Understanding the StreSS NexuS

Understanding the stress nexUs

eNerGY DrIVerS AND the ZONe OF uNCertAINtY

? Zone of extraordinary opportUnity or misery

2050

2000

Underlying demandpotential

energy sUpply/demandbalance

ordinary sUpply developments

ordinary demand moderation

3Understanding the stress nexUs

A LOOmING ZONe OF uNCertAINtY

In 2008 Shell launched its energy Scenarios to 2050. At the heart of that work – and its scenario archetypes, Scramble and Blueprints – is the irreducible reality of three hard truths. they contend that in the coming decades, the growth of global population and prosperity will exert substantial additional pressure on demand for energy; that conventional supplies of energy will struggle to keep pace with that demand; and that environmental stresses related to CO2 will become increasingly acute as the effects of climate change are observed. What is now becoming clear is that the hard truths for energy are just as hard for water and food, with the same underlying drivers.

shell published signals & signposts in 2011 as a companion piece to shell’s energy scenarios to 2050. it outlines in greater detail the “zone of uncertainty” that could manifest in the world’s future energy system. by 2050, the gap to be bridged between business-as-usual energy supply and demand could equal the size of the whole industry in 2000 if you project forward historical patterns of energy use driven by economic development. ordinary energy demand moderation and production acceleration will go some way to bridging this gap. but ultimately, it will have to be bridged by some combination of extraordinary demand moderation and extraordinary supply acceleration.

this zone of uncertainty could become a zone of great opportunity through well targeted policies and improved efficiency in transport, cities and power. the alternative, however, could be a period of considerable misery – with price shocks and knee-jerk policies – if the choices made do not promote extraordinary demand moderation and supply development.

“the GrOWth OF GLOBAL pOpuLAtION AND prOSperItY WILL exert SuBStANtIAL ADDItIONAL preSSure ON DemAND FOr eNerGY.”

source: shell signals & signposts, 2011, www.shell.com/scenarios

4 Understanding the stress nexUs

the StreSS NexuS

evidence in the scientific community points to significant looming tensions across a number of key systems – in particular the inter-relationship between energy, water and food systems and climate.

the world’s water, energy and food systems are tightly linked. Water is needed for almost all forms of energy production; energy is needed to treat and transport water; and both water and energy are needed to grow food.

in the coming decades these vital resources will come under greater pressure. growing population and increased prosperity will push up global demand for energy, as well as food and water supplies. at the same time, climate change remains a serious challenge and could exacerbate these stresses. if current water consumption trends continue, the world could face a 40% shortfall between global freshwater demand and supply by 2030, according to the World economic forum. at the same time, it has been estimated that there will be 50% growth in food needs, with demand for beef increasing by more than 80%. oxfam has recently estimated that these stresses could lead to the doubling of food prices by 2030. and yet it is estimated that food waste alone in europe and the Usa could feed 1.5 billion people. the zones of uncertainty for each system are similarly stark, and deeply linked.

this energy-water-food nexus or so called “stress nexus” is appearing with increasing prominence and frequency on the agendas of governments, development agencies, ngos and businesses – including shell.

“40% ShOrtFALL BetWeeN GLOBAL FreShWAter DemAND AND SuppLY BY 2030.”

5Understanding the stress nexUs

6 Understanding the stress nexUs

From an energy producer’s perspective, why look at energy in the context of food and water? Why would our interest extend beyond the core business of providing energy, to food and water systems? the answer to this lies back in our hard truths, as energy demand, supply and environmental factors converge.

We recognise that in the coming decades, global supply-demand imbalances may take place and converge in the nexus between energy, water and food. the constraints that will arise from these linkages are likely to have a considerable impact on the way in which shell and other energy companies and sectors operate in the coming decades. it is therefore critical that we understand the stress nexus and what it might mean in terms of commercial risks and opportunities, external expectations and policy trends.

Using the term stress is accurate, but also creates a rather negative framing of the situation – and indeed there is potential for considerable misery as outlined above. however it should not be lost that the overall frame is optimistic as the pressures are largely the consequence of growing prosperity in emerging economies as hundreds of millions of people begin to achieve a better standard of living.

there is much opportunity to create social and commercial capital through the investments required to meet such challenges. smart investment will have a huge impact on the quality of outcomes, but we will need to get smart together, as the stresses cross many traditional boundaries in both private and public sectors.

