For many countries natural gas offers the fastest and most cost-effective way to secure energy supply, while bolstering the fight against climate change and air pollution. In this speech to the Gastech conference in Seoul, the Executive Vice President for Shell’s Integrated Gas Business Maarten Wetselaar discusses the future of energy, and how gas could and should play an important role in that future. He also looks at the steps that need to be taken now to help ensure that gas gets the role it deserves.
A strong case for gas
Speech by Maarten Wetselaar, Executive Vice President for Shell’s Integrated Gas Business, at the Gastech conference, Seoul, March 24, 2014.
A strong case for gas
For 40 years, ladies and gentlemen, the Shell scenarios team has produced independent analysis of the global energy system. Just last year, this team of experts published their latest report.
It assesses how social, economic and political forces might play out over the
21st century, and their impact on the energy system. Shell’s scenarios explore two future pathways for society.
What’s the role of natural gas in these scenarios?
In the Mountains scenario, gas becomes the backbone of the world’s energy system. In many places it should replace coal as a fuel for power generation and sees wider use in transport. In the 2030s, natural gas even becomes the world’s largest primary energy source — ending a 70-year reign for oil.
In the Oceans scenario, the production of natural gas continues to grow, building on developments in North America. The great expectations, however, are not fully met as developments prove too difficult or economically recoverable volumes too low. Coal remains widely used in power generation until at least the middle of the century.
These scenarios show that a central place for gas in the future cannot be guaranteed. Without good policies and strong innovation, the world risks failing to realize the opportunities gas has to offer.
The future of energy
Let’s explore this in greater detail. Energy demand will grow, mainly for three reasons.
First, population growth. According to the United Nations, there will be more than 9 billion people on this planet by 2050 — from around 7 billion today.
Second, development. Over the coming decades, tens of millions of people will gain access to hospitals, to public transportation and to reliable energy. Millions more will buy their first cars, televisions and refrigerators.
Third, urbanization. More and more people will be living in cities. According to the UN, the greatest growth in urban population will be in Asia. Here in South Korea, over 80% of the population is already urban — and the trend is up. In China, almost 1 billion people will live in cities by the end of 2030 … 350 million more than today. That’s equivalent to the creation of 35 new 'Seouls'. Over half of China’s 130 largest cities are in the preliminary stages of development. So, energy choices in Chinese cities will have a global impact.
By 2050, Shell’s scenario planners expect global energy consumption to double from the level at the start of this century. The International Energy Agency, IEA, expects an increase by one-third from 2011 to 2035.
Where will all this energy come from?
Shell thinks that energy from renewables could rise to around 25% of the energy mix by 2050 — from around 13% now. Fossil fuels could still provide more than two thirds of the energy mix in 2050. Their current share is around 80%. The IEA uses a different time-frame, but the direction is similar.
In short, we need all energy sources to meet rising demand. Focus should be on cost-effective solutions that secure supply and, at the same time, combat climate change and air pollution.
Yes, renewables are crucial to the future of the energy system. But they still depend on flexible back-up when the wind doesn’t blow or the sun doesn’t shine. Here, natural gas could be of great help.
Benefits of gas
The IEA says, as we know, that the world holds enough technically available resources for over 235 years of production at current rates. South Africa and Eastern Europe have large tight-gas deposits. The same goes for China, Australia and Latin America.
This means that many more countries have potential access to new domestic gas resources … and to imported gas from new LNG export projects, both from tight gas and conventional gas developments.
This offers new options — options like shifting from coal to gas, for example. Truth to be told, there are challenges to overcome. But if we succeed, as I’m confident we will, the world would benefit from it.
Less emissions and Carbon Capture and Storage
Gas is cleaner than other hydrocarbons.
Gas emits 50% less CO2 than coal when burned for power generation. And Carbon Capture and Storage, CCS, can make it cleaner still by capturing 90% of its CO2.
Gas also emits less of the sulfur oxide, nitrogen oxide, and small particles polluting the air of many Asian cities. This is truly a significant feature. According to the World Health Organization, one person dies every second from diseases related to air quality.
When you look at the total cost of generation, gas is competitive as well.
Here in Asia, says Energy Intelligence, a gas-fired plant is 2 times less capital intensive than coal and onshore wind … 4 times less than nuclear … and 7 times less than offshore wind.
A third advantage is speed. Gas-fired plants can be built in 24 to 28 months. Coal plants take 52 to 58 months … nuclear plants 54 to 60 months. And the speed-gap widens if you take into account issues like the lengthy process to get a permit for nuclear and coal plants, and
the likely protests against them. This is of particular importance to Asia, since energy demand is expected to grow rapidly here.
