Beware the threat of coal

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Asian countries should prioritize the role of gas as an energy source and ensure that the region does not allow coal to dominate energy provision, Maarten Wetselaar, Acting Upstream International Director at Shell, said in his executive keynote address to a packed house at the opening session of Gastech 2014.

“Asia has the chance to avoid the mistakes that Europe has been making,” he said, noting the negative impact that access to cheap US coal supply has made on the growth of gas use in economies, such as Germany and the UK. Both countries recorded increased carbon emissions over recent months on the back of greater coal use, reducing prospects for the European Union to hit its future carbon emissions targets.

Cheap US coal is likely to remain an economically attractive proposition for European economies still recovering from the global economic downturn, as long as the US has sufficient domestic shale gas supplies to provide power at home, leaving US coal producers eager to find new markets abroad.

Wetselaar said that a major challenge for the gas industry was to ensure that coal did not win out. The stakes are high, given that the potential for gas demand growth in Asian countries, in particular, remains immense. He noted that this year, despite greater gas consumption, gas would only account for 6% of China’s energy provision, compared to 67% for coal.

While the future global energy mix is likely to feature a combination of intermittent renewable energy, such as wind and solar power, backed up with a reliable-output fossil fuel, it made more sense for that fossil fuel to be gas rather than coal. “I don’t recommend the renewables-with coal strategy to anybody,” he said.

Renewables-plus-gas made more sense, given the lower carbon emissions of gas— around half those of coal-burning—and also because gas produces fewer particulates than coal. That would reduce the chances of air pollution worsening in major cities, such as Beijing, Seoul and Tokyo.

“Because gas is much cleaner than other hydrocarbons, it is, in many ways, the sustainable hydrocarbon,” Wetselaar said. Application of carbon capture and sequestration techniques could reduce emissions from gas-fired power stations by more than 90%, he added.

Shell’s most recent outlook for the industry outlined two possible extreme paths for the gas industry: the first is a “mountain” scenario, in which gas becomes the backbone of the world energy system, replacing coal in many places as a primary source of power generation while also becoming a widely used transport fuel. Under this scenario, gas replaces oil as the world’s leading primary energy source by 2030.

The second is an “ocean” scenario, in which gas production continues to grow, but the great expectations for the industry are not fulfilled. The economics militate against gas production, reserves decline, and public policy support for gas is absent, restricting growth of the industry.

Wetselaar said that, despite the benefits of increased gas use and a background of fast-rising energy demand, the industry could not be sure of extending its success into the future. This will require increased collaboration between all partners involved in the gas value chain, as well as continuing technological innovation to ensure that gas supply remains efficient and competitive.

“A central place for gas in the energy future should not be taken for granted,” Wetselaar said.  “Without good and sound public policy and strong innovation, there is a risk of failing to realize the opportunities of natural gas.”

Continuing cooperation between international oil companies and national oil companies would also be essential. He noted that Shell’s own collaborations with NOCs and other state companies across Asia were already paying dividends in countries, such as China and South Korea.

While Wetselaar welcomed new policy from the European Commission, designed to bolster the European Union’s flagging carbon emissions trading scheme, as a step in the right direction, he said the gas industry remains concerned that it will be unable to deliver a sufficiently high carbon price to persuade power providers to prioritize the use of cleaner gas over coal.

Innovation has been central to the success of the gas industry, which this year marks the 50th anniversary of the world’s first LNG shipment by sea, from Algeria’s Arzew plant to the UK. Since then the industry has risen to numerous fresh technological challenges.

Shell itself has plowed billions of dollars into the complex technology of gas-to-liquids plants, such as the Pearl facility in Qatar, and now its flagship Prelude floating LNG project.

Much has been made of the large-scale of the 488-meter-long Prelude facility— the world’s largest floating structure, whose hull was floated from Samsung Heavy Industries’ Geoje shipyard in South Korea in December 2013. However, Wetselaar says that the project’s most innovative aspect may prove to be its relatively small footprint, compared to existing land-based LNG plants. He said the ability to cram a plant producing 3.6 mtpa of LNG, 1.3 mtpa of condensate and 0.4 mtpa of LPG into the restricted space available on the facility may set a blueprint for much more compact LNG developments in the future.

Article appears courtesy of Hydrocarbon Processing, the publisher of the official Gastech show daily newspaper.