Energy Scenarios to 2050: Implications for U.S. Energy Security

EDWARD MORSE:  Good evening ladies and gentlemen.  Welcome to today's meeting which is entitled, "Energy Scenarios to 2050."  This meeting tonight is part of the council's corporate program. 

I would like to remind everyone here to please note that this is a meeting that's on the record and therefore when you ask your question remember that as you ask the question and phrase it. 

And also please now turn off your BlackBerrys or cell phones.  I couldn't figure out how to turn off my new iPhone so I left it downstairs.  But I'm sure that I'm unique in that regard.

We're privileged to have a couple of people with us tonight to lead the discussion.  This was built as a meeting with Jeroen Van Der Veer, the CEO of Shell, who is going to lead us through his discussion of Shell's energy scenarios to 2050.  He's going to be joined for a few minutes of the conversation by Jeremy Bentham who I'll introduce in a minute. 

It's a particular privilege to introduce Jeroen to this group.  I think -- I know you all have his resume and his CV but there are two particular things that I would like to highlight.  One being that when one thinks of Shell -- or at least when I think of Shell, I think of it as being a kind of model of a multinational corporation for a globalized world.  And it's not something that's new; it's part of Shell's history to have been since its birth a multinational corporation; its leadership being multinational. 

And part of the distinguishing aspect of Jeroen's career to date is that he took a time-tested organization with a very odd organizational structure and a very odd governing structure and managed since he's become head of the company to oversee the most significant change in its governing structure since the beginning of the company without doing any damage to the multinational tradition of the corporation. 

And the second aspect of what I think about when I think about Shell is its tradition -- now long tradition -- when I was younger it wasn't a tradition at all -- of planning through the generation of scenarios.  And by the way when Shell did it so did The Council on Foreign Relations because I had the privilege of being part of a project many years ago at the council that was entirely based on scenario planning and it would not have been had Shell not innovated from a corporate perspective that methodology for thinking about the future.

Jeroen is being joined for a few minutes of conversation by Jeremy B. Bentham.  He's the vice president for Global Business Environment at Shell where he's been for more than a quarter of a century.  He has had hands-on experience in research and applying technology commercially.  That's one of the things that oil companies in particular are innovative about.  It's one of the things that gives them a comparative advantage in an environment that is highly politicized and is if not dominated certainly influenced heavily by government-owned companies. 

He has been responsible for the generation of the scenarios that we're discussing so that Jeroen is going to give way to him after his initial comments.  Then Jeroen will take the chair again.  Then I will ask Jeroen some questions and then we will open it up to questions from you. 

So with that, the floor is yours.

JEROEN VAN DER VEER:  Good evening ladies and gentlemen.  I'm very impressed by the turn out to have this possibility to speak here.  I have decided to do it without notes because I was looking at David Rockefeller who you see his eyes were exactly looking at what were the big secrets of Shell.  (Laughter.)  If I speak without notes he can't -- okay. 

I'd like to say as well as I'm very glad to be here.  But I started this morning in Rotterdam, so this is my first midnight presentation that I will do about Shell scenarios. 

How are we going to do that?  We tried to have -- Jeremy and myself -- very short introductions.  We have by the way our chief economist of the Shell group, Steven Fries, is here as well.  And then I'm very interested to hear your questions.  For me it is perfectly fine if your questions represent an opinion as well because I would like to test for myself is I've given similar presentations in Europe to see do I feel any difference between the kind of questions you ask compared to other parts of the world. 

First, probably in this audience I can be extremely brief, but why do we make scenarios?  Now, the short version is we make scenarios only to find the best strategy for our firm under every scenario.  So the most simple explanation is that you can have bad weather like today -- miserable weather and you get the idea I sell umbrellas.  But if then there is nice weather, you have your umbrellas and you should have decided to sell ice creams.  Now what is now a cleaver strategy that irrespective of the weather, you sell chocolate bars -- Mars bars because good weather or bad weather people keep eating chocolate bars. 

So the whole reason that we make scenarios is to find the right chocolate bars for Shell -- that's why we make it.  Now, let me share with you today the highlight because I think that is the most interesting part what kind of weather that may be out in the energy world.  And if you have questions of Shell's chocolate bars as far as you'd like to answer that, then you have to ask that question. 

Now, in making those scenarios, you have to start from somewhere.  So you look at the situation today how we see it and what do we see today are three hard truths -- a little wink to Mr. Al Gore about inconvenient truths -- about the three hard truths is that the energy amounts, with oil -- energy amount in the world will double between now and the year 2050. 

And then me take a lot of energy conservation into account -- much more and much faster than hitherto.  Why is that?  Because we go from 6 to 9 billion people, and all the people in the world, they like to have access to electricity and they like to drive at least in a Tata, if you know what a Tata is.

(Laughter.) 

MORSE:  Yep.

VAN DER VEER:  And that drives that energy demand.  That is the first hard truth. 

The second hard truth is that the supply of that energy amount in the world cannot be done by conventional oil and gas.  So basically the systems as you know them so far will not be adequate for it is increased energy amount.  So that has to lead to either unconventional forms of energy -- and we can discuss later what it is -- or renewables, or the system runs infeasible so you get -- (inaudible) -- or you don't achieve the objective that people can drive in a Tata.

And then the third hard truth is whichever way we look at it, there's a huge problem is carbon dioxide.  For the time being, whichever way we look we see more usable oil, gas and coal and if you burn that you get CO2.  Now, maybe you can do something with it -- we'll come to that -- but we think it is a problem of a multitude and isn't acceptable.  There is real reason if you looked down the road to be concerned about that. 

Now that is the three hard truths -- increased energy, classic easy oil and gas will not supply that amount and the CO2 -- big question mark how to go from here.

Now, on how do we deal with those three hard truths, that is exactly the subject of the scenarios we make. 

And that -- Jeremy will present that and then I come back with some concluding remarks and then we go over to Q and A. 

Over to you, Jeremy.

JEREMY BENTHAM:  Thank you very much, Jeroen. 

I've left my secrets behind as well.  Eventually I hope you've all been able to pick up a copy of our booklet which goes into more depth and detail and I'll be able to outline in the next few minutes. 

Our strategic energy scenarios are dated-driven, analysis-driven and look out over 50 years.  But they also look at a future in which the energy component of economic development is achieved.  They look at different patterns of choice and behavior, individually and collectively, under the influence of the stresses brought forward by the three hard truths. 

Now, I don't know what it's like in your families -- we've raised three children and I can tell you that dealing with one hard truth in our household was hard enough -- dealing with three would have been overwhelming. 

And so when you look at this, you look at the way that people behave under those circumstances.  And when people are overwhelmed by complexity they look to institutions to manage that complexity on their behalf.  And in the first outlook that I'll talk through, scramble, the institutions that are playing the most significant role are national governments.  And national governments have a range of policy leaders they can look to to try and influence the development of their energy economies. 

Demand side levers are politically much more sensitive and difficult to use than supply side.  The supply side levers, whether that is incentivizing local sources of energy, whether that's coal or crops or heavy oils or winds -- that can be incentivized.  Similarly, government to government negotiations can take place around pipeline routes and other ways forward.  So the supply levers get pulled. 

So in the early part of this scenario, you get a continuing supply surge.  And a lot of this is actually globally coming through the use of coal which is abundant and cheap.  So you get a strong surge in coal overall with clearly the implications that that has greenhouse emissions. 

By around 2020, however, you're beginning to come into an energy squeeze.  Coal can continue to grow but it can't grow at that explosive rate forever.  You run into logistical constraints.  More and more materials having to be transported through new ports, new railroads and the like -- and at the same time you get the point that Jeroen was making about the supply of the easily accessible oil and gas.  Not because of a lack of molecules but because of the pace of investment into those areas and the interest in boosting production.  And so energy become tight and this becomes then a decade of tension and volatility when the demand levers are needing to be pulled rapidly and because the tensions are built up, sometimes this is done in less well considered ways or in other considered ways. 

Some of you will be as old as myself and can remember when there were impositions of speed limits on roads to reduce the demand of energy.  In other cases you will get scrapping before their normal economic life of the least energy efficient power stations and the like. 

New technologies will have grown locally during the previous decade but they will not all have reached the kind of global scale that will enable them to grow rapidly in that period when the stresses are apparent.  In many cases it will take a decade for those to really grow and become more significant. 

The one technology that is primed by 2020 is the second generation of biofuels -- the biofuels that do not compete with fuel sources, with food sources.  And so you get an expansion of the biofuels in that period and you get the increasing growth of centralized solar power, wind through this decade so that even though it's been a volatile period, by about 2030 stability is returning into the energy system.  However, there has not been to this time attention to the climate change issues in a meaningful way -- although there's been plenty of rhetoric around that. 

So in this period, finally you get attention to climate issues when there's a political backlash as events are blamed on lack of previous action.  So by the end of this period, while you have energy security for United States and other parts of the world as well, you have omitted greenhouse gases to 11.  That means that in the coming part of the century, there's increasing climate stress which has become apparent.  So that's the scrambled part of outlook. 

If I turn now to our second outlook which is called blueprints, it recognizes that forces can combine to accelerate a change.  You see this for example in the United States where excessive coalitions emerged in California which lead to the signing of assembly bill 32 in 2006 which effectively set the climate change legislation.  That has influenced thinking in other states and begins to influence at the federal level.  Similarly in Australia you've seen how political circumstances changed and led to a change in the position of Australia around Kyoto. 

