EXPERT INSIGHT

Gas Naturally Complements Renewables
Steve Hill, Executive Vice President for Gas & Energy Marketing & Trading, Shell

The world has a growing population, increasing from 7 billion to 9 billion people by mid-century, with a higher expectation and affordability for their quality of life. Of these 9 billion people, more than half will live in Asia.

This will drive higher energy consumption for decades to come, even with improvements in efficiency.

At the same time governments, businesses and society want this higher energy supply to come with less CO_2.

At the United Nations Summit last year, heads of government reached a deal to keep “global average temperature to well below 2°C above pre-industrial levels”. To stay within this goal, energy related emissions need to reduce by more than 50% from the expected emissions that would result from current energy policies.

In addition to climate change, poor air quality in many cities is another serious problem that needs to be addressed. According to International Energy Agency (IEA), air pollution is the world’s fourth-largest threat to human health accounting for around 6.5 million deaths annually, with over half of these in China and India.

What is needed is nothing short of the transformation of the global energy delivery system. Efforts must include significant improvements in energy efficiency, government-led initiatives that promote low-carbon technologies through both policy and research, and massive investment in new infrastructure. More stringent emissions standards must also be introduced, such as the International Maritime Organization’s proposal for tighter limits on emissions from ships exhausts. There also need to be significant investments in lower carbon energy infrastructure, including both renewables and natural gas.

PERFECT PARTNERS

Gas and renewables are perfect partners to help address this energy challenge.

Renewables will continue to expand rapidly in the years to come. According to our Shell Scenarios, wind and solar could grow to supply 40% of primary energy demand by the end of the century, up from around 1% today.

But renewables are intermittent. And solutions for storing power when the sun isn’t shining and the wind isn’t blowing are often very expensive, especially in the case of seasonal storage.

On top of this, although the growth of renewables will help lower emissions from the power sector, electricity accounts for less than one fifth of the world’s total energy use today.

To further reduce emissions, the world’s economy will certainly need to rely more on electricity.

Different solutions will be needed in some sectors, such as heavy-haul transport (which accounts for more than 20% of annual road transport energy demand), as well as energy-intensive industries, including steel, cement, plastics and chemical production.

CHINA

China is a good example of a country adopting a holistic view, and looking at all aspects of its energy system.

The government’s Energy Development Action Plan (2014-2020) has called for increasing the use of natural gas while lowering the share of coal in primary energy mix.  According to the government plan, natural gas consumption will be increased from around 6% of primary energy mix today to 10% by 2020. This target reflects the Chinese government’s recognition that natural gas will play a critical role in building a cleaner, more secure energy future for the country.

In the power and heating sector, policies range from promoting the role of gas in meeting peak demand for power to encouraging the use of gas-fired combined heat and power plants or gas boilers to replace small and inefficient coal-fired units and coal boilers.

And in the transport sector, there are currently around 200,000 heavy-duty trucks and buses powered by LNG. That’s more than 130 times the number of LNG-fuelled trucks in Europe. The trucks get the LNG from around 2,000 LNG re-fuelling stations and more than 100 small-scale liquefaction facilities in the country.

In addition, on September 25 2015, in a joint climate change statement with President Obama, President Xi Jinping announced that a National Emissions Trading Scheme (ETS) will commence from 2017 in China. The seven pilot markets currently in operation are likely to merge into a National ETS. With the launch of the National ETS, China is expected to become the world’s largest carbon market covering 4 billion tonnes of CO2.

We believe that such an emission trading scheme can provide the most cost-effective way to encourage market participants across a range of sectors to lower carbon intensity. Currently, as the first wholly owned foreign entity to participate in the Chinese Emission market, Shell Energy (China) Limited is registered to trade on the Chinese Emissions Exchange Guangzhou and the Shanghai Environment and Energy Exchanges.

The development of the National ETS market enables Shell Energy (China) Limited to utilize our experience in global emissions markets to support Chinese companies in managing exposures in the emissions markets. Shell is committed to support the development of the National ETS and is looking forward to being an active participant in the market.

Investment in renewables will also play a major role in China’s energy transition. Effective policies have paved the way for significant growth in both solar and wind. In the last three years, wind capacity has more than doubled, while solar capacity has increased 12 times, making China the world’s largest market for renewables.

URGENT AND FOCUSED ACTION REQUIRED

The access to energy and climate goals agreed by world leaders at two UN summits last year has set the direction for the world. Now it is the time for urgent and pragmatic action.

One is no good without the other. Urgent action in some countries, for example, has led to the backward step of an increase in coal generation as an unsuitable back-up to renewables.

As the Chinese proverb says, a single tree does not make a forest; a single string cannot make music.

Both the governments and the gas industry have a big part to play in shaping the energy future we want, through the policy decisions and business investments we make.

Steve Hill, EVP for Gas & Energy Marketing & Shipping, BG Group

Steve is responsible for BG Group's global LNG, natural gas and crude oil marketing and trading activities. He is based in Singapore close to the rapidly growing energy markets in Asia.

Steve established BG's LNG trading business in 2005 and he has also led our long-term LNG marketing activities since 2007.

Steve joined BG group in 2002 from ExxonMobil where he served in various positions in trading and business development located in the UK, Qatar, Singapore and the US

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