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Natural gas: innovation for a sustainable future and global growth

Speech by Peter Voser, Chief Executive Officer, Royal Dutch Shell plc at the 25th World Gas Conference, Kuala Lumpur, Malaysia on June 5, 2012.
Peter Voser

The boom in natural gas that has improved North America’s energy picture is spreading globally, with China and Australia likely to see the next wave of the gas revolution. China has potentially enormous deposits that could play a major role in helping boost the share of natural gas in its energy mix, and easing its dependence on coal. In this speech to the 25th World Gas Conference, Shell CEO Peter Voser looks at the global implications of the gas revolution, and how Shell innovations are getting more value from this abundant resource.

Natural gas: innovation for a sustainable future and global growth

This year’s World Gas Conference is about the role of natural gas in “sustaining future global growth,” which is certainly appropriate.

For at no time in the history of our industry has natural gas been poised to play a more important role in the global energy picture. The “natural gas revolution” is the most significant energy development in decades.

Today I want to share with you my view on the global implications of this revolution, with a particular focus on what it means for Asia.

As you know, our industry in the past decade has developed and perfected the technology needed to unlock gas from places previously assumed to be out of reach. As a result, natural gas will be a far bigger player in meeting our future energy challenge than we had previously assumed.

It’s no coincidence that this year Shell expects to produce more natural gas than oil for the first time in its history.

The benefits of natural gas in meeting our future energy needs are well-documented. Its supply is increasingly abundant and diverse, which means greater energy security. It is a clean-burning ally to renewables like wind and solar. Generating electricity from gas also requires relatively low capital investment. And it’s highly flexible. It can be converted to liquid fuels, transported easily, and used to make other products.

North American experience

In North America, we have already seen the dramatic impact of the gas revolution. New reserves of tight gas, shale gas and coal seam gas are helping the United States rebuild its economy and become more competitive.

Combined with increased oil production from the Gulf of Mexico, potentially huge deposits in the arctic, and the growth in tight oil and heavy oil – including oil sands – North America is looking at a dramatically improved outlook for energy security.

Gas holds considerable promise in the rest of the world as well. In fact, the International Energy Agency estimates total worldwide recoverable gas resources at 250 years at current production.

Australia, for example, holds large-scale deposits of coal-seam gas, while some estimate China’s shale gas resources could be as much as 50% larger than those in the United States.(*) South Africa, Indonesia and India also hold significant deposits of shale and coal-seam gas.

But it is China and Australia that are most likely to see the next wave of this revolution. China’s potentially enormous deposits could play a major role in helping boost the share of natural gas in its energy mix, and easing its dependence on coal.

Shell is proud to be working with China National Petroleum Company on several projects to tap these resources. They include the Changbei tight gas field in Shaanxi Province, which supplies gas to Beijing and other cities in eastern China.

While there’s no doubt these abundant gas reserves around the world can be tapped, society should not underestimate the substantial investment and highly complex technology required to do so in a safe and responsible way.

The need for regulation

Indeed, there has been vocal opposition among some environmental groups regarding the potential safety and environmental effects of developing these resources.

This has resulted in some misconceptions about the impact of hydraulic fracturing, or “fracking” – a technique that has been tried and tested over many years.

One area of concern that has attracted more recent attention is greenhouse gas emissions – especially methane – from shale gas production. We know methane releases can be significantly reduced by using proven technologies.

For example, at our Pinedale operation in the US state of Wyoming, we installed a system to help us stop methane leaks detected with an infrared camera. But clearly more research is needed to understand the true extent of methane releases from the gas industry.

In general, our industry needs to do a better job of listening and responding to these concerns. To that end, Shell last year announced five operating principles for our onshore shale and tight sand oil and gas operations. And just last week, the International Energy Agency issued its “Golden Rules for a Golden Age of Gas”.

The IEA rules were developed in consultation with policymakers, the industry, regulators and NGOs to provide practical recommendations for the development of these resources.

We welcome the IEA’s effort. Its recommendations and principles are similar to our own. They provide a framework for protecting water, air, wildlife and the communities in which our industry operates.

At Shell, we are committed to support regulations consistent with our operating principles. Our hope is they can be applied over time to all tight oil and gas operations around the world.

An expanding global LNG market

Of course, we cannot discuss the natural gas revolution without mentioning the spectacular growth of the global and regional LNG markets, and the implications for this growing region.

LNG has a long history here, with Malaysia, Indonesia and Brunei all serving as long-term suppliers. Further exploration should continue to yield new opportunities for these countries.

Thailand has become an LNG importer, as well, and several other ASEAN countries are preparing to do so, including Malaysia, Indonesia and the Philippines. This is one reason why global LNG demand is expected to double in the next decade.

The growth in global suppliers of LNG and its flexibility advantage were brought into sharp relief after the devastating earthquake in Japan one year ago. To cover the immediate shortfall in Japan’s energy suppliers, LNG cargoes were quickly diverted from countries around the world, including Russia, Australia, Korea and Nigeria.

Today Japan is investing heavily to lock in LNG supplies to replace its nuclear generating capacity.