Now, this isn't driven by a sudden outbreak of global altruism -- we don't base our scenarios around that kind of dynamic -- however, it is driven by the recognition of new sets of interests which emerge.  Critically in this outlook by about 2012 to 2015 there's a critical mass of sectors in a critical mass of countries which have adopted implicit or explicit common pricing.  This isn't global to begin with but over the next decade it increases in stock as more people recognize the advantages economically and politically from this approach.  And it begins to expand and incentivizes increased energy efficiency at an earlier stage, the broader growth called wind and solar at an earlier stage.  The conditions have also been created for the deployment from about 2020 of carbon capture and storage at scale and that begins to grow. 

So through the 2020s you have much reduction in energy intensity of economies and on the carbon intensity of economies -- and carbon dioxide emissions begin to decline from around 2020. 

In addition there have been incentives around the development of vehicle electrification such that by 2015 almost 40 percent of passenger miles are electrically powered in one way or another -- whether that's through batteries or through fuel cell technology.  Sixty percent of course is then still powered by liquid fuels -- much more efficiently than today.  Miles per gallon -- much higher than today and obviously in the U.S. energy independence and security act -- new milestones have been put in place which are consistent with type of blueprints outlook.  Biofuels has also played a role in this. 

Over this time period therefore, again, energy security has been achieved.  And while emissions have been reduced and the outlook is not ideal, it is certainly a more positive outlook on the environmental side than in any of the scramble-type outlooks. 

So let me leave that there to give you that kind of feel for the scenarios and hand on to Jeroen who can say a little bit about how Shell has been thinking about those.

VAN DER VEER:  So in the scramble world governments look after their own self-interests, pretty nasty world, and even more increase in CO2, carbon dioxide, with (enormous ?) effects on the climate. 

And the blueprints world governments learn to cooperate, start doing something that works.  And quite unusual for Shell is because the philosophies don't battle the weather -- can be good or bad -- but in this case we felt that we had to give an opinion and in this case we solely preferred a blueprints world. 

Now, why is that?  First of all I think simply as normal citizens -- as citizens of the world, we see a world where you still have an economy, you're still getting more people in their Tatas, there's less CO2, which in itself is a good achievement because that is exactly what we try to reach. 

Secondly, I don't deny -- and I'm very open about that in a blueprints world a company like Shell who likes to be very strong in technology because only -- as an international oil company we can only do things that national oil companies can't do.  And then if you think that's true, then technology will play the very important role for an international oil company -- a large project management and some other things -- so in that world having seen that we can contribute to the success of the company better than of course in a scramble world.

Now, we made a little list here -- what can you do now in the U.S. to bring it closer to home before we start to ask the questions?  So suppose that you in the U.S. would like to, say, okay, I like more of blueprints world -- what could we do, and what is realistic?  What is not -- (inaudible) -- in the clouds?

First of all, you can -- in Europe, you made in the cap and trade system and said we have some peace and problems.  We are working on that.  And we think that there's a very good for the U.S. to have a cap on trade system for carbon dioxide as well.  And sometimes I'm a bit amazed by why you feel that that is not a very welcome idea in the States because in the cap and trade system that we have in Europe, the whole inspiration we got from your sulfur dioxide cap and trade system from the '80s, which of course in Shell we know very well, and we basically used that model that we pinched, so to say, from the U.S., but we made it for CO2 in Europe.  And now we tried to bring it back for CO2 and then you say, well, maybe we don't like it.  And of course I don't deny the peace and problems but what happens in the cap and trade system, you price CO2.  And at the moment you give it a price, there's a bigger incentive and a stronger incentive to reduce it.

Secondly is we think that carbon capture and storage, the politicians know to express the word CCS, but so far there is not any large project in the world to have CCS has been applied.  There's one under construction; we are involved in that -- Australia, we are busy with some other projects -- all the needs you have to go though the learning curve.  This is not only of our technology and prices, but you have to determine if you store the CO2 in the ground, who owns it and what happens if it leaks.  It is not nuclear waste, otherwise it had been in the atmosphere anyway.  But how do you deal with that?  So we have to -- and the best way to learn there is to have the number of demonstration projects.  And then you have to do that of course in cooperation with governments to make that work. 

Thirdly, for the transport sector -- (inaudible) -- it will be inevitable that you get more fuel standards.  Now, I skip the whole way how to set standards, but to have a percentage of biofuel where you don't study how CO2-intensive that particular biofuel was, to say -- (inaudible) -- percentage into gasoline, I don't think that's such a good idea.  And to give you one line about it, we think it is much more important that you look for fuel efficiency standards, that you look after the whole integrated change from well to wheel so that you go in the end how many miles you get for the total CO2 produced before you could drive that mile. 

And fourthly, we think we have wind and solar energy sources that you can help -- (inaudible).  I think that is pretty straightforward.  And to make sure that they go through the learning curves as well, because the key problem for solar or for wind energy to become very big, it started at this moment -- it is still too expensive for consumers.  But on the other hand high oil prices create a bit of an umbrella of course, but you should use that space to get it cheaper for the consumers.

Last but not least is buildings and appliances.  I still think you can do a lot with efficiency standards -- I'm absolutely convinced on that -- or changed behaviors.  Why has it to be -- so that temperature -- I always say hotels, they are too cool in the summer and too hot in the winter.  And it seems that people simply continue with that.  And you can get used and it doesn't cost any investment to, of course, different (patterns ?). 

But I would like to say before I open it for questions is that a lot of the problems for politicians in this energy world is that a lot of politicians are appointed for four years or five years while the things I talk about have a much longer lead time before they start to work.  And that is not only a problem in the U.S.; that is a problem everywhere.  And that will always be very difficult now because politicians get nervous but they don't see the result of the actions. 

And by the examples I have given is you can't leave it to free capitalism.  I hope that it is quite clear from our presentation that it will be absolutely essential that governments and companies can work together because if you don't do that and then you don't make any progress.  And you should be concerned about your energy and you have to be concerned about the climate change.

After these words, shall we sit down, Edward?  Yeah?

Okay.

MORSE:  Jeroen, thanks.

And Jeremy, thanks very much for these introductory remarks which in many ways were quite startling especially sitting in this room and looking at people around us who have such a -- (inaudible) -- and in terms of getting governments out of markets and letting markets do what they do.  And that kind of world and corporate capitalism is a world of scramble and here you are arguing for a world of blueprints. 

How exactly can we learn about good blueprints and bad blueprints?  And do we end up with a scramble for blueprints?  You, yourself in your remarks talked about some of the pitfalls of biofuels, which are brought to us whether in Europe or the U.S. by agricultural lobbies rather than other groups.  What lessons have you learned in the process of this to distinguish among good blueprints and bad blueprints?  And what lessons are there in it?

VAN DER VEER:  Let me start with biofuels because we know it's high on the agenda.  It is that today we are -- at Shell we are the largest distributor of first-generation biofuels.  The reason that we don't make any adverts about it is -- or only very small prints -- is because -- (inaudible) -- because if you make it a lot bigger, then you've got huge competition with food; you got competition with arable land.  If people start to continue to survive is to increase fuel efficiency as we described, you still run out of land.  So that's not the solution. 

But then you may think, oh, this is self-serving, Shell against biofuels.  Absolutely not true.  We are a real advocate and we are -- we do the lot of things what we call second-generation biofuels.  That is the part that does not compete with food.  And of course, to harvest them to make out of that part of the plants transport fuels.  The interesting thing is -- and we have just published that -- is that while the successful technologies will be out of this non-food part of plants to make transport fuels and to make it very big is not that clear. 

So how do we move as a company?  To give an example, we are basically now involved in six joint ventures or collaboration agreements which has all different processes to convert the plants -- the non-food plants, so to say -- in transport fuels.  Of which one -- it's very interesting in my view -- is where we start with algae and seawater, because biofuels and sweet water and then you've solved the one problem that maybe you create the next problem is that the world may run out of sweet water. 

So here you see the very early leads, how we try to research that and develop that for the long-term future.  I think that is simply a question that in the blueprints you have really to think about energy -- every energy solution -- what are the unintended consequences? 

And so far what we have seen, there are no silver bullets, and that in itself is a reason that you have to cooperate, I said, between governments and companies.  But in fact there is a third angle to that; that is the scientific world. 

MORSE:  Okay.

Before I ask my second question, I just thought that I would note that I don't know whether it's still true but I was struck by your comments at the very beginning on chocolate because I know that not many years ago Shell was the largest vendor of Mars chocolate bars in the world.  And there seems to be a coincidence of interest between the two that somebody might want to pick up on.

My next question really is about the scramble world.  And the scramble world as you've described it is one that has been brought to us by resource nationalism and a tight market.  In many places in which your own company has had substantial investments at risk including Russia and Nigeria. 

What can you as a company or other companies do in a blueprints world to get the owners of resources to move away from the scrambled Darwinian world into a win-win kind of world.

VAN DER VEER:  Well, one could argue to a certain extent that certain resource-holders countries have an interest that they prefer the scrambled world, the messy world.  First of all, I've not experienced that; that I have really to say that, so far.  

Secondly is that if you think it's true that in a blueprints world there will be huge capital, for instance, in the Middle East or other countries who keep all those resources, and in a blueprints world, the international mobility of capital and investments or the reputation of that country so to (get other ?) foreign investment, sooner or later those countries need jobs as well, will  work a little better for them.  So then you have basically to widen the debate outside the direct energy portfolio and to see that in a total global order, which we call here the blueprints world, they even as resource holders will be better off.

MORSE:  We're open for questions.  Any question you want to ask, you can ask.  Just when I call on you, please state your name, your affiliation if you want, and ask one simple question and sit down.  (Laughter.)

QUESTIONER:  Jessie Ostell (ph), Rockefeller University.  Shell has a hydrogen division.  What are the implications of the two scenarios for Shell Hydrogen?  How will you produce your hydrogen?

