Item 8 Sustainable Development WG Report

Gas, the responsible and Economic Optionfor a low Carbon Global Economy

Abundant

Acceptable Affordable

Natural Gas

International Gas Union

Gas, the Responsible and Economic Option

for a Low Carbon Global Economy

Available, Affordable, Acceptable

Terence Thorn

IGU Meetings Doha, Qatar18 - 22 October 2010

3

Goals and Objectives- Reposition Natural Gas From Being A Transition Fuel To One

That Has A Permanent Role in a Sustainable Energy Economy

- Highlight the value of natural gas to ensure its fullest economic and environmental contribution in low carbon energy systems

4

Public Perception of Natural Gas as the “Invisible” Fuel

Challenges Facing TheNatural Gas Industry

5

Obstacles and Misconceptions•Security of Supply issues overshadow the reliability and success of the growing international trade

•Policies and Security of Demand. Uncertainty about climate control measures leads to uncertainties over gas demand

In reality gas offers broad diversity of sources of international supplies, but fails to capitalise on this value

Clarity around climate policies and the future CO2 price will enhance appreciation of the value of gas as a destination fuel in a sustainable energy system

6

Obstacles and Misconceptions•Gas Prices and Pricing Concern about the linkage of gas prices to oil in long term contracts

•Gas and CCS. The gas industry has not addressed (let alone promoted) the notion of gas combined with CCS

Preparedness to address pricing issues and competitiveness of gas in the power sector may help the reputation of the gas industry

Without CCS in its “toolkit” the gas industry will continue to lose ground against coal for power generation

7

Presented by Cera at the IGU Executive Committee Meeting – Bali 2010

8

Clean

(0.05)

Real

9

Obstacles and Misconceptions•Awareness, Misconceptions and Prejudice.

There is insufficient awareness among analysts, policymakers, and the public at large of the AAA nature of gas.

The high gas prices of a few years ago may have created a prejudice against gas as an affordable fuel

The gas industry should spend more time informing the stakeholders and participating and supporting the development of future economic and low-carbon pathways towards sustainable energy systems

10

Major Themes

11

- World gas reserves are abundant and growing

- Natural gas prices are competitive

- Industry has a world class infrastructure in place that can deliver gas to almost anywhere in the world

- The LNG market continues to grow and evolve and become more flexible

- Gas offers low cost, convenient and efficient energy options for every market regardless of its stage of development

- Gas does and will continue to play an important industrial, commercial, residential and transportation role

- With or Without CCS, Gas remains the cleanest fossil fuel for power generation

- Gas makes renewables work

- The Versatility of gas will be demonstrated in an array of new and developing technologies

12

1 Gas, the Fuel of Plenty

Abundant, Available, Affordable

13

Reserves: plenty and more to comeProven conventional reserves* are growing

In addition:Unconventional gas has come within technological & economic reach

Volume

Conventional

Unconventional

The total long-term recoverable gas resource base is more than 850 tcm, only 66 tcm has already been produced.- IEA-WEO2009 -

* 185 tcm in 2008

14Source: Schlumberger

Worldwide shale potential

A 2007 study showed 688 shale formationsin 142 petroleum basins.

Geography of possible unconventional gas reserves: world-wide distribution

Proven and operational unconventional reserves

Available unconventional reserves

15

Affordable

IEA WEO 2009

Long‐term gas production cost curve

Note: 5 $/MMBtu compares to less than 30 $/bbl

per

$

1$

Indicative  transportation cost

16

Infrastructure: transmission of gas is efficient and

affordable

17

Gas pipelines offer more energy transportation capacityLower visual impact from transport of gas vs electricityEasier and more economic to store gas than electricityCan support growth in an energy efficient manner

Economic and convenient for meeting growing electricity demand

Large-scale electrification can be achieved economically and efficiently through

distributed gas-fired power plants

Lower cost of energy transmission of gas vs electricity

18

The LNG industry has a total of around 1 660 bcm of LNG available for  sale from existing production over the period 2009‐2025

IEA WEO 2009

Growing Liquidity in the LNG Market “Flexible LNG”

“Flexible” LNG makes the LNG industry very responsive to changing demands of the global market

19

Small scale LNG offers opportunities to produce otherwise stranded gas and reduce gas flaring

LNG more flexibility through new technology

Source Skaugen

Gas source

20

2 Gas offers

Low Cost, Convenient and Efficient energy options

for every market segment

Affordable and Acceptable

21

For Power Generation

22

Gas-fired Power GenerationCCGT (Combined Cycle Gas Turbine)Very efficient generation technology

•High efficiency (relative to other options)

•Less thermal waste & less cooling needed

•Compact equipment

•Lower investment and operating costs than oil or coal plant

•Shorter construction time and easier permitting process

•Few environmental problems (relatively clean)

•Less CO2 emission rights needed than for oil or coal

23

2 

5

1

4

3

Gas-fired power generationLowest capital costs per MW installed

Indicative, cost levels(mln $/MW)

Source MMD

Capital costs of options may vary considerably in absolute terms, but very little in relative terms

24

Economic, convenient and rational for complementing growing electricity

supply from renewablesEXAMPLE OF IMPACT OF POWER SUPPLIES  FROM NUCLEAR, 

HYDRO, SOLAR AND WIND

ON SUPPLY FROM GAS AND COAL 

Source

REE, Heren

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The Near-term Opportunity to Reduce Caron Emissions

“Old coal new gas”

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Contribution to a low carbon market environment

Gas-fired power generation is by far the lowest cost option to achieve a major reduction in CO2 emissions.

