THE ENERGY LADDER - BIEE€¦ · Shell plc securities. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation

Copyright of Shell International BV 1September 2016

THE ENERGY LADDER

A model for projecting energy demand

Dr. Tashi Erdmann Martin Haigh

Statistical Adviser Senior Energy

Adviser

Shell Global Solutions Int. Shell

International


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affect future results are contained in Royal Dutch Shell’s 20-F for the year

ended December 31, 2015 (available at www.shell.com/investor and

www.sec.gov ). These risk factors also expressly qualify all forward looking

statements contained in this presentation and should be considered by the

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information. In light of these risks, results could differ materially from those

stated, implied or inferred from the forward-looking statements contained in

this presentation.

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United States Securities and Exchange Commission (SEC) strictly prohibits

us from including in our filings with the SEC. U.S. Investors are urged to

consider closely the disclosure in our Form 20-F, File No 1-32575, available

on the SEC website www.sec.gov.

http://www.shell.com/investor

http://www.sec.gov/

http://www.sec.gov/


Shell’s New Lens Scenarios

Mountains Oceans

0

100

200

300

400

500

600

700

800

900

1,000

2000 2010 2020 2030 2040 2050 2060

EJ

/ y

ea

r (E

nerg

y so

urc

e)

Year

World - Total Primary Energy - By Source

Oil Biofuels

Natural Gas Biomass Gasified

Coal Biomass / Waste Solids

Biomass Traditional Nuclear

Hydro-electricity Geothermal

Solar Wind

Other Renewables

FSB Energy - Shell WEM v2.5.20 - Mountains - Balanced

0

100

200

300

400

500

600

700

800

900

1,000

2000 2010 2020 2030 2040 2050 2060

EJ

/ y

ea

r (E

nerg

y so

urc

e)

Year


Oil Biofuels





Solar Wind

Other Renewables

FSB Energy - Shell WEM v2.5.20 - Oceans - BalancedSource:


Net-zero emissions world, towards the end of the

century

Emerging

Net-Zero

Emissions

World

2015

Assumes 50% electrification of end use.

ENERGY

SOURCE:

GAS

OIL

COAL

BIOENERGY

NUCLEAR

SOLAR

WIND

OTHER

With Carbon Capture and Storage

Fossil

Source: Shell analysis


Six key drivers of the energy system

ECONOMICGROWTHPOPULATION

ENVIRONMENTALPRESSURES

RESOURCEAVAILABILITYTECHNOLOGY

PEOPLE’SCHOICES


Three core models form the heart of the

World Energy Model

FOSSIL, NUCLEAR& RENEWABLES

END USER & ENERGY PRODUCERS

RESIDENTIAL, INDUSTRY & TRANSPORT

TOTAL DEMAND

Energy

GDP/person

ENERGY CHOICE

Market Share

Price differential

ENERGY SUPPLY

Production

/year

Time


Energy Ladder – the relationship between energy

demand and incomes is non-linear and partially

country-specific

Sources: IEA 2015 energy balances and Shell Scenarios Team estimates; World Bank 2015; UN Population Division 2015 revision.

For 1870 – 1960 data for UK and USA: US EIA, UK DECC, Angus Maddison (www.ggdc.net/maddison). Japan national statistics.

USA

CHN

IND

JPNDEU

FRA

CAN

GBR

BRA

KOR

ITA

IDNMEX

ESP

AUSTWN

NGA

THA

POL

TUR

NLD

PAK

MYS

EGY

BEL

VNM

SWE

PHL

FIN

AUT

GRC

SGP

COL

CHL

CHE

NOR

PRTBGD

ETH

ISR

DNK

TZA KEN

NZL

0

100

200

300

400

1,000 10,000 100,000

Prim

ary

en

erg

y (

GJ /

ca

pita

/ y

ea

r)

GDP (PPP) / capita (2010 USD) [log scale]

The Energy Ladder, 1960 - 2015 *

* UK and USA 1870 - 2015; Japan 1953 - 2015; Non-OECD 1971 - 2015* UK and USA 1870 - 2015; Japan 1953 - 2015; Non-OECD 1971 - 2015

http://www.ggdc.net/maddison


0

50

100

150

200

250

300

350

400

1,000 10,000 100,000

Pri

ma

ry e

nerg

y (

GJ

/ c

ap

ita

/ y

ea

r)



USA CAN

The inexorable link: economic growth and energy

demand

* USA and UK from 1870.

