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Speeches and articles
Singapore Energy Summit
Growing population levels and surging economic growth are driving rising energy demand across the world. In the coming decades, all countries must find more energy at a much-reduced cost to the environment. In this speech, Malcolm Brinded, Executive Director of Upstream International at Royal Dutch Shell, describes how the current revolution in global gas supplies, driven by the opening up of unconventional gas sources and the rapid expansion of LNG, will help countries in Asia and beyond to develop a secure and sustainable energy supply. Natural gas is the cleanest burning fossil fuel, and the quickest and cheapest way to cut emissions in the power sector. And the current expansion in global gas supplies will give countries even greater confidence in gas as a reliable and clean energy source. Over the longer term, carbon capture and storage technology will also have an important role to play in driving down emissions in the power sector. In the transport sector, biofuels represent the most commercially feasible way to cut emissions over the next 20 years.
Singapore Energy Summit
Good evening ladies and gentlemen.
It’s great to be here at the Singapore Energy Summit, and to see it attract such an illustrious group of participants.
Singapore has been at the heart of Shell’s business since our very first tanker, the Murex, unloaded 4,000 tonnes of kerosene from the Caspian in 1892 at Palau Bukom, then known as Freshwater Island. That marked the start of the international oil trade.
Today Singapore is still critical to Asia’s growing energy markets and trading business, and indeed to Shell. In May of this year we opened the Shell Eastern Petrochemicals Complex (SEPC), our largest ever petrochemicals investment.
It makes enough mono-ethylene glycol (MEG), to satisfy 6% of Asia’s demand and enough polyester to produce almost 7 billion shirts a year, so to clothe more than the entire planet.
The global energy challenge
This evening I will emphasise the need for an urgent move towards a more secure and sustainable global energy system - Why?
Because as the global economy recovers, demand for energy has clearly resumed its upward path, driven by rising population levels.
By 2050, there are likely to be 9 billion of us on the planet – up from today’s 6.5 billion or so.
And surging economic growth in developing economies will also drive energy demand. We all know that China’s GDP growth is running at 10% per annum, but they are not alone – India is exceeding 8%, so too is Brazil. The Asian average is 7% (and Singapore is 13-15% in 2010). And the IMF forecasts that the Gulf Co-operation Council Countries will grow by almost 5 % this year, rising to nearly 6% in 2011.
Such economic growth is the reason why global energy demand is expected to double in the first half of this century.
Failing to keep pace with this demand would leave billions of people in the desperate energy poverty that they face today – with some two billion people without access to electricity. It would also be a sure path to renewed commodity price volatility.
At the same time, we must urgently tackle greenhouse gas emissions. According to the consensus of climate scientists, CO2 emissions should be limited to 450 parts per million to avoid levels of global warming with significant negative consequences.
On one estimate (Mauna Loa, Hawaii) they have now reached 390ppm – so just 60ppm to go – yet they continue to rise at an annual rate of 2ppm. The clock is clearly ticking.
Over time, renewable energy sources, like biofuels, wind power and solar energy, will make a bigger contribution.
Indeed at Shell we think that by 2050, they could meet as much 30% of the world’s energy needs - a shift of historic proportions from where we are today.
But it would also mean that fossil fuels would still, even then, need to supply around two-thirds of global energy.
So it’s clear that a sustainable energy system will be one in which cleaner fossil fuels, as well as renewable sources, must shoulder an increasing share of the burden.
Natural gas: the advantages
All of which supercharges the importance of the changes sweeping through the global gas markets, where gas supplies are expanding fast.
According to the IEA, global gas resources are now equal to 250 years of current production.
This is great for the world, because natural gas is by far the quickest and cheapest way to cut global CO2 emissions from the power sector. Modern gas plants emit half the CO2 of new coal plants, and up to 70% less CO2 than old steam turbine coal plants, of which there are still hundreds operating in the USA, Europe and China.
Crucially, gas power plants can be switched on and off with relative ease, making them the ideal allies of the intermittent power of renewable energy sources like wind and solar.
New gas-fired power plants are cheaper than any other new build electricity source. They require only half the capital cost of coal per MWh; one-fifth the cost of nuclear; 15% of the cost of onshore wind, and less than one-tenth the capital cost of offshore wind power – which only exists because of heavy subsidies.
Natural gas: strong demand growth
Long-term gas demand will grow strongly on the back of these advantages.
At Shell, we think global demand could rise by 50% by 2030. And that Asia could account for half of this growth.
For example, China aims to double the share of gas in the primary energy mix to 8-10% by 2020.
That would mean the country’s gas demand trebling in 10 years. And we believe it could double again in the following decade.
You might think gas supplies will never keep up with this level of demand growth. But there are grounds for real confidence that supplies can increase fast enough, both in China itself and from many other countries.
Why is that?
The natural gas revolution
First, because new technology is opening up shale gas, gas in tight sands and coal bed methane – all abundant gas sources trapped in very tight rock.
As recently as ten years ago the industry considered them all too difficult and costly to access. But there has been huge progress in drilling and fracturing the rock to release this gas, so tapping these resources profitably, and safely.
To give you an idea of what is possible, at our Groundbirch field in Canada, we now drill wells deeper than 7,000 feet in less than ten days.
And in the Rockies, at Pinedale, we average 25 days to drill wells to 14000 ft. That’s less than half the 60 days it took in 2002.
The upshot of all this is that North America now has a resource base large enough to meet its current gas consumption for well over a century. All this has implications far beyond North America.
