The alternative energy source that Shell selects will need to build on the company's strength in processing fossil fuels and implementing major projects in hostile environments, such as oil and gas exploration fields and refineries.

"It has to be an alternative energy which logically connects to our other activities," Van der Veer said at the meeting organised by bank ABN AMRO and financial newspaper Financieele Dagblad.

He was optimistic about biofuels, derived from agricultural produce and waste, which can be used as a fuel for cars and which reduce the output of carbon dioxide, blamed for the greenhouse effect that is heating up the planet.

"I'm personally pretty enthusiastic about biofuels. We're the world's biggest marketer of biofuels and it will come. It makes a lot of sense," he said.

He stressed, however, that in many cases biofuels cannot fully replace fossil fuels because they compete with food crops.

"We think that transport fuels will contain a large fossil fuel component for many years," he said.

Unmodified diesel engines work with fuels that contain up to 15 percent of biofuel. Van der Veer saw this as an efficient way to quickly bring down carbon dioxide emissions, rather than by investing now in special engines and fuel stations.

He expected that the political will to promote engines that run on fuel containing up to 85 percent of biological input would arise only in countries such as Sweden and Brazil, which have no major fossil fuel resources and plenty of farm land.

SOLAR IS A LONG SHOT

Van der Veer ruled out nuclear power, which Shell quit two decades ago, and said solar energy technology needed work.

"Even when you produce it very cheaply, (solar energy) is still four times as expensive," he said, adding that it would be a waste of resources to invest billions of dollars right now.

"We need quite some technology advancement," he said.

Shell sold its silicon solar activities to German company SolarWorld in February. Solar energy is only competitive when subsidised heavily, as it is in Germany.

Shell said it would focus on a thin-film photovoltaic technology called Copper Indium di-Selinide (CIS), which is not based on expensive silicon but remains in its development phase.

Van der Veer was more upbeat about wind energy.

Shell is involved in the development of several wind parks, one of which is planned on the Dutch coast.

"It is expensive, but we're getting subsidies to make it worth our while. And with every project we learn. The next project will be cheaper," Van der Veer said.

Generating electricity with wind is roughly twice as expensive as with coal but the price is approaching that of gas-generated electricity.