Maarten Wetselaar
Director of Integrated Gas & New Energies, Member of the Executive Committee of Royal Dutch Shell

The world’s oil and gas supermajors have been managing lots of headwinds these days not only from the market, but also rising social pressures to move more urgently to address the threat of climate change. Some oil majors have been exploring low-carbon sources of energy, expanding their businesses into power and other parts of the energy sector even as most of their capital expenditures remain in their traditional businesses. As such, the role of the oil and gas industry in the energy transition is a timely and increasingly important topic. 

This week on the Columbia Energy Exchange podcast, host Jason Bordoff is joined by Maarten Wetselaar, Director of Integrated Gas & New Energies and Member of the Executive Committee of Royal Dutch Shell. He’s responsible for Shell’s gas business, including its industry-leading liquefied natural gas and gas-to-liquids businesses. He also leads the new energies business, including Shell’s investment in new fuels, new energy carriers, and new business models for a low-carbon future.

Jason and Maarten discuss the role of the oil and gas industry in the energy transition, and prospects for addressing climate change and reducing emissions, while meeting the growing demand for energy. 

TRANSCRIPT

[00:00:02]

Jason Bordoff:  Hello and welcome to Columbia energy exchange, weekly podcast from the Center on Global Energy Policy at Columbia University.  I'm Jason Bordoff.  World's oil and gas super majors have been managing lots of headwinds these days not only from the market, but also rising social pressures to move more urgently to address the threat of climate change.  Some oil majors have been exploring low carbon sources of energy expanding their businesses and to power and other parts of the energy sector, even as most of their CapEx remains in their traditional businesses.  As such, the role of the Oil and Gas Industry in the energy transition is a timely and increasingly important topic.

 

Our guest today to talk about this is Maarten Wetselaar at Royal Dutch Shell; he's the head of Integrated Gas and New Energies and a member of the executive committee.  He's responsible for Shell's gas business, including its industry leading liquefied natural gas and gas to liquids businesses.  He also leads the New Energies business including Shell's investment to new fuels, new energy carriers and new business models for a low carbon future.  This is his second visit with us on Columbia Energy Exchange following his visit about a year and a half ago and we're delighted to have him back with us again, Maarten Wetselaar, thank you for joining us again on Columbia Energy Exchange.

 

[00:01:17]

Maarten Wetselaar:  Yeah, thanks, Jason, for having me.

 

[00:01:18]

Jason Bordoff:  It's been about a year and a half since you were on last, the most--I think the data shows the most popular podcast of 2018, so you have a high bar to clear for yourself.

 

[00:01:28]

Maarten Wetselaar:  Let's try and break that record.

 

[00:01:31]

Jason Bordoff:  So you are head of Gas and New Energies at Royal Dutch Shell.  A lot happening in both of those spaces, and I just kind of want to talk about them, maybe one at a time.  So start with the New Energy Division, how do you--you're spending what somewhere close upto 2 billion dollars, if I read on New Energies, how do you choose what to spend that money on and what do you expect in terms of returns?

 

[00:01:54]

Maarten Wetselaar:  So in terms of returns, the relatively straightforward, we expect returns in the range of 8% to 12% and that's partly because, yeah the New Energies Business is not homogeneous business, they'll be relatively low risk capital and they'll be higher risk capital, so we want everything to sit in that range and we hope that the totality will add up to double digits, we want the totality to add up to a double digit return and we prioritize investments in markets where the power industry is essentially free.  It's liberalized, where you can access the customer and you're allowed to invest in generation and you can do the trading in the middle, so you can really go full value chain to give you some protection against margins going up and down the chain over time, and to really allow us to use our competencies and branding and trading etc, to get a to get a decent Return and outside the power markets we are very interested in hydrogen, bbut we realize it's not yet a mature, it doesn't have many mature applications yet where they are profitable.

 

[00:03:15]

Jason Bordoff:  How do you see hydrogen evolving blue hydrogen, green hydrogen, what's the--how we are gonna see hydrogen emerging over what timeframe?

