A time for LNG
Apr 12, 2016
Speech given by Ben van Beurden, Chief Executive Officer (CEO) at Shell, at LNG18, Perth, Australia on April 12, 2016.
The demand for LNG is expected to continue to grow steadily over the coming years. The LNG industry needs to keep investing, argues Ben van Beurden, to ensure that there is sufficient supply to meet long term energy needs. In meeting this future demand, projects with the lowest production costs obviously have a competitive advantage. Costs also need to come down to make gas competitive with other sources of energy such as coal and renewables, says Van Beurden. This is important because the use of more natural gas is an essential part of the battle against climate change.
Your excellencies, distinguished guests, ladies and gentlemen,
It’s an honour and a pleasure to be back in Australia. This is an important country to Shell’s LNG business. Our operated and non-operated activities here are key to our aspirations globally.
For us and the LNG industry as whole, these are interesting times. Market conditions in general are challenging. At the same time, new markets are opening up ― markets like Thailand, Pakistan and Poland.
In the past these markets were too small to consider. But the rapid growth of floating re-gasification facilities, among other things, has considerably lowered access costs for importers and provided more flexibility across the value chain.
This shows how important technological innovation is to the future of LNG. But before I go into that, let me first say a few words about Shell’s LNG business. Clearly, LNG is at the very core of our company.
In 1959, an LNG carrier passed through international waters for the first time. The shipment was made by a forerunner to BG, which of course now is a part of our company.
In 1964, the first -ever commercial LNG plant started production in Algeria. Shell was involved in that plant, and shipped its first commercial cargo ― launching today’s global trade.
The combination of Shell and BG, in other words, brought together two LNG pioneers. Indeed, BG’s LNG portfolio was one of the major reasons why the company was such a good fit for Shell.
After the combination, we now supply some 15% of the world’s LNG market. Shell firmly believes in the future of LNG. And we’re not the only ones. The International Energy Agency estimates that global demand for natural gas will grow 2% on average between 2014 and 2020. The LNG market, in turn, is expected to grow twice as fast.
It’s true, as I’ve said, that market conditions are challenging. And a large amount of capacity is under construction or starting up, in the US and here in Australia. So supply will grow over the coming years.
At the same time, demand growth in China and other major economies has been weaker than projected. This could mean that the LNG market will be rather well-supplied in the near term.
Despite this, as I mentioned, LNG demand is expected to continue to grow steadily over the coming years. So the industry needs to keep investing to ensure that there is sufficient supply to meet long term energy needs ― especially in the developing world.
Driving down costs
In meeting this future demand, projects with the lowest production costs obviously have a competitive advantage. That’s one reason to drive down capital costs, but it’s not the only one.
Costs also need to come down to make gas competitive with other sources of energy such as coal and renewables. So our industry needs to continue to innovate to drive down capital costs across the LNG value chain – from upstream development to liquefaction, shipping and regasification.
The most important areas to focus on are design, engineering and construction. LNG plants have become more expensive because we take more time to engineer them; because we face lower productivity when we build them; and because we’re often working in more complex locations.
We need to reverse this trend.
Standardisation of design, engineering and construction is one key factor. Another is working more effectively and efficiently in the supply chain. Shell is playing its part in these areas. A case in point is Shell’s floating LNG project Prelude ― right here in Australia.
Floating LNG will be used to help open up remote gas fields; fields that in the past would have been considered too costly or difficult to develop. Prelude, as a pioneering project, is well into its construction phase and we’ve taken the learnings from this.
There now is a standardised design. Depending on the composition and location of gas reservoirs, we can add different pre-designed topside modules and offloading systems. And, working with our strategic suppliers, the project also led to spin-offs.
Let me give you an example. Prelude is designed to export LNG, LPG and condensate from resource-rich gas fields. But there are also a lot of so-called lean gas fields which do not produce as much LPG and condensate. To produce more LNG instead, we’ve made some changes to the Prelude design and developed “FLNG Lean”. We expect FLNG Lean to be cost-competitive for larger, lean gas fields.
Benefits of natural gas
This also shows us that the future of our industry is about continuous innovation. And this is why the focus on innovation of this Australian government is very relevant to this country’s LNG industry.
Prime Minister Turnbull said that he seeks to create “a more innovative, agile and entrepreneurial Australia”. Energy of course is instrumental to that mission. New ways of doing business, new ways of communicating, new ways of doing science ― they can’t do without energy.
So energy is at the heart of innovation. But innovation is also at the heart of energy and its future. In its fight against climate change, the world seeks to move towards an energy system with fewer CO2 emissions.
Innovative thinking will be crucial in this. It’s about developing cleaner fuels for transport; about inventing new ways to store electricity produced by renewables; about capturing CO2 and storing it safely underground in an economically viable way ― to name just three examples.
Yet, however important, finding long-term solutions through innovation isn’t the only thing we need to be thinking about. In the battle against climate change, existing, proven, shorter-term solutions matter too. The use of more natural gas is one of these solutions.
Gas is a lower-carbon, cleaner-burning partner to renewables. When burnt for power, LNG produces around 40% less CO2 than coal ― even after the process of liquefying, transporting and turning it back into gas. Gas is also flexible, abundant and diverse.
I know, ladies and gentlemen, that these are tough times for our industry. But low prices have one major benefit: they make gas a more attractive choice for consumers. So now is the time to make sure that gas gets the place in the energy mix it deserves.
Australia is already one of the leading countries of the LNG industry. I hope that you’ll continue to lead the way in making natural gas a natural choice across the globe. Thank you.