Excellencies, Ladies and gentlemen, Good morning.
Before I start my opening remarks, a few words about the devastating earthquake and tsunami that have hit Japan.
On behalf of everyone here I’d first like to send our sincere condolences for the dreadful loss of life and the destruction of entire communities.
Japan was key to the growth of the LNG industry and our thoughts are with many of our friends and colleagues there, who of course can’t be with us today.
Finally in this context, I am sure we all regard it as important that our industry is working so hard to support Japan in its hour of need, by making additional cargoes of LNG available; demonstrating how the industry can work together and highlighting the true flexibility and reliability of LNG.
You can count on gas
Ladies and gentlemen, I am honoured to have the opportunity to say a few words at the opening of the conference. I will cover:
- 3 hard truths
- 3 gas myths and
- The TRIPLE A arguments for gas
Starting with the 3 hard truths.
First, DEMAND for energy will grow.
- Indeed energy demand will grow some 40 % by 2030, and likely double by 2050.
- To meet this will require huge investment: over $1 trillion per year globally in the total energy supply chain .
The Second hard truth: Whatever anyone might wish, hydrocarbons will continue as the most important source of energy to 2050 and beyond.
- Since most of this growing demand will still be met by oil, gas and coal.
- Even in 2050, fossil fuels will still meet over 60% global energy demand.
- But the days of easy gas and oil are over, so innovation and technology will be key to enable sustained economic development of hydrocarbons.
The Third hard truth is that Climate stress will increase.
The world needs to halve greenhouse gas emissions by 2050 to avoid the worst effects of climate change.
So, the world will need twice as much energy, but half the emissions.
Now there are indeed no silver bullets in reconciling economic growth and climate change, but the closest thing there is for gas to displace coal in power generation in the next 20 years.
I suspect I’m preaching to the converted here, and that most of you would agree.
But our shared challenge is to convince politicians, regulators, power generators and consumers that we’ve got it right. To do that we have to overcome, the three big gas myths:
1. Gas supply is not secure.
2. Gas is only a bridging or transition fuel.
3. Gas will not be competitive.
Myth 1: about Security of Supply is especially a concern in Europe
Perhaps understandable in the past - but in my view, simply out-of-date. The key to achieving security of supply is diversification.
Diversification in sources of supply, in access routes, in market players and in commercial structures. Europe is already well-placed in this regard.
It is within economic distance of 70% of the world’s gas reserves, and has a well-established infrastructure of major pipelines AND increasingly extensive LNG regas facilities.
Europe is in the middle of a 10 year LNG growth period where the number and capacity of LNG import terminals will more than double as we benefit from the North American shale gas revolution with LNG originally destined for supply to the USA now focused on Europe.
The second key to gas security is good internal connectivity. Hence the EU’s policy requiring reversible pipelines and that all countries have two supply routes. Gas storage is also important – ~80bcm today with ~70bcm under construction or planned.
In short, European gas security of supply is increasing rapidly. So it’s time energy policy makers realised that they can truly count on gas, today, and for decades to come.
Myth 2 is that Gas is not a Destination Fuel
So whilst there is an emerging realisation that gas is the cheapest way to cut CO2 emissions over the next 10-20 years – even by organisations such as Greenpeace - 1 NGOs and politicians worry that a stronger focus on natural gas will lock in another generation of fossil fuel plants – and drive out investment in renewables. That misses the point. First, the ready flexibility of gas fired power is the natural complement to the intermittency of renewables.
Second, adding Carbon Capture and Storage (CCS) to gas-fired power stations can reduce CO2emissions by 90 % at a cost of perhaps $60-120/tonne of CO2. This means that gas should be a major Destination Fuel, and a significant and reliable component of the low carbon energy system we need beyond 2030.
The key point here is that displacing coal fired power with natural gas will cut greenhouse gas emissions NOW. It will also buy society time for learning curves and supply chain developments. In turn, this will allow a more measured and cheaper transition post 2030 to more cost effective renewables and to large scale CCS retrofit to both gas and coal.