 

[00:03:22]

Maarten Wetselaar:  Yeah, I think we are convinced and we have had shell hydrogen for last 25 years.  We were probably bit early in the early 90s, because it hasn't financially been very successful in that period, but we are convinced _____ [00:03:34] when the high jump is a big part of the future energy mix, because it's a great way to store power and to keep it stored seasonally, rather than just overnight.  It's a great way to serve heavy industry that can't be electrified, where essentially any energy use were a molecule, a dense molecule is needed, hydrogen can serve and so we're quite keen

 

[00:03:59]

Jason Bordoff:  Proverbially to _____ [00:03:59] sectors like aviation, shipping?

 

[00:04:02]

Maarten Wetselaar:  Aviation you know, hydrogen given its nature what do you get on the plane that flies behind you and I don't know, but maybe we'll solve that someday, but indeed steel production and, you know, all those industries where you need very high temperatures hydrogen can play an important role in shipping, in heavy truck, and you know, heavy long reach transport hydrogen is the obvious solution.  So we believe it's going to be a big victory in the energy system and the world underestimates it, now your question gray, blue, and

 

[00:04:37]

Jason Bordoff:  How you decarbonize it?

 

[00:04:38]

Maarten Wetselaar:  Yeah, so I don't think grey hydrogen is the best transition source, I think, for hydrogen to take its rightful place what has to be zero carbon.  And then you enter blue and green, blue, of course being basically gas base hydrogen with CCS, and green coming from electrolysis, and I think we'll need

 

[00:05:00]

Jason Bordoff:  Using just to be clear for people--using renewable electricity for the hydrolysis

 

[00:05:03]

Maarten Wetselaar:  You know, the hydrolysis, yeah and I think we'll need both in an ideal, ideal world, you would probably do it all with green hydrogen, but the amount of renewable electricity you need to electrolyze in order to get the amounts of hydrogen required will be phenomenal and that electricity will also be needed for other causes to switch our coal plants out etc, so blue and green hydrogen, I think we require in parallel for that step up, and we're very interested in it, but the value chains are still emerging, so we are managing our exposure to this and working in partnerships with governments and other companies to make sure that we're ahead of the curve, but not so far that I build a big balance sheet where there is no value to be found yet and we're keen on biofuels as well particularly second generation biofuels, that's still elusive in terms of a robust scalable technology to produce, but it will be necessary for the energy transition and so we play in that space and finally, we believe that carbon credits, nature based carbon credits will also be a big part of the solution and we started to invest in those, so

 

[00:06:14]

Jason Bordoff:  I spoke about those recently, so I'll come back, I want to talk about nature based solutions and scope three emissions, broadly speaking, but let me just ask you, you said, you know, spending up to 2 billion dollars on New Energies, and you know, one of the criticisms you hear often is still a small share of the total CapEx budget, and still most of its going to oil and gas, so just how do you respond to that?

 

[00:06:33]

Maarten Wetselaar:  Yeah, two things.  It's not going to be up to 2 billion forever, we are keen to increase the number actually, as of next year, we plan to go up to three and if that goes well, we'll go to four, so as an organization, there's a lot we need to learn in this space and we cannot just start off by saying, okay, well, let's blow 10 billion dollars on it, not really knowing what we're doing and hoping it goes well, so that is an organic growth path for us to actually really deeply understand what we're doing and then scale it up rather than and do a massive investment on day one and so there's that, but also, very importantly you scale up this money in a different way.  If I spent 10 billion dollars on oil development in the Gulf of Mexico, that gives me 10 billion dollars of all development in the Gulf of Mexico.  If I spend 1 billion dollars on offshore wind development, I typically do it with partners, we will typically have minority interest and we typically get 70% to 80% project financing.  So if I put 1 billion of the Shell money into offshore wind, it actually generates a 10 billion dollar investment in primary energy, production of offshore wind, through project financing and through partnering, so there's different leverage on capital in this space, particularly in renewable generation than there is in the oil and gas sector, so we can't really compare the two numbers, but yeah, critics will be keen to do so.

 

[00:08:01]

Jason Bordoff:  So let me ask you, let me make an observation and just get your reaction to it.  There's such an increasing pressure from investors, from society for large integrated like Shell to show that they're aligning long-term capital investment plans with a Two Degree World wouldn't have to be world anything close to that.  If you were to move more quickly in that direction and shift the allocation of capital, it seems there's actually a risk that you might get penalized in the share price and people respond negatively to that and equity prices, because that's not if you look at the demand outlook and how seriously policy makers are taking these targets.  Is there--how do you think about what you should be doing now as a company and how far out ahead of maybe policy mandates and other things you want to get and what does that mean for the returns that the investment community is looking for at the same time that the investment community is telling you do more and align your goals with Paris?

