Gastech 2019: the dual challenge for gas [NGW Magazine]

Gastech 2019 was billed by its developers as a celebration of the destination energy source of the 21^st century – but as early as the first two plenary sessions, on September 17, it was clear that the discussions over the next three days would drift inexorably towards the challenges facing the industry to secure its place as the provider of the go-to fuel in a world trending increasingly towards a low-carbon future.

Jonathan Elkind, a fellow and senior research scholar at Columbia University’s Center on Global Energy Policy in New York, framed that challenge as he opened a plenary session of key gas industry leaders: the opportunity for growth in gas and the challenges – and opportunities – around the clean energy transition.

“Growth in the natural gas business worldwide has been one of the most noteworthy trends of the energy world in recent years, bringing massive benefits in terms of job creation, economic opportunity on regional and national bases, air quality improvements for cities that might otherwise be using more polluting fuels, and benefits for the global climate,” he said. “These are precious good news stories in a time when good news has seemed, at times, rather scarce.”

But the question, he said, remains: are there opportunities to continue that growth and can that growth be met while still advancing and accelerating the pace of the clean energy transition?

The future is sparky

Susan Dio, chair and president of BP America, echoed earlier comments at Gastech’s opening ministerial panel – from Nadeem Babar, special assistant on petroleum matters to Pakistan’s prime minister – that access to electricity, and more importantly, how that electricity will be generated, will largely determine what role, if any, natural gas plays in a low-carbon future.

“We are faced with a dual challenge: we’ve got growing population – today there’s about a billion people who don’t even have access to electricity – and so the demand for energy is going to continue to increase – yet we need to be producing energy at about half of the carbon emissions that we do today,” she said. “We need reliable, affordable energy across the globe and I think natural gas plays a key role in that.”

Earlier, Pakistan’s Babar had opined that the growing use of big data and artificial intelligence in many facets of life would drive electricity demand; that by 2050, there would be more electric vehicles on the world’s roads than gasoline or diesel vehicles; and that rapid development of battery storage technologies was all that was preventing renewable energy from displacing all fossil fuels.

“Looking at these three themes it is apparent that electricity’s share in the total energy mix is going to change dramatically,” he said. “Today, electricity makes up 15% to 20% of the total energy pie; in about 30 years, we will see that number double.”

But Dio offered a somewhat different perspective – renewables are important, and natural gas is a natural backup to the intermittency of renewables. And batteries, she said, are not natural gas.

“Battery-powered storage is important, but it does minutes and hours; it doesn’t do weeks or months or seasons – and it’s really important that we have reliable backup.”

Electricity yes, but also gas

Anglo-Dutch major Shell also sees a growing contribution of electricity to the global energy mix, and De La Rey Venter, executive vice president of its integrated gas ventures division, suggested that its role in the future would be “several times as large” as it is today. But as the cleanest fossil fuel for power generation, natural gas will grow along with electricity – not as rapidly as electricity, but certainly for several decades yet to come.

“That is what we believe the future holds when looked at from a distance; when we zoom in, the picture gets a whole lot more complicated, a whole lot more dynamic, and a whole lot more uncertain than it has been in many decades,” he said. “There are powerful forces of change that are gaining momentum in every single segment of the energy system.”

Barriers to entry into the global energy system are coming down everywhere, Venter said, and individuals around the world are increasingly winning the opportunity to choose the energy and environmental future that they want. Buying power and decision-making in energy is shifting away from the few – big utilities and government – to the many – individuals and businesses – who for the first time have real choice in how they get their energy. “This is a sea change in the underlying dynamics of every single segment of the global energy system.”

This sea change, Venter said, has created what he calls two “mega-markets” in the world of energy: the old style, wholesale market, with big volumes being sold long-term to big buyers. That used to be “our bread and butter space”, but as entry barriers have come down, so too have profits – players with big, diverse supply and customer footprints can continue to earn a decent living, but for others, it will become an increasingly difficult place to thrive.

“The second market segment is quite different, and more a market of the future,” Venter continued. “It is an emerging market segment that is a product of all these forces of change. It’s a place where power is shifting from big regulated utilities to individual customers, to businesses and to cities; who increasingly demand clean energy; who have a strong social conscience; who are increasingly electrifying their consumption. They are open to engage with new technology, and they want their energy suppliers to be deeply committed to a sustainable future.”

In this market, hybrid offerings – of gas and renewables, of storage, of behind the meter optimisation, of carbon offsets and other environmental products – will play well with consumers. But making money won’t be easy, as margins will be razor thin and “many aspiring players” will fail or will be bought out.

“But it is where a lot of quality demand growth will be found in the future, and it is a segment we have a lot of confidence in, because in many ways, it plays to the strengths of a company like Shell.” 

