Shell unveils two energy scenarios with the world caught in security and climate woes’ grasp

The Ukraine crisis brought about the global energy crisis in 2022, which put energy security at the forefront while ushering in the energy trilemma to ensure a secure, affordable and sustainable energy supply. Bearing in mind the challenges this raises, Shell, the UK-headquartered energy giant, has revealed two energy security scenarios, exploring how the world could evolve while looking into the possible energy and climate outcomes that could come to pass in a world that has security in all its shapes and forms as a prevailing concern. 

Shell published its Energy Security Scenarios on Tuesday, 21 March 2023, explaining that the two new scenarios are not “predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions.” With the inroads hydrogen is making, many are wondering whether it will be the future of the energy supply mix while also pondering the role biofuels will have in this mix.

The energy giant points out that the world is entering an accelerating but increasingly competitive transition with “stark regional differences and behaviours,” thus, nations struggle to achieve security in all aspects, including the economy, borders and climate. While the trend has been set away from fossil fuels and towards electricity generated by renewables and nuclear, Shell says that the countries which are the least developed in the world will come to dominate global energy demand. As a result, the UK player is adamant that finding ways for these countries to both develop and decarbonise is essential.

For Shell, accelerating energy transition means that the possible global temperature outcomes are narrowing and the firm’s Energy Security Scenarios cover a temperature range between 1.2°C and 2.2°C warmer than pre-industrial times by 2100, far lower than the genuine concerns just a decade ago that the range extended beyond 4°C. Both of the company’s scenarios rely on “using sinks to remove and store carbon dioxide, and the final temperature outcome rests to a large extent on the world’s success in deploying such sinks.”

Regarding Shell’s two energy security scenarios, the first scenario, called Archipelagos, follows how today’s pressures could play out to the end of the century. In this scenario, the company paints the picture where national interest remains key and renewables are mainly seen as a way to improve energy security, thus, net-zero emissions are within sight by 2100. However, as the world has failed to meet the goal of the Paris Agreement, this scenario is “exploratory,” and “explorative,” says Shell while elaborating that such a scenario seeks to plot a course from where the world stood in 2022.

The UK giant’s second scenario, called Sky 2050, shows how fast the world must move to meet the goal of the Paris Agreement, as global climate security takes precedence. To this end, nations race to switch to cleaner energy and a competitive landscape emerges for technology, minerals and manufacturing capacity, with competition driving rapid change, the world reaches net-zero emissions in 2050. Shell dubs this scenario as “normative” and “extremely challenging,” due to its goals of net-zero emissions by 2050 and warming restricted to below 1.5°C by 2100, working back to the realities of 2022 to explore how these endpoints could be reached.

As the world is currently dominated by an energy security mindset, Shell outlines four different responses to the situation, or archetypes, which are taking shape on the energy horizon with countries appearing to be behaving in a similar fashion, based on how vulnerable they are to energy supply failures and energy price volatility.

Within Shell’s national response archetypes, the one called Green Dream can be observed in the European Union (EU), where the countries’ wealth makes it relatively able to deal with energy price volatility. However, Shell underlines that its advanced economies and depleted energy reserves make it highly vulnerable to energy supply failures. Therefore, these countries seek security by driving hard to reduce energy use, increase energy efficiency and massively boost renewable generation.

The second archetype, known as Innovation Wins can be seen in countries like the United States and major resource-holders such as the United Arab Emirates (UAE), which are often self-sufficient in energy, thus, they are not vulnerable to supply failures, but political systems are particularly exposed to swings in the energy prices. Despite this, such countries do not feel so threatened in the short term but invest heavily in innovation and infrastructure as longer-term solutions to their energy needs and the needs of their energy customers.

The third archetype, which Shell names Great Wall of Change is mainly relevant to China, as the size of the country’s economy, large coal reserves and the scale of its investments in energy supply and infrastructure insulate it from both supply and price concerns. Therefore, China takes a cautious approach, aware of the need to move away from coal and carefully monitoring global energy market developments. This Asian country looks to use its manufacturing strength to build its position as a global low-carbon energy powerhouse.