Sources: IEA 2013; World Bank 2013; UN Population Division 2012; US EIA; UK DECC; Angus Maddison; Japan

national statistics; Shell New Lens Scenarios

North America300-350


0

50

100

150

200

250

300

350

400

1,000 10,000 100,000

Pri

ma

ry e

nerg

y (

GJ

/ c

ap

ita

/ y

ea

r)



USA

JPN

DEU

FRA

CAN

GBR


demand

North America

W Europe,

Japan

300-350

130-160





0

50

100

150

200

250

300

350

400

1,000 10,000 100,000

Pri

ma

ry e

nerg

y (

GJ

/ c

ap

ita

/ y

ea

r)



USA

JPN

DEU

FRA

CAN

GBR

AUSSWE


demand

North America

Scandinavia,

Australia

W Europe,

Japan

200-240

300-350

130-160





0

50

100

150

200

250

300

350

400

1,000 10,000 100,000

Pri

ma

ry e

nerg

y (

GJ

/ c

ap

ita

/ y

ea

r)



USA

JPN

DEU

FRA

CAN

GBR

TWN

KOR

AUSSWE


demand

North America

Scandinavia,

Australia

Asian Tigers

W Europe,

Japan

200-240

300-350

130-160





0

50

100

150

200

250

300

350

400

1,000 10,000 100,000

Pri

ma

ry e

nerg

y (

GJ

/ c

ap

ita

/ y

ea

r)



USA

JPN

DEU

FRA

CAN

GBR

ESP

ITA

TWN

KOR

AUSSWE


demand

North America

Scandinavia,

Australia

Asian Tigers

W Europe,

JapanMediterranean

200-240

300-350

130-160

100-120





0

50

100

150

200

250

300

350

400

1,000 10,000 100,000

Pri

ma

ry e

nerg

y (

GJ

/ c

ap

ita

/ y

ea

r)



USA

CHN

JPN

DEU

FRA

CAN

GBRMYS

ESP

ITA

BRA

TWN

KOR

AUSSWE


demand

North America

Scandinavia,

Australia

Asian Tigers

W Europe,

JapanMediterranean

200-240

300-350

130-160

100-120





WEM Energy Ladders track non-linear growth with

GDP, specific to each sector ...

Sector energy demand per capita

versus GDP per capita

Sector energy demand in “Energy

Service” (ES)

Sector Unit of Energy

service

Heavy Industry Tonne of steel

Other Industry Heating requirement in

buildings

Services Heating requirement in

buildings

Passenger Transport Passenger kilometre

Freight Transport Tonne kilometre

Residential Heating

Lighting Cooking

Heating requirement in

buildings

Residential Appliances Electricity need

(benchmark = fridge)

Non energy Oil equivalent for

output

ES

pe

r ca

pita

Energy demand in sector i

GDP per capita (USD)


... and enable an evolution to “mature” at levels of

demand, dependent on country-characteristics

Residential Heating needs depend on the heating-degree days

Energy consumption for

HEATING

(developed countries)

Average energy consumption for

HEATING

(developed countries)

GJ p

er

ca

pita

GJ p

er

ca

pita

Example:


How are the energy ladders modelled?