For one thing, Liquefied Natural Gas supplies once reserved for the USA have been freed up for customers in Europe and Asia. The USA’s LNG import capacity is roughly 100 mtpa – nearly all built in the last decade. But its capacity had a utilisation rate of only some 10% last year.
That means the country’s spare capacity was more than six times bigger than China’s total LNG import capacity! That’s a lot of LNG that was planned for the USA now going somewhere else.
Elsewhere, many countries across the world are moving fast to unlock their unconventional gas sources.
In China, Shell and Petrochina have together developed the Changbei tight gas field in Shaanxi Province, which supplies natural gas to Beijing and other Chinese cities. We’re also working with CNPC to appraise and produce some very large unconventional gas resources elsewhere, including tight gas in Sichuan Province and coal seam gas, again in Shaanxi.
There is much uncertainty about their full potential, but it’s already estimated that China’s unconventional gas resource base could exceed 1,000tcf.
Harvesting this should give gas a much more prominent role in the country’s energy mix. And so significantly reduce the need to burn coal for electricity, for space heating and for cooking.
Over the longer term, this unconventional gas will also help China to fuel an increasing stock of electric vehicles. And that will ease its growing need for oil imports.
Of course, tight gas is just one example of the new gas resources being unlocked across the world. Major new sour gas resources are also opening up globally, and especially in the Middle East.
Minister Naimi, Shell are especially privileged to be working with Saudi Aramco to explore and develop this resource base in the Kingdom of Saudi Arabia.
A second driver of the global gas revolution is the rapid increase of the global LNG market on the back of new suppliers and new customers.
That is especially true of South East Asia, where a host of countries are preparing to import LNG, including Thailand, Malaysia, Vietnam and, of course, Singapore.
Even traditional gas producers in the Middle East are now importing LNG – who, for example, would have thought that one of our first LNG cargoes from Sakhalin Energy in North East Russia would go to Kuwait.
The years ahead will see equally exciting developments. For example, this year has seen the joint-purchase by CNPC and Shell of Arrow Energy, an Australian coal seam gas company, for 3.6 billion Australian dollars. The joint venture plans to convert coal seam gas to LNG, making this abundant unconventional gas source exportable to Asia.
That said Qatar is clearly the biggest force in today’s global LNG market, with two more giant trains about to come on stream, taking the country’s capacity to 77mtpa. Shell is proud to have a 30% stake in one of these, Qatargas 4, which will export LNG to China, Dubai and the United States.
Such growth of both LNG and unconventional gas supplies will work in concert to expand the international market for natural gas, and so greatly accelerate the pace of CO2 reductions, as new gas-fired power reduces the need for more coal.
Thereafter in the power sector, the next step should be the deployment of carbon capture and storage or CCS technology.
Indeed, the IEA says that if the rapid deployment of such CCS begins soon, it could account for one-fifth of the total global CO2 reductions needed by 2050.
Now, the coal industry seems to have laid claim to CCS, and often touts the words “clean coal”.
But CCS will likely be most effective when attached to a gas-fired power station – as it then needs to deal with only half the CO2 emissions of an equivalent coal powered station, and requires only half the underground storage space. The viability of gas-plus-CCS is what makes gas a destinationfuel for the world, not just a transition fuel.
But we must nevertheless also add CCS to the coal-fired power stations which, like it or not, will continue to be built.
Why? Because the IEA estimates that in the period before 2030 the growth in CO2 emissions from new coal-fired power stations in just three countries – China, India and the USA – will be double the growth in emissions from transport in all countries worldwide.
Tackling this CO2 from power with CCS will leave more CO2 space for other sectors, like transport, where emissions are harder to reduce. After all, it will be much easier to focus our efforts on 1,000 new power stations than to regulate hundreds of millions of individual vehicle purchase decisions.
Government funding and clear regulatory frameworks will be critical to encourage CCS across the world – with demonstration projects needed in many countries to secure its future deployment – not least in China where coal comprises a massive 70% of the primary energy mix, and in India where the figure is 55%.
I conclude with a brief mention of road transport where according to the IEA, worldwide car population will triple to around 2 billion by 2050.
Despite the promise of electric vehicles, the internal combustion engine will remain critical to meeting this rising demand. So much so that demand for liquid fuels is likely to rise by one-fifth by 2030.
Energy efficiency is one critical step in lowering the carbon intensity of these fuels. Hence all of us in the industry are very focused on improving the efficiency of our oil production operations and our refineries.
But of all the low-carbon transport alternatives, biofuels – such as biodiesel derived from palm oil and ethanol from sugarcane – will likely make the biggest contribution over the next 20 years.
For example, Brazilian sugar cane ethanol emits up to 90% less CO2 than conventional fossil fuels.
And biofuels are set for rapid expansion. Today, their share of the global road transport fuel mix is only 3%. That could reach as much as 9% by 2030.
That may at first seem a concern for Minister Naimi and other oil producing nations. But I believe that adding biofuels to oil-based fuels will in fact prolong the era of the internal combustion engine and so the use of oil in the face of the growing challenge from vehicle electrification.
Let me sum up. To meet the massive challenges of population and energy demand growth, the world needs the fastest and cheapest route to a secure and sustainable energy system.
Biofuels and CCS will play key roles. But in the power sector, that means especially growing the usage of natural gas. That’s why the present global gas supply revolution is so important.
It gives governments and investors even greater confidence in natural gas as a clean and reliable energy source.
I’ll finish by congratulating Singapore on the success of its Energy Week. There is no better or more welcoming place to discuss the changing energy landscape.