WhY expLOre the StreSS NexuS?

“the CONStrAINtS thAt WILL ArISe FrOm theSe LINkAGeS Are LIkeLY tO hAVe A CONSIDerABLe ImpACt ON the WAY IN WhICh SheLL AND Other eNerGY COmpANIeS AND SeCtOrS OperAte IN the COmING DeCADeS.”

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SheLL’S reSpONSe tO the NexuS

Shell’s Chief executive Officer peter Voser launched a new phase of strategic thinking in 2011 to broaden the company’s understanding of the growing stresses and linkages in energy, food and water systems. Shell’s work on the Nexus will help inform business aspirations and identify commercial and reputational risks.

the purpose of our work is three-fold:

1. to understand where, when and to what extent stresses between energy, water and food systems and climate could arise in the coming decades and how these stresses can be quantified.

2. to help assess and manage resource related risks and opportunities associated with current and future projects and operations, and accommodate them into strategic plans.

3. to help identify platforms and opportunities for meaningful future external collaboration and engagement with industry and regulatory partners.

to better understand the links between energy and water use, shell worked with the World business council for sustainable development and the University of Utrecht to develop a new methodology to improve the measurement of water use in industry in 2011. We can now estimate more accurately the amount of water needed to generate energy from different sources – including oil, gas, coal, nuclear and biofuels – using different technologies and in different locations. the findings were published in 2012 in a peer-reviewed elsevier academic journal. We are also sharing this data with the wider business sector and the international energy agency. to download the article visit www.shell.com/water

We are also factoring in our data on water use into the models we use to develop shell’s global scenarios. that will give us a better understanding of the demands the energy system will place on global water resources in the decades ahead.

“We CAN NOW eStImAte mOre ACCurAteLY the AmOuNt OF WAter NeeDeD tO GeNerAte eNerGY FrOm DIFFereNt SOurCeS – INCLuDING OIL, GAS, COAL, NuCLeAr AND BIOFueLS – uSING DIFFereNt teChNOLOGIeS AND IN DIFFereNt LOCAtIONS.”

8 Understanding the stress nexUs

9Understanding the stress nexUs

the dynamic complexity of the Nexus requires additional strategic thinking to help broaden our understanding of the links between energy, food and water systems. In 2011, Shell brought together specialists from the fields of energy, water, food and climate to begin to map its links.

Working with dr eric berlow, an expert in complexity science at the University of california, berkeley, we used systems thinking and network analysis to map the nexus.

our work looks at the complex relationships of the nexus to establish whether a subset of critical issues emerge – issues that are disproportionately stronger levers, that merit targeted efforts and investments for creative solution planning.

from a brainstormed list of 300 issues a core group of 100 was identified, indexed, then mapped with all possible directional influences established. this meant a total of 10,000 possible links. While only 10% of those links were realised – or considered strong enough to have material significance – the resulting map of 100 nodes and 1,000 links is clearly beyond the capacity of most to easily distill.

in an early report of the work undertaken, there was a surprising phrase – not at all shell-like – which described a sense of “existential despair” felt by participants as they reflected on the complexity of the task at hand.

SYStemS mAppING the NexuS

“SheLL BrOuGht tOGether SpeCIALIStS FrOm the FIeLDS OF eNerGY, WAter AND FOOD.”

10 Understanding the stress nexUs

We then used network analysis and visualisation tools to help sort through the complexity.

1. Overall network structure: While the stress nexus is complex, the structure of influences are more “hubby” – or grouped – than a random web. for example, 50% of the issues have eight or fewer outgoing links, while a small group of about 10 issues have more than 25 direct influences.

this “hubbiness” shrinks the web so that any issue can influence any other issue through very short paths. for example, sustainable Urban design directly influences 27 issues, and then through them reaches 74 of the 103 issues in the entire web. similarly, anything that directly influences sustainable Urban design is only 2 links of influence away from at least 25% of the web.

