business and climate change: scenario planning at shell and its analysis of the carbon bubble -...
DESCRIPTION
Angus Gillespie, VP CO2 Shell, shows how Shell has been developing scenarios to explore the future since the early 1970s and using them to allow leaders make better business decisions. Shell Scenarios ask “what if?” questions to explore alternative views of the future and create plausible stories around them. They consider long-term trends in economics, energy supply and demand, geopolitical shifts and social change, as well as the motivating factors that drive change. In doing so, they help build visions of the future. Over time, the Shell Scenarios have gained a global following among governments, academia and other businesses. They have helped deepen understanding of how the world might appear decades ahead. The new “carbon bubble” phenomenon describes a hypothetical economic bubble that could affect the valuation of fossil fuels based assets. The current price of fossil fuels companies shares is calculated under the assumption that all fossil fuel reserves will be consumed. However, a report published earlier this year by Lord Stern and the think tank Carbon Tracker calculates that at least two-thirds of oil, coal and gas reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for "dangerous" climate change, thus leading to a huge over valuation of these reserves. "The financial crisis has shown what happens when risks accumulate unnoticed," said Lord Stern, a professor at the London School of Economics. He said the risk was "very big indeed" and that almost all investors and regulators were failing to address it.TRANSCRIPT
BUILDING AND USING SHELL SCENARIOS
Edinburgh University
4th November 2013
Copyright of Shell Brands International AG
Shell International
Angus Gillespie, VP CO2
November 2013 1
4 November 2013
SCENARIO PRACTICES AND CONTENT
Copyright of Shell Brands International AG
What is a scenario?
Current MultipleAlternative
Future Images
FORECASTThe Path
The FutureThe Present
CurrentRealities
(mental maps)
MultiplePaths
Future Images
SCENARIOS
The Shell scenario building methodology
Inductive
Scenario 1
Scenario 2Scenario 3
Scenario 1 Scenario 2
Scenario 3 Scenario 4
DeductiveInductive
Official future
Alternative scenario
Incremental Normative
Vision
Deductive
The time taken to develop scenarios
• Uncovering and widening perspectives
• Understanding interactions
• Crystallising insights into simple narratives
• Generating and testing options
• Translating that in strategy and plans
• Communication
PreparationOrientation
Scenario Building
Strategic Pathway
Strategies and Planning
9 -18 months
CommunicationImplementation
ResearchOrganisationDetailed process design
Workshop Critical uncertaintiesSynthesisAnalysisWrite-up
WorkshopTestingRefiningFinalisationStrategic pathway
WorkshopsImplicationsGoalsTimelinesStrategiesPlans and KPIs
Stakeholder engagements ImplementationPlanning and tracking
The practical use of scenarios in Shell
• Ask “what if” questions, not necessarily give answers
• Challenge assumptions and mental models
• Enrich debate and identify ‘certainties’
• Relevant to our business
o Develop or test strategies and plans ?o Search for resilience
o Identify threats and opportunities then develop options
o Make risky decisions more transparent
• Focus on the ‘near future’, i.e. strategy and policy agenda next 1-3 years
NOT on scenario horizon
Historical contribution of scenarios to Shell activities
� Three hard truths and shift from West to East (2007)
� CO2 as a business (2006)
� Security and Trust (2005)
� Networks and challenges to TINA (2001)
� Business models (1998)
� TINA and people policies (1995/98)
� Power (1989/1994) and Renewables (1994)
� Market liberalisation and globalisation (1992)
� Sustainable development (1989)
Underlying scenario issues and characteristics
The Prosperity Paradox
The Leadership Paradox
The Connectivity Paradox
Trapped Transition
Room To Manoeuvre
The 2013 scenarios; an era of volatility and transitions
Political and social instability
Building a ‘mini-lateral’ world
Intensified economic cycles
Demographic transitions-urbanisation
Emerging resources –tight/shale gas and LRS
Challenged environmental boundaries
The 2013 New Lens Scenarios
MOUNTAINS OCEANS
The Mountains scenario – “a view from the top”
� Influence concentrates amongst the
already powerful, as advantage
brings more advantage
� Sluggish economic growth moderates
supply/demand tensions
� Natural gas becomes the backbone
of the global energy system
Social political trends Energy trends
� Economic development slowed by
rigidities in structures and institutions
� However, some secondary policy
developments facilitated
of the global energy system
� A profound shift occurs in global
transport and infrastructure
� Moderated CO2 and resource
stresses; CCS takes off
The Mountains scenario
1200
1000
800
600
400
EJ/y
ear
400
200
02000 2010 2020 2030 2040 2050 2060
Oil
Biofuels
Natural Gas
Biomass Gasified
Coal
Biomass/Waste
Biomass Traditional
Nuclear
Hydroelectricity
Geothermal
Solar
Wind
Other renewables
Year
The Oceans scenario – “a view from the horizon”
� Emerging interests intermittently
accommodated
� Core reforms unleash growth – and
� Supply/demand tightness and high
prices unlock expensive resources
and drive user efficiency
� Liquid fuels and coal continue to
Social political trends Energy trends
� Core reforms unleash growth – and
expectations for further reform
� However, more empowered
constituencies hinder some secondary
policy advancement
� Liquid fuels and coal continue to
dominate as gas undershoots global
hopes, until solar becomes new
backbone
� High CO2 and resource impacts. CCS
only mandated later
The Oceans scenario
1200
1000
800
600
400
EJ/y
ear
400
200
002000 2010 2020 2030 2040 2050 2060
Year
Oil
Biofuels
Natural Gas
Biomass Gasified
Coal
Biomass/Waste
Biomass Traditional
Nuclear
Hydroelectricity
Geothermal
Solar
Wind
Other renewables
An energy based comparison of Mountains and Oceans
� Different political, economic and social trajectories, but each with counter-currents
� Total energy consumption similar (+80% energy consumption by 2050), but supply/demand shaped very differently; both have extra-ordinary moderation of demand-growth and extra-ordinary acceleration of supply
� Key energy differences; price trajectories, resource mix, sector-level details and stresses
SCENARIOS AND THE “CARBON BUBBLE”
Copyright of Shell Brands International AG
CO2 emissions are a “stock” problem
Warming caused by cumulative carbon emissions towards the trillionth tonne. Myles R. Allen, Malte Meinshausen et. al. Nature Vol 458, 30 April 2009
Fundamentals of the carbon bubble phenomenon
2• Countries committed to achieving 2°C;
max. stock to 2050 is 1,500 GtCO2
1,000• Already emitted 500 GtCO2, so one trillion
tonnes remaining to 2050
3,000• 2P reserves have 3,000 GtCO2 of
emissions embedded in them
Car
bon
Budg
et
� Logic can be challenged
3,000 emissions embedded in them
Policy• Governments pass regulations to limit CO2
emissions to “hit” 2°C
Peak • Policies create peak in fossil fuels use and
leads to severe price drop
Bubble• Fossil companies over-valued; investors
should re-assess assets; market crash?
Impa
ct o
n C
ompa
nies
� Sound logic
Key points on the carbon bubble
� The carbon bubble logic is sound but ...
� … material growth in energy demand will need fossil fuels.
� Coal will be most-impacted in the short-term.� Coal will be most-impacted in the short-term.
� CCS is a critical technology.
� Shell is relatively well-positioned for the energy transition.