 

[00:09:00]

Maarten Wetselaar:  Welcome to my job, that really is the tension we manage on a day to day basis and we can

 

[00:09:08]

Jason Bordoff:  Is that accurate what I just said?

 

[00:09:10]

Maarten Wetselaar:  Yeah it's very accurate and it is indeed one of the great dilemmas, is how much faster than our own customers and then our own governments and regulators can we move without getting clearly offside financially, where without building white elephants that nobody's willing to pay us for yet and there are areas in the _____ [00:09:32] business, I will say electrical vehicle charging at the moment.  We have built a network of hydrogen station, these things don't make money, and they might in the future and we are willing to invest in the hope that they will, but you can only go so far before you get actual critical mass of customers buying hydrogen vehicles and electrical vehicles and starting to use the infrastructure that we've already built, so there is indeed that tension, but of course we are not just passive onlookers.  We do talk to governments, to regulators, we do interact with customers, and I think it is also our responsibility to try and shape the future and to try and get the policies into a place where actually the energy position can speed up and we can invest more and to seduce our customers and to start to consume cleaner energy that we offer to them.  And so on that, I think we can be a bit ahead of the curve, but if we're too far ahead of the curve, then we can’t invest our, we can't pay our dividends anymore, and then they'll be a different conversation.

 

[00:10:37]

Jason Bordoff:  Do you think the industry is doing enough to actually push for more aggressive climate policy? Companies like Shell have supported a carbon price, but the skepticism people here is when the industry really wants a policy change, it puts a lot of resources behind making that happen, so it's one thing to be on record supporting those things, it's another thing to really push for it.

 

[00:10:58]

Maarten Wetselaar:  I think it's hard to talk about the industry in a homogenous away.  I think there are large parts of the Oil and Gas Industry that are very conservative and that have no plans to do anything else that they've always been doing and I'm not saying this illegitimate.  The world will need oil for quite some time to come, so companies that specialize in oil, we wish them good luck, but they are not part--they are then caught in the energy tradition to succeed or to happen, and as a large part of the industry are more engaged on this and that's why industry lobbies and it tend to be conservative, but of course, as a company, we have a big voice, we have a big brand, and then we have good access,and we find like-minded companies also other significantly large companies to join us.  So I would say the industry lobby, you characterize rightly as not a lobby that is very progressive in many places, but we have, for example, the Oil and Gas Climate Initiatives with ten large companies that are spending a billion dollars on renewable energies and so we find other coalition's to push this agenda hard.

 

[00:12:03]

Jason Bordoff:  One of the other points of skepticism I think you hear often is people who just say, well, the Oil and Gas Industry, they just can't be part, what's their role in decarbonization and can they be part of this solution and I think one of the views I hear is, there's just too much vested economic interest in the hydrocarbon economy and the system we have today for companies to ever be really serious about moving away from that on the timescale we need, just how do you respond to that?

 

[00:12:31]

Maarten Wetselaar:  Yeah I think that will be a very sad place to end up in because these companies have so much to offer in terms of financial firepower, in terms of ability to leverage their global presence, in terms of your mastery of technology, and the ability to deploy not only capital but also competence and staff at large scale to get things done, and you really want them on your team if you're going to try and speed up the energy transition and not every company in that industry wants to be on the team, and you leave them aside, but the people that say they want to be on the team, I would, you know, as a neutral player would always try and encourage them and get them on board and because these companies have, you know can cause change much faster, then all the hopeful startups that we see in this space and so you need both.  We as a company are determined to play that role, because we want to be a leading energy company in 2050, as we were in 1900 and we realize from our scenarios and from all the public material, that will require being very, very good at low carbon energy, we don't want to fade away into a niche corner, where we're still producing oil and gas that some people need, but that is no longer central to the energy system.

