THE NATURAL GAS

REVOLUTION: TRANSFORMING
ASIA'S ENERGY LANDSCAPE

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 driving rising energy demand in Asia and across the world. In this speech, Malcolm Brinded, Executive Director of Upstream International at Royal Dutch Shell, describes how the current revolution in global gas supplies, driven by the opening up of tight gas and shale gas sources and the rapid expansion of liquefied natural gas (LNG), will help Asia develop a secure and sustainable 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 to ensure that the industrys operations are conducted safely, especially in the context of Asias growing deepwater oil and gas industry.

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 make the Sultanate one of Asias most important producers of oil and gas and a reliable supplier of energy supporting the regions 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 worlds 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. And in the past decade, the Champion West field, 90 km offshore of Brunei, was the location of major breakthroughs in our 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 of Bruneis production by many years.

In fact, I was working in Brunei at the time we discovered the Champion West Field, way back in 1975. Because of its complexity, 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 in Brunei will increasingly be needed to address the regions and the worlds growing energy challenges. And I am aware that considerable government thought has gone into guiding and preparing an Energy White Paper to ensure long-term energy security for Brunei, and to establish a resilient energy industry to support the Wawasan Brunei 2035.

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 meeting surging long-term demand for energy, while safeguarding the environment for future generations. We are currently witnessing some truly astonishing developments in the global and regional gas markets. Most important, they give ASEAN countries and the wider Asia region the opportunity to reduce their dependence on coal-fired power, with all its environmental disadvantages. Second, since oil will remain front and centre in the global energy mix until well into the second half of this century, and since Asias deep-water resources are set to make a growing contribution Ill also explain why safety must remain the industrys overwhelming priority in the region.

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 the global energy system, and the role of nuclear power. Suffice to say, the energy industry must continue to do all it can to help the country recover from the terrible events of March. Nevertheless, there are some future trends that we can be sure about. Global energy demand could double or even triple in the first half of the century if the emerging economies follow historic patterns of economic development. And Asias economies are achieving some remarkable growth rates amid strong global macro-economic volatility.

GDP growth this year is expected to be more than 9% in China and to approach 8% in India. And among the ASEAN 5, its forecast to run at more than 5%. Contrast that with the European Commissions latest growth forecast for the EU in 2011: 1.7%.
But with economic success comes rising levels of energy consumption. Tens of millions of people are buying their first cars, televisions and refrigerators. And governments are taking steps to lift their poorer citizens out of real energy poverty. Its a sobering thought that nearly 1.5 billion people around the world still lack access to electricity. 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.

According to a new report on urbanisation by Shells scenarios planners, energy consumption in Chinas cities is expected to more than double in the next decade-and-a-half in Indian cities it could triple.
For perspective, I should add here that the amount of energy consumed by cities is also determined by their density: more sprawling, less compact cities tend towards higher levels of per capita energy consumption. To keep pace with all this demand, Asia and the world will need to invest heavily in all energy sources, from oil and natural gas to biofuels, nuclear power, solar and wind.

According to the IEA, as much as $33 trillion of cumulative investment in the global energy supply infrastructure will be needed between 2010 and 2035. For perspective, thats around $25 billion every week.

At the same time, countries in Asia and beyond are attempting to make the journey to a more sustainable energy system. For example, the Chinese government wants to deliver a 17% reduction in CO2 emissions per unit of GDP as part of its 12th Five Year Plan. According to the consensus of climate scientists, the concentration of CO2 in the atmosphere should be limited to 450 parts per million to avoid levels of global warming with significant negative consequences. 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 the world 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 a more prominent place on the policy agenda to the challenge of adapting to the consequences of climate change.

Nevertheless, at Shell, we think that renewable sources could supply up to 30% of global energy by 2050 up from 13% today. That would represent a shift of truly historic proportions, given the financial and technical constraints facing new energy sources. But even so it also means that fossil fuels will continue to meet around 60% of demand and nuclear the remainder. So a sustainable energy system will not just be one in which renewable energy sources meet a growing share of demand. Cleaner fossil fuels, such as natural gas, must also play a more prominent role.

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 fired power with natural gas is the fastest and cheapest route to CO2 emissions reductions in the global power sector over the next 20plus years.

Coal was responsible for as much as 44% of energy related 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 alone is expected to be roughly double the increase from the entire global transport sector. Natural gas is the quickest way to tackle these emissions because modern gas plants emit half the CO2 emissions of new coal plants, and up to 70% less CO2 than the old steam turbine coal plants, of which there are still hundreds in Asia, Europe and the US.

And natural gas capacity is faster and less costly to install than any other new source of electricity. They require only half the capital cost 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 of offshore wind power.
But when it comes to coals heavy environmental cost, CO2 emissions are not the only game in town. We must also address local 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 human health, in many Asian cities. Natural gas offers immediate and substantial benefits here, too. Analysis carried out by various organisations, including the US National Energy Technology laboratory suggests that a combined cycle gas plant emits negligible particulates. And compared with a supercritical pulverised coal plant emits:

 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 power only has a temporary role to play in the era before renewable energy sources take over in other words, that it is just a transition fuel. But the reality is that natural gas will play a critical role in a sustainable energy system for many decades beyond 2030. Why is that? Unlike many electricity sources, gas-fired power can also be switched on and off with relative ease. That makes it the ideal and necessary ally of the intermittent power generated by wind, solar and other renewable sources.

And over the longer term, carbon capture and storage technology could reduce emissions from gas-fired power close 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 CO2 emissions, and requires only 50% of the underground storage space. 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-carbon economy. 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 of power for Asias growing stock of electric vehicles. That would also help to ease many Asian countries rising oil import needs.

