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2015-06-25 19:15:00

GOLDEN AGE OF GAS

GOLDEN AGE OF GAS

In his key note address at the World Gas Conference in Paris, France, Mr. Ben van Beurden, CEO, Shell, opined that despite the well documented benefits of gas, the IEA's "Golden Age of Gas" is not necessarily a given.

"You have to work very hard to achieve it, especially since governments continue to promote the use of coal to power to provide electricity in many countries."

With a view to pointing out how the sector can participate in a sustainable energy future, he rolled through the numerous benefits of natural gas.

"Natural gas is a flexible, it's supply is abundant and diverse, its ranges of use are still expanding, it's supply is abundant and diverse, it's low carbon, clean burning, an ally to renewables such as solar and wind, and it makes economic sense."

Moreover, he stated that gas-fired power plants are cheaper and quicker to build than coal plants.

He continued, "And gas-fired power becomes even more attractive when you take into account the costs of climate change and air pollution. So the quicker the world turns from coal to gas and renewables, the lower the cost will be."

Along with investment, he said there are three things which are crucial for a sustainable energy future: "Firstly, fewer emissions from the energy system, including gas; secondly, better energy and environmental policies; thirdly, driving down the cost of gas development."

According to him, one of the world's greatest challenges is meeting greater long-term demand for energy – IEA estimates say demand will be 37% higher in 2040. "And of course it's population growth, economic development and the need to provide access to modern energy to more people – these are the critical factors in bolstering demand," he said, adding that's only one element of the whole.

"Another big part of the picture is the role our sector can play in building a sustainable energy future, if we reduce the impact of energy production and use on the environment. Reducing emissions from power generation," he explained, "should be a priority in this regard."

This means the shift from coal to gas is critical, said Mr. van Beurden, who offered that burning gas produces about half the CO2 and one-tenth of the air pollutants. He remarked, "A switch saves lives today and ensures a sustainable energy system tomorrow."

Of the flexibility of gas, he explained that gas plants take less time to start and stop than coal-fired ones. "This makes gas the ideal partner with intermittent energy sources like wind and solar. Renewables are crucial for 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 – as it sometimes doesn't in my country."

This switch, he said, would be the fastest and cheapest way for many countries to lower emissions while maintaining a reliable energy system. The impact of coal to gas switching is clear, he continued, pointing to the US, where gas is replacing coal in power generation, mainly as a result of shale gas development leading to a reduction of greenhouse gas emissions in the power sector.

"Still, in order to make natural gas as attractive as possible, our industry should continue to lower the carbon intensity of the supply chain, from production, processing and transport to distribution and end-use," he said, offering that supporting carbon capture storage technology and reducing methane emissions are two ways of doing that. He stated: "Shell acknowledges the importance of these challenges and we take our responsibilities here seriously."

Mr. van Beurden reported that in Canada, Shell is helping to develop a large-scale CCS project called "Quest," expected to come onstream in the coming months. The company, he said, also has research partnerships with leading academic institutions, for instance in Norway.

Regarding the reduction of methane emissions, he offered that Shell is engaging in numerous efforts, such as LNG efficiency measures, flare reduction programs and venting reduction programs.

Shell, he explained, has recently signed up to the World Bank initiative to end routine flaring by 2030.

He reiterated that gas is crucial for the safeguarding of the environment while meeting the world's energy needs. "If gas is to realize its full potential, however, the right policies and regulatory structures are needed as well."

There are some encouraging signs for that, he said.

"China, for example, has special tariffs for gas-fired generation and is setting up emission trading systems in six provinces, but globally we're still a long way off from having the right policies and structures in place," he explained.

According to him, key gas and LNG markets have failed to create a carbon pricing system that leads to the switch from coal to gas in power generation, something that would offer serious support to emissions reduction.

"In Europe, gas-fired power plants have been mothballed or decommissioned over the last few years," he observed. "And why? A large amount of subsidized renewables has entered the energy system, and from a short-term financial perspective, coal-fired power has been cheaper than gas."

However, he said the short-term financial perspective doesn't tell the whole story.

He explained, "The emergence of a 'coal plus renewables' energy system could see emissions reductions in countries like Germany either to slow or even go up. As a result, the long-term costs of climate change and air pollution will grow."

This, he said, is a "buy now, pay later" approach.

"Hopefully the welcome reform of the EU Emissions Trading System will change things for the better."

Coal plus renewables, he noted, could also emerge in Asia in places like Japan, where energy market liberalization is occurring: generous subsidies for renewables and the removal of regulatory obstacles to coal-fired plants, as well as uncertainty about the future of nuclear power.

"This, together with the lack of a carbon pricing system, in my mind sets the stage for a coal plus renewables future in Japan," said Mr. van Beurden, who said that such developments mean the industry cannot take it for granted that gas will play an important role.

Considering that the UN Climate Change Conference, COP 21, will be held at the end of the year in Paris, he said: "Let's take the chance that offers to engage with governments to discuss the policy instruments they will use to reduce emissions in a cost efficient way."

Recalling Shell's announcement, along with the GE Group, Statoil, BP, ENI, and Total, Mr. van Beurden stated: "We need governments to provide a clear, stable, long-term global policy framework for a transition to a low-carbon economy."

He explained that would reduce uncertainty and help the world to invest in the right low-carbon technologies and the right resources in the right place.

"These six companies think that an effective price on carbon should be at the center of these frameworks. If governments act to make industrial users pay for carbon, this discourages the use of coal and higher carbon options, and it also encourages the most efficient ways of reducing emissions widely."

He says he's urging governments and the UN at COP 21 and beyond to introduce well implemented carbon pricing systems where they do not yet exist, at national and regional levels. "And I urge them to create an international framework that could eventually connect these national systems."

Such policy, he said, is also crucial for opening up new markets, in light of the industry having been successful in creating new sources of supply. This opened up questions, he explained, like how to encourage governments to open up more to LNG. "How do we seize the opportunities that local markets and countries, rich in gas resource, have to offer?" he asked. "How can we, along with innovating of liquefaction as an industry, encourage governments to adopt policies that will enable a greater use of LNG as a transport fuel, for ships and heavy duty trucks?

"In short, how do we make sure that natural gas plays the critical role it deserves in giving more people access to energy?"

Recognizing that effective carbon pricing systems would level the playing field, Mr. van Beurden said the downside is that overall energy costs will increase, possibly resulting in slowed economic growth in emerging economies. "Eventually, this would be bad news for everybody," he commented, "including our sector."

Cost, he said, will be critical in making natural gas the natural choice for as many countries as possible.

"Frankly, the cost trends in our industry, that our industry has experienced over the last 2 decades, are simply unsustainable," he opined, adding that the sector needs to more effectively drive costs down. The core challenge to drive down core cost inflation, he said, is in design, construction and engineering.

He offered that one example of Shell doing this is the company's floating LNG project, Prelude. "It's the world's largest floating offshore facility. It will be used to open up large natural gas field at sea that in the past would've been considered too costly to develop at all."

Shell is using its learnings from Prelude, according to Mr. van Beurden, things like standardization, replication and scope rationalization, leading to spinoffs like "FLNG lean."

He wrapped up by noting that according to Shell's energy scenarios and that of the IEA, the demand for gas will continue to grow at rates above 2% per year, and LNG will continue to increase its share of the gas business. "But we cannot sit back and relax," he said, adding that three things are crucial for meeting the world's energy needs while safeguarding the environment: fewer emissions, better policies and lower cost.

"Working together offers the best chance of firmly establishing gas as a core pillar of a sustainable energy future."

naturalgaseurope.com

Tags: GAS, LNG, SHELL,

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