| In the OECD markets, much hinges on the role
natural gas will play in the electricity sector. The environmental credentials of natural gas as a
cleaner source of electricity are strong.
Modern gas plants emit between 50% and 70%
less CO2 than coal-fired plants. New gas-fired
capacity plants can also be installed faster and
at much lower capital cost than other sources
of electricity. This makes natural gas a vital
ally in the world’s search for a more sustainable
energy future. If we give natural gas the
space to grow, it will alter the world’s energy
landscape for the better.
NATURAL GAS REVOLUTION
I’d like to zoom in on the role of natural
gas. In a world of surging energy demand, we
will need to mobilize the world’s entire mix of
energy sources unless we want to risk condemning
billions of people to energy poverty.
In that mix, natural gas, as the cleanest-burning
fossil fuel, will play a prominent role in the
decades to come.
When it comes to natural gas supplies,
a revolution is under way. This natural gas
supply revolution has increased energy security
for North America. And it has the potential
to alter the energy landscape for the world
as a whole. It has the potential, but whether it
will actually do so depends not only on the
availability of supplies. It depends just as
much on the market forces and government
policies that will shape the demand for natural
gas.
THE SUPPLY REVOLUTION
The natural gas supply revolution itself
rests on two innovation pillars. First,
improvements in production technologies
have made it economical to produce shale gas
and tight gas resources that were previously
considered too difficult to tap. Royal Dutch
Shell is helping to drive this supply revolution
with billions of dollars worth of investment in
the North American natural gas sector over
the past few years.
For instance, we recently acquired East
Resources, with over 4,000 square kilometers
of net acreage including a large position in
the Marcellus shale in the north-east of the
USA – which means that it’s close to the
largest gas market in North America.
Worldwide, there’s now enough technically
recoverable gas in the ground for 250 years at
current production rates.
The other pillar is the diversification
and globalization of natural gas markets, driven
by liquefied natural gas, or LNG, and to a
lesser extent gas to liquids technology. In the
Groundbirch area in north-east British
Columbia, Shell is producing natural gas from
a very large reservoir, consisting of tight
sandstone, siltstone and shale, at a depth of
about 2,500 meters.
We’ve known for a long time that shale
and tight gas resources were abundant. The
problem is that the gas is trapped in very
tight rock, from which it cannot escape in
commercial quantities, unless we use special
techniques.
HYDRAULIC FRACTURING
Hydraulic fracturing is the technique
used to stimulate gas flow. I realize that
there’s some public concern that fracturing
could affect fresh water layers in the ground.
We take that concern seriously. At Shell, we
comply with regulations and follow strict procedures
to ensure that the process is safe. We
believe that we have the right skills in fields
from geology to drilling, to produce tight and
shale gas safely and responsibly.
The natural gas we produce lies far
below the fresh water layers. As an extra protection
measure, we line the wells with steel
barriers and concrete. This is not to suggest
that nothing could ever go wrong. We’ve
recently been reminded that things sometimes
can and do go wrong.
But let’s also remember that energy is
the lifeblood of civilization. Whether we like it
or not, producing energy and delivering it to
billions of customers around the world comes
with certain risks.
Rather than closing our eyes to that
reality, we must confront risks and manage
them as effectively as we can. That requires
good safety standards and well-trained people.
And at Shell, we think we have both.
In our operations, local communities
are key stakeholders. So we try to listen. And
we try to involve them. For instance, at
Groundbirch last year, we made over 40% of
our expenditures to businesses in northeast
British Columbia. Overall, the shale and tight
gas boom is a positive story of innovation,
new jobs and a massive growth of cleaner,
more affordable energy supplies.
The facts speak for themselves: Only a
few years ago, the assumption was that North
America’s gas production would decline.
Today, instead of declining, production has
increased dramatically.
So has the total resource base, which is
now big enough to cover North America’s
current gas consumption for well over a century.
The echo of this supply revolution is
heard far beyond North American shores: It
has freed up liquefied natural gas supplies for
other markets. It has also inspired other
nations to search for new gas resources.
For instance, in China, Shell operates
the Changbei tight gas field, under a production
sharing agreement with Petrochina. It
supplies natural gas to Beijing and other
Chinese cities. And we’re currently working
together with CNPC and PetroChina to
appraise and hopefully produce potentially
very large tight gas and shale gas resources
elsewhere in the country.
In Europe, Shell holds acreage with
potential to produce shale gas and coalbed
methane in Germany and Sweden, and we’re
already drilling our first exploration wells.
In Australia, in the years ahead, we plan
to convert coalbed methane into liquefied natural
gas for Asia’s fast growing gas markets.
In South Africa we are studying the country’s
shale gas potential.
LIQUEFIED NATURAL GAS
The second pillar of the supply revolution:
the technologies that have allowed us to
grow and diversify the market for natural gas,
in particular liquefied natural gas.