 

[00:13:50]

Jason Bordoff:  Let me ask you how some of those specific business investments in new energies are going, so when we last spoke, you said you were aiming at becoming an integrated provider of power, emphasizing the customer and with a large portfolio of retail and commercial customers, digitally enabled business models, things like buying utility, owning a solar provider, working with distributors.  How's that going? and what does Shell know about being a utility and operating in the electricity market with pretty low margin return kind of business?

 

[00:14:21]

Maarten Wetselaar:  Yeah, I think what we already knew when we got into this was a lot about power trading, because we have been big power traders, particularly in the US where we're the second largest trade of power in the country and we've known a lot about that for a long time and that is actually the competence and the business model that we are rolling out first in the world.  And so in power trading, we are comfortable that we understand the business that we know how to make double digit returns in it, and we know how to manage our risk.  What we found is that closer to the customer, the B2C business is very competitive, so we're having to fight very hard to leverage our brands, to leverage our customer access, etc, to make things go round and I think the jury is out how successful that will be, but we also believe that in the B2C sector, and with the deployment of batteries and solar, and more sophisticated home systems, you can transform these relationships.

 

On the B2B side, we see we are more encouraged, we see significant opportunity and our early investments are doing quite well in the US and Australia, some organic growth in Europe, and on the generation side, again, the world is changing very fast, so we've been successfully operating in let's say, the subsidy model in wind and the subsidy model in solar, but it's now going to a no subsidy world in the coming years and that will require change.  I think the net base will benefit us because in a subsidized world, you get a lot of lazy capital that just wants sovereign risk, and you need to compete with it.  In a non-subsidized world, it is about your value chain mastery and there's fewer players that can actually do that and so yeah hopeful sign so far, but, you know, nothing comes for free in the sector and I'm still very keen and convinced that the 8 to 12 percent returns doable, but it won't be double that won't exist.

 

[00:16:28]

Jason Bordoff:  And just say another word about where you see the potential for growth in the power market and how you manage between the production and customer end of the business.

 

[00:16:36]

Maarten Wetselaar:  I think in the power market growth in a number of areas, of course, in let's say, the North America and Europe. power consumption isn't growing very fast, but there's a lot of change in the way, the kind of power people want to consume, clean power, and so that needs a very large scale change out on the generation end, and on the consumption end particularly as people start to use electrical vehicles, at scale as they start to heat their homes with heat pumps, then their consumption will grow and these are both very good opportunities for companies to build a relationship with the customer because many people are not going to be so keen to invest in the heat pump themselves to bail the money for having EV charge points in the forecourt, so there's a relationship and investment opportunity there.

 

[00:17:29]

Jason Bordoff:  And I think you recently bid for a Dutch Utility, it ended up going to the Japanese company, but we will see more utility

 

[00:17:36]

Maarten Wetselaar:  I think you'll see, you know, as long as these companies have significant customer portfolios that we like, and they have generation portfolios that we like, if they have all kinds of coal fired power plants, then we're not going to play, but if they are gas and renewables on the generation and then we should be interested.

 

[00:17:54]

Jason Bordoff:  Let me ask you about sort of the broader set of steps Shell has taken on dealing with emissions and so we'll start with nature based solutions, because that's something you've thought a lot about.  And before coming to that, just talk about how you think about the responsibility for sometimes called scope three emissions, but the emissions embedded, the carbon embedded in what you produce and when you look across the value chain from refiners to consumers, to automakers, and everyone else, how does Shell think about the steps it needs to take and it's going to need to take over time to deal with that?

 

[00:18:30]

Maarten Wetselaar:  Yeah I think it's important, you can look narrowly at your own emissions that are called scope one, the emissions that come from our installations.  You can then look at the emissions that come from people that sell us electricity or other surfaces, that's scope two and that's their emissions, but it's important for us because if we can lower the electricity amount we consume, then that scope two will go down, so we have an influence on that.  And then there's scope three and these are your emissions.  If you fill up your car with Shell then a lot of CO2 is producing then when you drive your car, and these are your emissions.  So we have our customer’s emissions, our supplier’s emissions, and our own emissions.  Now, we believe it's crucial in the energy sector for us to set targets based on all three.  If we only solely focus on our own scope one emissions, then we will become a very carbon efficient producer of oil and gas and we don't think the energy transition needs just that.  It needs it, so we will focus on scope one

 

[00:19:31]

Jason Bordoff:  That's going to get us to our

 

[00:19:32]

Maarten Wetselaar:  _____ [00:19:33] get us ever to zero, net zero world and so we need to as an energy provider say, we need to help our suppliers and our customers decarbonize if we're going to play a fulsome role in getting the world to net zero and that means we need to develop new customer offerings and so do we help our customers decarbonize energy

 

[00:19:56]

Jason Bordoff:  You don't produce the cars that people buy, you don't put batteries in them instead of internal combustion engine, so you can do offsets, nature based or technology based, but how do you achieve that?