Myth 3 is that Gas will not be competitive
Gas with “oil-linkage” in long term contracts and price volatility are often cited as the two key concerns. Well to me, forecasts that the role of gas will greatly reduce because it prices itself out of the market are simply not credible. With more and more gas being discovered, gas resource owners have to compete hard to win market share and cut costs.
The shale gas revolution in North America is a great example of how technology has been applied to unlock a difficult resource and drive down costs to ensure it is competitive. Over the next few days we will hear much more about the role of technology, and how innovations such as Floating LNG can unlock resources previously considered as stranded.
As to volatility, there are many market mechanisms that can give the buyer more price certainty if that’s what they value most.
But the basis for lower price and less volatility is enough supply. Major gas and LNG projects are often huge, costing billions of dollars - and require confidence there will be a market for the product – so “Security of Demand” is what gets you “Security of Supply”, and less volatility. Yes, this can be achieved through a long term contract with an agreed price however it’s indexed. But, as in the oil market, this demand security can also be achieved through a deep, liquid traded market.
Key is that supply project investors need confidence the market will be there. So government statements or policies that diminish the role of gas discourage the very investment needed to deliver competitive supplies
We need Governments and regulators world-wide to acknowledge, welcome and encourage the role that gas can play in the future energy mix. With energy market policies that properly recognise the CO2 benefits, the reliability and the flexibility of gas fired power.
Now to summarise why you can count on gas with the Triple A argument: its Abundant, it’s Acceptable and it’s Affordable.
First A: Gas is Abundant
Over 250 years of global reserves are now available and still more is to be found and made accessible, especially through constantly improving technology.
And by 2020, LNG supplies could meet one-fifth of global gas needs. LNG is really the ultimate pipeline - it can come from almost anywhere, and go to almost anywhere, so greatly mitigating security of supply concerns and - over time - price volatility concerns.
Second A: Gas is Acceptable
The environmental benefits of natural gas-fired power are tangible, substantial and immediate.
Coal-fired power growth is responsible for the fastest increase in CO2 emissions worldwide. More than twice the CO2 rate of growth from all the world’s transportation. But modern gas plants emit between 50% and 70% less CO2 than coal plants per kilowatt hour of electricity output. And significantly less than one tenth the SOX, NOX, particulates, and heavy metals.
Now the Third A - Gas is Affordable
The cost competitiveness of gas is especially compelling in power generation: Coal-fired plants are two or three times more capital intensive than gas, nuclear five times more expensive, onshore wind seven to 10 times more, and offshore wind up to 15 times more expensive.
So, natural gas replacing coal is the surest, fastest and cheapest way there is to reduce CO2emissions over the next 10-20 years. In Europe. In North America. And in China, India, Japan and Korea.
I can highlight this with a recent study from McKinsey commissioned by the European Gas Advocacy Forum.
This looks at gas displacing coal power as the key route to meet the same emission-reduction targets for Europe as an earlier European Climate Foundation (ECF) study which promoted very rapid renewables expansion – key being 80% CO2 reduction by 2050.
Over the 20-year period to 2030, the estimated savings amount to some €500 billion! That’s enough to save every EU household an average of €150-250 per year. And to help protect 20-25 million jobs in energy intensive industries What’s more, similar savings can be achieved in the period from 2030 to 2050, making for total potential savings until then of up to a trillion Euros.
We can and must count on gas – for security of supply, to help reach government emission reduction goals and for its value for money.
The development of shale gas and innovations such as Floating LNG demonstrate that technology is the key enabler to find and develop more natural gas even more economically, ensuring supply today and for many decades to come.
Ladies and Gentlemen, like all of you I now much look forward to hearing the views of our distinguished panel members on the future off gas in the global energy mix, the challenges and the opportunities.
As we discuss these matters, I am sure we are all very aware that the decisions society and policy makers take today will have a huge impact on the lives of our children and their children.
I believe that as an industry we can do a much better job in helping to persuade Governments and regulators to rethink gas - and to set clear expectations and policies that enable gas to play its full and deserved part as a secure, reliable and highly competitive long term supply source in the energy mix.
This would be:
- Good for Energy consumers and for Power generators.
- And for industry.
- And for Tax payers.
- And good for Global economic growth – and so for our children.
- And good for the climate – and so for our grandchildren.