MORSE:  And we have the former head of Shell Hydrogen sitting right here, too.

VAN DER VEER:  Yeah.  Jeremy?  I think he had ---(inaudible)-- so this is -- (inaudible).

MORSE:  Can we have the microphone again, please?

BENTHAM:  Thanks a lot.  You've seen that one of the technologies that comes forward in the blueprints outlook is vehicle electrification.  Clearly, hydrogen fuel cells is one way of bringing vehicle electrification.  The different technologies will compete with each other.  That's why we haven't specified specifically which technology will go forward.  Clearly, if you have the fuel cell vehicles, you have solved the problem of the distributed emissions.  It is then a question of whether you're using fossil fuels or not to create the hydrogen.  I believe that's the most economic way to create the hydrogen and from point sources there are then equipped with carbon capture and storage.

So there is a position for hydrogen in this outlook, but what will be driving whether it's hydrogen or whether it's batteries will be vehicle technology developments, not the energy system in itself.

VAN DER VEER:  (Inaudible) -- university.  I'd like to add this.  That if hydrogen -- a lot of people look at the technologies, but you have to tackle the perceived safety risk.  And I express that the best way:  Are you prepared, question one, to buy a house next to a gasoline station?  And if your answer is yes, then my second question is are you prepared to buy a house next to a hydrogen station?  Yeah?  (Laughter.)  Okay. 

Well, let me stop there, because you see where I'm coming from.

MORSE:  I urge people in the back to get my attention sooner than the people in the front.  The next question is here.

QUESTIONER:  Thanks very much.  Adam Wolfensohn (sp), Wolfensohn (sp) and Company.  Is the blueprint scenario compatible with the 450 parts per million atmospheric concentration of CO2 as recommended by scientists?  And if so, why is oil actually more prominent in the blueprint scenario than in the scrambled scenario?  Thanks.

MORSE:  Why is oil --

QUESTIONER:  Sorry.  It shows just on this back page that there's actually more oil as a percentage of total demand in the blueprint scenario than in the scrambled scenario.

MR. VAN DER VEER (?):  Jeremy, (go out there ?).

MORSE: We had a lot of earlier discussion about whether there'd be any CO2, CO3 conversation.

BENTHAM:  There's two parts to your question, one on CO2, one on oil.  The blueprints outlook is not ideal in terms of what climate scientists would look for.  We're working with climatologists in MIT and in other places because as well as the energy-related emissions, there are other emissions in the world from land use and the like that need to be looked at together.  If we were to go back to the IPCC work and the World Business Council sustainability work, then the blueprints type of profile looks somewhere between the 450 and the 550.  I suspect the climate science is moving now towards a direction where it's more towards the 550 end of that.  So I wouldn't like to say where that is. Clearly, though, the scrambled-type outlook is on a much higher trajectory and a much more concerning trajectory.

On the oil side, it really is an issue of the interplay of forces between energy users and energy exporters.  The blueprints outlook as the patchwork aligns creates much more anticipatory behaviors, so, much more economically optimum from the point of view of the energy importer, the user of energy.  And in that dynamic, then, it also creates incentives for producing more of the oil earlier.  And that's the reason why that comes forward somewhat in the blueprints scenario.  If you've looked at the figures, they're not hugely different.

QUESTIONER:  Dick Garwin (ph), IBM fellow emeritus.  In all these beautiful graphs, I didn't see one about carbon price or carbon tax or shadow price, and yet there must be such a value versus time in order to drive these scenarios.   Where can I find it?

VAN DER VEER:  Let me first say that what we all do already for years in Shell, when we look at new projects, we put already for years in carbon prices, carbon penalties.  I think it is for more than eight or nine years.  And the interesting debate is when we start doing that, then the people who proposed it, they had a relative low price.  And then we said as directors of the company, no, no, we like to have a high price because all those projects we will for decades, and the chance that our CO2 price is too high or the CO2 penalty is too high must be quite unlikely.  I don't know (know what's disclosed ?), that you are, of course, interested in the figure.  I'm not so sure whether we have disclosed that, but I'll leave that Jeremy.

BENTHAM:  I think the main point is that the economics will drive what is happening in terms of the investments that are there.  And so it's very important, as Jeroen said, that there are the demonstration efforts in things like the carbon capture and storage, which the actual costs overall of carbon capture and storage will be discovered.  And that will be one of the factors, for instance, in what will set the ultimate carbon dioxide price.  And so perhaps in today's world in those demonstration phases, you may be talking in figures which are well above those that are in the current market.  But it's just then how quickly those will come down according to the development of the technology and the understanding of the carbon capture and storage.

MORSE:  Scott, in back of the room.

QUESTIONER:  Thank you.  Scott Borderson (ph), CFR.  In a future world in which climate change melts the Arctic sea ice, likely within a decade, how does Shell see the estimated 25 percent of the world's unproven reserves there, particularly in light of recent Shell bids on leases north of Alaska offshore?

VAN DER VEER:  Whether it melts or not has to do with the global CO2 problem, and then you have to (derive ?) for just the man-made part of that.  In itself, we think that the world is so short for energy that there's -- (inaudible) -- at these sites that you can drill -- (inaudible) -- Sea.  That will be a decision by governments.  And the Russian part will be Russian government.  If governments open that up -- and that is their decision -- then we can only say that we have developed, in our view, fairly responsible energy, and we hope to show (another place ?) that we have to -- (inaudible) -- have to produce that oil taking the sensitivity of those areas into account.  So there are in our view two separate problems.

Last but not least, we think that sometimes you always think that NGOs and oil industry think opposite.  I think the concern of the Arctic areas, which I can well see, is probably best served if you have a kind of governance  framework or let's say kind of global rules under which kind of standards you are allowed to drill in the Arctic.  But in the total energy balance, I don't think that governments will say well, let's not do this part, realize that if you don't drill in the Arctic then you have to wonder where does the energy come from, so we'll just have the balancing fuel in the world, I give you my opinion, it's either cold and so if you don't do a certain fuel understand the next best balancing fuel is either cold or nuclear.

MORSE:  In the back of the room, still, yeah.

QUESTIONER:  Thank you.  Paula Depernish (ph), Chicago Climate Exchange which actually is a cap and trade, so I'll be glad to talk to you about that, there's a big latent appetite for it.  I was curious as to whether or not you have any views of the post Kyoto scenario with regard to emissions trading, what would be your projection for how the global marketplace will evolve?

VAN DER VEER:  What we advocate especially is that we think that trading systems are best served by giving a relative long perspective about rules and regulations for the various participants, and that the certainty of what you have seen in the European trading system is that if you not have enough longevity in the system there, then you can use fluxuations and it doesn't work because if you involve these ways to explain that, if you see a consistent relative high price of CO2, there's no fluxuations, then the people will built it into their designs and then you got the benefit that you expect.

MORSE:  Steve?

QUESTIONER:  Steve Stamis (ph) formerly of Exxon.  I'm curious as to what assumption you've made about heavy oil and synthetics such as shale in your, either of your forecasts?

VAN DER VEER:  The shale I leave to Jeremy.  Heavy oil, we see it as an unconventional so it's, there's not enough what we call easy oil or easy gas to supply the world.  So you will all the time to go heavy oils at first you take the heavy oils that I, was in the category of heavy to easiest, this has all to do with it's normally investments and willing costs, and of course you have to take in account not only the economics because there may be regulations what you have to do with the CO2.

Shale oil will come a lot later.  The good thing this pie form has, I don't know how experienced the audience is, we have easy oil and easy gas, then you have things like oil sands, now that's very more difficult, and you already have very tired gas -- that is gas when you drill a hole in the ground and doesn't come out automatically, we call that tired gas.  But you have, then you have shale oil that is really that is tied to the shale.  There are huge reserves of that in the world, as are huge reserves of normal coal.  But if you produce that and burn that, you get a lot of CO2. 

What were the assumptions, Jeremy, for that?

BENTHAM:  Well, the unconventionals, have a role to play in both the outlooks under the pressure of those three hard truths that Jeroen spoke about.  They play out in slightly different ways.  In the scrambled type of outlook, you get this surge of the easier and cheaper unconventional oils to begin with, but then you get a backlash because they're not all being developed responsibly and there's effectively a moratorium on them for a period.  In the blueprints outlook, they develop more slowly to begin with, because the energy efficiency in the world means that energy demand is going more slowly, but ultimately because they're developed more responsibly and combined with things like carbon capture and storage, they grow more extensively towards the later part of the period.

QUESTIONER:  Art Kliner (ph), Strategy and Business.  I've noticed that Shell has done highroad and low road scenarios in the past and others have as well and ether's a quality of that here, can you talk a little bit about the gap between where we are now and the highroad, what has to change in institutions or what has to change in technology to get closer to blueprints?

VAN DER VEER:  Sorry, I'm not sure I understood your question.  What have we to do in blueprints, sorry?

QUESTIONER:  What's missing, what has to be developed either technologically or the way that institutions work that actually make blueprints come to life?

VAN DER VEER:  Now let me, the way I see it, if blueprints you have global rules of the game, so the average company will spend more in research and development money because they understand the rules and they see larger markets.  On top of that CO2 is priced, so you got the kind of economy, this classic economic concepts, people see markets for technological innovation and you got the benefit of lower CO2.  Now that is the world you try to create, that world you only can create while you have global agreements like Kyoto, the new Kyotos of the world, and the new Kyotos of the world will only work if the U.S. joins it, China joins it, India, Europe, et cetera.  That's what is needed.  And those countries who will only join that if they are really concerned that otherwise the energy, the more energy, less carbon dioxide (equation runs infeasible ?) otherwise they don't do anything.

