GLOBAL ASIA ENERGY - The natural gas revolution


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Shell and Brunei have a long and rich history together, dating back over 80 years. It’s 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 make the Sultanate one of Asia’s most important producers of oil and gas and a reliable supplier of energy supporting the region’s rapidly growing economies.

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

Like Shell, Brunei has a tradition as an energy pioneer. Brunei LNG began operating one of the world’s first large-scale liquefied natural gas facilities back in 1972. Over the subsequent 40 years, Brunei has safely delivered more than 6,000 LNG cargoes, mainly to Japan and Korea, underpinning the energy security of both countries.

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GLOBAL ASIA ENERGY - The natural gas revolution

  2. 2. 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 currentrevolution 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 emissionsof CO2 and harmful local pollutants in the power sector.Malcolm also describes some of the steps Shell is taking toensure that the industry’s operations are conducted safely,especially in the context of Asia’s growing deepwater oil andgas industry.
  3. 3. The natural gas revolution: transforming Asia’s energylandscapeGood afternoon. It’s a great pleasure to be back in Brunei.Shell and Brunei have a long and rich history together,dating back over 80 years. It’s a history that illustrates theimportance of working together and of using innovation andtechnology to make the most of precious energy resources.The partnership between Shell and Brunei has helped makethe Sultanate one of Asia’s most important producers of oiland gas and a reliable supplier of energy supporting theregion’s 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.
  4. 4. Like Shell, Brunei has a tradition as an energy pioneer. BruneiLNG began operating one of the world’s first large-scaleliquefied 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 andpowerful computer systems with traditional reservoircontrols, which can help to increase the amount of oilrecovered from a field by as much as 10%, so contributing tothe extension of Brunei’s production by many years.
  5. 5. 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 wasready 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 region’s andthe world’s growing energy challenges.And I am aware that considerable government thought has goneinto guiding and preparing an Energy White Paper to ensurelong-term energy security for Brunei, and to establish a resilientenergy industry to support the Wawasan Brunei 2035.
  6. 6. Today, I’ll also look ahead to the future. And I’ll focus on twomain themes:First, I’ll 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 astonishingdevelopments 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 Asia’s deep-water resources are set to make a growingcontribution – I’ll also explain why safety must remain theindustry’s overwhelming priority in the region.
  7. 7. The regional and global energy challengeSo, first, the big picture.The reality is that it’s still too early to assess how this year’stragedy 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 firsthalf of the century if the emerging economies follow historicpatterns of economic development.And Asia’s economies are achieving some remarkable growthrates amid strong global macro-economic volatility.
  8. 8. GDP growth this year is expected to be more than 9% inChina and to approach 8% in India. And among the ASEAN5, it’s forecast to run at more than 5%. Contrast that withthe European Commission’s 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 theirfirst cars, televisions and refrigerators. And governmentsare taking steps to lift their poorer citizens out of realenergy poverty. It’s a sobering thought that nearly 1.5billion people around the world still lack access toelectricity.Asia’s rapidly growing cities will be another importantfactor. In part that’s because per capita energyconsumption tends to be higher among urban dwellers,again because of higher levels of prosperity.
  9. 9. According to a new report on urbanisation by Shell’s scenariosplanners, energy consumption in China’s cities is expected tomore 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 percapita 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, that’s around$25 billion every week.
  10. 10. At the same time, countries in Asia and beyond are attempting tomake the journey to a more sustainable energy system. Forexample, 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 ppmmark, and continue to rise at an annual rate of 2 ppm. The reality isthat the world is set to overshoot the 450 ppm target: the collectivefocus must now be on limiting the extent to which it does so, whilegiving a more prominent place on the policy agenda to the challengeof adapting to the consequences of climate change.
  11. 11. Nevertheless, at Shell, we think that renewablesources could supply up to 30% of global energy by2050 – 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 thatfossil 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.
  12. 12. Natural gas: critical to AsiaSo the dramatic expansion in the world’s natural gas suppliescould not be more well-timed or more welcome.Natural gas will not just be a reliable and abundant fuel for Asia’sremarkable economic growth. As the cleanest burning fossilfuel, it can also make an immediate impact in cushioning theenvironmental impact of the region’s rising energy consumption.That’s already widely appreciated in ASEAN countries, wheregas-fired power met half of new electricity demand between 2000and 2009.But there’s an even bigger prize at stake: displacing coal firedpower with natural gas is the fastest and cheapest route to CO2emissions reductions in the global power sector over the next 20-plus years.
  13. 13. Coal was responsible for as much as 44% of energyrelated CO2 emissions in 2010. And it remains a centralpart of the energy mix in many Asiancountries, accounting for around 70% of China’s primaryenergy mix, for example.In the run up to 2020, the incremental increase in CO2emissions 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 emissionsbecause 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.
  14. 14. 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 costof onshore wind, and less than one-tenth the capital cost ofoffshore wind power.But when it comes to coal’s heavy environmental cost, CO2emissions are not the only game in town. We must also addresslocal pollutants such as nitrogen oxides, sulphur dioxide andparticulates – 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:
  15. 15. • Around 20 to 40 times less SO2• Almost 10 times less NOx• While consuming around half the volume of water perMWh.Despite all this, some people worry that gas-fired poweronly has a temporary role to play in the era beforerenewable 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.
