Charting a way forward with investment, innovation & imagination
LNG exports to Asia can open a market for North America – and especially Canada – worth billions of dollars. It could sustain investments, jobs and provide long-term income through royalties and taxes here, while helping China and the rest of emerging Asia secure a lower-carbon energy future there.
Alberta and British Columbia alone are probably sitting on more than 200 trillion cubic feet of competitive natural gas. Natural gas production from tight shale and sandstone in the U.S. and Canada nearly doubled between 2005 and 2010.
Shell is at the forefront of developing these cost-effective resources in sustainable ways on both sides of the border.
But we’ve also seen what’s happened to natural gas prices in such a market.
Ready supplies across North America leaves western Canadian suppliers on the fringe of an over-supplied market.
How can we create more value with that supply?
By going west. By becoming the supplier of choice for Asian customers looking for long-term clean energy security.
Of coure we in North America aren’t the only ones in the world to come up with that idea.
Australia already exports around 26 mtpa of LNG to Asia, and the Aussies have plans on the table for up to 80 mtpa. Countries like Malaysia, Indonesia and Qatar are developing opportunities for their own natural resources and have the advantage of being just around the corner from the Chinese market. So even as long term global demand for energy will sky-rocket, we’re seeing intense competition and a short window of opportunity now in key energy markets.
So how do we – on both sides of our border – realize that opportunity? How best can we compete?
I suggest a policy recipe with three ingredients: investment, innovation, and imagination.
Investment is the obvious one. Companies like mine are investing billions in exploring, producing and developing energy sources in North America – including natural gas.
But it will take many billions more to fully realize the value of those resources: investments in LNG terminals… pipelines… LNG carriers… power grids… local infrastructure… and education and training for the workforce required in Canada’s case to close the expected shortage of skilled workers in our industry over the next decade.
The payoff is clear. Huge GDP impacts and revenue for health care… for education… for public works… for economic development.
All this is not just idle speculation.
Last month, we at Shell announced our aspiration to develop an LNG export facility near Kitimat in British Columbia. Along with three Asian partners the project would design, construct and operate a plant that will produce 12 million tonnes of LNG each year – the equivalent of 15 percent of Japan’s projected imports for 2012… and the equivalent of all of China’s LNG imports in 2011.
Our planned investment in BC depends on a careful study of environmental impacts… dialogue and input from local communities… and thorough but efficient work by regulators on approvals and permits. It also depends on additional private and public investment in the infrastructure needed to supply the facility: pipelines, power, people and more.
But we’re excited about the possibilities there. And we’re hoping we’ll be up and running around the end of this decade.
Of course investment will only get so far without innovation to go with it.
And here I’m thinking not only of technology innovation -- although there are plenty examples of that: innovation, for example, required to operate LNG export terminals in 7 countries… with a fleet of 53 LNG ships… we participate in ventures that supply some 30 percent of the world’s LNG … all safely and reliably. Also the technical innovation required to produce this region’s massive gas reserves, previously locked away in deep rock and shale.
I’m also thinking of non-technical innovations. Ways of addressing the needs and expectations not just of markets but of people and communities.
For example, last year we at Shell broke new ground – intellectual ground, not just geological ground – by introducing what we call our Onshore Gas Principles.
These are a set of commitments we’ve made to satisfy not just regulators… and not just critical stakeholders… but to satisfy ourselves that we are doing everything possible today to ensure the safety and integrity of our exploration and production of energy from gas.
We see these principles not as a self-imposed constraint on our ability to operate… but rather as way to make sure we compete and lead in a market that will never stop demanding more safety… more environmental responsibility… more respect for communities and people.
But innovation does not just happen in companies. It happens in government as well. Canada is actively driving an efficient regulatory framework that recognizes both the opportunities and challenges of 21st century energy… one that continues to ensure close scrutiny and high standards for operations… but that also eliminates wasted time and bureaucratic delays. Some are calling the proposed framework “one project, one review.” It could reduce years of delay in realizing revenue and investment opportunities.