So for many countries gas is the fastest and most cost-effective way to secure energy supply, while bolstering the fight against climate change and air pollution. Unfortunately, this message hasn’t been entirely accepted in Europe, and should be heard much more loudly across Asia.
The European case
Let’s start with Europe.
The EU’s current energy and climate policy has three separate goals for 2020. One for renewables, one for energy efficiency, and one for CO2 reduction. A European market for carbon allowances, ETS, should cut the use of high-carbon energy sources such as coal. And it should increase the affordability of renewable energy.
What are the results? Renewables, with strong government support, grow. Essentially, this is good news. But, as I said, renewables still depend on flexible back-up. Unfortunately, more and more countries use polluting coal plants as a back-up, at the expense of gas. The total demand for gas
in power generation, for example, dropped by 16% between 2010 and 2013. And it will reach 2010 levels only in the middle of the next decade.
Reasons are manifold. As a result of the shale gas boom in the US, there’s an influx of cheap American coal. Europe suffered from the economic downturn. And the three policy targets are competing with each other. The adverse effects are already visible. CO2 emissions in Germany and the UK in 2012 increased, says Eurostat.
In January, the European Commission proposed a 2030 framework for climate and energy policies. It’s a step in the right direction. But critical issues remain. Few experts, for example, expect it to deliver a meaningful price for carbon allowances in the short and medium-long term. This would make it all but impossible to meet Europe’s CO2 targets over the next three decades or so. In spite of the fact that, in 2012 alone, support for renewables amounted to around 30 billion euros. And governments are expected to give another 330 billion until 2020.
I wouldn’t recommend such a ‘renewables-plus-coal’ approach to anyone. It is as expensive as it is counter-productive. In most cases, ‘renewables plus gas’ is far cleaner and far cheaper. Asia has a chance to avoid the mistakes Europe has made.
Gas in Asia
The picture looks promising. Singapore and Malaysia began importing LNG last year. Before long, they could be joined by countries like Vietnam and the Philippines. Meanwhile, others are expanding their import capacity, including South Korea, Thailand, China and India.
But when you take a closer look, the picture becomes somewhat hazy — a bit like the air in many of Asia’s congested cities. Since the beginning of this century, coal has been the world’s fastest-growing primary energy source — mainly because of economic growth in Asia.
It is true, gas and renewables grow fast. But sometimes not fast enough. Take China, for example. By the end of this year, gas will supply less than 6% of energy demand. Coal holds a dominant 67% share of the mix.
For Japan and South Korea, Asia’s traditional gas importers, gas remains critical to their sustainable growth agenda. In both countries, only clear government policies can prevent coal from making a comeback at the expense of gas.
The way forward
How do we help ensure that natural gas gets the role it deserves, in Asia and elsewhere? Two things are critical. The first is reaching out to governments and societies, and make a stronger case for gas. The second is continuous innovation by the industry.
First, a short comment on a concerted case for gas. Governments, societies and the industry obviously have very different roles. But it is only by working together that the world’s demand for energy can be satisfied in a responsible way. Co-operation is necessary — from the market demand
for gas, to the ability to explore and produce it. Being the largest LNG supplier of the international oil companies, Shell can and is willing to play its part. But all players need to be organized and collaborative to ensure sufficient supply of energy, while safeguarding the environment.
Second, ladies and gentlemen: innovation. As I said, the world holds technically available gas resources for over 235 years of production at current rates. Technically available, not readily available. Our business is to bring it to the market responsibly. In this, innovation is critical. It is also critical for keeping development and production costs down so that gas
can remain affordable. Shell, determined to be the world’s most innovative energy company, contributes through projects and partnerships. Let me explore each of these contributions.
Projects are for example in LNG, Floating LNG, and GTL.
First, LNG. This year is the 50th anniversary of the LNG industry. The first commercial LNG plant was introduced in Algeria; Shell was a shareholder of one of the shareholders. We stood at the cradle of the LNG industry, and after five decades we’re still going strong. In 2013, for example, Shell acquired a part of Repsol’s LNG portfolio. This gives a boost to our already flexible and diverse portfolio with LNG supply from Trinidad & Tobago in the Atlantic, and from Peru in the Pacific.
A second example is our 2012 decision to buy all outstanding shares in Gasnor. Gasnor is a market leader in supplying LNG to marine and industry. We believe the future’s bright for LNG as a transport fuel.
