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The future of global energy and the role of the Middle East
In the coming decades, all countries must find more energy at a much-reduced cost to the environment. In this speech, Malcolm Brinded, the Executive Director of Royal Dutch Shell’s Upstream International business, describes how sharply rising energy demand, driven by rising population levels and economic growth, is already putting global energy supplies under pressure, including natural gas supplies in the Middle East and North Africa. At the same time, environmental stresses are growing, thanks to rising global CO2 emissions. To meet these dual challenges, Shell is using its powers of technological innovation to raise its production of natural gas, the cleanest burning fossil fuel; to expand its biofuels business; and to drive progress on carbon capture and storage technology, which captures CO2 emissions from power stations and other industrial installations and stores them safely underground.
The future of global energy and the role of the Middle East
It’s great to be here at the American University in Cairo. As the region’s leading English language university, the American University in Cairo has a vital role to play in smoothing the path of co-operation and understanding between different cultures.
And its importance has been reinforced by the opening of the Faculty of Petroleum Engineering, a much-needed source of expertise and skills for Egypt’s – and indeed the Middle East’s – energy sector in the years ahead.
I’m proud to say that, at Shell, we currently employ more than fifty of your university’s graduates.
That is entirely in keeping with Shell’s long history of partnership with Egypt, stretching back nearly a century to 1911.
Today, Egypt marks a critical point in the energy landscape: located between the world’s biggest gas producers and Europe - one of the world’s biggest markets - Egypt is also emerging as a regional leader in gas supply and renewable energy.
This afternoon, I want to talk about what companies like Shell can do to help the world build a secure and sustainable global energy supply.
Figure 1: Rising global energy demand
Figure 2: Rising regional gas demand
By 2050, global demand for energy will double, according to the IEA, driven by a rising global population - 9 billion compared to today’s 6.5 billion - and geared by economic growth in the developing economies.
These pressures will be especially intense in the Middle East and North Africa. You only have to look at Egypt. Your country’s population could reach 90 million by 2015 – an increase of 10 million on 2007 levels. The country’s GDP per Capita is also rising quickly, potentially jumping by a third between 2007 and 2014. All of which means that electricity demand in Egypt is expected to continue growing by at least 5% per year.
Against this backdrop, the region’s gas consumption is also predicted to grow by 5% per year, twice as fast as the major European economies.
Even with heavy investment in all energy sources - from oil and natural gas, to biofuels, nuclear power, solar and wind - it will be extremely tough for the world to keep pace with rising demand.The IEA has said that cumulative energy supply and power generation investment of $26 trillion will be needed between 2008 and 2030, including $5 trillion in renewable energy – that’s over $1 trillion per year to meet the global rise in demand.
Even in the Middle East and North Africa supply pressures are mounting, particularly on natural gas.
You might wonder why, given that the region holds more than 40% of the world’s proven gas resources.
Yet three-quarters of that is held by just three countries - Iran, Saudi Arabia and Qatar.
And much of the region’s gas is hard to reach for political or technical reasons. For example, some significant gas accumulations in Saudi Arabia contain non-hydrocarbon gases such as Hydrogen Sulfide, making them expensive and technologically intensive to treat.
Moreover, countries in the region want to obtain full value for their natural resources in the international marketplace - understandably enough. But that also puts pressure on domestic supplies.
All this begins to explain why some countries in the Middle East and North Africa face gas deficits. And why some, like Saudi, Kuwait and Iraq, are burning liquid fuels for power generation.
The second chapter in the global energy story concerns the environment.
The world must manage its greenhouse gas emissions as a matter of urgency. According to scientific warnings, emissions should be limited to 450 parts per million to avoid unsafe levels of global warming. Today, the level is approaching 390ppm, with global emissions rising at the rate of more than 2ppm every year. Clearly, that is an unsustainable path.
Here in the Middle East and North Africa, CO2 emissions are rising fast, although in an absolute sense, they remain dwarfed by China and the US. At the same time, high pollution levels continue to dog the region’s cities, in part because of heavy traffic congestion and ageing vehicle fleets.
Over time, cleaner, renewable energy sources will meet an increasing share of demand. For example, the Egyptian government aims to draw one-fifth of its energy from renewable sources by 2020. And it’s great that the Red Sea Coast is already providing wind power, with further investments planned in the Gulf of Suez.
Yet hydrocarbons will continue to meet the majority of Egyptian, regional and global demand for many years to come.
That’s because there are significant technical and financial constraints to deploying new energy sources on a mass scale.
