value.

“We are experiencing a step-change in the growth rate of energy demand,” van der Veer tells his people.

“Shell estimates that, after 2015, supplies of easy-to-access oil and gas will no longer keep up with demand.”

He talks of a radically different energy balance in 2100 and that our species will have fixed the greenhouse-gas problem that currently threatens the world, as we know it. Not only that, he reckons the “distant future looks bright”.

Van der Veer talks of two basic scenarios:

He says: “The first, a scenario we call Scramble, resembles a race through a mountainous desert. Like an off-road rally, it promises excitement and fierce competition. However, the unintended consequence of “more haste” will often be “less speed” and many will crash along the way.

“The alternative scenario, called Blueprints, has some false starts and develops like a cautious ride on a road that is still under construction. Whether we arrive safely at our destination depends on the discipline of the drivers and the ingenuity of all those involved in the construction effort. Technical innovation provides for excitement.

“Regardless of which route we choose, the world’s current predicament limits our manoeuvring room. We are experiencing a step- change in the growth rate of energy demand due to population growth and economic development, and Shell estimates that, after 2015, supplies of easy-to-access oil and gas will no longer keep up with demand.”

However, in the Scramble scenario, Shell’s top man talks of nations competing to secure energy resources for themselves, with scant regard to energy efficiency, fearing that energy security is a zero-sum game with clear winners and losers, The word, war, is carefully avoided.

Sadly, there will be resource wars, and not just over energy. I feel that in my bones. We ain’t seen nothing yet in that regard and I fear for the future of my children and their children. We all should, as Energy’s readership is of the generation that must fix the mess that humankind finds itself in.

Shell’s CEO reckons Blueprints is less painful, even if the start is more disorderly.

“This Blueprints scenario sees numerous coalitions emerging to take on the challenges of economic development, energy security and environmental pollution through cross-border co-operation.”

He talks of innovation happening at the local level as major cities develop links with industry to reduce local emissions (Aberdeen and Shire, for example, have Aberdeen Renewable Energy Group). Moreover, national governments start to introduce efficiency standards, taxes and other policy instruments to improve the generally shocking environmental performance of buildings, vehicles and transport fuels.

And so van der Veer drones on. His letter reads rather like a distillation of what has been said at so many climate change/ environment conferences over the past quarter of a century. But I’m not criticising him for that.

He quite rightly urges caution over whether December’s Bali declaration on climate change was just rhetoric or the beginning of a global effort to counter it, and that a lot hangs on how attitudes evolve in Beijing, Brussels, New Delhi and Washington.

I’m intrigued that Shell sought a second opinion from the Massachusetts Institute of Technology regarding its two scenarios and that van der Veer is astute enough to recognise that the way we approach energy is utterly critical to our future.

“The sobering reality is that the Blueprints scenario will only come to pass if policymakers agree a global approach to emissions trading and actively promote energy efficiency and new technology in four sectors: heat and power generation, industry, mobility and buildings. It will be hard work and there is little time.”

MEANWHILE, those idiots at Cambridge Energy Research Associates (CERA) have their heads firmly embedded in the sand, judging by their latest “free” crowing.

They have the arrogance to say that they have the “missing link” for understanding the future of world oil supply. They say it is a “solidly based” view of oilfield decline rates.

They claim that the aggregate global decline rate is 4.5%, rather than the 8% cited in many studies, based on CERA’s analysis of the production characteristics of 811 separate oilfields that collectively account for about two-thirds of current global production and half of the total proved and probable conventional oil reserve base.

Of course, what you have to pay through the nose for is to discover which fields and to learn something of the methodology applied, therefore how they arrive at 4.5%.

Bizarrely, CERA claims that annual field decline rates are “not increasing with time”. That I simply cannot believe.

CERA director Peter Jackson is correct when he says, “Getting this right, and understanding the underlying dynamics, is key because the amount of new oil supply that will come onstream to satisfy present and future oil demand depends to a large extent on a comprehensive understanding of annual decline rates of existing fields”. But hang on a minute. Given the secretive nature of so many NOCs around the globe – and they command by far the largest chunk of proven and probable reserves – how can CERA make such claims? For solidly based, I suggest “quicksand-based”.

I was pleased to note that Resource Investor picked up on this latest CERA effort. It reminds of this US outfit’s prattling of 2007 when it attempted to slap down the notion of peak oil and talked instead of a decades-long “undulating plateau”. It would be great is CERA was proved right – but I think its founder, Daniel Yergin, and his colleagues will end up with egg on their faces.

(c) 2008 Press and Journal, The Aberdeen (UK). Provided by ProQuest Information and Learning. All rights Reserved.