Replacing coal- by gas-fired power generation achieves nearly the same significant CO2 reduction compared to renewables and comes at much lower capital cost.

27

For Industry (heating), Chemical Feedstock,

Commercial, Residential Sector

(examples of efficient, economic, and environmental applications)

28

For the Mobility Sector

29

Automotive Fuels: CNG and LNG• CNG : Compressed Natural Gas

– Gas stored in vehicle at high pressure (200 bar)

• LNG : Liquefied Natural Gas– Gas stored in liquefied form at atmospheric pressure

(requires cryogenic tank and regasification equipment )

– Best in heavy vehicles and ships

Alternatives :– Gasoline, diesel, LPG

Position gas :– Clean, low on emissions– Feasibility depends on fiscal regime– Best in vehicles with limited travel radius

and many stop-starts

Reduces dependence on/import of oil

30

3 Gas for Power Generation:

the Cleanest and most Efficient fossil fuel

without and with CCS

31Source MMD

100%

240%

340%

32

Gas: the Cleanest Fossil Fuel

0

50

100

150

200

250

300

1980 1990 2000 2010 2020 2030 2040 2050 20

Mt C

O2

/ ye

ar

Year

UK - Electricity CO2 emissions - Case 1 v C

0

50

100

150

200

250

300

1980 1990 2000 2010 2020 2030 2040 2050 20

Mt C

O2

/ ye

ar

Year

UK - Electricity CO2 emissions - Case 1 v C

0

50

100

150

200

250

300

1980 1990 2000 2010 2020 2030 2040 2050 20

Mt C

O2

/ ye

ar

Year

UK - Electricity CO2 emissions - Case 1 v C

UK Targets with New

“Dash for Gas”

UK Targets

With Coal

Source

Shell

Potential

UK CO2 Emissions

• Over 40% of global

CO2 emissions

comes from

Power Generation• Over 70% comes from

coal‐fired

Generation

Source

Karstad  IGU

Replacing coal with gas for electricity generation is the cheapest and fastest way to meet CO2 reduction targets

A near-term initiative to displace coalgeneration with additional generation from existing natural gas combined cycle capacity could result in reductions in power sector CO2 emissions on the order of 10%.

An additional potential benefit of displacement of coal generation with gas will be the reduction in mercury and criteria pollutants regulated under the Clean Air Act.

MIT, 2010, on the US market

33

Power generation with CCS:

Gas: still cleaner and at lower costs

34

Gas with

CCS: Low all‐in unit costs Baseload

80%  CO2 price: 80$/t$/MWh

Prices

(at plant inlet)

Gas : 8$/MMBtuCoal: 80$/t

Source

MMD

Capital costs may vary considerably in absolute terms, but very little in relative terms

35

4 Gas

The essential fuel for a low carbon energy economy

Economic and Logical

“Destination fuel”

36

Efficient and Clean Partner for Renewables Example

Wind complemented by GasWind energy is volatile. Supply of wind power is estimated in many places to be some 30% of capacity onshore and 40% offshore.Gas-fired generation capacity can back-up wind power supply to meet demand.

Example: Onshore wind supplies some 2700 hrs of intermittent power backed up by 4300 hrs of gas-fired power

37

5. Gas

The versatile fuel with scope for more efficient energy systems

Offers further prospects for development of

technological options

38

Much potential for future developments

• CHP• Micro CHP• Fuel cells• Green gas

39

To Summarize (I)• Conventional gas reserves are expanding and unconventional gas supplies

offer tremendous potential

• However, the environmental value of gas relative to other fossil fuels and even renewables is under-represented in current climate policy discussions

• The expression of clean coal, i.e. coal with CCS, has created policy comfort with coal as a CO2-free option although

– CCS in operation is still a remote target with many issues unresolved and

– CCS with gas can provide for an even cleaner fuel: Gas is not only the cleanest fossil fuel before CCS- Gas is the cleanest fossil fuel after CCS, with the lowest residual emissions, not only in CO2 terms but also for other GHGs

• Flexibility and low CO2-emissions make gas-fired power stations the ideal balancing partners for intermittent renewable energy sources such as solar and wind power

40

To Summarize (II)• The linkage of the price of gas to oil prices complicates the weighing of

competitive options in power generation; gas price volatility has not helped to create confidence in the economics of using gas

• Gas transmission is cheaper and more efficient than power transmission

• The surplus of LNG production and LNG regas capacity offers the basis for a very dynamic global market.

• Whether the demand for gas will decline or increase will be highly sensitive to policy initiatives

• Gas offers additional technological opportunities in developments such as micro-CHP and distributed power and green gas

• If gas is to achieve a significant role in future energy applications, R&D must be put on an equal footing with other energy sources

• It is our responsibility as an industry to educate stakeholders and policy makers on gas’ potential role in a sustainable energy economy and expand the conversation to new audiences

1. Review of slide packageContent:

Major themes that should be added?Are you comfortable with the data?Any data or studies which are missing?Is the message transferrable?

Addressee:From your point of view: Who should be the main addressee for this?Are your comments referring to a specific region? If so, which?

Miscellaneous:Any other comments are also very welcome!

2. Preparation of final version (incl. explanatory text) for distribution

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