 

[00:20:06]

Maarten Wetselaar:  Well we can also sell you zero carbon electricity in your home where you can charge your car or on the road when you come to the Shell sites to recharge your car.  If you're an airline, we can sell you biofuels instead of kerosene and if you're a shipping company, we can sell you LNG instead of heavy fuel oil and overtime, maybe hydrogen, who knows.  If your trucking company, we can help you shift to hydrogen and so there are lots of things we can do, products that we should be able to be competitive in, that we can sell to our customers to help them decarbonize and that to me is really the way to look at the role of an energy company and the energy transition is to make sure that we decarbonize consumption and because that is the only way that we are really going to be helpful in getting the world to net zero.  Nature based solutions and carbon credits are a part of this because, first of all we need

 

[00:21:04]

Jason Bordoff:  Just the people know what you're talking about, so reforestation, avoided deforestation.

 

[00:21:09]

Maarten Wetselaar:  It's using essentially the oldest solution in the world, which is to grow trees, and to maintain forests to make sure that their CO2 absorption capacity plays a role in getting CO2 concentrations done.  It's a very obvious solution and we would celebrate its invention if it didn't exist already and but it's been underutilized, so we believe at large scale reforestation and avoid deforestation has a major role to play in getting the world keeping the world below two degrees and hopefully on the way to only one and a half degrees and so that needs to happen and we will play a significant role in it, but a lot of others will need to join and the way to see it is, for example, if you take aviation for the moment, I can say oh, I would love to sell biofuels to the aviation sector, but I also know there isn't enough--by far, there isn't enough biofuels to go around to actually make the aviation sector fly at a scale it currently fly’s and until we have developed that, and that needs technological breakthroughs.  What I can sell to an airline is carbon offset fuel, so I can say, here's kerosene, this is the amount of CO2 you're going to produce by flying and here are the carbon offsets.  I will use the money you pay me to plant trees, anywhere in the world and you can go look at my projects, and these are carbon credits are verified and all that, etc, and so it is another tool in the box to help customers decarbonize fast because what is important is the emissions in the next 10 years, that will be there, you know, for decades.  And so the emissions that we can avoid now count double or triple compared to the emissions that we can avoid in 2060.

 

[00:22:54]

Jason Bordoff:  Do you think that will end up being one of the ways hard to evade sectors like aviation or decarbonize, then It'll be jet fuel plus carbon removal nature based or technology based

 

[00:23:06]

Maarten Wetselaar:  Certainly initially, in the forms of time you hope that you can produce enough second generation biofuels, which are biofuels that go from organic waste to fuels, and you hope that second generation biofuels that will be enough of it to actually serve the airline sector and then you can use the nature based credits for other hard to _____ [00:23:23] sectors, but absolutely, I think, you know, we shouldn't underestimate how difficult it will be to get to 1.5 degrees, so these leavers us such as planting trees, such as avoiding deforestation are critical.

 

[00:23:38]

Jason Bordoff:  What do you think about

 

[00:23:39]

Maarten Wetselaar:  We don't choose leavers we need to pull them all.

 

[00:23:41]

Jason Bordoff:  What do you think about technology to do that, like direct air capture, machines also can remove CO2, is that going to be part of the solution?

 

[00:23:47]

Maarten Wetselaar:  That will be great and it's technically feasible.  It's very expensive today and the way we look at it is there are many, many airstreams in industrial processes in gas and oil production and chemicals processes that are very dense in terms of CO2.  So with a little more CO2 molecules per cubic meter of air, and so we focus at the moment on capturing the CO2 in those streams and sequestering it.  Once we have captured the CO2 from all the dense CO2 streams around the world, then I think the next one to focus on will be the direct air capture, but at the moment, it's a bit further out in the curve because it's just _____ [00:24:30] CO2 saved a very expensive technology.