Emerging markets, slumbering infrastructure

Regardless of what the future gas and energy markets might look like, both the business leaders’ panel and the opening ministers’ panel agreed on what the industry already knows: future demand growth will largely come from emerging markets, primarily in Asia and Africa.

But many of those markets are infrastructure-poor, said Laurent Vivier, president for gas at French Total, and the industry must participate in the build-out of infrastructure in places like India and Pakistan if it is going to reap the opportunities available there.

Ashish Chatterjee, joint secretary for natural gas in India’s ministry for petroleum and natural gas, said his country recognises it has an obligation to move its energy mix away from the coal that now dominates it, and is working to develop renewables and natural gas opportunities.

“We are going to create the gas infrastructure that we need to make natural gas accessible and affordable to all,” he said.

Domestic producers are being given better prices than they’ve enjoyed in the past; the country has more than 50mn mt/yr of LNG regasification capacity, but is building five more import terminals, hoping to see regas capacity reach 100mn mt/yr; and it’s looking to nearly double the 16,500 km of natural gas trunk lines now in operation, while also building out city gas distribution systems.

Pakistan, too, is working to revive a natural gas segment which as recently as the late 1990s supplied more than half of the country’s energy needs.

“Since the end of the 90s until today, natural gas has gone through a period of neglect, and we are now trying to fight that,” he said. “We have completely opened up the LNG market. From zero LNG imports four years ago, we are today importing 10mn mt/yr of LNG. We have just opened the market to private companies, and we expect this 10mn number to go up to 20mn within five years.”

In the context of emerging markets, there are opportunities everywhere; Don Wallette, executive vice president and CFO for US major ConocoPhillips, said “the world is thirsty for energy and it’s only going to get thirstier – oil and gas are not going to go away anytime soon.”

But as both the business leaders’ panel and the earlier ministers’ panel discussed, there are as many – if not more – challenges to winning those opportunities as there are opportunities. Stranded assets, long-term versus short-term contracts, new financing models, the place of technology in the equation, securing a viable workforce were all mentioned in one context or another as challenges that lie ahead.

And Woodside’s Coleman added one other: the likelihood that one or two “cataclysmic weather events in a developed country” would “change regulators’ minds” once and for all.

“I think the regulators that are there wish to change; what they are looking for is an initiating event that allows them to make those.”

Demon methane

But at the top of the list, at virtually every Gastech panel session where challenges were discussed, was the biggest challenge of them all: greenhouse gas (GHG) emissions, and more specifically, methane emissions.

“Our Achilles’ heel is methane, and for us to make this industry viable, attractive and practical for the future, we have got to address the emissions,” BP’s Dio said. “Innovation is going to play a key role and it’s going to take a lot of collaboration and people working together.”

Peter Coleman, CEO of Australia’s Woodside Energy, is steadily becoming the “seer savant” of the upstream gas and LNG industry, and over the last few years, he’s seen the industry move from a position of denial to one of acceptance; now it’s trying to “secure [its] place in a low-carbon world.”

And like Dio, Coleman said dealing with the emissions question is going to be critical to that future security.

“We think we’ve got the superior product, but we’ve got to prove and demonstrate that to the marketplace, particularly from an emissions viewpoint,” he said. “There is no question of that with regard to particulates, but as we think more broadly about the greenhouse gas challenge, I don’t think we’ve done quite as well in articulating the advantage natural gas has in that area – it really is on us as an industry to demonstrate that we are cleaning up our act.”

The world is searching for a pathway to a sustainable energy future, Coleman said, and a continuation of the fossil fuel industry’s past inclination to wait to see whether the scientists are right or wrong is not an option.

“Consumers demand low emissions from energy; if we don’t heed that, someone else will compete us out of the marketplace, something else will come in,” he said. “I think we can do it, but we need to build the momentum, we need to build beyond the talk, we need to start turning it into action so that the next time we get up at this conference we are actually talking about actionable achievements we have made as an industry, not just trying to frame the problem in front of us, but now actually talking about the achievements we have made.”

Shell’s Venter, however, offered a more sombre perspective on the debate swirling around emissions: the gas industry and its environmental opponents are debating what GHG emissions will be – in the context of the Paris Accord – in 2030 or 2070. That’s an intellectually stimulating debate, Venter said, but it’s not really the point.

“The point is that what will happen to our climate is not a function of what the emissions will be in 2070 but it is a function of what the emissions are between today and 2070. The urgency to start bending down the global emissions curve this year, and next year and in the next three to five years is so often lost from the debate, and it is the real debate that has to be had,” he said. “Within that context, gas has so much to give to the world and it is beholden on all of us players in the industry, both on the supply and on the demand side, to make sure our governments, our regulators and civil society starts to appreciate the primacy of the near term and the role of gas in that near term.”