Phase 1: Linear

Slope and Price Elasticity estimated from:

Phase 2: S-Shape

Logistic curve to maturity level

Maturity levels estimated from:

Phase 3: Linear, convergence to saturation level

Slope and Price Elasticity estimated as in Phase

1

0 10000 20000 30000

ES

/ca

p

GDP/cap

Energy Service demandper capita (EScap)

Sector Model Band start/end

Start Phase 2 Maturity Level

Phase 1 Phase 2 Phase 3

𝐸𝑆𝑐𝑎𝑝𝑖𝑡 = 𝑐𝑖 + 𝑎 ∙ 𝐺𝐷𝑃𝑐𝑎𝑝𝑖𝑡 + 𝑏 ∙ 𝑃𝑟𝑖𝑐𝑒𝑖𝑡 + 𝜖𝑖𝑡

𝐸𝑆𝑐𝑎𝑝𝑖,𝑚𝑎𝑡𝑢𝑟𝑖𝑡𝑦 = 𝑐 + 𝑎 ∙ 𝑋𝑖 + 𝜖𝑖


Estimation of maturity level: linear regression

USA

Japan

Germany

France

Canada

United Kingdom

South Korea

Italy

Spain

AustraliaTaiwan

Netherlands

Belgium

Sweden

Austria

Singapore

Switzerland

Norway

Israel

Denmark

New Zealand

Ireland

0

1

2

3

100 200 300 400 500

ESPrice_maturity

ES

ca

p_

ma

turi

ty

factor(Pattern_Phase2)

a

a

a

a

a

1

2

3

4

5

Fitted ES/cap

𝐸𝑆𝑐𝑎𝑝𝑖,𝑚𝑎𝑡 = 𝑐𝑝𝑎𝑡𝑡𝑒𝑟𝑛 − 0.003 ∙ 𝐸𝑆𝑃𝑟𝑖𝑐𝑒𝑖,𝑚𝑎𝑡

R-squared = 92.4%

Price energy for tonne of steel equivalent, at

maturity

To

nn

eo

f s

tee

l e

qu

iva

len

t /

ca

pita

, a

t m

atu

rity

Example

Energy service in Heavy Industry at

maturity (GDP/cap = $30k) depends on

price,

natural resources and economic policy.Percentage of variation in

demand explained by this model.

Energy service per capita (GDP/cap = $30k)

*Countries removed:

-Oil & gas countries

-Luxembourg, FinlandSource: Shell analysis


Estimation income and price elasticity: panel data

regression𝐸𝑆𝑐𝑎𝑝𝑖𝑡 = 𝑐𝑖 + 𝒂𝒑 ∙ 𝐺𝐷𝑃𝑐𝑎𝑝𝑖𝑡 + 𝒃 ∙ 𝑃𝑟𝑖𝑐𝑒𝑖𝑡 + 𝜖𝑖𝑡𝑃𝑟𝑖𝑐𝑒 𝐸𝑙𝑎𝑠𝑖𝑐𝑖𝑡𝑦 = 𝑏 ∙ Τ𝐸𝑆𝑐𝑎𝑝 𝑃𝑟𝑖𝑐𝑒

0

2

4

6

8

30000 40000 50000 60000

GDPcap

Fitte

d

Canada1

Canada2

Denmark1

Denmark2

Finland1

Finland2

Finland3

France

Germany1

Germany2

Greece

Ireland1

Ireland2

Israel

Italy1

Italy2

Japan

Netherlands

New Zealand

Norway1

Norway2

Norway3

South Korea

Spain1

Spain2

Sweden

Fitted ES/cap

*Countries removed:

-Oil & gas countries

-Small countries

Coefficients :

Coefficient P-value

GDPcap -1.2358e-05 0.03561

GDPcap2 7.3795e-05 < 2.2e-16

GDPcap3 5.5433e-05 1.449e-07

Price -4.7291e-04 0.03194

Effects statistically

significant

if P-value < 0.05

Example

Energy service per capita (GDP/cap > $30k)

To

nn

es

of

ste

el e

qu

iva

len

t /

ca

pita

Real GDP (2010 PPP) / capita

Energy demand in Heavy Industry has a

statistically significant price elasticity of -

0.045

(after correcting for the effect of GDP).



