In a world of rising demand for energy and growing environmental stresses, natural gas as an abundant, affordable and clean source of electricity deserves to play a greater role. The supply picture for natural gas has improved spectacularly in the past few years. Indeed, it is not an exaggeration to speak of a supply revolution, driven mainly by the boom in production of tight gas, shale gas and coalbed methane in North America.

The echoes of this supply revolution are heard far beyond North American shores: it has freed up supplies of liquefied natural gas initially destined for the USA for other parts of the world, and it has inspired other nations to search for new gas resources themselves. These developments together should give governments and investors the confidence to commit to natural gas for the long term. In the emerging markets, the demand for natural gas will grow across all sectors of the economy, driven by continued economic growth.

Peter Voser

In the OECD markets, much hinges on the role natural gas will play in the electricity sector. The environmental credentials of natural gas as a cleaner source of electricity are strong. Modern gas plants emit between 50% and 70% less CO2 than coal-fired plants. New gas-fired capacity plants can also be installed faster and at much lower capital cost than other sources of electricity. This makes natural gas a vital ally in the world’s search for a more sustainable energy future. If we give natural gas the space to grow, it will alter the world’s energy landscape for the better.

I’d like to zoom in on the role of natural gas. In a world of surging energy demand, we will need to mobilize the world’s entire mix of energy sources unless we want to risk condemning billions of people to energy poverty. In that mix, natural gas, as the cleanest-burning fossil fuel, will play a prominent role in the decades to come. When it comes to natural gas supplies, a revolution is under way. This natural gas supply revolution has increased energy security for North America. And it has the potential to alter the energy landscape for the world as a whole. It has the potential, but whether it will actually do so depends not only on the availability of supplies. It depends just as much on the market forces and government policies that will shape the demand for natural gas.

The natural gas supply revolution itself rests on two innovation pillars. First, improvements in production technologies have made it economical to produce shale gas and tight gas resources that were previously considered too difficult to tap. Royal Dutch Shell is helping to drive this supply revolution with billions of dollars worth of investment in the North American natural gas sector over the past few years. For instance, we recently acquired East Resources, with over 4,000 square kilometers of net acreage including a large position in the Marcellus shale in the north-east of the USA – which means that it’s close to the largest gas market in North America. Worldwide, there’s now enough technically recoverable gas in the ground for 250 years at current production rates.
The other pillar is the diversification and globalization of natural gas markets, driven by liquefied natural gas, or LNG, and to a lesser extent gas to liquids technology. In the Groundbirch area in north-east British Columbia, Shell is producing natural gas from a very large reservoir, consisting of tight sandstone, siltstone and shale, at a depth of about 2,500 meters. We’ve known for a long time that shale and tight gas resources were abundant. The problem is that the gas is trapped in very tight rock, from which it cannot escape in commercial quantities, unless we use special techniques.

Hydraulic fracturing is the technique used to stimulate gas flow. I realize that there’s some public concern that fracturing could affect fresh water layers in the ground. We take that concern seriously. At Shell, we comply with regulations and follow strict procedures to ensure that the process is safe. We believe that we have the right skills in fields from geology to drilling, to produce tight and shale gas safely and responsibly. The natural gas we produce lies far below the fresh water layers. As an extra protection measure, we line the wells with steel barriers and concrete. This is not to suggest that nothing could ever go wrong. We’ve recently been reminded that things sometimes can and do go wrong. But let’s also remember that energy is the lifeblood of civilization. Whether we like it or not, producing energy and delivering it to billions of customers around the world comes with certain risks. Rather than closing our eyes to that reality, we must confront risks and manage them as effectively as we can. That requires good safety standards and well-trained people. And at Shell, we think we have both. In our operations, local communities are key stakeholders. So we try to listen. And we try to involve them. For instance, at Groundbirch last year, we made over 40% of our expenditures to businesses in northeast British Columbia. Overall, the shale and tight gas boom is a positive story of innovation, new jobs and a massive growth of cleaner, more affordable energy supplies. The facts speak for themselves: Only a few years ago, the assumption was that North America’s gas production would decline. Today, instead of declining, production has increased dramatically. So has the total resource base, which is now big enough to cover North America’s current gas consumption for well over a century. The echo of this supply revolution is heard far beyond North American shores: It
has freed up liquefied natural gas supplies for other markets. It has also inspired other nations to search for new gas resources.
For instance, in China, Shell operates the Changbei tight gas field, under a production sharing agreement with Petrochina. It supplies natural gas to Beijing and other Chinese cities. And we’re currently working together with CNPC and PetroChina to appraise and hopefully produce potentially very large tight gas and shale gas resources elsewhere in the country.
In Europe, Shell holds acreage with potential to produce shale gas and coalbed methane in Germany and Sweden, and we’re already drilling our first exploration wells. In Australia, in the years ahead, we plan to convert coalbed methane into liquefied natural gas for Asia’s fast growing gas markets. In South Africa we are studying the country’s shale gas potential.

