global asia energy-the natural gas revolution: transforming asia's energy landscape

7/29/2019 GLOBAL ASIA ENERGY-The natural gas revolution: transforming Asia's energy landscape

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THE NATURAL GAS

REVOLUTION: TRANSFORMING

ASIA'S ENERGY LANDSCAPE


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Speech given by Malcolm Brinded, Executive Director,Upstream International, at the ASEAN Energy Business Forum,Brunei, September 21, 2011.

Growing population levels and economic growth are drivingrising energy demand in Asia and across the world. In thisspeech, Malcolm Brinded, Executive Director of UpstreamInternational at Royal Dutch Shell, describes how the current

revolution in global gas supplies, driven by the opening up oftight gas and shale gas sources and the rapid expansion ofliquefied natural gas (LNG), will help Asia develop a secure andsustainable energy supply. By displacing coal-fired power,natural gas is the quickest and cheapest way to cut emissions

of CO2 and harmful local pollutants in the power sector.Malcolm also describes some of the steps Shell is taking toensure that the industrys operations are conducted safely,

especially in the context of Asias growing deepwater oil andgas industry.


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The natural gas revolution: transforming Asias energy

landscape

Good afternoon. Its a great pleasure to be back in Brunei.

Shell and Brunei have a long and rich history together,dating back over 80 years. Its a history that illustrates the

importance of working together and of using innovation and

technology to make the most of precious energy resources.The partnership between Shell and Brunei has helped makethe Sultanate one of Asias most important producers of oil

and gas and a reliable supplier of energy supporting theregions rapidly growing economies.

And of course the income from oil and gas means thatBrunei has one of the highest GDPs per capita in the world.


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Like Shell, Brunei has a tradition as an energy pioneer. BruneiLNG began operating one of the worlds first large-scale

liquefied natural gas facilities back in 1972. Over thesubsequent 40 years, Brunei has safely delivered more than6,000 LNG cargoes, mainly to Japan and Korea, underpinningthe energy security of both countries.

And in the past decade, the Champion West field, 90 kmoffshore of Brunei, was the location of major breakthroughs inour Smart Fields technology. It combines sensors and

powerful computer systems with traditional reservoir controls,which can help to increase the amount of oil recovered from a

field by as much as 10%, so contributing to the extension ofBruneis production by many years.


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In fact, I was working in Brunei at the time we discovered theChampion West Field, way back in 1975. Because of itscomplexity, it lay untapped until Smart Fields technology was

ready to bring it on-stream nearly 30 years later.

The kind of deep partnership and pioneering spirit so evident inBrunei will increasingly be needed to address the regions and

the worlds growing energy challenges.

And I am aware that considerable government thought has goneinto guiding and preparing an Energy White Paper to ensure

long-term energy security for Brunei, and to establish a resilientenergy industry to support the Wawasan Brunei 2035.


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Today, Ill also look ahead to the future. And Ill focus on two

main themes:

First, Ill describe the vital contribution of natural gas in meetingsurging long-term demand for energy, while safeguarding theenvironment for future generations.

We are currently witnessing some truly astonishing

developments in the global and regional gas markets. Mostimportant, they give ASEAN countries and the wider Asia regionthe opportunity to reduce their dependence on coal-fired power,with all its environmental disadvantages.

Second, since oil will remain front and centre in the globalenergy mix until well into the second half of this century, andsince Asias deep-water resources are set to make a growingcontribution Ill also explain why safety must remain theindustrys overwhelming priority in the region.


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The regional and global energy challenge

So, first, the big picture.

The reality is that its still too early to assess how this years

tragedy in Japan might affect the long-term evolution of theglobal energy system, and the role of nuclear power. Suffice tosay, the energy industry must continue to do all it can to helpthe country recover from the terrible events of March.

Nevertheless, there are some future trends that we can be sureabout.

Global energy demand could double or even triple in the first

half of the century if the emerging economies follow historicpatterns of economic development.

And Asias economies are achieving some remarkable growth

rates amid strong global macro-economic volatility.


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GDP growth this year is expected to be more than 9% inChina and to approach 8% in India. And among the ASEAN5, its forecast to run at more than 5%. Contrast that with

the European Commissions latest growth forecast for theEU in 2011: 1.7%.

But with economic success comes rising levels of energyconsumption. Tens of millions of people are buying their

first cars, televisions and refrigerators. And governmentsare taking steps to lift their poorer citizens out of realenergy poverty. Its a sobering thought that nearly 1.5

billion people around the world still lack access toelectricity.

Asias rapidly growing cities will be another important

factor. In part thats because per capita energy

consumption tends to be higher among urban dwellers,again because of higher levels of prosperity.


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According to a new report on urbanisation by Shells scenariosplanners, energy consumption in Chinas cities is expected to

more than double in the next decade-and-a-half in Indian citiesit could triple.