Strong demand growth is possible in part because global liquefaction capacity has increased by around 40% over the past three years. Much of that increase has come from Qatar, which has become the world’s largest LNG supplier.

This is great news for Asia, as about 40% of Qatar’s LNG is reserved for Asian markets through long-term contracts. And we expect an increasingly diverse group of suppliers will supply the Asian market, providing access to gas reserves around the world.

Australia eventually could rival Qatar as an LNG exporter. It has more than a half-dozen LNG projects planned or under construction.

Then there’s North America. Its tight-gas production boom means it no longer needs major LNG imports. That has freed up supplies for Asia and Europe. It also means we will likely see a growing LNG trade across the Pacific from Canada, the world’s third-largest gas producer.

Just last month, Shell and our Asian partners announced plans to develop an LNG export facility in western Canada.

Asia should further benefit from the LNG industry’s latest technological innovation when we start to produce and liquefy natural gas at sea. Our first Floating LNG facility will develop our Prelude gas field off Australia’s northwest coast.

Our ambition is to build more FLNG vessels to tap other offshore fields that would otherwise be too costly or difficult to develop, including those in Asian waters.

The bottom line is governments in Asia and elsewhere have every reason to back natural gas as a secure and sustainable energy source, and every reason to make the most of their domestic gas resources.

The cleaner fuel for development

In this part of the world, the rapid pace of development comes with many implications – and opportunities.

The growth of Asia’s megacities, with increased congestion and pollution, presents policymakers with a big challenge: How do you fuel development in an environmentally sustainable way?

Asia will need to develop all forms of energy to fuel its growth. And with significant reserves in Indonesia, China, Australia and India, coal will continue to play a prominent role in generating power.

But as prosperity increases, development comes with expectations of better living standards, including cleaner air. This is where natural gas can help: It is the cleaner fuel for development.
It is the fastest and least expensive way to reduce pollution in cities. Gas-fired power plants have significantly lower emissions of local pollutants, such as oxides of sulphur and nitrogen, mercury and fine particulates.

There’s a carbon benefit to gas as well. Gas-fired generators produce between 40% and 60% less C0₂ than coal-fired power plants.

In the United States, the gas boom has led to a significant drop in carbon emissions due in large part to a major shift from coal to gas in the power sector.

As I said earlier, gas also is a natural ally to solar and wind power. Gas generators can be switched on much more quickly than other power sources when the wind stops or the sun doesn’t shine.

And then there’s the cost: Natural gas capacity is faster and less costly to install than any other new source of electricity.

When we talk about the environmental benefits of gas, it’s also important to remember that gas for power consumes a lot less water than nuclear or coal. This is becoming an increasingly important consideration in Asia, where many people still have no access to potable water, and where so much of the resource is needed for farming.

Getting more value from gas

One of the benefits of using gas in the energy mix is the versatility of this fuel, thanks to decades of research and development. Beyond the innovations in extracting gas from hard-to-reach places, Shell has been working hard to find other ways to gain value from this abundant resource.

Cleaner-burning LNG for transportation is a great example. As an alternative to diesel, it’s another smart way to reduce emissions of sulphur-oxides and particulates.

In Singapore and the Dutch port of Rotterdam, we are looking at expanding opportunities to use LNG as a marine fuel.

In western Canada, Shell’s preparing to make LNG available this year to fleet operators along a busy truck route. Drawing on the region’s natural gas to produce the LNG at a small-scale gas-liquefaction plant, we believe fleets on this route could see a reduction in greenhouse gas emissions of up to 20% on a well-to-wheels basis.

At Shell, we are also investigating ways to use LNG as a transport fuel in the rail and mining sectors, as well as in oil and gas drilling. Natural gas can also provide a cleaner source of electricity than coal for the world’s growing fleet of electric vehicles, which would further reduce many countries’ need to import oil.

Another example of the expanding value chain is gas-to-liquids (GTL) technology, which transforms natural gas into other higher-value liquid transport fuels and chemicals. Shell is a pioneer and leader in GTL technology, with a track record of research and production going back four decades.

Last year, we opened the world’s largest GTL plant in Qatar. The Pearl GTL plant produces GTL gasoil – a clean-burning diesel-type automotive fuel – and GTL kerosene, which can be used for jet fuel. It also produces chemical feedstocks for lubricants, detergents and petrochemicals.

We think GTL technology could make a lot of sense in other gas-rich countries as well. It would further reduce the need for imported oil while deriving greater value from natural gas resources.

In summary, to meet the rising global demand for energy in the decades to come, the world must expand all available sources of energy. The natural gas revolution offers the best, most promising opportunity we have today to make substantial, immediate progress toward a more sustainable energy supply.

Gas is the fuel for development. Its supply is diverse, secure and abundant. Generating electricity from gas requires low capital investment, and its flexibility makes it the natural ally to renewables like solar and wind.

I’m confident innovations and further advances in technology will make natural gas even more attractive in the years to come.

For countries facing an increased population and rapid urbanisation – and all the challenges that brings – natural gas is an intelligent long-term bet to fuel growth in an environmentally sustainable way.


Thank you.

Cited source:
(*) U.S. Energy Information Administration report, 2011