The second pillar of the supply revolution: the technologies that have allowed us to grow and diversify the market for natural gas, in particular liquefied natural gas. As we have seen, North America won’t have a structural need for LNG anytime soon; that doesn’t leave out the possibility for cargoes of opportunity. But in other key markets, even the most optimistic supply scenarios still leave considerable room for LNG to fill. Consider western Europe, where production of tight and shale gas and coalbed methane will not take off before 2020. Meanwhile, conventional gas production is in steady decline. To fill this gap, more gas imports will be necessary, much of which will take the form of LNG. LNG’s unique flexibility allows it to follow demand as it shifts around the world. This enhances global energy security.
Traditional markets in Europe and Asia will be joined by China and a host of new countries like Thailand, Singapore and Pakistan. And who would have thought that one of the very first cargos from Sakhalin II in eastern Russia would have gone to Kuwait last year!
It’s been more than 40 years since Shell technology helped start up the world’s first liquefied natural gas exporting plant in Algeria. Today, we are developing Floating LNG, an innovation that will allow us to liquefy gas at sea on huge floating facilities, instead of building pipelines to the coast. That opens up offshore gas resources once considered too remote to tap. As a result of such innovation and progress, world-wide LNG supply growth is around 6-8% per year. By 2020, LNG supplies could meet one-fifth of global gas needs. The growth of LNG and the shale and tight gas boom are two mutually reinforcing developments. They both enhance long-term gas supply security. Both developments should give governments and investors greater confidence to support natural gas for the long term.


In Qatar, we are nearing completion of our massive Pearl gas-to-liquids plant. Gas-toliquids technology enables us to convert natural gas into products you’d normally expect us to derive from oil. For instance, we’re already preparing to sell a new GTL kerosene blend to the aviation industry for commercial aircraft. Pearl GTL will produce enough gas to liquids fuel to fill over 160,000 cars a day and enough base oils each year to make lubricants for more than 225 million cars. Another option is for natural gas to be a key source of electricity for the world’s growing fleet of hybrid electric vehicles, such as the Chevrolet Volt that’s about to be introduced in Detroit. And we could talk about natural gas as a feedstock for chemicals and hydrogen, but that would require another speech.
The key message is this: the supply picture has seen a spectacular improvement in recent years. There’s plenty of gas, and we have learned to create value.

A key question is whether the world’s appetite for natural gas will keep pace with supplies. At a global level the answer is yes because of economic growth in emerging markets. Today’s annual demand is 3.1 trillion cubic meters or 110 trillion cubic feet. At Shell, our view is that global gas demand could rise by one-quarter by 2020, and by almost 50% by 2030. That would represent double the growth of oil during the same period in the IEA’s reference case. In the emerging economies, continued economic growth will push up gas demand across all sectors. In China, the government wants to more than double the share of natural gas in the country’s energy mix to around the 8-10% mark by 2020. In ten years, China’s annual gas demand could reach a level comparable to half the current gas demand of the USA.
This helps to explain why China and other Asian countries remain keen to secure supplies through long-term contracts. As China gains confidence about the scale and accessibility of its new domestic gas resources, so the appeal of natural gas will strengthen, and the country’s gas demand may continue to surge in the following decade to 2030. In the Middle East and North Africa, the demand for natural gas is also surging. As a result, that region’s gas consumption will approach European levels by 2020. In the OECD markets, the growth of gas will depend primarily on the power sector.

The environmental credentials are also strong: modern gas plants emit between 50% and 70% less CO2 than coal plants. In the USA, coal-fired power currently accounts for 80% of CO2 emissions from the power sector, and for around one-third of the country’s total emissions. If the USA would double the utilization rate of its existing natural gas turbines to around 80%, it would displace nearly onefifth of the CO2 emissions from coal-fired power plants at little or no additional cost. We will have to fit the newer, larger coal plants with carbon capture and storage technology, or CCS. And further out, we could add CCS to natural gas plants, to bring their emissions down to nearly zero. We need to advance CCS fast, to allow it to realize its full potential in tackling CO2 emissions in the next decade. For that reason, governments need to maintain momentum and commit financial support to demonstration projects.

About the author:
Peter Voser became Chief
Executive Officer on July 1, 2009.
Before his appointment as CEO, Peter
had been Chief Financial Officer and an
Executive Director of Royal Dutch Shell
and CFO of the Royal Dutch/Shell
Group of Companies and CFO and an
Executive Committee Member of the
ABB Group of Companies, based in