For perspective, I should add here that the amount of energyconsumed by cities is also determined by their density: moresprawling, less compact cities tend towards higher levels of per

capita energy consumption.

To keep pace with all this demand, Asia and the world will needto invest heavily in all energy sources, from oil and natural gas tobiofuels, nuclear power, solar and wind.

According to the IEA, as much as $33 trillion of cumulativeinvestment in the global energy supply infrastructure will beneeded between 2010 and 2035. For perspective, thats around

$25 billion every week.


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At the same time, countries in Asia and beyond are attempting tomake the journey to a more sustainable energy system. For

example, the Chinese government wants to deliver a 17% reductionin CO2 emissions per unit of GDP as part of its 12th Five Year Plan.

According to the consensus of climate scientists, the concentrationof CO2 in the atmosphere should be limited to 450 parts per millionto avoid levels of global warming with significant negativeconsequences.

On some estimates, they have already passed the 390 ppm mark,and continue to rise at an annual rate of 2 ppm. The reality is that theworld is set to overshoot the 450 ppm target: the collective focus

must now be on limiting the extent to which it does so, while giving amore prominent place on the policy agenda to the challenge ofadapting to the consequences of climate change.


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Nevertheless, at Shell, we think that renewablesources could supply up to 30% of global energy by

2050 up from 13% today. That would represent ashift of truly historic proportions, given thefinancial and technical constraints facing newenergy sources. But even so it also means that

fossil fuels will continue to meet around 60% ofdemand and nuclear the remainder.

So a sustainable energy system will not just be onein which renewable energy sources meet a growingshare of demand. Cleaner fossil fuels, such asnatural gas, must also play a more prominent role.


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Natural gas: critical to Asia

So the dramatic expansion in the worlds natural gas supplies

could not be more well-timed or more welcome.

Natural gas will not just be a reliable and abundant fuel for Asias

remarkable economic growth. As the cleanest burning fossil fuel,

it can also make an immediate impact in cushioning the

environmental impact of the regions rising energy consumption.

Thats already widely appreciated in ASEAN countries, where

gas-fired power met half of new electricity demand between 2000

and 2009.

But theres an even bigger prize at stake: displacing coal firedpower with natural gas is the fastest and cheapest route to CO2

emissions reductions in the global power sector over the next 20-

plus years.


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Coal was responsible for as much as 44% of energyrelated CO2 emissions in 2010. And it remains a central

part of the energy mix in many Asian countries,accounting for around 70% of Chinas primary energy

mix, for example.

In the run up to 2020, the incremental increase in CO2

emissions from coal-fired power in China and India aloneis expected to be roughly double the increase from theentire global transport sector.

Natural gas is the quickest way to tackle these emissions

because modern gas plants emit half the CO2 emissionsof new coal plants, and up to 70% less CO2 than the oldsteam turbine coal plants, of which there are stillhundreds in Asia, Europe and the US.


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And natural gas capacity is faster and less costly to install than anyother new source of electricity. They require only half the capitalcost of coal per MWh; one-fifth the cost of nuclear; 15% of the cost

of onshore wind, and less than one-tenth the capital cost ofoffshore wind power.

But when it comes to coals heavy environmental cost, CO2

emissions are not the only game in town. We must also addresslocal pollutants such as nitrogen oxides, sulphur dioxide and

particulates all emitted by coal-fired power in heavy quantities,with damaging consequences for air quality, and thus humanhealth, in many Asian cities.

Natural gas offers immediate and substantial benefits here, too.

Analysis carried out by various organisations, including the USNational Energy Technology laboratory suggests that a combinedcycle gas plant emits negligible particulates. And compared with asupercritical pulverised coal plant emits:


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Around 20 to 40 times less SO2 Almost 10 times less NOx While consuming around half the volume of water per

MWh.

Despite all this, some people worry that gas-fired poweronly has a temporary role to play in the era before

renewable energy sources take over in other words, that itis just a transition fuel.

But the reality is that natural gas will play a critical role in asustainable energy system for many decades beyond 2030.Why is that?

Unlike many electricity sources, gas-fired power can also beswitched on and off with relative ease. That makes it theideal and necessary ally of the intermittent power generatedby wind, solar and other renewable sources.


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And over the longer term, carbon capture and storagetechnology could reduce emissions from gas-fired powerclose to zero. Here, we must remember that CCS technology

will be more effective in combination with gas than coal,because it then needs to deal with only half the CO2emissions, and requires only 50% of the underground storagespace.

All of which makes gas not a transition fuel, but a destination

fuel, with a permanent role to play at the heart of a low-carboneconomy.

And natural gass advantages as a transport fuel are also now

coming into sharp focus, especially against a backdrop of

rapid urbanisation.

For one thing, natural gas can provide a cleaner source ofpower for Asias growing stock of electric vehicles. That would

also help to ease many Asian countries rising oil import

needs.