QUESTIONER:  (Inaudible) -- you mentioned in both blueprints and scrambled scenario the importance of second generation biofuels and you've explained that from the technology perspective you have six joint venture focusing on the conversion of biomass to fuel.  How about extreme from that, when you look at food plants taking generation, generation to optimize the crops for food use, biomass is just starting, are you looking at upstream bio as a source competitive advantage, what are you doing to capture that in terms of accelerating the evolution of the proper feed stock?  And do you view that as a source competitive advantage for Shell?

VAN DER VEER:  There will be undoubtedly, but of the second generation biofuels that there's always optimized basically through the food side and hard maybe even though optimized to minimum multiuse.  We think in the end you can have lot of innovations there as well.  Last but not least and that's a bit in line with the previous question, if you think it through, is that you need to have the kind of certification that will have a biofuel you use in the upstream part is producible in a sustainable way.  Not as each area thinks.

First of all, both is produced in a sustainable way, in a biofuel upstream.  What is the definition of that? 

Secondly, how do you control it?  Yeah. 

Thirdly, is it competitive because if the one country has very different standards compared to the other.

So we think again here you see an example so we love free enterprise, but you never get this off the ground as companies that needs corporation as well.

MORSE:  In the back, you.

VAN DER VEER:  Government's cooperation as well, see.

QUESTIONER:  Fred Whitamore (ph), Morgan Stanley.  Tell me why Shell, considering it's size and substance, hasn't been more aggressive in, with the market the way it is and the prices the way they are, in developing, finding, and using natural gas in this -- (inaudible)?

VAN DER VEER:  Uh-huh.  Yeah.  (Laughs).  Thanks.  If I look at the total position of Shell, we are pretty gassy company, it is about 40 percent worldwide  from the energy that produces gas, 60 percent oil.  Fifty years ago the gas part it was a bit of associated gas which we got if you produced the oil.  So this slowly going up.

If we look at the gas portfolio in this country, then it is probably smaller than we would have preferred and that is ready for quite some years.  The basic reason for that is that if you would like to reactify that and of course I realize there are many bankruptcy by acquisitions, then it was always too extensive in our view compared to our alternatives.  While we have certain developments they are Pinedale, and last but not least we play quite a role to import LNG into this country.  So in an indirect way, the benefit of the hardening of the gas prices, the natural gas prices in this country.  Now you, the gentleman is shaking his head no, but we do --

QUESTIONER:  (Off mike) -- LNG really comes into this country yet considering the market?

VAN DER VEER:  Considering the size of the market, I agree.  But if we look at the potential money streams which you can make on it, it is quite important.

So basically it is not because we didn't eyeball this market for it, but we could not find good enough commercial propositions compared to alternatives.

MORSE:  Bob?

QUESTIONER:  All right.  Bob Belford (ph), Belford (ph) Management.  I've heard you mention the word nuclear just once.  Clearly nuclear from an environmental point of view has got a lot to commend it, but you don't seem to give as much weight in your scenarios.  I'm sure you have your reasons and I'd like to hear them.

VAN DER VEER:  We do give it a lot of weight, Jeremy, help to explain how much weight.

BENTHAM:  Yeah, indeed nuclear has a role to play.  There are many things that follow, perhaps that play a role in nuclear as one of them.

In our thinking as we looked at this carefully, we saw that over the next 20 years, there's a huge program of decommission as plants meet the end of their lives.  So just in order for nuclear to stay flat, there has to be a lot of construction.  For it to grow further, which it does in these scenarios, there has to be even more construction.  And effectively, the global nuclear industry is being more or less wiped out in the last 20 years.  So you've got to rebuild the nuclear construction, to some extent you've got to rebuild the mining industry, you've got to rebuild the waste industry.  These things take time.  And so as we've looked at this at 20/30, our view is that net, you might get 15, maybe even 30 percent growth in overall global nuclear, but that would actually mean that its share would go down in terms of total energy.

So it's not that we're against nuclear at all, we just try to assess what we think the practical contributions could be.

QUESTIONER:  Paul Jascow (ph) MIT and the Sloane Foundation (ph).  You spoke favorably about the EU cap and trade system, but the EU cap and trade system doesn't cover the transportation sector and as a result, it doesn't cover much of the oil sector.  Do you see the post 2012 cap and trade system covering the transportation and oil sector and if not, how will the incentives be created to induce the adaptations that are implied by your blueprint scenario?

VAN DER VEER:  Yeah, I think that in Europe we have of course what a quite high carbon taxes on the gasoline, you complain here about three dollar per gallon gasoline, in Europe people are used to seven or eight dollars, and the fuel efficiency of the cars is a lot better in Europe so I'm not less happy than Americans in that way here.

So the next thing is probably world pricing for -- (inaudible).  You could have, you could expand cap and trade system.  In my view, the most important thing is before you expand it, basically get it work for the sectors of those meant to work.  As to the -- (inaudible) -- Chicago climate change having -- (inaudible) -- in those CO2 prices.  So I think it should work for power, it should work for industry, and this has to do how you make all systems.  If it got that work and I feel a little better and let's then expound to the after that.

QUESTIONER:  If I heard you right, do you have a benign attitude toward the fiscal system?  Do you have a benign attitude toward carbon taxes?

VAN DER VEER:  This is how to, how do go to you say in the house of the lion.  Okay.  But the, you can, what are the facts that the fuel efficiency of the average European car at this moment is about 40 percent better than the average American car.  I don't think because Europeans are different from Americans, I think that has simply to do with the taxation on the gasoline and the fact that the Europeans pay an average of seven or eight dollars per gallon and you pay this through a year.  That is one. 

Then you say or do you like taxation on gasoline?  No, when I fill up, then I don't like it at all because you pay a hell of a lot more.  So then you can pull the question why do you still do it?  Then become automatically what does the government doing this and this additional taxation they got, and you got this whole philosophical debate.

I think in the end is that there's a great example in Davos, where we had to debate with basically were all Americans there, and they all said, well, should we price CO2 for the future of our country and they all -- yeah, there's voting and things, they all vote yes, yeah, and then they ask question is should you have European duties on your gasoline and they vote no.  Then I have an intellectual problem.  Yeah.

MORSE:  Yes, in the back.

QUESTIONER:  David Sipenue (ph), Controlled Risks.  In putting together your publication, you mentioned two scenarios.  Were there any other scenarios that were considered?

VAN DER VEER:  This is, I was very sure it be a scenario made because when I think the best is always to have two scenarios.  Because if you have three all managers try to figure out what was the middle one and if you got the other two, and then our philosophy of the chocolate bars goes wrong.  So two you can't choose the middle one.  (Laughter.)  Okay.

MORSE:  Okay.

QUESTIONER:  Daniel Wagner with GE Energy Financial Services.  You know, it's just ten short years ago that we had $10 barrel of oil and here we are at $100 and we really don't have any fundamental interruption in the supply.  What do you imagine in the next 40 years we could be seeing as a ceiling for oil, with perhaps a serious interruption in supply?  And we know we're not likely to go back to $10 but what might be a floor?

VAN DER VEER:  Even if I would do a forecast, I have to tell you that the oil -- (inaudible) -- was $10 oil.  As far as I'm aware, we didn't have any firm feud as we moved passed $100 10 years later.  And on the other hand, if you look in the '80s, when we think about in 1984, I don't think we have had, let's say, at least -- (inaudible) -- scenarios that oil prices would be only 14 years later below the 10 (dollars).  So whatever I forecast, probably you have to take the opposite. 

The basic philosophy that we really have is don't try to battle the oil price.  It is too difficult, the past have shown that, so we really try to position our whole firm whether the oil prices are high, low, or going all the way, all the time like this, that we are in a relative strong position.  That's what we try to do.  And if you have that philosophy between your own ears then you start to raise less time on that what is the maximum or what is the minimum and that's how we deal with it.

MORSE:  It's a council tradition, unhonored tradition that meetings start on time and end on time.  We have time for one short question and one answer.

MR.  :  And one short answer then.  (Laughter.)

QUESTIONER:  (Inaudible) -- Newberger Berman (ph).  Two part question but I'll very short and that is just what's your attitude towards utilities in both scenarios competitor or collaborator?  And what percentage of your revenues would come from easy oil and gas in 2050?

VAN DER VEER:  The utilities are usually a customer from us in general, so  we supply, utilities can make electricity.  So usually we are supplier of their feed stocks.  So far, if you would take the easy oil and easy gas it's still between the 80 and 90 percent in the coming years.  From the volume point of view.  But what we see is that unconventionals on a unit basis or barrel basis or cubic meter of gas, they ask more to our bottom line.  So what's on the one hand they grow as percentage of the volume but they grow much faster as percentage of the profitability and the cash flow.  Because only do that as long as of course we have the technology not only for today to develop it, but the technology if we create new technology.  So in 20 years from now, that may be a good way to answer as it is that we discussed about chocolate bars, if I may say something about Shell, I expect that our company in 10 or 20 years from now, is a much more technical company that is much more investment per barrel or much more brain cells per barrel less barrel or brain cells per unit of gas.  And that is already in the sector which is seen by the many people of the financial markets, see, we see already incredible capital intensive.  This will only increase, which is as of the technology will increase and the capital will increase and that is all needed and it is predetermined that the energy amount goes up.

In itself, that is not a pessimistic view, that is the best climate so to say for innovation and good entrepreneurs.

Thank you.

MORSE:  Thank you very much.  I must say that -- (applause) -- in concluding remarks, I must say that to me the greatest task of the leadership of corporations especially a global, multicultural corporation is planning for an unknown future and I think you've shown us how the best of reads can do that and teach us all something.  So thank you very much.  (Applause.)

