The CEOs of ExxonMobil Corp. and Royal Dutch Shell plc this week each said renewables have a role to play in future world energy supply, but natural gas still would lead the way toward a sustainable future.

ExxonMobil CEO Rex Tillerson and Shell CEO Ben van Beurden delivered keynote addresses this week in London at the 36th Annual Oil & Money Conference. Both offered a somewhat downbeat outlook for the energy sector in the near term.

How long the downturn is going to last is unknown, Tillerson said, “but we know what it means for our businesses. We must operate more effectively and efficiently than ever before.”

The “first mixed signs for a recovery in oil prices” are being seen by Shell management, but U.S. shale oil is more resilient than the company had expected, which means it will take time to rebalance demand and supply, van Beurden said. Without a clear OPEC strategy, however, prices could remain “low for much longer. Then the world may find itself in a tight corner when stocks are rebalanced.

“Either way, companies like Shell can thrive in a ‘lower for longer world” because of its integrated business model. The company’s gearing ratio — debt related to equity capital — is unchanged since the end of 2014 at 12.7%, while operating costs year/year should be down by more than $4 billion, or around 10%. Also, “costs are now back at the levels that we saw in 2011,” the Shell chief said.

“Shell is planning for a longer period of low prices,” but “I see no change to fundamental drivers of oil markets. There will be more people on this planet; more people living in cities; and more people buying their first car or refrigerator. As a result, demand for energy — including demand for oil — is likely to grow.”

Prices are a real challenge, but they “may pale in the face of the challenge of moving toward a low-carbon future,” van Beurden said. Technology can play a crucial role in reducing emissions, but “the issue is essentially about finding economic ways to invest in an energy transition..This is why governments should take the opportunity to put a price on carbon. By taking the costs of tackling climate change and air pollution into account, carbon pricing systems will drive the right behavior of consumers and producers.”

Effective carbon pricing schemes also “would level the playing field for natural gas against coal,” the Shell chief said. “Gas is a fossil fuel, yes, but a crucial one for building a low-carbon future. When burned for power, gas produces around half the carbon dioxide and one-tenth of air pollutants that coal does. A switch from coal to gas in power plants improves air quality today and helps deliver a sustainable energy system tomorrow — together with renewables.”

Van Beurden is an advocate for a carbon pricing system by governments worldwide, which he acknowledged could lead to higher energy costs overall.

“Here, policymakers have an important role to play. They need to design carbon pricing systems that address concerns about cost and competitiveness. This isn’t impossible. In fact, there are some policies being tested to help tackle this problem.”

In British Columbia, for instance, the tax on carbon is revenue-neutral. “This basically means that the government compensates carbon taxpayers by lowering other taxes they have to pay.”

In cooperation with five other energy companies, Shell this past summer called for carbon pricing systems be put in place by world governments and the United Nations Framework Convention on Climate Change, which meets in two months (see Daily GPI,June 1). No U.S.-based producers are part of the initiative, which was formed also by BG Group plc, BP plc, Eni SpA and Total SA.

“If we get them right, carbon pricing systems could really reinforce the transition to a low-carbon future,” van Beurden said. China in fact recently announced a national scheme setting a price on carbon. “I know that this is a tough time for many of us…The abundance of oil on the market today is putting pressure on our industry…But we shouldn’t let today’s oil prices blind us. Even more than prices, the transition to a low-carbon energy future will shape the destiny of our industry over the coming decades. This demands our undivided attention.”

The industry “is rightly engaged in discussions with the public and policymakers to identify policies that would best position society to reduce emissions through new efficiencies and new technologies,” said Tillerson, who spoke a day after van Beurden. “The world is going to need renewables and nuclear power, ” and, importantly, we will need coal, oil and natural gas.”

Reducing greenhouse gas emissions associated with energy use is a concern that ExxonMobil’s scientists and engineers have pursued since the 1970s, he said.

“The risks of climate change are serious and warrant thoughtful action…We also believe that by taking sound and wise actions now we can better mitigate and manage those risks.” But it has to be done in a way that recognizes how energy supports “human progress across society and the economy.”

Natural gas is sure way to ensure there are fewer U.S. emissions because “gas from shale has been instrumental in reducing U.S. carbon dioxide emissions to levels not seen since the 1990s.”

ExxonMobil is an advocate of a revenue-neutral carbon tax. In fact the company (and Shell, among others), already use carbon pricing on the expectation that emissions eventually will be regulated (see Daily GPI, Dec. 5, 2013). The U.S. emissions reductions, Tillerson said, were achieved “in the absence of a comprehensive cost-of-carbon policy in the United States.”

Government regulation has a role to play, but “if policymakers conclude that more action is required, such as putting a more direct cost to carbon to incentivize different choices, we suggest that these policies ensure a uniform and predictable cost of carbon across the economy; that this lets markets drive solutions; that maximize transparency, reduce complexity, and promote global participation.”

A carbon tax, Tillerson said, “could help create the conditions to reduce greenhouse gas emissions in a way that spurs new efficiencies and new technologies. The revenue-neutral carbon tax could be a workable policy framework for countries around the world — and the policy most likely to preserve the ability of every sector of society to seek out new efficiencies and new technologies.”