 

[00:24:32]

Jason Bordoff:  Something Shell did that attract a lot of attention was linking salary with climate performance, which was a serious step for the oil and gas company talk about the rationale and especially talk about how it's changing things.  I mean, what impact is that having?

 

[00:24:48]

Maarten Wetselaar:  So indeed we've linked long-term, incentive plans for senior staff to our climate change targets and we have set climate change targets and that are in line with the Paris Agreement and we've published a very significant framework to back that up with all the spreadsheets on the web, so people can go and have a look and we believe it's a very important signal from the company to its people.  How we reward them is clearly, you know, what we wanted to focus on, so safety, its financial outcomes, but it's also climate outcomes and that's new and that has changed the conversation on it and people in Shell are pretty concerned about climate anyway, but it helps if you send the signal about reward and what is important about it, and that I think is where it's really helping to cause change and for Shell to thrive in the energy transition, which is one of the things we say we want to do.  We don't just want to build a division called new energies that solves a problem for us.  We need to transform the whole company, we're doing everything that we do, whether it's oil or chemicals production or indeed, clean power production.  We need to really minimize the CO2 footprint and work with partners to minimize our CO2 footprint, so it is a company transformation that's being needed and that's why this extends to everybody, not just to people who sell low carbon energy in the company.

 

[00:26:23]

Jason Bordoff:  I wanted to talk in our remaining minutes about natural gas, including the role of natural gas in addressing the climate challenge, so I should say we're here in London for a meeting of companies that are part of the methane guiding principles initiative, which will help kickoff trying to get people to agree to take stronger action within their companies and advocate for policy action? Just talk about how you think that's going now in terms of making progress on reducing methane emissions?

 

[00:26:50]

Maarten Wetselaar:  Yeah, I think for the natural gas industry, from well to customer to make sure that we don't leak methane in the atmosphere is a very important goal, because methane is a very powerful greenhouse gas and natural gas will only find its rightful place in the energy condition that I think it needs to find, if its environmental benefits are clear and strong and for that we need to manage methane better than the industry has in the past and so I believe that a lot has happened in the last two years since we started this initiative.  A lot of tools and programs have been created to help people reduce and manage their missing footprint and particularly a lot of large potential methane emitters have joined this initiative, so that's all positive, and what we now need to do is to show progress to increase the transparency of what is actually being

 

[00:27:50]

Jason Bordoff:  Show the actual methane leak rate

 

[00:27:54]

Maarten Wetselaar:  Yeah, show progress, show leak rates, show how we can improve them over time, and such that the public trust where a special public or general public, and not only in this initiative, which isn't a real point, the public trust in this sector, and the natural gas is part of solution is maintained and enhanced and so that transparency to actually demonstrate progress beyond reasonable doubt is going to be an important next step for us and as well as continuing to broaden the coalition because there are a lot a lot of players in the natural gas business and we need everybody to realize that this is table stakes, that this is crucial for the future of our products, and therefore that we need to take it very seriously.

 

[00:28:35]

Jason Bordoff:  And if you do that control method, and you can see climate benefits from say coal to gas switching, but increasingly, I think there are questions about what happens beyond that.  Now, what's the role of gas and deep decarbonization? How do you think about that?

 

[00:28:49]

Maarten Wetselaar:  I think the role is so even at the end of the energy transition; the world needs molecules, for parts of the energy system, because they need an energy dense energy carrier or they need process heat that electricity can't provide.  So there's a big demand sector out there that needs molecules, part of the sector will be sorted by biofuels, part of it will be sorted by hydrogen, but there will still be a need for hydrocarbons.  I mean, if you just think about the petrochemical industry that starts with a hydrocarbon, that fundamentally needs a hydrocarbon to go around and so natural gas will have a place in the end game in serving hard to abate sectors and sectors that fundamentally need hydrocarbons or petrochemicals or fertilizers, you know, and the only way

 

[00:29:32]

Jason Bordoff:  Is going to be gas with CCS or biogas or hydrogen or?  