2. Spheres of influence: recent work in network science suggests that in many complex systems, the influence around a node of interest remains relatively “local”, or within one or two degrees (or links) from that node (berlow et al. 2009 proceedings of the national academy of science). this principle of “localisation of influence” was used to identify each independent 1-2 degree sphere of influence on energy security, food security, and Water security.

approximately 20 core issues were present in more than one sphere of influence – in other words occurring both in energy and Water spheres of influence, for example.

“20 COre ISSueS Were preSeNt IN mOre thAN ONe Sphere OF INFLueNCe.”

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3. Feedback Loops: the feedback loops affecting each part of the stress nexus were examined. the focus was on identifying issues that participate in relatively strong and short loops – those exhibiting no more than four links – as theory suggests that chains of influences tend to dampen dramatically with distance from the source in complex networks (berlow et al. 2009 proceedings of the national academy of science). even when we restrict our view to these relatively short loops, the hubbiness of the web described above led to 322, 147, and 350 feedback loops from energy, Water, and food security respectively. from this set, weak loops were excluded if they included either one extremely weak link or an in-actionable issue because either one can truncate a chain of influence.

a subset of the remaining loops were identified as “strong loops” where the mean strength of all links in the loop was greater than 2.5, indicating that they had no weak links and at least one extremely strong link.

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from these analyses, an interesting pattern of recurring issues emerges that are linked strongly and central to the entire nexus. they are also part of multiple influence spheres with strong feedback loops for multiple aspects of the stress nexus. those issues fall into the following broad categories.

INItIAL FINDINGS sUstainable Urban development

technological innovation

policy & carbon pricing

natUral resoUrce nationalism

Key constraints in other areas

groWth in popUlation & prosperity

sustainable urban design and planning education and informed consumer choice food supply-chain efficiency sustainable agriculture and yield efficiency material use efficiency land use trade-offs

co2 capture and storage (ccs) waste conversion for energy

emissions regulation pricing greenhouse gas emissions

& internalizing other externalities commodity pricing – oil, water

developing and emerging nations

phosphorus and scarce metals

Understanding the stress nexUs

13Understanding the stress nexUs

sustainable urban design and planning education and informed consumer choice food supply-chain efficiency sustainable agriculture and yield efficiency material use efficiency land use trade-offs

14 Understanding the stress nexUs

the Stress Nexus will be a significant factor in the quality of life in the coming decades. to better understand the Nexus, Shell brought together academics and experts from industry, government and non-governmental organisations in 2011. Our work together highlighted two main ways to help tackle the stresses on energy, water, food and climate: sustainable urban development and greenhouse gas emissions regulation and carbon pricing.

We began with 300 issues deemed important in the stress nexus. through network analysis, approximately 20 influential issues or “levers” emerged. the most actionable depend on Knowledge Intensive Innovation, which does not necessarily require new technologies or inventions. it depends on creativity and innovative partnerships and new forms of collaboration in areas such as design, planning, land use management, efficiency, and consumer choice.

between now and 2050, it’s estimated that over $300 trillion dollars of investment will be required for city infrastructure. designing smarter, energy-efficient cities could help reduce demand for energy and water. such cities would integrate transport, energy, water and waste systems much more effectively than today’s cities.

meanwhile, greenhouse gas emissions regulation can spur to more energy efficient behaviours and technology deployment. Without such regulation, climate change could have a significant impact on dry regions becoming drier, agriculture being impact more people moving into cities.

there is much opportunity to create social and commercial value through the investments required to meet stress nexus challenges. smart investment and regulation can have a huge impact on the quality of outcomes, but we will need to get smart together as the stresses cross many traditional boundaries in both private and public sectors.

CONCLuSIONS

“DeSIGNING SmArter, eNerGY-eFFICIeNt CItIeS COuLD heLp reDuCe DemAND FOr eNerGY AND WAter. SuCh CItIeS WOuLD INteGrAte trANSpOrt, eNerGY, WAter AND WASte SYStemS muCh mOre eFFeCtIVeLY thAN tODAY’S CItIeS.”

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www.shell.com/scenarios