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But theres also growing momentum and excitement about

the potential of LNG in heavy vehicles, such as trucks,ships, barges and trains. In part, thats because it can help

to reduce CO2 emissions. Its also because its a smart

way to reduce local emissions of sulphur oxides andparticulates, while meeting sharply rising demand for

transport fuels in Asia.

More policymakers around the world are now waking up tothe many advantages of natural gas, as global suppliescontinue their remarkable expansion. Total worldwiderecoverable gas resources are now estimated as being

equal to 250 years of current production.


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As a result, according to the IEAs new gas scenario,

between 2008 and 2035 gas demand could increase by:

60% globally; nearly 8 times in China;

5 times in India; while doubling in the Middle East.

Nevertheless, there are still lingering doubts in somequarters about whether global gas supplies can reallyexpand fast enough to meet projected demand.

So lets zero in on the astonishing developments takingplace in the global gas markets, and what they mean forAsia.


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Tight gas, shale gas & coal seam gas

And lets start with the opening up of vast new tight gas, shale gasand coal seam gas deposits all abundant gas resources trappedin very tight rock.

As recently as ten years ago the industry considered them all too

difficult and costly to access. But there has been huge progress indrilling and fracturing the rock to release this gas, so tapping theseresources profitably, as well as safely.

Im sure were all familiar with how this has prompted a stunning

turnaround in North Americas gas outlook. The continent now hasmore than a century of supplies at current consumption rates, justa few years after it was feared that long-term production declinehad set in.


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Whats becoming clearer is the potential for replicating

the gas production boom in the rest of the world. Chinaand Australia are most likely to trigger the next wave ofthe revolution, but South Africa, Indonesia and India alsohold significant shale and coal seam gas deposits.

Chinas deposits of these gas resources are potentially

enormous. For example, its technically recoverable shalegas resources could be 50% bigger than those of the US,according to a report published earlier this year by theUnited States Energy Information Administration.

This could play a major role in helping the Chinesegovernment to boost the share of natural gas in thecountrys energy mix, reducing its dependence on coal.


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Shell is proud to be working with CNPC on several projects to tap these

resources. These include the Changbei tight gas field in Shaanxi

Province, which supplies gas to Beijing and other cities in eastern China.

While theres no doubt abundant gas reserves can be made available

across the globe, society should not underestimate the highly complex

technology and substantial investment required to tap them in a safe and

reliable way.

Global LNG market

The second pillar of the global gas supply revolution has much deeper

roots in Asia and especially here in South-East Asia.

Of course, Im talking about the global LNG market.

LNGs flexibility has been thrown into sharp relief by the industrys

response to the tragedy in Japan, with cargoes diverted at short notice

from a range of locations, including Russia, Australia, Korea and Nigeria,

while others, including Brunei, rescheduled maintenance to maximise

supplies.


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Brunei, Indonesia and Malaysia are deeply woven into the fabric of theLNG industry, as major long-term suppliers. And continued explorationwill open up new opportunities in all three countries.

Today, the industrys remarkable expansion continues apace, linking

new suppliers with new customers, and allowing gas supply to trackdemand as it shifts and fluctuates around the world. At Shell, we thinkglobal LNG demand could double this decade, with Asia the biggest

driver.

For example, with gas demand in ASEAN countries rising fast, someare now poised to become LNG importers for the first time, with newLNG trade routes supplementing the regions pipeline infrastructure.

The growth in LNG supplies is equally impressive. In the past twoyears alone, global liquefaction capacity has increased by more than100 bcm (75mt), or around 40%.


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Qatar, the worlds largest LNG supplier, has provided a

sizeable chunk of that and now accounts for more than one-quarter of global liquefaction capacity.

In 2011, it has brought another giant LNG train on-stream,taking its total LNG export capacity to an enormous 102bcm(77 mtpa). On the basis of existing long-term contractualcommitments around 40% of Qatars LNG is reserved for

Asian markets. But that share could rise to as much as half.

The story of the next decade will also be one of massiveinnovation, rapid global and regional LNG expansion and afew surprises.

For example, even North America is now preparing tobecome an LNG exporter and who would have seen thatcoming ten or even five years ago?


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Earlier this year, the US Department of Energy gave the go-ahead toLNG exports from the countrys Gulf Coast. Thanks to the United States

tight gas production boom, as little as 6-7% of its enormous LNG importcapacity (180bcm+) was used last year.

Overall, LNG supplies will grow at an annual rate of nearly 6%throughout this decade. And of the new global LNG capacity predictedto come on-stream between 2012 and 2017, more than three-quarters

has been earmarked for Asian markets.

So where will the new LNG come from? Much of it will be produced inAustralia, which is emerging as the next major force in the global LNGmarket.