The last archetype is Surfers, which refers to countries that do not typically produce significant amounts of energy, making them vulnerable to both energy supply disruption and price swings. These countries seek out partnerships with others and try to ride the opportunities created by the actions of other archetype countries. Shell claims that they subdivide into: Emergent Surfers, like India, which quickly adopt new technologies; and Rising Surfers, which include the world’s least developed economies. According to the oil major, these nations are more focused on establishing basic foundations, such as expanding access to modern energy sources.

Based on Shell’s key points from the Energy Security Scenarios, fossil fuels will lose market share, as the energy system is decarbonising, thus, the only question is how fast this will happen. The firm underlines that there is no realistic path to an instant and steep drop in emissions and the average temperature rise is “highly likely” to breach 1.5°C. The UK player believes that the future of energy is electricity, although hydrogen and bioenergy have “significant” roles to play. Bringing the temperature rises back down below 1.5°C will require large-scale carbon removal and storage.

Moreover, the company emphasises that achieving a global temperature rise of less than 1.5°C requires extensive use of carbon sinks. Therefore, the world needs carbon capture and storage in the industry at 2,000-3,000 facilities; large-scale deployment of direct air capture (DAC) underway; 500 bioenergy power plants with CCS (BECCS), as only one exists in 2023; and net reforestation well underway and land carbon management widely established. All of this is needed by 2040.

In line with this, electricity generation needs to “rapidly shift” to wind and solar generation by 2040. This entails quadrupling the solar module manufacturing capacity of today; increasing the deployment rate for wind power by almost tenfold; and creating the capacity to store huge amounts of energy as solar and wind account for two-thirds of electricity generation.

In lieu of this, Shell claims that ground transport needs to rapidly shift to electricity while shipping and aviation should move to alternative fuels by 2040, including the transformation of sales of a new passenger vehicle to 100 per cent electric worldwide; having passengers taking flights on the first hydrogen-powered planes; and having a shipping sector that uses hydrogen as a mainstream fuel, with 10,000 ships in service.

Regarding hydrogen, the UK player claims it would become an important fuel for industrial processes and heavy transport by 2040. This covers extensively deploying hydrogen-based industrial processes; deploying two 1 gigawatt electrolysers each week; and launching four new ships powered by hydrogen or hydrogen-based fuels, every day.

Meanwhile, Shell emphasises that the woes caused by elevated energy prices demand “quick, decisive action,” while the pressure of a rising global surface temperature requires “relentless” action over many decades. Taking this into consideration, both of the firm’s scenarios start with an immediate trade-off between solving short-term needs, by using fossil fuels, and meeting longer-term goals.

In Sky 2050, this adds greenhouse gas emissions and results in a greater overshoot of 1.5°C than might otherwise have been the case, but the larger overshoot is balanced out over time with greater action to remove emissions from the atmosphere. In contrast, the even stronger use of fossil fuels to meet immediate energy needs in Archipelagos results in higher short-term energy prices worldwide, with price rationing having a major effect in balancing global supply.

While Sky 2050 brings society rapidly to net-zero emissions, doing so requires major interventions from policymakers in the energy system, encompassing action such as the forced retirement of fossil-fuel assets, punitive carbon prices, the rapid introduction and scaling up of early-stage technologies and significant energy conservation through efficiency and even economic austerity.

In this scenario, governments are forced to restrict societal choices, such as limiting the selling of internal combustion engine vehicles and limiting meat consumption while also forcing through the construction of wind turbines and power lines in places where many citizens do not wish to see them, such as sites of natural beauty. However, Shell highlights that “no government today has such a comprehensive mandate, and few, if any, appear willing to seek it at the polls.”

In comparison, Archipelagos sees higher fossil-fuel demand compared to Sky 2050, and meeting this demand requires investment, but Shell indicates that activists, and “an increasing number of investors,” have “little appetite” for further oil and gas production. With such an impasse, the UK firm underscores that governments are “forced to step in to ensure money flows under threat of significant financial penalty.”

As investments are made, Shell states that the prospect of a global temperature outcome well below 2°C vanishes, let alone hopes of 1.5°C, leading to “social unrest and the prospect of the early, and possibly forced, closure” of fossil-fuel assets later in the century, as solar, wind and hydrogen begin to dominate.

“Net-zero emissions come late, and the process of getting there is painful, with society split and some investments ultimately failing. Sky 2050 and Archipelagos see the growing tensions play out in different ways and, while both find a pathway forward, both worlds face significant challenges,” concludes Shell.