During Dark Times, a Bright Vision for the Future of Energy
In a week when the price of oil rose to $30 a barrel because of fear of war with Iraq, and the ministers of the OPEC members said they would do nothing to bring the price down, it might seem a funny time to be thinking about where the energy industry will be decades from now.
But the head of the world’s third-largest oil company told a Los Angeles audience not to worry about OPEC’s hold on supplies, that natural gas will be the fastest-growing energy source of the next few decades and that ultimately the world will enjoy
an economy powered by
hydrogen fuel cells.
Philip Watts, chairman of Royal Dutch/Shell Group, may well be onto something.
In a matter of only a few decades, he notes, Europe’s energy economy has been transformed by natural gas from Algeria, Russia, the North Sea and gigantic fields in the Netherlands. “Now there are webs of pipelines crisscrossing Europe, providing clean fuel for electricity, which used to be generated by burning coal,” he says.
A geophysicist from Leeds University in England, Watts foresees similar webs of pipelines forming across China and India to transport natural gas from Russia and the Central Asian regions of the former Soviet Union.
But the most compelling part of Watts’ vision could have a particularly huge effect here in Los Angeles, the car-clogged town to which he came last week to speak to a roomful of businesspeople and academics: “Our present form of mobility is unsustainable,” he said with a northern British accent. Translation: Our automobiles and the fuels that power them must change.
With that in mind, Shell is in a research venture with Toyota Motor Corp., General Motors Corp., Michelin Group and other companies to find solutions to the sustainability problem.
Watts predicts that the automobile industry will develop hydrogen fuel cells from small-scale models that initially will power bicycles. Down the road, fuel cells for motor vehicles will be distributed in six-packs, just like soft drinks. The equivalent of one gallon of fuel will drive a car for 75 miles, according to a planning scenario of the Shell research staff. One-fourth of all the vehicles in the U.S., Europe and Japan will be powered by such fuel cells by 2025, the company’s engineers predict.
In looking beyond the present, of course, Watts was not just being optimistic. He was also being a salesman, promoting a major line of Royal Dutch/Shell’s business.
A big part of his message was that natural gas will provide an increasing proportion of America’s energy--not just gas from U.S. and Canadian fields but “liquefied natural gas from Australia and Sakhalin Island” off the coast of Siberia.
Not coincidentally, Shell is the world’s leading producer of LNG--liquefied natural gas. The company taps gas in Nigeria, Australia, Oman and Malaysia, chills it to a liquid and transports it in special tankers to terminals on the U.S. East Coast and other spots around the world, where the liquid is re-gasified. The process solves the problem of getting the stuff across oceans, where pipelines can’t be laid, to far-flung markets. Despite the complexity, LNG now can be landed in the U.S. at prices comparable to those for conventional natural gas.
Shell, which invests $8 billion a year in such projects, has major ambitions for natural gas around the globe. It is planning to build a 4,000-mile pipeline across China to transport natural gas from Central Asia. Shell also is trying to participate in a $25-billion natural gas development project in Saudi Arabia. And the company is a major player in exploring for and producing gas and oil in the Gulf of Mexico. What’s more, Shell is working on a giant gas development project on Sakhalin Island that will supply energy to Japan, Korea and China.
Closer to home, Shell is building an LNG terminal north of Ensenada, Mexico, from which it will ship the gas into the U.S. It also is hoping to construct such a terminal on Mare Island in San Francisco Bay and would like to have one near Los Angeles, though objections from environmentalists have prevented such projects so far.
At the same time, Shell is making immediate moves in U.S. markets, paying $4 billion to acquire Texaco service stations from ChevronTexaco Corp. and $3 billion to buy Pennzoil-Quaker State Co., maker of lubricating oils. And Shell, which has become the largest retailer of gasoline in the U.S. market, is spending $500 million to spruce up its brand at its service stations.
But if Watts foresees the importance of oil waning, why is his company spending so much on gas stations and lube oils? Because like all businesses, Shell must battle in the present while planning for the future.
And in the present, Shell hasn’t been faring as well as its giant rivals. Royal Dutch/Shell didn’t take part in the late-1990s rounds of mergers that saw Exxon acquire Mobil, BP buy Amoco and Arco and Chevron merge with Texaco. The combinations gave these other companies a smorgasbord of fresh projects to expand oil and gas reserves worldwide and to bring fresh vigor to refining and marketing operations.
Shell must play catch-up to get back to the profitability levels of the other majors, note analysts such as Mark Flannery of Credit Suisse First Boston and Steven Pfeifer of Merrill Lynch. Both have written extensive reports on Royal Dutch/Shell’s stock, which trades on the New York Stock Exchange.
Watts is first to admit that the dramatic changes he foresees for the energy market are not going to happen any time soon. Asked when U.S. energy dependence on the unstable Middle East would abate, the bespectacled 57-year-old replied bluntly: “Perhaps in my grandchildren’s lifetimes.”
So how seriously should one take Watts’ grand forecasts about the energy future, especially about cars powered by six-packs of fuel cells? Quite seriously. Certain companies have an ability to look back over their history, which in the case of Royal Dutch/Shell began in 1895 with oil developments in Indonesia, and see how the world has changed before.
As Watts well knows, the world will change again. It’s a long-term vision, to be sure, but it’s not a pipe dream. Working toward it is more useful for “sustainable mobility” than worrying about OPEC.
James Flanigan can be reached at jim.flanigan@latimes.com.