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 and particulates, while meeting sharply rising demand for transport fuels in Asia.

More policymakers around the world are now waking up to the many advantages of natural gas, as global supplies continue their remarkable expansion. Total worldwide recoverable gas resources are now estimated as being equal to 250 years of current production.

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 some quarters about whether global gas supplies can really expand fast enough to meet projected demand. So lets zero in on the astonishing developments taking place in the global gas markets, and what they mean for Asia.

Tight gas, shale gas & coal seam gas And lets start with the opening up of vast new tight gas, shale gas and coal seam gas deposits all abundant gas resources trapped in 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 in drilling and fracturing the rock to release this gas, so tapping these resources 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 has more than a century of supplies at current consumption rates, just a few years after it was feared that long-term production decline had set in.

Whats becoming clearer is the potential for replicating the gas production boom in the rest of the world. China and Australia are most likely to trigger the next wave of the revolution, but South Africa, Indonesia and India also hold significant shale and coal seam gas deposits. Chinas deposits of these gas resources are potentially enormous. For example, its technically recoverable shale gas resources could be 50% bigger than those of the US, according to a report published earlier this year by the United States Energy Information Administration. This could play a major role in helping the Chinese government to boost the share of natural gas in the countrys energy mix, reducing its dependence on coal.

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.

Brunei, Indonesia and Malaysia are deeply woven into the fabric of the LNG industry, as major long-term suppliers. And continued exploration will 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 track demand as it shifts and fluctuates around the world. At Shell, we think global LNG demand could double this decade, with Asia the biggest driver.

For example, with gas demand in ASEAN countries rising fast, some are now poised to become LNG importers for the first time, with new LNG trade routes supplementing the regions pipeline infrastructure.
The growth in LNG supplies is equally impressive. In the past two years alone, global liquefaction capacity has increased by more than 100 bcm (75mt), or around 40%.

Qatar, the worlds largest LNG supplier, has provided a sizeable chunk of that and now accounts for more than onequarter 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 contractual commitments 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 massive innovation, rapid global and regional LNG expansion and a few surprises. For example, even North America is now preparing to become an LNG exporter and who would have seen that coming ten or even five years ago?

Earlier this year, the US Department of Energy gave the go-ahead to LNG exports from the countrys Gulf Coast. Thanks to the United States tight gas production boom, as little as 6-7% of its enormous LNG import capacity (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 predicted to 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 in Australia, which is emerging as the next major force in the global LNG market.
The country has around half a dozen large-scale LNG projects planned or under construction. These include Arrow Energy, Shells joint venture with CNPC, which plans to convert coal seam gas to LNG, making this abundant gas source exportable to China and other Asian countries. By around 2020 Australias LNG export capacity could be nearly 120 bcm (90 mtpa).

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 stranded because 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.

The Prelude Floating LNG facility will have LNG capacity of 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 totalling some 6.8-8.2 tcm (240-290 trillion cubic feet) around the world. Thats equivalent to more than double total worldwide natural gas demand in 2008.

So having designed the first FLNG facility, we hope to develop and build many more around the world, including in Asian waters.
So these are all ways in which the global gas supply revolution will accelerate in the years ahead - and theyre all reasons why Asian countries can back natural gas with growing confidence.

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 rise by nearly one-fifth by 2030, driven by rising car ownership in emerging economies. Satisfying this demand will be no easy task, since readily accessible energy resources are dwindling. So the industry must continue to safely access oil trapped in hard-to-reach locations, including in Asias many discovered and prospective deepwater fields. Shell, for example, is delighted to be the operator of the Gumusut field in offshore, just around 120 km from here, where we have a 33% share in the development. And Brunei Shell Petroleum is proud to have drilled Geronggong, Bruneis first commercial deepwater discovery. Both of these fields lie in over 1,200 metres of water.

Deep-water developments are increasingly common and the need to execute them safely remains vital. The Deepwater Horizon in the Gulf of Mexico last year was a tragic reminder that constant vigilance is needed to ensure safe operations. At Shell, this incident prompted a thorough review of safety procedures and standards -- particularly in the most challenging deep water conditions. The assessment included a review of our operating practices, training requirements and the frequency of critical equipment tests. We found that our standards were already industry-leading, but we also made some adjustments, such as reinforcing the safety component of our mandatory training classes for well engineers.

Beyond our own practices, we are also working with industry associations to promote high standards at all companies, 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 the industry must increase capability to intervene in the event things go wrong. Several companies, including Shell, have already built additional containment equipment designed to cap wells in deep water and capture leaking oil. Shell is also part of a consortium that is building a $1 billion 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 enhance coordination and ensure that capping and containment equipment is quickly available, wherever it is needed.

With eight other oil and gas companies, we are detailing the technical requirements for equipment for use globally outside the Gulf 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 is looking at the industrys capability to cap wells, as well as at hardware to apply dispersants underwater to break up oil before it reaches 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 a more sustainable global energy system. And with the surge in worldwide gas supplies, Asia has a wonderful opportunity to tackle its heavy environmental burden.

The region is in the frontline of the next wave of the global supply revolution, as major new gas resources are opened up and the LNG market continues its breakneck expansion. This will allow Asia to move with confidence towards a more secure, sustainable and economic energy future, especially in the power sector. But as the industry ramps up production of oil and gas to satisfy sharply rising demand across the region, we must maintain a relentless focus on safety and achieving the very highest operational and environmental standards. Thank you.