[Shale Gas reserves. Map taken from Canada Free Press]

Last Wednesday we had the privilege of Jeroen van der Veer, the former CEO of Royal Dutch Shell, giving a public lecture as guest speaker for our humble Transatlantic Lecture Series here in Middelburg. The topic, not surprisingly, was largely dominated by the future energy outlook from a global perspective.

Van der Veer began with his particular take on leadership. A veteran of Shell for 38 years, rising to the top and then being the first CEO to have his appointment extended beyond retirement age, his views obviously deserve to be taken seriously. And they are largely self-made - in his own words, he is not a great fan of the huge management literature that exists. The concept is simple: A represents where your company is now, and B represents where you think, based on your own assessment, your company should go.

To get a full assessment of A, an open dialogue with the workforce is necessary. This is required, since the worksforce has presumably contributed to getting to position A, so their input should be acknowledged. And the workforce also needs to understand why position A is no longer enough – B has to be the new target, and they have to be a part of the struggle to reach it.

Position B, the goal, must be based on ‘the leader’s’ assessment of challenges and opportunities and must not under any circumstances be farmed out to some external advice bureau (read: McKinsey etc). Its got to be based on an internal judgement. In this way ‘the leader’ lives with the consequences – if it doesn’t succeed, you are out. So communicate as simply as possible the steps that are required to reach B, involving the workforce every step of the way.

After this corporate philosophy, Van der Veer moved on to the meat and drink of Shell and the energy business in general. Energy supply is based on the three A’s: Availability, Affordability, and Acceptability. As he put it, “every form of energy has its own set of acceptability problems.” In this context position B involves long-term thinking. Within 40 years energy demand is expected to double, largely due to the increasing Asian middle class. At the same time energy efficiency will improve – it has quadrupled over the previous decade, and that can be expected to continue.

Where does this leave us? Fossil fuels constitute around 90% of all energy supply now. By 2050 this is going to be anywhere between 50% and 80%. But if energy demand does after all double, even a drop to 50% of current fossil fuel consumption will mean a greater total use by 2050. These are tough figures to deal with.

Shale gas is a potential get-out-of-jail card. True, it requires millions of gallons of water to get the stuff out of the rock formations. And the resulting decimated rock formations are decidedly unstable – so some say. Also, the chemicals required to get the stuff out of the rock are not so ecologically-friendly either, raising concerns over water tables. Needless to say, Shell is at the forefront of the technology needed to make this happen. And they are already busy in the US – as Van der Veer remarked in passing, the above-ground installations are minimal (compared, perhaps, to wind turbines?)

If you consider the map above, the pressure for making shale gas happen will be intense. It is after all to be found in non-Middle Eastern locations, a key issue – take a look at proven global oil reserves from 2002:

And if we then look at natural gas, the ‘next generation’ of fossil fuel:

 So its a done deal. Shale = no reliance on the Middle East or Russia, no unstable unreliable energy partners. Van der Veer did refer to the ‘Acceptability’ factor – the Dutch government is keen on the idea of pumping Shale Gas from Brabant, but the Brabanters are not so sure. Over the next decade this is going to be geopolitics / geoeconomics v. public opinion, and I wonder who’s going to win. After all, the Netherlands isn’t going to hold that many cards on the energy front, and this will be one of the few.

Just to hedge a few bets, Mark Rutte was in Russia this week with a considerable business crowd in tow to ensure that supplies keep coming for the foreseeable future. 14bn Euro of Russian goods (predominantly oil and gas) now come to the Netherlands every year, with 6bn Euro of Dutch exports going the other way. Only yesterday Rutte oversaw the deal with Shtandart, a joint venture between the Dutch VTTI (25%) and the venture capital firm Summa run by Ziyavudin Magomedov (75%), for a new oil terminal in Rotterdam’s Europort. 

Needless to say, with Sakhalin-II as a major ongoing investment, Jeroen van der Veer was unwilling to comment on the realities of the Dutch-Russian relationship. “Its complicated.”