Energy Ladder example: Heavy Industry in India

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1,000 10,000 100,000

tonne s

teel equiv

ale

nt

/ cap

GDP / cap

Energy ladder selected sector

USAChinaRussiaIndiaJapanGermanyFranceCanadaUnited KingdomBrazilSouth KoreaItalyIndonesiaMexicoSpainSouth Africa


Note: dashed line is predicted


Energy Ladder example: Heavy Industry in China

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1,000 10,000 100,000

tonne s

teel equiv

ale

nt

/ cap

GDP / cap

Energy ladder selected sector

USAChinaRussiaIndiaJapanGermanyFranceCanadaUnited KingdomBrazilSouth KoreaItalyIndonesiaMexicoSpainSouth Africa


Note: dashed line is predicted


Heavy Industry: what if China’s demand is flat?

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 20,000 40,000

tonn

e s

teel e

qu

iva

lent

/ca

pita

GDP / capita (PPP 2010 USD)

World - Energy Service Ladder -Heavy Industry - (1960 - 2060)

USA China

India Japan

Germany France

Canada United Kingdom

Brazil South Korea

FSB Energy - Shell WEM v2.8.6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 20,000 40,000

tonn

e s

teel e

qu

iva

lent

/ca

pita



USA China

India Japan

Germany France

Canada United Kingdom

Brazil South Korea

FSB Energy - Shell WEM v2.8.6 - China Flat HI

‘China flat’ scenarioBase case

Source:


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000

tonn

e s

teel e

qu

iva

lent

/ca

pita



World

FSB Energy - Shell WEM v2.8.6 - China Flat HI

‘China flat’ leads to slowdown in global Heavy

Industry‘China flat’ scenarioBase case

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0 5,000 10,00015,00020,00025,00030,00035,00040,000

tonn

e s

teel e

qu

iva

lent

/ca

pita



World

FSB Energy - Shell WEM v2.8.7 - BBC16 Build - Draft Run 1FSB Energy - Shell WEM v2.8.7

Source:

Note: dashed included to compare the ‘China flat’ scenario with the base case


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

19601970198019902000201020202030204020502060

mill

ion t

onnes o

f ste

el equiv

ale

nt

Year

World - Energy Service - Heavy Industry

China

Rest of theWorld


0

10

20

30

40

50

60

70

80

90

100

19601970198019902000201020202030204020502060

EJ / y

ear

(Energ

y carr

ier)

Year

World - Total Final Consumption - Heavy Industry

China

Rest of theWorld


Source:

0.0

0.5

1.0

1.5

2.0

2.5

0 5,00010,00015,00020,00025,00030,00035,00040,00045,000

tonne s

teel equiv

ale

nt

/capita


World - Energy Service Ladder - Heavy Industry - (1960 - 2060)

China

Rest ofthe World


0

5

10

15

20

25

0 5,00010,00015,00020,00025,00030,00035,00040,00045,000

GJ / c

apita (

Energ

y C

arr

ier)


World - Energy Ladder TFC - Heavy Industry -(1960 - 2060)

China

Rest ofthe World


China’s share of world Heavy Industry (tonnes of steel

equivalent) declines from 38% in 2015 to 23% in 2060

Base case

Source: Source:

Source:


Energy demand may double in the first half of this

century

Mountains Oceans

0

100

200

300

400

500

600

700

800

900

1,000

2000 2010 2020 2030 2040 2050 2060

EJ

/ y

ea

r (E

nerg

y so

urc

e)

Year


Oil Biofuels





Solar Wind

Other Renewables

FSB Energy - Shell WEM v2.5.20 - Mountains - Balanced

0

100

200

300

400

500

600

700

800

900

1,000

2000 2010 2020 2030 2040 2050 2060

EJ

/ y

ea

r (E

nerg

y so

urc

e)

Year


Oil Biofuels





Solar Wind

Other Renewables

FSB Energy - Shell WEM v2.5.20 - Oceans - Balanced

Source:


Documents

THE ENERGY LADDER - BIEE€¦ · Shell plc securities. The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate legal entities. In this presentation