  16. 16. And over the longer term, carbon capture and storagetechnology could reduce emissions from gas-fired powerclose to zero. Here, we must remember that CCS technologywill 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 destinationfuel, with a permanent role to play at the heart of a low-carboneconomy.And natural gas’s advantages as a transport fuel are also nowcoming into sharp focus, especially against a backdrop ofrapid urbanisation.For one thing, natural gas can provide a cleaner source ofpower for Asia’s growing stock of electric vehicles. That wouldalso help to ease many Asian countries’ rising oil importneeds.
  17. 17. But there’s also growing momentum and excitement aboutthe potential of LNG in heavy vehicles, such as trucks,ships, barges and trains. In part, that’s because it can helpto reduce CO2 emissions. It’s also because it’s a smartway to reduce local emissions of sulphur oxides andparticulates, while meeting sharply rising demand fortransport 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 beingequal to 250 years of current production.
  18. 18. As a result, according to the IEA’s new gasscenario, between 2008 and 2035 gas demand couldincrease 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 let’s zero in on the astonishing developments takingplace in the global gas markets, and what they mean forAsia.
  19. 19. Tight gas, shale gas & coal seam gasAnd let’s 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 toodifficult 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.I’m sure we’re all familiar with how this has prompted a stunningturnaround in North America’s 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.
  20. 20. What’s becoming clearer is the potential for replicatingthe 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.China’s deposits of these gas resources are potentiallyenormous. 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 thecountry’s energy mix, reducing its dependence on coal.
  21. 21. Shell is proud to be working with CNPC on several projects to tap theseresources. These include the Changbei tight gas field in ShaanxiProvince, which supplies gas to Beijing and other cities in eastern China.While there’s no doubt abundant gas reserves can be made availableacross the globe, society should not underestimate the highly complextechnology and substantial investment required to tap them in a safe andreliable way.Global LNG marketThe second pillar of the global gas supply revolution has much deeperroots in Asia and especially here in South-East Asia.Of course, I’m talking about the global LNG market.LNG’s flexibility has been thrown into sharp relief by the industry’sresponse to the tragedy in Japan, with cargoes diverted at short noticefrom a range of locations, including Russia, Australia, Korea and Nigeria,while others, including Brunei, rescheduled maintenance to maximisesupplies.
  22. 22. 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 industry’s remarkable expansion continues apace, linkingnew 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 biggestdriver.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 region’s 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%.
  23. 23. Qatar, the world’s largest LNG supplier, has provided asizeable 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 enormous102bcm (77 mtpa). On the basis of existing long-termcontractual commitments around 40% of Qatar’s LNG isreserved for Asian markets. But that share could rise to asmuch 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?
  24. 24. Earlier this year, the US Department of Energy gave the go-ahead toLNG exports from the country’s 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-quartershas 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, Shell’s joint venturewith CNPC, which plans to convert coal seam gas to LNG, making thisabundant gas source exportable to China and other Asian countries. Byaround 2020 Australia’s LNG export capacity could be nearly 120 bcm(90 mtpa).
  25. 25. Floating LNGAsia will also benefit from the LNG’s industry’s latest major technologicalbreakthrough, when we start to produce and liquefy natural gas atsea, 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 floatingliquefied natural gas facility to develop our Prelude gas field – 200kilometres off Australia’s north-west coast. This giant Floating LNG plant willcool the produced gas into a liquid on the spot.The largest offshore facility in the world, the Prelude facility will be longerthan four football fields laid end to end. And when fully equipped, and with itsstorage tanks full, it will weigh roughly six times as much as the largestaircraft carrier.This size gives it stability in the open seas. Indeed the facility has beendesigned to withstand a one in ten thousand year storm producing a 3second gust of 390km/hr wind – quite a bit worse than Hurricane Katrina.
  26. 26. The Prelude Floating LNG facility will have LNG capacityof 4.8bcm (3.6mtpa): that’s equivalent to more than 10%of South Korea’s 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. That’s equivalent to more than double totalworldwide natural gas demand in 2008.So having designed the first FLNG facility, we hope todevelop and build many more around theworld, including in Asian waters.So these are all ways in which the global gas supplyrevolution will accelerate in the years ahead - and they’reall reasons why Asian countries can back natural gaswith growing confidence.
  27. 27. Industry safety in AsiaDespite the considerable promise of natural gas, oil will clearly remaincentral 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 accessibleenergy resources are dwindling. So the industry must continue tosafely access oil trapped in hard-to-reach locations, including inAsia’s 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, Brunei’s first commercial deepwater discovery.Both of these fields lie in over 1,200 metres of water.
  28. 28. 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 safetyprocedures 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.
  29. 29. Beyond our own practices, we are also working withindustry associations to promote high standards at allcompanies, with the aim of reducing the likelihood of anaccident.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, includingShell, 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 theGulf of Mexico.In addition to these efforts, we’re working closely withindustry partners and regulators worldwide to enhancecoordination and ensure that capping and containmentequipment is quickly available, wherever it is needed.
  30. 30. 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 leakingwell on short notice. A team of about 40 people led by Shell islooking at the industry’s capability to cap wells, as well as athardware to apply dispersants underwater to break up oil before itreaches the surface.Current plans call for completing this first phase of work by the endof 2011.ConclusionLet 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.
  31. 31. The region is in the frontline of the next wave of the globalsupply 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.