Natural gas has a mammoth opportunity to act as a bridge fuel and beyond over the next 20 years, but industry has to solve the carbon issue, a top Royal Dutch Shell plc executive said last week.
Shell last week issued its fourth annual outlook for gas markets in general and liquefied natural gas (LNG) in particular through 2040. The potential demand is huge, particularly in growing economies and stranded markets, but the methane issue has to be resolved, Shell’s Martin Wetselaar said during a webinar. He oversees the Integrated Gas and New Energies business.
Gas doesn’t need to have a “massive footprint” if it is well managed, which means emissions could be reduced to “almost zero” with technologies, he said.
On its own and in collaboration with other global producers, nearly all based in Europe, Shell is working to reduce its net carbon footprint.
“It is certainly our intent in Shell to be as close to zero as possible,” he said. “We've put 0.2% target out to be met by 2025.” Shell also is co-leading a worldwide coalition, which together with nonprofit organizations, industries and multilaterals is working to promote methane reduction in the gas value chain.
In addition, gas also “needs a decarbonization story in order to play a long-term role and that
will need to come from biogas,” Wetselaar said. Carbon capture solutions need “to grow up to scale up and become a major factor, in particular when it is burned for industry or in power plants.”
Industry has to on a path toward “decarbonizing gas, taking care of the methane emissions and of course, making sure that affordability is never at risk so that...governments and people can commit to gas without worrying about overpaying across the cycles,” he said.
“These are three things that the industry should have in its own power and should
definitely be able to address ahead of the curve.”
Still, there are many corners questioning how “clean” LNG is, particularly in the amount of carbon dioxide (CO2) emissions associated with producing, converting and selling it to customers.
“It’s a crucial question, and I believe that agenda will become more and more prevalent as time goes by,” Wetselaar said. “At the moment we have some examples at the positive end, where our customers are willing to pay us extra in order for their LNG cargoes to be CO2 offset.”
Shell has sold three cargos in the past six months “that are fully carbon offset using nature-based carbon credits that we buy from reforestation and avoided deforestation products…”
Tokyo Gas, for example, markets gas in Japan as carbon-offset, and it is “attracting a premium forward for at least having a good marketing story around it. So I think that business is starting up, but more on the carbon offset side rather than customers saying ‘show to me what the exact carbon content’...
“I'm convinced that over time it will become a feature of the business.
Shell has set performance standards for the upstream CO2 component of its natural gas, both for the CO2 in the reservoir and in the upstream operations.
“We set a performance standard for the midstream and one for shipping,” Wetselaar said. “Essentially, if you add all that up, then you get very, very CO2-advantaged LNG in the tank of the customer that...would be at the left hand of the curve when customers look at the situation.”
At least, that’s the case for new LNG projects.
“Clearly, there are legacy projects in our portfolio that have a higher CO2 footprint,” he said. “ Over time, we could be exposed to a world where LNG customers then insist on looking through the chain and insist on certain CO2 footprints that were not also reflected in our economics.”
Shell’s economics forecasting is based on an expected CO2 price “not only for tomorrow, but also 10, 20, 30 years out...But eventually, I do believe that a gas market will emerge that has certain tranches of CO2 pricing or CO2 products in it. And we are determined to play at the premium end of that if we can.”
Carbon pricing, now used by all major oil and gas producers and many of the large independents, is likely to become more widespread in the United States, “where clearly there's a lot of differentiation in terms of the CO2 footprint, content of gas. So it's an active agenda for our new projects.”
Shell sets CO2 targets, but its commercial contracts deal with items including carbon offsets to create markets that are carbon independent and carbon neutral, Wetselaar noted.
“Obviously, you have the ability to turn biogas into bio-LNG,” or renewable natural gas.
For example, Shell recently announced it plans to build small-scale liquefaction plants in Germany that will produce bio-LNG, with a network of bio-LNG fueling sites for trucking across Germany.
Like many oil and natural gas executives, Wetsella warned about the movement to ban fossil fuels altogether. It’s not workable in the short term, he said.
“There is a risk that people take a shortcut and say, you know, ‘let's just forget about fossil fuels’ and just make a full bet on solar and wind to power the world, which would be a great thing if it was possible.
“But those of you who know about the energy system know molecules are a very, very important part of delivering energy, particularly to decarbonize sectors that cannot be electrified and in those sectors at the moment are 80% of the global energy demand…”
The world will continue to need “clean solutions to meet those sources of energy demand,” but there are many sectors including petrochemicals, cement, fertilizers, aviation and shipping, which would be a “very very hard thing” to electrify “and where natural gas will be a long-term play.”
Over time, biofuels and other alternative fuels “will no doubt come into that mix, but if we phase out natural gas, or if we constrain natural gas too early, we will actually look in coal and other sources for too long and that will be at the expense of progress on climate change.”
Going forward, smaller countries are expected to add “a lot of resilience” to future demand, Wetselaar said. “It’s the smaller countries that are becoming significant LNG consumers over a period of time that will add quite a lot of resilience to LNG demand.”
The growth in global gas demand “is by no means” only in the power generation and industrial sectors as the residential/commercial consumption also is increasing, Wetselaar said. “And you can see the emerging role of gas to transport as well taking 9% of the total gas growth in the coming 20 years.”
Shell estimates that 40% of the projected 2% gas growth over the next 20 years will be supplied by LNG, which would double the LNG market share in the global gas system. Over the past decade, an increasing shift from coal to gas has occurred, with coal falling by 3% in 2019 in global generation.
“That is significant,” Wetsellar said. “But it’s particularly significant because it’s mostly the result of global policies. We now have 32 countries in the world with coal phase-out commitments,” including seven alone last year by three of the largest coal users: Chile, Germany and Mexico. “In the European Union, 13 countries have coal phase-out plans, and another eight that already have exited coal. We believe that this trend is wired into policy announcements rather than a random outcome that is about to be reversed.”