 

[00:29:37]

Maarten Wetselaar:  The only way that can work is if that guess is net zero emissions and there's two ways, one is biogas and there's a lot of growth in biogas happening and that's encouraging, but biogas will never buy on its own, be big enough to fulfill that role and so natural gas with CCS where we capture the carbon and store it underground will be the other important technology to serve those sectors and we will not need it anymore for home heating, we will not need it anymore for cooking, but there are sectors in the world that simply need hydrocarbon molecule and natural gas with CCS will be the way to provide it.

 

[00:30:11]

Jason Bordoff:  And what's your view on the outlook of the global gas market in the next, you know, year or two? I mean, prices are incredibly cheap all around the world, not just in the United States.  Shell has invested heavily in gas that may be challenging from a business standpoint, although good for gas demand, are we in a lower for longer gas world?

 

[00:30:28]

Maarten Wetselaar:  Yeah it's good for gas demands, good for gas customers, and this is a cyclical business and has been for a long time and so I don't get nervous about one or two years of low prices and the very good reasons for it, and on the supply side, a lot of suppliers come on stream.  On the demand side, we've had two warm winters now in North Asia where a lot of the gas, incremental gas demand sits.  Fundamentally gas demand is increasing, which is a good thing and the reason it's a good thing is there 30% of the energy mix over the world still consists of coal and that is totally unnecessary and the most urgent and highest impact thing that we can do is to switch off that coal fired energy production, mostly power.

 

[00:31:16]

Jason Bordoff:  Heat to right in China and …

 

[00:31:18]

Maarten Wetselaar:  Yeah, so get out of coal and replace it by renewable pulse gas, that is the easiest thing the world can do and particularly as gas prices are competitive, it doesn't need to cost the world because renewables are also cheap and so I think gas demand is still looking strong for some time to come for decades to come because we need to displace 30% of the global energy that's being served by

 

[00:31:42]

Jason Bordoff:  So is our market forces going to drive them as that require a policy the way China phased out coal fired boilers to deal with air pollution and that led to huge increases in gas and LNG.

 

[00:31:51]

Maarten Wetselaar:  Yeah it requires both, but it definitely requires policy because of course, as coal usage goes down, prices go down as well and if you don't then interfere from a policy perspective, then it will become very, very interesting for countries to get cheap power from coal, so you need a price on carbon, or you need mandates from government to say no more coal fired power plants, and we will phase them out over time and so it needs a policy intervention, but that policy intervention needs to be helped by the gas industry, providing affordable gas everywhere and so people don't fear that they have just committed to a very expensive energy source that's going to impoverish their population.

 

[00:32:34]

Jason Bordoff:  Which is a concern in a country like India, which has ambitious goals for the use of gas, but coal employs a lot of people, coal is domestic and secure, and they're concerned about locking themselves to a volatile global gas market.

 

[00:32:44]

Maarten Wetselaar:  So it needs an integrated policy response and if you have a million people employed in your coal industry, you cannot switch shuttle from one day to the other right, where there is a amount of social responsibility that is required, so it needs an integrated policy response and a lasting policy response by governments, but I'm absolutely clear that there is no place for coal fired power in a net zero world, so we might as well get after it now and solve the problems along the way.

 

[00:33:11]

Jason Bordoff:  What does the world want US LNG? Are we going to see a next continued next wave of these projects that are coming online or is there just too much gas out there for US gas to compete?

 

[00:33:21]

Maarten Wetselaar:  I think if you look at the near term, the world is well supplied, but if you look, you know, at the end 20s, 2030s gas demand is still looking very, very healthy and the gas demand is growing into places where the molecules are not and so LNG will need to continue to grow well into the 30s and probably into the 40s in order to do what it needs to do in the energy transition and that will require energy supply from everywhere.  So be East Africa, be Russia, be the Middle East, but it will also be the US, so I would expect still growth in that area, but it will need to be competitive and this is a competitive industry that needs to make sure that its customers don't overpay for that energy.

 

[00:34:04]

Jason Bordoff:  What's the business model, are they gonna be able to finance these, are people signing long-term contracts or is going to take large portfolio players like Shell with large balance sheets to make these things happen like in Canada?

 

[00:34:14]

Maarten Wetselaar:  I think both large players have an advantage, but large players also don't have ending balance sheets and so large players will play a big role in this, but I think there will be enough industry growth for all sorts of other projects, with financing etc to still find market.

