The energy industry’s race to keep up with the global demand for natural gas is “as tight a race as the U.S. presidential campaign,” a Royal Dutch Shell plc executive said Wednesday. The difference, said Linda Cook, “is that this is not a zero-sum game with only one winner. This is a race all of us must win.”
Cook, executive director of Gas & Power for Shell, spoke Wednesday at Cambridge Energy Research Institute’s CERAWeek 2008 in Houston. Although the race will be challenging, she said the energy industry is ready for it. “We’ve done it before. We have so many examples of overcoming seemingly impossible technical and operational hurdles. We have some of the best minds in the world and a real will to succeed.”
Cook said she and her peers must face “three hard truths”:
The energy industry will have a long agenda in front of it to address these “truths,” Cook said. Historically, the United States has relied on Mexico and Canada to provide the extra gas. However, today “Mexico is a growing importer of LNG [liquefied natural gas] and Canada has a growing demand of its own. This points to LNG becoming an important key to future U.S. supplies.”
Meanwhile, she noted, Europe’s domestic gas production is forecast to soon peak. Most estimates indicate that by 2030, the European Union will import around 75% of its gas, which explains “why over 20 LNG import terminals have been built or are under construction in the region, with numerous others planned.”
There are two “emerging themes” she seeks in looking at gas demand around the world. “First, many countries are now talking about importing LNG for the first time…and many of these are countries that have traditionally exported natural gas, such as Mexico, Canada and Indonesia. This will result in a more global and dynamic LNG market.”
A second trend is the “increasing discussion within natural gas exporting countries about the need to preserve resources for their own future needs,” Cook noted. “It’s a strategy the Dutch have followed for decades. And now we see this debate arising in Egypt, Trinidad, Nigeria and in Australia, where LNG project developers are being asked to reserve a certain percentage of their natural gas for future domestic needs.”
The Shell executive said she believes something has to happen to ensure there are fewer gas supply challenges in North America.
“Large prospective areas have only restricted access or are off limits to our industry,” said Cook. “It goes without saying that in opening up new frontiers, the industry must behave responsibly, protect the environment and work closely with local communities. I think we’ve proven that we can do this, given the opportunity.
“Essentially all of the U.S. Atlantic and Pacific coasts and the Eastern Gulf of Mexico are ‘off limits’ for exploration by the industry. What little exploration has been done dates back 30 years — when we had no deepwater drilling capability, no super computers, no submarine robots and no 4-dimensional seismic models. Even when we are granted permits through established government processes, we are often blocked by local communities or NGOs [nongovernmental entities].”
As an example, Cook pointed to Shell’s attempt to drill offshore Alaska in the Beaufort Sea as “a good example” of the challenges the rest of the energy industry faces (see Daily GPI, July 23, 2007).
“After spending hundreds of millions of dollars to acquire the leases, run seismic and mobilize to drill in the short drilling season, we were blocked by legal action in California,” Cook said of the Beaufort Sea drilling plan. “The U.S. isn’t alone in this. Local opposition exists in other places such as Canada, some countries in South America, the Netherlands, Ireland and Australia. But we can’t just blame governments or local opposition. We can help ourselves, most importantly through development of new technology: technology to develop tight gas accumulations, for separation of contaminated gas, to deal with increased sulphur levels, to drill and produce in the Arctic and to develop remote offshore gas accumulations.”
As other CERAWeek speakers noted, Cook said that the industry needs more people to make its challenges doable (see Daily GPI, Feb. 14).
“The task is particularly urgent as the industry workforce is rapidly graying,” said Cook. “We need to do more as an industry to encourage kids to study science and engineering. And perhaps inevitably, we will also need to ‘look East’ to find the talent we need. According to a report by Duke University, roughly four times as many engineering students graduated from universities in China and India as in the United States in 2003-2004. Having the right global talent strategies will become a strategic differentiator.”
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