Thank you.

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EDWARD MORSE:  Good evening ladies and gentlemen.  Welcome to today's meeting which is entitled, "Energy Scenarios to 2050."  This meeting tonight is part of the council's corporate program. 

I would like to remind everyone here to please note that this is a meeting that's on the record and therefore when you ask your question remember that as you ask the question and phrase it. 

And also please now turn off your BlackBerrys or cell phones.  I couldn't figure out how to turn off my new iPhone so I left it downstairs.  But I'm sure that I'm unique in that regard.

We're privileged to have a couple of people with us tonight to lead the discussion.  This was built as a meeting with Jeroen Van Der Veer, the CEO of Shell, who is going to lead us through his discussion of Shell's energy scenarios to 2050.  He's going to be joined for a few minutes of the conversation by Jeremy Bentham who I'll introduce in a minute. 

It's a particular privilege to introduce Jeroen to this group.  I think -- I know you all have his resume and his CV but there are two particular things that I would like to highlight.  One being that when one thinks of Shell -- or at least when I think of Shell, I think of it as being a kind of model of a multinational corporation for a globalized world.  And it's not something that's new; it's part of Shell's history to have been since its birth a multinational corporation; its leadership being multinational. 

And part of the distinguishing aspect of Jeroen's career to date is that he took a time-tested organization with a very odd organizational structure and a very odd governing structure and managed since he's become head of the company to oversee the most significant change in its governing structure since the beginning of the company without doing any damage to the multinational tradition of the corporation. 

And the second aspect of what I think about when I think about Shell is its tradition -- now long tradition -- when I was younger it wasn't a tradition at all -- of planning through the generation of scenarios.  And by the way when Shell did it so did The Council on Foreign Relations because I had the privilege of being part of a project many years ago at the council that was entirely based on scenario planning and it would not have been had Shell not innovated from a corporate perspective that methodology for thinking about the future.

Jeroen is being joined for a few minutes of conversation by Jeremy B. Bentham.  He's the vice president for Global Business Environment at Shell where he's been for more than a quarter of a century.  He has had hands-on experience in research and applying technology commercially.  That's one of the things that oil companies in particular are innovative about.  It's one of the things that gives them a comparative advantage in an environment that is highly politicized and is if not dominated certainly influenced heavily by government-owned companies. 

He has been responsible for the generation of the scenarios that we're discussing so that Jeroen is going to give way to him after his initial comments.  Then Jeroen will take the chair again.  Then I will ask Jeroen some questions and then we will open it up to questions from you. 

So with that, the floor is yours.

JEROEN VAN DER VEER:  Good evening ladies and gentlemen.  I'm very impressed by the turn out to have this possibility to speak here.  I have decided to do it without notes because I was looking at David Rockefeller who you see his eyes were exactly looking at what were the big secrets of Shell.  (Laughter.)  If I speak without notes he can't -- okay. 

I'd like to say as well as I'm very glad to be here.  But I started this morning in Rotterdam, so this is my first midnight presentation that I will do about Shell scenarios. 

How are we going to do that?  We tried to have -- Jeremy and myself -- very short introductions.  We have by the way our chief economist of the Shell group, Steven Fries, is here as well.  And then I'm very interested to hear your questions.  For me it is perfectly fine if your questions represent an opinion as well because I would like to test for myself is I've given similar presentations in Europe to see do I feel any difference between the kind of questions you ask compared to other parts of the world. 

First, probably in this audience I can be extremely brief, but why do we make scenarios?  Now, the short version is we make scenarios only to find the best strategy for our firm under every scenario.  So the most simple explanation is that you can have bad weather like today -- miserable weather and you get the idea I sell umbrellas.  But if then there is nice weather, you have your umbrellas and you should have decided to sell ice creams.  Now what is now a cleaver strategy that irrespective of the weather, you sell chocolate bars -- Mars bars because good weather or bad weather people keep eating chocolate bars. 

So the whole reason that we make scenarios is to find the right chocolate bars for Shell -- that's why we make it.  Now, let me share with you today the highlight because I think that is the most interesting part what kind of weather that may be out in the energy world.  And if you have questions of Shell's chocolate bars as far as you'd like to answer that, then you have to ask that question. 

Now, in making those scenarios, you have to start from somewhere.  So you look at the situation today how we see it and what do we see today are three hard truths -- a little wink to Mr. Al Gore about inconvenient truths -- about the three hard truths is that the energy amounts, with oil -- energy amount in the world will double between now and the year 2050. 

And then me take a lot of energy conservation into account -- much more and much faster than hitherto.  Why is that?  Because we go from 6 to 9 billion people, and all the people in the world, they like to have access to electricity and they like to drive at least in a Tata, if you know what a Tata is.

(Laughter.) 

MORSE:  Yep.

VAN DER VEER:  And that drives that energy demand.  That is the first hard truth. 

The second hard truth is that the supply of that energy amount in the world cannot be done by conventional oil and gas.  So basically the systems as you know them so far will not be adequate for it is increased energy amount.  So that has to lead to either unconventional forms of energy -- and we can discuss later what it is -- or renewables, or the system runs infeasible so you get -- (inaudible) -- or you don't achieve the objective that people can drive in a Tata.

And then the third hard truth is whichever way we look at it, there's a huge problem is carbon dioxide.  For the time being, whichever way we look we see more usable oil, gas and coal and if you burn that you get CO2.  Now, maybe you can do something with it -- we'll come to that -- but we think it is a problem of a multitude and isn't acceptable.  There is real reason if you looked down the road to be concerned about that. 

Now that is the three hard truths -- increased energy, classic easy oil and gas will not supply that amount and the CO2 -- big question mark how to go from here.

Now, on how do we deal with those three hard truths, that is exactly the subject of the scenarios we make. 

And that -- Jeremy will present that and then I come back with some concluding remarks and then we go over to Q and A. 

Over to you, Jeremy.

JEREMY BENTHAM:  Thank you very much, Jeroen. 

I've left my secrets behind as well.  Eventually I hope you've all been able to pick up a copy of our booklet which goes into more depth and detail and I'll be able to outline in the next few minutes. 

Our strategic energy scenarios are dated-driven, analysis-driven and look out over 50 years.  But they also look at a future in which the energy component of economic development is achieved.  They look at different patterns of choice and behavior, individually and collectively, under the influence of the stresses brought forward by the three hard truths. 

Now, I don't know what it's like in your families -- we've raised three children and I can tell you that dealing with one hard truth in our household was hard enough -- dealing with three would have been overwhelming. 

And so when you look at this, you look at the way that people behave under those circumstances.  And when people are overwhelmed by complexity they look to institutions to manage that complexity on their behalf.  And in the first outlook that I'll talk through, scramble, the institutions that are playing the most significant role are national governments.  And national governments have a range of policy leaders they can look to to try and influence the development of their energy economies. 

Demand side levers are politically much more sensitive and difficult to use than supply side.  The supply side levers, whether that is incentivizing local sources of energy, whether that's coal or crops or heavy oils or winds -- that can be incentivized.  Similarly, government to government negotiations can take place around pipeline routes and other ways forward.  So the supply levers get pulled. 

So in the early part of this scenario, you get a continuing supply surge.  And a lot of this is actually globally coming through the use of coal which is abundant and cheap.  So you get a strong surge in coal overall with clearly the implications that that has greenhouse emissions. 

By around 2020, however, you're beginning to come into an energy squeeze.  Coal can continue to grow but it can't grow at that explosive rate forever.  You run into logistical constraints.  More and more materials having to be transported through new ports, new railroads and the like -- and at the same time you get the point that Jeroen was making about the supply of the easily accessible oil and gas.  Not because of a lack of molecules but because of the pace of investment into those areas and the interest in boosting production.  And so energy become tight and this becomes then a decade of tension and volatility when the demand levers are needing to be pulled rapidly and because the tensions are built up, sometimes this is done in less well considered ways or in other considered ways. 

Some of you will be as old as myself and can remember when there were impositions of speed limits on roads to reduce the demand of energy.  In other cases you will get scrapping before their normal economic life of the least energy efficient power stations and the like. 

New technologies will have grown locally during the previous decade but they will not all have reached the kind of global scale that will enable them to grow rapidly in that period when the stresses are apparent.  In many cases it will take a decade for those to really grow and become more significant. 

The one technology that is primed by 2020 is the second generation of biofuels -- the biofuels that do not compete with fuel sources, with food sources.  And so you get an expansion of the biofuels in that period and you get the increasing growth of centralized solar power, wind through this decade so that even though it's been a volatile period, by about 2030 stability is returning into the energy system.  However, there has not been to this time attention to the climate change issues in a meaningful way -- although there's been plenty of rhetoric around that. 

So in this period, finally you get attention to climate issues when there's a political backlash as events are blamed on lack of previous action.  So by the end of this period, while you have energy security for United States and other parts of the world as well, you have omitted greenhouse gases to 11.  That means that in the coming part of the century, there's increasing climate stress which has become apparent.  So that's the scrambled part of outlook. 

If I turn now to our second outlook which is called blueprints, it recognizes that forces can combine to accelerate a change.  You see this for example in the United States where excessive coalitions emerged in California which lead to the signing of assembly bill 32 in 2006 which effectively set the climate change legislation.  That has influenced thinking in other states and begins to influence at the federal level.  Similarly in Australia you've seen how political circumstances changed and led to a change in the position of Australia around Kyoto. 