The country has around half a dozen large-scale LNG projects plannedor under construction. These include Arrow Energy, Shells joint venture

with CNPC, which plans to convert coal seam gas to LNG, making thisabundant gas source exportable to China and other Asian countries. Byaround 2020 Australias LNG export capacity could be nearly 120 bcm(90 mtpa).


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Floating LNG

Asia will also benefit from the LNGs industrys latest major technological

breakthrough, when we start to produce and liquefy natural gas at sea,

opening up large-scale deposits that would otherwise remain strandedbecause they are too costly to tap.

In May, Shell announced the final investment decision to build a floating

liquefied natural gas facility to develop our Prelude gas field 200

kilometres off Australias north-west coast. This giant Floating LNG plant will

cool the produced gas into a liquid on the spot.

The largest offshore facility in the world, the Prelude facility will be longer

than four football fields laid end to end. And when fully equipped, and with its

storage tanks full, it will weigh roughly six times as much as the largest

aircraft carrier.

This size gives it stability in the open seas. Indeed the facility has been

designed to withstand a one in ten thousand year storm producing a 3

second gust of 390km/hr wind quite a bit worse than Hurricane Katrina.


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The Prelude Floating LNG facility will have LNG capacityof 4.8bcm (3.6mtpa): thats equivalent to more than 10%

of South Koreas total natural gas consumption last year.

We think that there are stranded gas deposits totallingsome 6.8-8.2 tcm (240-290 trillion cubic feet) around theworld. Thats equivalent to more than double total

worldwide natural gas demand in 2008.

So having designed the first FLNG facility, we hope todevelop and build many more around the world,including in Asian waters.

So these are all ways in which the global gas supplyrevolution will accelerate in the years ahead - and theyreall reasons why Asian countries can back natural gaswith growing confidence.


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Industry safety in Asia

Despite the considerable promise of natural gas, oil will clearly remain

central to the regional and global energy mix for many decades.Indeed, at Shell we think that global demand for crude oil could riseby nearly one-fifth by 2030, driven by rising car ownership inemerging economies.

Satisfying this demand will be no easy task, since readily accessible

energy resources are dwindling. So the industry must continue tosafely access oil trapped in hard-to-reach locations, including inAsias many discovered and prospective deepwater fields.

Shell, for example, is delighted to be the operator of the Gumusut fieldin offshore, just around 120 km from here, where we have a 33% sharein the development. And Brunei Shell Petroleum is proud to havedrilled Geronggong, Bruneis first commercial deepwater discovery.Both of these fields lie in over 1,200 metres of water.


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Deep-water developments are increasingly common and theneed to execute them safely remains vital.

The Deepwater Horizon in the Gulf of Mexico last year was atragic reminder that constant vigilance is needed to ensure safeoperations.

At Shell, this incident prompted a thorough review of safety

procedures and standards -- particularly in the mostchallenging deep water conditions. The assessment included areview of our operating practices, training requirements and thefrequency of critical equipment tests.

We found that our standards were already industry-leading, butwe also made some adjustments, such as reinforcing the safetycomponent of our mandatory training classes for wellengineers.


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Beyond our own practices, we are also working withindustry associations to promote high standards at allcompanies, with the aim of reducing the likelihood of an

accident.

While preventing accidents is always the first priority,one clear lesson from the Gulf of Mexico spill is that theindustry must increase capability to intervene in theevent things go wrong. Several companies, including

Shell, have already built additional containmentequipment designed to cap wells in deep water andcapture leaking oil.

Shell is also part of a consortium that is building a $1billion rapid response system designed for use in the

Gulf of Mexico.

In addition to these efforts, were working closely with

industry partners and regulators worldwide to enhancecoordination and ensure that capping and containmentequipment is quickly available, wherever it is needed.


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With eight other oil and gas companies, we are detailing thetechnical requirements for equipment for use globally outside theGulf of Mexico that is capable of being flown to the site of a leaking

well on short notice. A team of about 40 people led by Shell islooking at the industrys capability to cap wells, as well as at

hardware to apply dispersants underwater to break up oil before itreaches the surface.

Current plans call for completing this first phase of work by the end

of 2011.

Conclusion

Let me sum up.

Coal remains by far the biggest threat to all our ambitions for amore sustainable global energy system. And with the surge inworldwide gas supplies, Asia has a wonderful opportunity to tackleits heavy environmental burden.


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The region is in the frontline of the next wave of the global

supply revolution, as major new gas resources are openedup and the LNG market continues its breakneckexpansion. This will allow Asia to move with confidencetowards a more secure, sustainable and economic energyfuture, especially in the power sector.

But as the industry ramps up production of oil and gas tosatisfy sharply rising demand across the region, we mustmaintain a relentless focus on safety and achieving thevery highest operational and environmental standards.

Thank you.

global asia energy-the natural gas revolution: transforming asia's energy landscape

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