A modest proposal might be for U.S. regulators to consider a similar framework.
And I see this kind of thinking as a source of competitive edge for our entire region’s energy industry.
Which brings me to imagination.
Imagination in this context means combining investment and innovation in ways that position Canada and North America as the gold standard for clean, responsible, lower carbon and competitive energy – its consumption as well as its supply.
Let me offer an example from another part of the energy system. The Government of Alberta and the Government of Canada have signed a letter of intent formalizing their decision to contribute a combined total of $865 million to Shell’s Quest Carbon Capture and Storage project… that’s “CCS” for short.
Quest is a fully integrated CCS system, meaning it would capture, transport, inject and permanently store more than one million metric tonnes of CO2 per annum more than a mile deep underground. This CO2 will come from our oil sands operations.
That’s an important development being watched closely by governments like China’s, which wants to reduce its CO2 emissions per unit of GDP by 17 percent, and which is hand-cuffed to high carbon coal as an energy source for the next few decades.
With the Quest project, Canada and Alberta are sending a message to the world that they want not only to be an important source of energy, but that they have the imagination to be public partners and leaders in investing in low carbon innovations.
As an integrated oil company – one that operates along the entire value chain from remote well heads to millions of customers in your local neighborhoods – we work in imaginative public and private partnerships that look at how energy is used, as well as how it’s produced.
Fuels and lubricants, for example, that improve the efficiency of your family car… asphalts that can be laid at lower temperatures and therefore with less energy… biofuels that offset some of our dependency on fossil fuels and help reduce the carbon emissions from transport.
And with the region’s gas resources firmly in mind: We are making good progress in looking at ways to use LNG as a transport fuel. It is competitively priced against diesel and results in less harmful emissions. Last September, Shell made a decision to invest in our first LNG-for-transport venture in Alberta – providing LNG fuel for heavy-duty transport vehicles.
Just this morning we announced a memorandum of understanding with TravelCenters of America to sell LNG to heavy-duty road transport customers in the US through TA’s existing nationwide network of full-service fueling centers.
Pending final agreements, the proposed plans include constructing more than 200 LNG fuel lanes at about 100 sites throughout the US interstate highway system. If a final agreement is reached, the first of the LNG fuel lanes are expected to become operational in 2013.
As a global company, with partnerships in almost every corner of the world, we also have the ability – I’d almost say the obligation – to join up imaginative ideas across boundaries… intellectual and political boundaries as well as geographic boundaries.
China leaps to mind again.
Part of helping China realize the value of safe and secure energy imports from North America lies in partnering with them to realize the value of their own resources.
So in China, we are developing tight gas resources with China National Petroleum Corporation, helping to expand supplies of this cleaner-burning fuel. Together we are pursuing the Changbei project, exploring for gas in Sichuan Province and working on a coal bed methane project in Shanxi Province. CNPC is also an equity partner in our Groundbirch gas project in Canada.
And we’re cooperating on R&D and technology. That includes development of advanced seismic technology and a new joint venture to develop an innovative, highly automated well manufacturing system to boost gas production at lower cost and with a smaller footprint.
By working with China and its energy companies on projects like these, we will not only create new investment opportunities… but also promote a global energy infrastructure based on shared best practices and smart technologies.
I hope it’s clear that Shell sees the North American region not only as critical source of growth and opportunity, but as a leader in tackling the world’s energy challenge.
Our two countries will irritate each other from time to time over issues like the Keystone XL pipeline. But those issues will always get resolved.
What’s more important is that I see few other cross-border partnerships in the world that bring to bear the same combination of investment, innovation and imagination to powering global progress… and by doing so, secure economies, environment and futures at home.
That’s the responsibility we all share. It’s why more than 90,000 of us come to work every day at Shell. And it’s why I applaud the work of Canadian American Business Council.
Thank you very much.