Now, this isn't driven by a sudden outbreak of global altruism -- we don't base our scenarios around that kind of dynamic -- however, it is driven by the recognition of new sets of interests which emerge.  Critically in this outlook by about 2012 to 2015 there's a critical mass of sectors in a critical mass of countries which have adopted implicit or explicit common pricing.  This isn't global to begin with but over the next decade it increases in stock as more people recognize the advantages economically and politically from this approach.  And it begins to expand and incentivizes increased energy efficiency at an earlier stage, the broader growth called wind and solar at an earlier stage.  The conditions have also been created for the deployment from about 2020 of carbon capture and storage at scale and that begins to grow. 

So through the 2020s you have much reduction in energy intensity of economies and on the carbon intensity of economies -- and carbon dioxide emissions begin to decline from around 2020. 

In addition there have been incentives around the development of vehicle electrification such that by 2015 almost 40 percent of passenger miles are electrically powered in one way or another -- whether that's through batteries or through fuel cell technology.  Sixty percent of course is then still powered by liquid fuels -- much more efficiently than today.  Miles per gallon -- much higher than today and obviously in the U.S. energy independence and security act -- new milestones have been put in place which are consistent with type of blueprints outlook.  Biofuels has also played a role in this. 

Over this time period therefore, again, energy security has been achieved.  And while emissions have been reduced and the outlook is not ideal, it is certainly a more positive outlook on the environmental side than in any of the scramble-type outlooks. 

So let me leave that there to give you that kind of feel for the scenarios and hand on to Jeroen who can say a little bit about how Shell has been thinking about those.

VAN DER VEER:  So in the scramble world governments look after their own self-interests, pretty nasty world, and even more increase in CO2, carbon dioxide, with (enormous ?) effects on the climate. 

And the blueprints world governments learn to cooperate, start doing something that works.  And quite unusual for Shell is because the philosophies don't battle the weather -- can be good or bad -- but in this case we felt that we had to give an opinion and in this case we solely preferred a blueprints world. 

Now, why is that?  First of all I think simply as normal citizens -- as citizens of the world, we see a world where you still have an economy, you're still getting more people in their Tatas, there's less CO2, which in itself is a good achievement because that is exactly what we try to reach. 

Secondly, I don't deny -- and I'm very open about that in a blueprints world a company like Shell who likes to be very strong in technology because only -- as an international oil company we can only do things that national oil companies can't do.  And then if you think that's true, then technology will play the very important role for an international oil company -- a large project management and some other things -- so in that world having seen that we can contribute to the success of the company better than of course in a scramble world.

Now, we made a little list here -- what can you do now in the U.S. to bring it closer to home before we start to ask the questions?  So suppose that you in the U.S. would like to, say, okay, I like more of blueprints world -- what could we do, and what is realistic?  What is not -- (inaudible) -- in the clouds?

First of all, you can -- in Europe, you made in the cap and trade system and said we have some peace and problems.  We are working on that.  And we think that there's a very good for the U.S. to have a cap on trade system for carbon dioxide as well.  And sometimes I'm a bit amazed by why you feel that that is not a very welcome idea in the States because in the cap and trade system that we have in Europe, the whole inspiration we got from your sulfur dioxide cap and trade system from the '80s, which of course in Shell we know very well, and we basically used that model that we pinched, so to say, from the U.S., but we made it for CO2 in Europe.  And now we tried to bring it back for CO2 and then you say, well, maybe we don't like it.  And of course I don't deny the peace and problems but what happens in the cap and trade system, you price CO2.  And at the moment you give it a price, there's a bigger incentive and a stronger incentive to reduce it.

Secondly is we think that carbon capture and storage, the politicians know to express the word CCS, but so far there is not any large project in the world to have CCS has been applied.  There's one under construction; we are involved in that -- Australia, we are busy with some other projects -- all the needs you have to go though the learning curve.  This is not only of our technology and prices, but you have to determine if you store the CO2 in the ground, who owns it and what happens if it leaks.  It is not nuclear waste, otherwise it had been in the atmosphere anyway.  But how do you deal with that?  So we have to -- and the best way to learn there is to have the number of demonstration projects.  And then you have to do that of course in cooperation with governments to make that work. 

Thirdly, for the transport sector -- (inaudible) -- it will be inevitable that you get more fuel standards.  Now, I skip the whole way how to set standards, but to have a percentage of biofuel where you don't study how CO2-intensive that particular biofuel was, to say -- (inaudible) -- percentage into gasoline, I don't think that's such a good idea.  And to give you one line about it, we think it is much more important that you look for fuel efficiency standards, that you look after the whole integrated change from well to wheel so that you go in the end how many miles you get for the total CO2 produced before you could drive that mile. 

And fourthly, we think we have wind and solar energy sources that you can help -- (inaudible).  I think that is pretty straightforward.  And to make sure that they go through the learning curves as well, because the key problem for solar or for wind energy to become very big, it started at this moment -- it is still too expensive for consumers.  But on the other hand high oil prices create a bit of an umbrella of course, but you should use that space to get it cheaper for the consumers.

Last but not least is buildings and appliances.  I still think you can do a lot with efficiency standards -- I'm absolutely convinced on that -- or changed behaviors.  Why has it to be -- so that temperature -- I always say hotels, they are too cool in the summer and too hot in the winter.  And it seems that people simply continue with that.  And you can get used and it doesn't cost any investment to, of course, different (patterns ?). 

But I would like to say before I open it for questions is that a lot of the problems for politicians in this energy world is that a lot of politicians are appointed for four years or five years while the things I talk about have a much longer lead time before they start to work.  And that is not only a problem in the U.S.; that is a problem everywhere.  And that will always be very difficult now because politicians get nervous but they don't see the result of the actions. 

And by the examples I have given is you can't leave it to free capitalism.  I hope that it is quite clear from our presentation that it will be absolutely essential that governments and companies can work together because if you don't do that and then you don't make any progress.  And you should be concerned about your energy and you have to be concerned about the climate change.

After these words, shall we sit down, Edward?  Yeah?

Okay.

MORSE:  Jeroen, thanks.

And Jeremy, thanks very much for these introductory remarks which in many ways were quite startling especially sitting in this room and looking at people around us who have such a -- (inaudible) -- and in terms of getting governments out of markets and letting markets do what they do.  And that kind of world and corporate capitalism is a world of scramble and here you are arguing for a world of blueprints. 

How exactly can we learn about good blueprints and bad blueprints?  And do we end up with a scramble for blueprints?  You, yourself in your remarks talked about some of the pitfalls of biofuels, which are brought to us whether in Europe or the U.S. by agricultural lobbies rather than other groups.  What lessons have you learned in the process of this to distinguish among good blueprints and bad blueprints?  And what lessons are there in it?

VAN DER VEER:  Let me start with biofuels because we know it's high on the agenda.  It is that today we are -- at Shell we are the largest distributor of first-generation biofuels.  The reason that we don't make any adverts about it is -- or only very small prints -- is because -- (inaudible) -- because if you make it a lot bigger, then you've got huge competition with food; you got competition with arable land.  If people start to continue to survive is to increase fuel efficiency as we described, you still run out of land.  So that's not the solution. 

But then you may think, oh, this is self-serving, Shell against biofuels.  Absolutely not true.  We are a real advocate and we are -- we do the lot of things what we call second-generation biofuels.  That is the part that does not compete with food.  And of course, to harvest them to make out of that part of the plants transport fuels.  The interesting thing is -- and we have just published that -- is that while the successful technologies will be out of this non-food part of plants to make transport fuels and to make it very big is not that clear. 

So how do we move as a company?  To give an example, we are basically now involved in six joint ventures or collaboration agreements which has all different processes to convert the plants -- the non-food plants, so to say -- in transport fuels.  Of which one -- it's very interesting in my view -- is where we start with algae and seawater, because biofuels and sweet water and then you've solved the one problem that maybe you create the next problem is that the world may run out of sweet water. 

So here you see the very early leads, how we try to research that and develop that for the long-term future.  I think that is simply a question that in the blueprints you have really to think about energy -- every energy solution -- what are the unintended consequences? 

And so far what we have seen, there are no silver bullets, and that in itself is a reason that you have to cooperate, I said, between governments and companies.  But in fact there is a third angle to that; that is the scientific world. 

MORSE:  Okay.

Before I ask my second question, I just thought that I would note that I don't know whether it's still true but I was struck by your comments at the very beginning on chocolate because I know that not many years ago Shell was the largest vendor of Mars chocolate bars in the world.  And there seems to be a coincidence of interest between the two that somebody might want to pick up on.

My next question really is about the scramble world.  And the scramble world as you've described it is one that has been brought to us by resource nationalism and a tight market.  In many places in which your own company has had substantial investments at risk including Russia and Nigeria. 

What can you as a company or other companies do in a blueprints world to get the owners of resources to move away from the scrambled Darwinian world into a win-win kind of world.

VAN DER VEER:  Well, one could argue to a certain extent that certain resource-holders countries have an interest that they prefer the scrambled world, the messy world.  First of all, I've not experienced that; that I have really to say that, so far.  

Secondly is that if you think it's true that in a blueprints world there will be huge capital, for instance, in the Middle East or other countries who keep all those resources, and in a blueprints world, the international mobility of capital and investments or the reputation of that country so to (get other ?) foreign investment, sooner or later those countries need jobs as well, will  work a little better for them.  So then you have basically to widen the debate outside the direct energy portfolio and to see that in a total global order, which we call here the blueprints world, they even as resource holders will be better off.

MORSE:  We're open for questions.  Any question you want to ask, you can ask.  Just when I call on you, please state your name, your affiliation if you want, and ask one simple question and sit down.  (Laughter.)

QUESTIONER:  Jessie Ostell (ph), Rockefeller University.  Shell has a hydrogen division.  What are the implications of the two scenarios for Shell Hydrogen?  How will you produce your hydrogen?