As we have seen, North America won’t
have a structural need for LNG anytime soon;
that doesn’t leave out the possibility for cargoes
of opportunity. But in other key markets,
even the most optimistic supply scenarios still
leave considerable room for LNG to fill.
Consider western Europe, where production
of tight and shale gas and coalbed
methane will not take off before 2020.
Meanwhile, conventional gas production is in
steady decline. To fill this gap, more gas
imports will be necessary, much of which will
take the form of LNG. LNG’s unique flexibility
allows it to follow demand as it shifts
around the world. This enhances global energy
security.
Traditional markets in Europe and Asia
will be joined by China and a host of new
countries like Thailand, Singapore and
Pakistan. And who would have thought that
one of the very first cargos from Sakhalin II
in eastern Russia would have gone to Kuwait
last year!
It’s been more than 40 years since Shell
technology helped start up the world’s first
liquefied natural gas exporting plant in
Algeria. Today, we are developing Floating
LNG, an innovation that will allow us to liquefy
gas at sea on huge floating facilities, instead
of building pipelines to the coast. That opens
up offshore gas resources once considered
too remote to tap.
As a result of such innovation and
progress, world-wide LNG supply growth is
around 6-8% per year. By 2020, LNG supplies
could meet one-fifth of global gas needs. The
growth of LNG and the shale and tight gas
boom are two mutually reinforcing developments.
They both enhance long-term gas supply
security. Both developments should give
governments and investors greater confidence
to support natural gas for the long
term.
GAS-TO-LIQUIDS, OR GTL
In Qatar, we are nearing completion of
our massive Pearl gas-to-liquids plant. Gas-toliquids
technology enables us to convert natural
gas into products you’d normally expect
us to derive from oil. For instance, we’re
already preparing to sell a new GTL kerosene
blend to the aviation industry for commercial
aircraft. Pearl GTL will produce enough gas
to liquids fuel to fill over 160,000 cars a day
and enough base oils each year to make lubricants
for more than 225 million cars.
Another option is for natural gas to be a
key source of electricity for the world’s growing
fleet of hybrid electric vehicles, such as
the Chevrolet Volt that’s about to be introduced
in Detroit.
And we could talk about natural gas as
a feedstock for chemicals and hydrogen, but
that would require another speech.
The key message is this: the supply picture
has seen a spectacular improvement in
recent years. There’s plenty of gas, and we
have learned to create value.
DEMAND OUTLOOK
A key question is whether the world’s
appetite for natural gas will keep pace with
supplies. At a global level the answer is yes
because of economic growth in emerging
markets. Today’s annual demand is 3.1 trillion
cubic meters or 110 trillion cubic feet. At
Shell, our view is that global gas demand
could rise by one-quarter by 2020, and by
almost 50% by 2030. That would represent
double the growth of oil during the same period
in the IEA’s reference case.
In the emerging economies, continued
economic growth will push up gas demand
across all sectors. In China, the government
wants to more than double the share of natural
gas in the country’s energy mix to around
the 8-10% mark by 2020. In ten years, China’s
annual gas demand could reach a level comparable
to half the current gas demand of the
USA.
This helps to explain why China and
other Asian countries remain keen to secure
supplies through long-term contracts. As
China gains confidence about the scale and
accessibility of its new domestic gas
resources, so the appeal of natural gas will
strengthen, and the country’s gas demand
may continue to surge in the following
decade to 2030.
In the Middle East and North Africa,
the demand for natural gas is also surging. As
a result, that region’s gas consumption will
approach European levels by 2020. In the
OECD markets, the growth of gas will
depend primarily on the power sector.
ENVIRONMENTAL CREDENTIALS
The environmental credentials are also
strong: modern gas plants emit between 50%
and 70% less CO2 than coal plants. In the
USA, coal-fired power currently accounts for
80% of CO2 emissions from the power sector,
and for around one-third of the country’s total
emissions. If the USA would double the utilization
rate of its existing natural gas turbines
to around 80%, it would displace nearly onefifth
of the CO2 emissions from coal-fired
power plants at little or no additional cost. We
will have to fit the newer, larger coal plants
with carbon capture and storage technology,
or CCS. And further out, we could add CCS
to natural gas plants, to bring their emissions
down to nearly zero. We need to advance
CCS fast, to allow it to realize its full potential
in tackling CO2 emissions in the next decade.
For that reason, governments need to maintain
momentum and commit financial support
to demonstration projects.
About the author:
Peter Voser became Chief
Executive Officer on July 1, 2009.
Before his appointment as CEO, Peter
had been Chief Financial Officer and an
Executive Director of Royal Dutch Shell
and CFO of the Royal Dutch/Shell
Group of Companies and CFO and an
Executive Committee Member of the
ABB Group of Companies, based in
Switzerland.
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