 

[00:34:33]

Jason Bordoff:  We were talking about the transition over time or probably lower oil and gas demand and a decarbonized world.  I often hear people in the industry but elsewhere, say actually their concern is in the medium term, not the long term.  We're setting ourselves up for an under investment cycle that shale is not going to be there forever.  We don't know how quickly or when it's going to really slow down and partly because of social pressure and for other reasons, we're not investing enough in new projects, is that how do you share that concern?

 

[00:35:07]

Maarten Wetselaar:  Yeah, I think it's a very reasonable concern to have.  In the oil industry, outside shale’s, investment has really been lacking in the last five years and so the oil market now crucially depends on continued growth of shale oil in order to balance and one day, we don't know when or I don't know when, the one day that is going to plateau and it could be soon and it could be a few years more.  And when that plateaus, it will be hard for the supply side of the oil industry to keep up with demand unless it goes all the way into the 2030s when actually all demands might be and so there is a scenario where it doesn't happen, but I think there's a plausible scenario where we get into a super cycle again where supply struggles to keep up with demand, but that could actually be a really interesting energy condition, trigger.  If oil does go back 100 dollars, then the alternatives will be very competitive and I think so that might then be the last super cycle and bring big demand forward, so I think that super cycle could be good news in a number of ways, if it happens and I don't think we should count on it as a certainty, but I think it's a plausible scenario.

 

[00:36:19]

Jason Bordoff:  Can you say a quick word about Shell's investment sentiment in the Middle East and how recent geopolitical flare ups, have they changed that at all?

 

[00:36:27]

Maarten Wetselaar:  No, not really, I mean, the Middle East has been a region with stability issues for a long time and it continues to prove that point, but it also continues to prove its resilience because actually, if you look at how often exports from that region have been really interrupted, is not very often in spite of very significant volatility taking place and we obviously, you know, worry most about the safety of our people and so If there really are violent flare ups in countries or even threats of war, we will always, of course, make sure that we look after our people and that hasn't been the case at any skill and recently, and we do believe the region wants to deescalate and wants to find new ways to stabilize the political situation again, and really, you know, focus on bringing prosperity to its people, so now the case for these industries still investing in the Middle East stance, but you always need to, you know, be on top of your game because if you say that is volatility there.

 

[00:37:38]

Jason Bordoff:  And just one other quick on energy and geopolitics Shell's in the Nord Stream 2 Project which has been under threat of US sanctions for a while and now have actually happened.  The Congress has passed a bill that's caused a company to pull out of trying to finish the project, so is Nord Stream 2 going to happen.  What's the timeframe for it now? Where do you see that going given the sanctions?

 

[00:37:58]

Maarten Wetselaar:  Yeah, so it's not gonna happen in the immediate future because as I understand the pipe laying has stopped and so the owner Gazprom will need to look for a different solution to finish the pipe.  I don't believe they need a lot of there's a lot of work left.

 

[00:38:15]

Jason Bordoff:  It's pretty close to being closed.

 

[00:38:18]

Maarten Wetselaar:  They have said publicly that they have an alternative.  They haven't disclosed to us or publicly how long that will take, but I think that's a line that will be finished and it will operate in the fullness of time and we'll contribute to energy security in Europe.

 

[00:38:36]

Jason Bordoff:  Maarten Wetselaar, always a pleasure to talk to you.  We've covered a lot of ground, we could cover a lot more, so hopefully, in another year, year and a half, if not sooner, we'll have you back on the podcast again, come visit us in New York, as well.  There's a lot of really hard questions about how we think about meeting long term decarbonization goals and the roles of the oil and gas sector and companies like Shell and doing that I know how deeply you've thought about a lot of these questions, so I was enjoying having the chance to spend time and talk about it with you.  Thanks for making time to be with us today.

 

[00:39:03]

Maarten Wetselaar:  Thanks, Jason.  Great to see you again and thanks for all the good work your institution they're doing.

 

[00:39:08]

Jason Bordoff:  Thank you, Maarten and thanks to all of you for listening to this episode of Columbia Energy Exchange.  For more information about the show and the Center on Global Energy Policy, visit us online at energypolicy.columbia.edu or follow us @ColumbiaUEnergy on social media.  I'm Jason Bordoff.  Thanks again for listening.  We'll see you next week.