MORSE:  And we have the former head of Shell Hydrogen sitting right here, too.

VAN DER VEER:  Yeah.  Jeremy?  I think he had ---(inaudible)-- so this is -- (inaudible).

MORSE:  Can we have the microphone again, please?

BENTHAM:  Thanks a lot.  You've seen that one of the technologies that comes forward in the blueprints outlook is vehicle electrification.  Clearly, hydrogen fuel cells is one way of bringing vehicle electrification.  The different technologies will compete with each other.  That's why we haven't specified specifically which technology will go forward.  Clearly, if you have the fuel cell vehicles, you have solved the problem of the distributed emissions.  It is then a question of whether you're using fossil fuels or not to create the hydrogen.  I believe that's the most economic way to create the hydrogen and from point sources there are then equipped with carbon capture and storage.

So there is a position for hydrogen in this outlook, but what will be driving whether it's hydrogen or whether it's batteries will be vehicle technology developments, not the energy system in itself.

VAN DER VEER:  (Inaudible) -- university.  I'd like to add this.  That if hydrogen -- a lot of people look at the technologies, but you have to tackle the perceived safety risk.  And I express that the best way:  Are you prepared, question one, to buy a house next to a gasoline station?  And if your answer is yes, then my second question is are you prepared to buy a house next to a hydrogen station?  Yeah?  (Laughter.)  Okay. 

Well, let me stop there, because you see where I'm coming from.

MORSE:  I urge people in the back to get my attention sooner than the people in the front.  The next question is here.

QUESTIONER:  Thanks very much.  Adam Wolfensohn (sp), Wolfensohn (sp) and Company.  Is the blueprint scenario compatible with the 450 parts per million atmospheric concentration of CO2 as recommended by scientists?  And if so, why is oil actually more prominent in the blueprint scenario than in the scrambled scenario?  Thanks.

MORSE:  Why is oil --

QUESTIONER:  Sorry.  It shows just on this back page that there's actually more oil as a percentage of total demand in the blueprint scenario than in the scrambled scenario.

MR. VAN DER VEER (?):  Jeremy, (go out there ?).

MORSE: We had a lot of earlier discussion about whether there'd be any CO2, CO3 conversation.

BENTHAM:  There's two parts to your question, one on CO2, one on oil.  The blueprints outlook is not ideal in terms of what climate scientists would look for.  We're working with climatologists in MIT and in other places because as well as the energy-related emissions, there are other emissions in the world from land use and the like that need to be looked at together.  If we were to go back to the IPCC work and the World Business Council sustainability work, then the blueprints type of profile looks somewhere between the 450 and the 550.  I suspect the climate science is moving now towards a direction where it's more towards the 550 end of that.  So I wouldn't like to say where that is. Clearly, though, the scrambled-type outlook is on a much higher trajectory and a much more concerning trajectory.

On the oil side, it really is an issue of the interplay of forces between energy users and energy exporters.  The blueprints outlook as the patchwork aligns creates much more anticipatory behaviors, so, much more economically optimum from the point of view of the energy importer, the user of energy.  And in that dynamic, then, it also creates incentives for producing more of the oil earlier.  And that's the reason why that comes forward somewhat in the blueprints scenario.  If you've looked at the figures, they're not hugely different.

QUESTIONER:  Dick Garwin (ph), IBM fellow emeritus.  In all these beautiful graphs, I didn't see one about carbon price or carbon tax or shadow price, and yet there must be such a value versus time in order to drive these scenarios.   Where can I find it?

VAN DER VEER:  Let me first say that what we all do already for years in Shell, when we look at new projects, we put already for years in carbon prices, carbon penalties.  I think it is for more than eight or nine years.  And the interesting debate is when we start doing that, then the people who proposed it, they had a relative low price.  And then we said as directors of the company, no, no, we like to have a high price because all those projects we will for decades, and the chance that our CO2 price is too high or the CO2 penalty is too high must be quite unlikely.  I don't know (know what's disclosed ?), that you are, of course, interested in the figure.  I'm not so sure whether we have disclosed that, but I'll leave that Jeremy.

BENTHAM:  I think the main point is that the economics will drive what is happening in terms of the investments that are there.  And so it's very important, as Jeroen said, that there are the demonstration efforts in things like the carbon capture and storage, which the actual costs overall of carbon capture and storage will be discovered.  And that will be one of the factors, for instance, in what will set the ultimate carbon dioxide price.  And so perhaps in today's world in those demonstration phases, you may be talking in figures which are well above those that are in the current market.  But it's just then how quickly those will come down according to the development of the technology and the understanding of the carbon capture and storage.

MORSE:  Scott, in back of the room.

QUESTIONER:  Thank you.  Scott Borderson (ph), CFR.  In a future world in which climate change melts the Arctic sea ice, likely within a decade, how does Shell see the estimated 25 percent of the world's unproven reserves there, particularly in light of recent Shell bids on leases north of Alaska offshore?

VAN DER VEER:  Whether it melts or not has to do with the global CO2 problem, and then you have to (derive ?) for just the man-made part of that.  In itself, we think that the world is so short for energy that there's -- (inaudible) -- at these sites that you can drill -- (inaudible) -- Sea.  That will be a decision by governments.  And the Russian part will be Russian government.  If governments open that up -- and that is their decision -- then we can only say that we have developed, in our view, fairly responsible energy, and we hope to show (another place ?) that we have to -- (inaudible) -- have to produce that oil taking the sensitivity of those areas into account.  So there are in our view two separate problems.

Last but not least, we think that sometimes you always think that NGOs and oil industry think opposite.  I think the concern of the Arctic areas, which I can well see, is probably best served if you have a kind of governance  framework or let's say kind of global rules under which kind of standards you are allowed to drill in the Arctic.  But in the total energy balance, I don't think that governments will say well, let's not do this part, realize that if you don't drill in the Arctic then you have to wonder where does the energy come from, so we'll just have the balancing fuel in the world, I give you my opinion, it's either cold and so if you don't do a certain fuel understand the next best balancing fuel is either cold or nuclear.

MORSE:  In the back of the room, still, yeah.

QUESTIONER:  Thank you.  Paula Depernish (ph), Chicago Climate Exchange which actually is a cap and trade, so I'll be glad to talk to you about that, there's a big latent appetite for it.  I was curious as to whether or not you have any views of the post Kyoto scenario with regard to emissions trading, what would be your projection for how the global marketplace will evolve?

VAN DER VEER:  What we advocate especially is that we think that trading systems are best served by giving a relative long perspective about rules and regulations for the various participants, and that the certainty of what you have seen in the European trading system is that if you not have enough longevity in the system there, then you can use fluxuations and it doesn't work because if you involve these ways to explain that, if you see a consistent relative high price of CO2, there's no fluxuations, then the people will built it into their designs and then you got the benefit that you expect.

MORSE:  Steve?

QUESTIONER:  Steve Stamis (ph) formerly of Exxon.  I'm curious as to what assumption you've made about heavy oil and synthetics such as shale in your, either of your forecasts?

VAN DER VEER:  The shale I leave to Jeremy.  Heavy oil, we see it as an unconventional so it's, there's not enough what we call easy oil or easy gas to supply the world.  So you will all the time to go heavy oils at first you take the heavy oils that I, was in the category of heavy to easiest, this has all to do with it's normally investments and willing costs, and of course you have to take in account not only the economics because there may be regulations what you have to do with the CO2.

Shale oil will come a lot later.  The good thing this pie form has, I don't know how experienced the audience is, we have easy oil and easy gas, then you have things like oil sands, now that's very more difficult, and you already have very tired gas -- that is gas when you drill a hole in the ground and doesn't come out automatically, we call that tired gas.  But you have, then you have shale oil that is really that is tied to the shale.  There are huge reserves of that in the world, as are huge reserves of normal coal.  But if you produce that and burn that, you get a lot of CO2. 

What were the assumptions, Jeremy, for that?

BENTHAM:  Well, the unconventionals, have a role to play in both the outlooks under the pressure of those three hard truths that Jeroen spoke about.  They play out in slightly different ways.  In the scrambled type of outlook, you get this surge of the easier and cheaper unconventional oils to begin with, but then you get a backlash because they're not all being developed responsibly and there's effectively a moratorium on them for a period.  In the blueprints outlook, they develop more slowly to begin with, because the energy efficiency in the world means that energy demand is going more slowly, but ultimately because they're developed more responsibly and combined with things like carbon capture and storage, they grow more extensively towards the later part of the period.

QUESTIONER:  Art Kliner (ph), Strategy and Business.  I've noticed that Shell has done highroad and low road scenarios in the past and others have as well and ether's a quality of that here, can you talk a little bit about the gap between where we are now and the highroad, what has to change in institutions or what has to change in technology to get closer to blueprints?

VAN DER VEER:  Sorry, I'm not sure I understood your question.  What have we to do in blueprints, sorry?

QUESTIONER:  What's missing, what has to be developed either technologically or the way that institutions work that actually make blueprints come to life?

VAN DER VEER:  Now let me, the way I see it, if blueprints you have global rules of the game, so the average company will spend more in research and development money because they understand the rules and they see larger markets.  On top of that CO2 is priced, so you got the kind of economy, this classic economic concepts, people see markets for technological innovation and you got the benefit of lower CO2.  Now that is the world you try to create, that world you only can create while you have global agreements like Kyoto, the new Kyotos of the world, and the new Kyotos of the world will only work if the U.S. joins it, China joins it, India, Europe, et cetera.  That's what is needed.  And those countries who will only join that if they are really concerned that otherwise the energy, the more energy, less carbon dioxide (equation runs infeasible ?) otherwise they don't do anything.

