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Leading Shell’s scenarios team in the age of the energy transition – interview with László Varró, VP of Global Business Environment

Earlier in June, Royal Dutch Shell has hired László Varró, former Chief Economist of the International Energy Agency to lead its scenarios team. An opportunity that MrVarró has defined as a great honour, speaking with CEENERGYNEWS on the side of the Budapest Climate Summit which took place on 7-8 October.

“I joined Shell as Vice President of Global Business Environment which means I will lead the company’s scenarios team,” he begins. “It has a long-time tradition being set up in the ‘60s as a pioneer of these kinds of scenarios. Therefore I feel honoured to continue this tradition.”

The job is not to predict and forecast the future but we try to help the strategic decisions of the company but also the policy decisions of society, we help them to make better decisions by mapping plausible evolutions of the future.

Mr Varró recalls that the great historical success of the team happened in the late ’60s when the group defined a scenario that identified the potential shift in the balance of power of the oil industry towards the producing governments primarily in the Middle East.

“Of course, they did not exactly predict the 1973 oil crisis but having identified the drivers, Shell was prepared for the shock that followed,” he points out. “Now we are entering an age in which the energy transition will bring a change in the entire industry, even deeper than the shock of the 1970s. This is probably intellectually the best time to start this journey at the Shell scenario team and I am very excited about it. The aim is to continue on this proud tradition but also going further.”

In all scenarios, Shell sees a significant increase in energy consumption in the developing and emerging world while declining energy consumption is plausible in the US, Japan, the EU.

“In these advanced societies, energy efficiency measures can compensate for additional appliances,” Mr Varró explains. “In developing economies there are still 700 million people without electricity and 3 billion people who have electricity for lamps and chargers but do not have refrigerators, washing machines, piped water and other modern appliances which we consider to be the foundation of our modern society.”

He goes on to say that urbanisation is unfolding at a speed of a London every month.

“Cities are built from concrete, steel, aluminium, glass, very energy-intensive materials,” states Mr Varró.

Thus, we don’t see a scenario in which developing economies don’t increase energy consumption. On the other hand, in some advanced democracies, it is already declining, which is one of the drivers of the energy transition.

László Varró also mentions natural gas as a bridge fuel of the energy transition, as it has lower carbon intensity than oil and coal, it is versatile, can be used in power generation, in heating buildings, as industrial fuels and even in the transport sector.

“Economies are phasing out coal and renewables will play a higher role but for the time being natural gas is very useful to complement it,” he underlines. “However, methane has a high greenhouse gas (GHG) impact, multiple times higher than CO2, therefore CH4 leaking out of the gas infrastructure can undermine the environmental case for gas. This issue is righty rising on the political agenda and it can undermine the social-political acceptance of gas as a bridge fuel.”

The good news is we don’t need fiction science technology and the three key steps are well identified: measurement, a systematic application of digital technology in monitoring; reporting to guarantee transparency; and improving performance. This is what Shell has committed to.

However, as the energy sector moves towards a net zero-emission system, fossil originated carbon should not go to the air, either from coal or oil or gas. So in a net-zero system gas itself must be decarbonised.

Hydrogen car and charging point at Shell Technology Centre, Amsterdam. Source: Shell.

“The energy system must be electrified to a large extent, but there are clear technical limits to electrification,” Shell’s Vice President of Global Business Environment reports. “In addition, energy system analysis and operating experience both show that maintaining the gas infrastructure can improve the resilience of the energy system. Electrification is at the core of Shell’s activities, we invest in wind, solar and electric car chargers as well. Nevertheless, we also believe that a future net-zero system will have gas with different technological options to take advantage of the gas infrastructure without CO2 emissions.”

One option mentioned by Mr Varró is biomethane, which contains carbon but not fossil carbon.

“Shell is investing in biomethane, unfortunately, its sustainable potential is lower than current natural gas use so it is an interesting option but it has its limits on how far it can go,” he says.

Another option of gas without fossil carbon is green hydrogen which will play a major role.

“The largest green H2 project in Europe today is a Shell facility in Germany,” Mr Varró concludes. “The third option is to continue to use natural gas but applying carbon capture and storage on it, creating blue hydrogen, this is already being done by Shell in Canada. All of these options should be kept in the toolkit, we don’t feel that the time is right to rule out any of the options.”

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