Technology deployment curves
Figure 3: Rising global oil production
In fact, at Shell, we’ve researched all current energy types and found that in the twentieth century, it took 30 years for new energy types to capture 1% of the market.
For instance, biofuels are reaching their 1% share of the oil market around now, which is equivalent to 0.5% of total energy. Wind could do so by the middle of this decade, roughly three decades after the first large wind parks were built in Denmark and the United States.
However, we think that by the middle of this century, up to 30% of the world’s energy could come from wind, solar and other renewable sources. Everything from cars to homes will be more energy efficient. There will be a greater variety of transportation fuels, including biofuels, electricity and hydrogen. But it also means that fossil fuels and nuclear will supply the remaining 70% even then.
It is almost certain that by 2020 the world will need about 40 million barrels per day of new oil production on stream, from fields that haven’t been developed yet. To give you some perspective, 40 million barrels per day is equivalent to about 4 times Saudi Arabia, or 10 UK and Norway North Seas
Thus the challenge of finding more energy at a reduced environmental cost will not be easy. And will take decades of sustained investment and innovation.
Building a new energy future
What might be some of the answers?
I will pick out three of them: first, natural gas, because it will help many countries to reduce their CO2 emissions in the next decade and beyond; second, biofuels, as the only low-carbon transport fuels that can be scaled up in the short term; and, third, carbon capture and storage technology, which captures CO2 emissions from coal-fired power stations and other industrial installations and stores them safely underground.
Natural gas, first. For several reasons, natural gas is critical in a world seeking more energy at a reduced environmental cost.
For one thing, there should in principle be enough natural gas to satisfy rising global demand, thanks to technological advances in the production of unconventional gas resources, such as tight gas, which is trapped in dense geological formations, making it hard to tap.
According to the IEA, there are now 250 years’ worth of gas supplies at current production levels.
Gas in the Power Sector
Second, natural gas is the quickest and cheapest way to cut global CO2 emissions from the power sector. It is the cleanest-burning fossil fuel: modern gas plants emit only half the CO2 of modern coal plants, and 60-70% less than old steam turbine coal plants, of which there are still hundreds in operation today in China, North America and Europe.
Natural gas capacity is also considerably faster and cheaper to install than other new build sources of electricity. And gas-fired power stations can be switched on and off with relative ease, making them ideal allies of the intermittent power generated by wind turbines and solar panels.
And in the longer-term, we’re also confident that it will be as cheap, or even cheaper, to draw electricity from a gas-fired power station fitted with carbon capture and storage technology than from a coal-fired station with CCS.
These are not just important considerations for countries already reliant on coal-fired power, like the US and China, but also as countries like Egypt think about the balance of their future electricity mix, and where new coal-fired and nuclear power stations are under active consideration.
Tackling local pollution
A third advantage of natural gas is that it can also help to deliver a cleaner transport sector. Not least by tackling local pollution in cities with a high proportion of older vehicles on their roads, like Cairo.
Compressed Natural Gas is natural gas stored under high pressure. Engines running on CNG emit fewer smog emissions and local pollutants than many older vehicles.
For example, a modern CNG vehicle would emit less than a quarter of the smog emissions and local pollutants of an older gasoline car, built to comply with emissions standards as they stood back in 1992.
The gap would be considerably larger for even older or poorly maintained vehicles, of which there are many across the region.
That makes the incentives offered by the Egyptian government to encourage their uptake a smart move. Shell is proud to have played a key role in introducing and promoting CNG in Egypt, and helping thousands of customers to convert to CNG, a relatively cost-effective process with an average cost of $900 (US).
Shell’s Gas Business
Figure 4: Floating LNG
So that’s why, in Shell, we believe reliance on gas is a ‘no-brainer’. So much so that by 2012 it will account for at least half of our global production, with the proportion likely to rise thereafter.
Much depends on our ability to develop and deploy fresh innovations in exploration and production technologies.
Here in Egypt, for example, we have invested over $1 billion in our offshore and onshore exploration concessions with our partners over the past 10 years. We have deployed Shell’s best technologies in deep and ultra deep exploration and seismic processing. Our exploration track record in Egypt ranks amongst the highest globally, achieving an average success rate of 70%. And, onshore, we were able to add about half a billion barrels of oil equivalent to Egypt’s proven hydrocarbon resources, developing new projects and deploying our expertise to extend the life of our existing fields by over 10 years.
That brings me to another important element in completing the gas value chain: natural gas infrastructure and distribution.
The ability to liquefy natural gas and ship it to far flung destinations has linked new suppliers to new customers, thus strengthening supply security.