QUESTIONER:  (Inaudible) -- you mentioned in both blueprints and scrambled scenario the importance of second generation biofuels and you've explained that from the technology perspective you have six joint venture focusing on the conversion of biomass to fuel.  How about extreme from that, when you look at food plants taking generation, generation to optimize the crops for food use, biomass is just starting, are you looking at upstream bio as a source competitive advantage, what are you doing to capture that in terms of accelerating the evolution of the proper feed stock?  And do you view that as a source competitive advantage for Shell?

VAN DER VEER:  There will be undoubtedly, but of the second generation biofuels that there's always optimized basically through the food side and hard maybe even though optimized to minimum multiuse.  We think in the end you can have lot of innovations there as well.  Last but not least and that's a bit in line with the previous question, if you think it through, is that you need to have the kind of certification that will have a biofuel you use in the upstream part is producible in a sustainable way.  Not as each area thinks.

First of all, both is produced in a sustainable way, in a biofuel upstream.  What is the definition of that? 

Secondly, how do you control it?  Yeah. 

Thirdly, is it competitive because if the one country has very different standards compared to the other.

So we think again here you see an example so we love free enterprise, but you never get this off the ground as companies that needs corporation as well.

MORSE:  In the back, you.

VAN DER VEER:  Government's cooperation as well, see.

QUESTIONER:  Fred Whitamore (ph), Morgan Stanley.  Tell me why Shell, considering it's size and substance, hasn't been more aggressive in, with the market the way it is and the prices the way they are, in developing, finding, and using natural gas in this -- (inaudible)?

VAN DER VEER:  Uh-huh.  Yeah.  (Laughs).  Thanks.  If I look at the total position of Shell, we are pretty gassy company, it is about 40 percent worldwide  from the energy that produces gas, 60 percent oil.  Fifty years ago the gas part it was a bit of associated gas which we got if you produced the oil.  So this slowly going up.

If we look at the gas portfolio in this country, then it is probably smaller than we would have preferred and that is ready for quite some years.  The basic reason for that is that if you would like to reactify that and of course I realize there are many bankruptcy by acquisitions, then it was always too extensive in our view compared to our alternatives.  While we have certain developments they are Pinedale, and last but not least we play quite a role to import LNG into this country.  So in an indirect way, the benefit of the hardening of the gas prices, the natural gas prices in this country.  Now you, the gentleman is shaking his head no, but we do --

QUESTIONER:  (Off mike) -- LNG really comes into this country yet considering the market?

VAN DER VEER:  Considering the size of the market, I agree.  But if we look at the potential money streams which you can make on it, it is quite important.

So basically it is not because we didn't eyeball this market for it, but we could not find good enough commercial propositions compared to alternatives.

MORSE:  Bob?

QUESTIONER:  All right.  Bob Belford (ph), Belford (ph) Management.  I've heard you mention the word nuclear just once.  Clearly nuclear from an environmental point of view has got a lot to commend it, but you don't seem to give as much weight in your scenarios.  I'm sure you have your reasons and I'd like to hear them.

VAN DER VEER:  We do give it a lot of weight, Jeremy, help to explain how much weight.

BENTHAM:  Yeah, indeed nuclear has a role to play.  There are many things that follow, perhaps that play a role in nuclear as one of them.

In our thinking as we looked at this carefully, we saw that over the next 20 years, there's a huge program of decommission as plants meet the end of their lives.  So just in order for nuclear to stay flat, there has to be a lot of construction.  For it to grow further, which it does in these scenarios, there has to be even more construction.  And effectively, the global nuclear industry is being more or less wiped out in the last 20 years.  So you've got to rebuild the nuclear construction, to some extent you've got to rebuild the mining industry, you've got to rebuild the waste industry.  These things take time.  And so as we've looked at this at 20/30, our view is that net, you might get 15, maybe even 30 percent growth in overall global nuclear, but that would actually mean that its share would go down in terms of total energy.

So it's not that we're against nuclear at all, we just try to assess what we think the practical contributions could be.

QUESTIONER:  Paul Jascow (ph) MIT and the Sloane Foundation (ph).  You spoke favorably about the EU cap and trade system, but the EU cap and trade system doesn't cover the transportation sector and as a result, it doesn't cover much of the oil sector.  Do you see the post 2012 cap and trade system covering the transportation and oil sector and if not, how will the incentives be created to induce the adaptations that are implied by your blueprint scenario?

VAN DER VEER:  Yeah, I think that in Europe we have of course what a quite high carbon taxes on the gasoline, you complain here about three dollar per gallon gasoline, in Europe people are used to seven or eight dollars, and the fuel efficiency of the cars is a lot better in Europe so I'm not less happy than Americans in that way here.

So the next thing is probably world pricing for -- (inaudible).  You could have, you could expand cap and trade system.  In my view, the most important thing is before you expand it, basically get it work for the sectors of those meant to work.  As to the -- (inaudible) -- Chicago climate change having -- (inaudible) -- in those CO2 prices.  So I think it should work for power, it should work for industry, and this has to do how you make all systems.  If it got that work and I feel a little better and let's then expound to the after that.

QUESTIONER:  If I heard you right, do you have a benign attitude toward the fiscal system?  Do you have a benign attitude toward carbon taxes?

VAN DER VEER:  This is how to, how do go to you say in the house of the lion.  Okay.  But the, you can, what are the facts that the fuel efficiency of the average European car at this moment is about 40 percent better than the average American car.  I don't think because Europeans are different from Americans, I think that has simply to do with the taxation on the gasoline and the fact that the Europeans pay an average of seven or eight dollars per gallon and you pay this through a year.  That is one. 

Then you say or do you like taxation on gasoline?  No, when I fill up, then I don't like it at all because you pay a hell of a lot more.  So then you can pull the question why do you still do it?  Then become automatically what does the government doing this and this additional taxation they got, and you got this whole philosophical debate.

I think in the end is that there's a great example in Davos, where we had to debate with basically were all Americans there, and they all said, well, should we price CO2 for the future of our country and they all -- yeah, there's voting and things, they all vote yes, yeah, and then they ask question is should you have European duties on your gasoline and they vote no.  Then I have an intellectual problem.  Yeah.

MORSE:  Yes, in the back.

QUESTIONER:  David Sipenue (ph), Controlled Risks.  In putting together your publication, you mentioned two scenarios.  Were there any other scenarios that were considered?

VAN DER VEER:  This is, I was very sure it be a scenario made because when I think the best is always to have two scenarios.  Because if you have three all managers try to figure out what was the middle one and if you got the other two, and then our philosophy of the chocolate bars goes wrong.  So two you can't choose the middle one.  (Laughter.)  Okay.

MORSE:  Okay.

QUESTIONER:  Daniel Wagner with GE Energy Financial Services.  You know, it's just ten short years ago that we had $10 barrel of oil and here we are at $100 and we really don't have any fundamental interruption in the supply.  What do you imagine in the next 40 years we could be seeing as a ceiling for oil, with perhaps a serious interruption in supply?  And we know we're not likely to go back to $10 but what might be a floor?

VAN DER VEER:  Even if I would do a forecast, I have to tell you that the oil -- (inaudible) -- was $10 oil.  As far as I'm aware, we didn't have any firm feud as we moved passed $100 10 years later.  And on the other hand, if you look in the '80s, when we think about in 1984, I don't think we have had, let's say, at least -- (inaudible) -- scenarios that oil prices would be only 14 years later below the 10 (dollars).  So whatever I forecast, probably you have to take the opposite. 

The basic philosophy that we really have is don't try to battle the oil price.  It is too difficult, the past have shown that, so we really try to position our whole firm whether the oil prices are high, low, or going all the way, all the time like this, that we are in a relative strong position.  That's what we try to do.  And if you have that philosophy between your own ears then you start to raise less time on that what is the maximum or what is the minimum and that's how we deal with it.

MORSE:  It's a council tradition, unhonored tradition that meetings start on time and end on time.  We have time for one short question and one answer.

MR.  :  And one short answer then.  (Laughter.)

QUESTIONER:  (Inaudible) -- Newberger Berman (ph).  Two part question but I'll very short and that is just what's your attitude towards utilities in both scenarios competitor or collaborator?  And what percentage of your revenues would come from easy oil and gas in 2050?

VAN DER VEER:  The utilities are usually a customer from us in general, so  we supply, utilities can make electricity.  So usually we are supplier of their feed stocks.  So far, if you would take the easy oil and easy gas it's still between the 80 and 90 percent in the coming years.  From the volume point of view.  But what we see is that unconventionals on a unit basis or barrel basis or cubic meter of gas, they ask more to our bottom line.  So what's on the one hand they grow as percentage of the volume but they grow much faster as percentage of the profitability and the cash flow.  Because only do that as long as of course we have the technology not only for today to develop it, but the technology if we create new technology.  So in 20 years from now, that may be a good way to answer as it is that we discussed about chocolate bars, if I may say something about Shell, I expect that our company in 10 or 20 years from now, is a much more technical company that is much more investment per barrel or much more brain cells per barrel less barrel or brain cells per unit of gas.  And that is already in the sector which is seen by the many people of the financial markets, see, we see already incredible capital intensive.  This will only increase, which is as of the technology will increase and the capital will increase and that is all needed and it is predetermined that the energy amount goes up.

In itself, that is not a pessimistic view, that is the best climate so to say for innovation and good entrepreneurs.

Thank you.

MORSE:  Thank you very much.  I must say that -- (applause) -- in concluding remarks, I must say that to me the greatest task of the leadership of corporations especially a global, multicultural corporation is planning for an unknown future and I think you've shown us how the best of reads can do that and teach us all something.  So thank you very much.  (Applause.)

Thank you.

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