Second, Floating LNG. Shell’s Prelude is a unique liquefaction plant for many reasons. But what makes it really special is that Prelude is designed to go to sea. It will be moored above Australia’s Prelude offshore gas field, 200 kilometres from the nearest shoreline. Most of the construction work, by the way, is done at the Samsung’s Geoje shipyard here in South Korea. Floating LNG is the most important innovation in the gas industry in decades. It allows us to develop offshore gas fields without costly subsea pipelines or onshore facilities. Prelude is the world’s biggest floating offshore facility.
But it’s small in comparison to an onshore LNG plant. Just take a look at this slide. It’s a bird’s-eye view of Prelude superimposed on the site of a modern onshore LNG plant of similar capacity. The footprint is significantly smaller. Needless to say Prelude is one of Shell’s flagship projects. When Prelude and the Gorgon-project in Western Australia — in which we have a 25% interest — are on-stream, we expect our LNG capacity to increase by around 30% to some 35 million tonnes a year.
Third, GTL. Our gas-to-liquids technology is the result of four decades of research, development and sales. In 1993, we built the world’s first commercial GTL plant in Malaysia. We’ve used our knowledge and experience to build Pearl — the world’s largest GTL plant in Qatar. And we continue to enhance technology, to improve design, and to add new products.
Just recently, for example, we’ve introduced the Shell PurePlus Technology. It’s a patented process of turning clean-burning natural gas into a clear base oil, which is the main component of motor oil. The technology is now used in several of Shell’s motor oils.
As I said, Shell also innovates through partnerships. The future of our industry cannot be created by stand-alone IOCs. Our role is to partner with major resource holders and major demand holders to build enduring value chains beneficial for all parties involved.
Examples of such partnerships are in China, Russia, Qatar, and South Korea.
First, China. Shell’s relationship with China goes back more than a century. Today, we're involved in a number of joint ventures. With CPNC, for example, we’re developing tight and unconventional gas resources in Changbei and the Sichuan basin. We’ve signed sharing contracts with CNOOC for offshore oil and gas production in the Yinggehai Basin.
And we co-operate with our Chinese partners in research, development and technology. Shell also has a strong downstream business in China.
Our Nanhai petrochemicals joint-venture with CNOOC, for example, has an investment of 4.1 billion US dollars. And, with a market share of 12%, we’re the leading international energy company in lubricants. Moreover, we’re helping our Chinese partners to bring energy supplies back to China. With CNPC, we have a LNG co-operation in Qatar, Canada and Australia.
Second, Russia. With Gazprom, Mitsui and Mitsubishi, we’re in Sakhalin Energy, a joint-venture working in the Russian far east. Developing a world scale LNG project in an icy, stormy environment — quite an achievement. One of its interesting features is energy efficiency. Shell developed an energy-saving process for subarctic conditions that takes advantage
of the low ambient temperatures to cool the gas and turn it into a liquid. Today, Sakhalin-2 provides almost 9% of Japan’s LNG supplies, and 4% of South Korea’s.
It also accounts for more than 4% of global LNG production. And there’s more to come, as we’re now moving forward with the third production train within the Sakhalin-2 project.
Third, Qatar. Shell is the largest foreign investor in Qatar. Since 2006, we’ve invested over 20 billion dollars in the country. Today, our partnership with Qatar Petroleum covers the entire value chain of the oil and gas business. The Pearl plant in Qatar, the world’s largest GTL plant, obviously is one of the showpieces of this partnership. Qatargas 4, a fully integrated LNG asset, is another.
Shell is committed to delivering long- term value for Qatar and Shell for decades to come. So, for example, we are investing up to 100 million dollars over 10 years in the Qatar Shell Research & Technology Centre.
Fourth, South Korea. This country truly is one of the founding fathers of the LNG industry. Shell is very proud to be a part of this rich tradition. Since long, a number of our joint-ventures have served South Korea with clean energy supply.
Today, we’re directly involved as well. Shell and Kogas co-invest in the Prelude project I’ve mentioned earlier. And we’re partners in LNG Canada. But, to be clear: Shell is not only a big supplier, we’re also a big customer. We invest millions of dollars a year in the famous South Korean shipyards, for example. Ties between Shell and South Korea are indeed strong. And they are growing stronger every day.
At the start, ladies and gentlemen, I mentioned the latest report of Shell’s scenarios team. It reminds us that an important role for gas in tomorrow’s
world cannot be taken for granted.
For us, there’s an opportunity — and a duty — to steer things in the right direction. Not only as leaders of the gas industry, but also as global citizens concerned about access to energy, climate change and air pollution.
So, let’s make a stronger case for gas and let’s continue to innovate. Only then, gas might get the role it deserves, in Asia and elsewhere. I’m confident that South Korea, truly a natural gas pioneer, will lead the way once again.