To satisfy rising gas demand, traditional gas producers in the Middle East are now starting to import LNG. Kuwait imported its first LNG cargo last year from Shell’s Sakhalin Energy project in North East Russia. And Dubai is developing the means to import LNG.
At Shell, we are proud of our leadership in this field. Last year, our ventures supplied more than 30% of global LNG volumes. And we will continue to grow the global and regional LNG infrastructure. For example, Qatargas 4, a vast new LNG plant in Qatar in which we have a 30% stake, is nearing completion. When finished, it will export LNG to China, Dubai and the United States.
We will also drive progress on new innovations like Floating LNG, which will allow us to liquefy gas at sea, avoiding the financial and environmental costs of building pipelines to the coast and processing facilities on land. That will open up gas resources once considered too remote, small or expensive to tap.
An added advantage is that once production has been completed in one gas field, the Floating LNG ship can then be deployed in another.
Shell announced plans last year to develop our Prelude and Concerto gas discoveries, off the northwest coast of Western Australia, using this technology. This will be the largest floating vessel to be built – with an area approximately five times that of the Cairo International Stadium.
And we think that there could be opportunities to use Floating LNG in the Gulf of Arabia and the Mediterranean.
In all these ways, natural gas can help to satisfy rising demand for cleaner energy in the Middle East and North Africa and beyond.
Let me move on to the second pillar of building a new energy future. When thinking about how to reduce CO2 emissions in the near-term, biofuels come in to sharp focus. And here’s why.
Transport accounts for roughly one fifth of energy use and energy-related CO2 emissions. And demand will only increase further as the number of cars and trucks on the road doubles to two billion by 2050.
Although yet to make an impact in Egypt, we believe that biofuels are the only low-carbon transport fuel that can be scaled up fast enough to help tackle emissions from the global transport sector in the next two decades.
According to the IEA, world biofuels supplies are currently at around 0.8 million barrels per day. They expect them to double to around 1.6 million barrels per day in 2015, rising further to 2.7 million barrels per day by 2030 – so about one and a half times Egypt’s oil and gas production in barrels of oil equivalent. That’s one of the fastest growing new energy supplies we have today.
And that’s why, at Shell, biofuels will be the main focus of our alternative energy business in the immediate future.
Today, we are the world’s largest distributor of transport biofuels – distributing 9 billion litres in 2009. And we are currently in talks with Cosan, Brazil’s largest biofuels producer, to form a 12-billion dollar Joint Venture. This would allow us to produce Tropical ethanol from sugarcane, which could reduce fuel-related emissions by between 70% and 90%.
With partner companies and universities around the world, we are also working on advanced fuels that use non-food biomass, like crop residue or even algae.
Yet much hard work lies ahead in overcoming all the technical hurdles and in producing them at an affordable cost.
I gather that the Egyptian government has expressed an interest in how the country might produce biofuels. And perhaps the country might one day grow algae for the production of biofuels for diesel engines.
After all, the country has the three main pre-conditions in plentiful supply: sun, salty water, and, yes, CO2.
My third and final area of focus is carbon capture and storage technology, which will also be needed to tackle carbon emissions from fossil fuels, especially coal-fired power plants that cannot be displaced by gas.
According to the Intergovernmental Panel on Climate Change, CCS could deliver around half of the total emissions reduction needed to stabilise atmospheric greenhouse gas levels by the end of the century.
Shell is involved in nine CCS demonstration projects around the world, including Australia, the US, and Europe.
At first sight, CCS may not seem especially relevant to the Middle East and North Africa. But that is likely to change over time. After all, some countries in the region plan to add coal to their electricity generation mix. And, in time, CCS will be added to gas power stations, as well large industrial sites, like cement factories, of which there are many in the Middle East and North Africa.
So to sum up: the global and regional energy challenges are stretching. It will take decades of sustained technological effort and investment to put the global energy system on a secure and sustainable path.
And countries across the Middle East and North Africa must grapple with surging gas demand and high levels of urban pollution.
Shell is already making important contributions to solving these problems.
We are using our technological expertise to unlock energy resources in hard-to-reach locations, and carry them to customers throughout the world.
By raising our production of natural gas, and expanding our biofuels business, Shell will help to reduce carbon emissions from the global power and transport sectors in the next decade and beyond.
At the same time, we are working to reduce the carbon intensity of fossil fuels through carbon capture and storage technology.
Taken together, the technical challenges are tough, but invigorating. And I very much hope that more graduates of the American University in Cairo will join us to tackle them.