The Copenhagen Climate Conference came to an end in disappointing circumstances earlier this month. No legally binding agreements were made, previous promises were downgraded and in the aftermath, the blame game has been played with more vigour than was present in the conference itself.
For oil and gas companies, conferences such as these have the potential to affect business severely, and for a long time the question has been posed: what will replace fossil fuels? Slowly and surely there seems to be an understanding: renewable energy technology is not the short term answer to the problem. The world’s energy needs are so high; it is ludicrous to suggest in the next decade the world will be able to sustain these needs through renewable energy.
However, with climate change so high on the agenda of the world’s governments, there needs to be both a short term and long term strategy.
Speaking at a meeting organised by the International Gas Union, the chief executive of Statoil, Helge Lund, argued natural gas should now be considered the best hope for reducing the world’s emissions. Lund described natural gas as an available, flexible and competitive energy bearer with a key part to play in finding a climate change solution.
He added that carbon emissions can be substantially reduced by replacing coal with natural gas and that volumes of proven gas are increasing, unlike oil reserves, while new technology is helping to make unconventional resources profitable.
“Last but not least; natural gas is the cleanest fossil fuel in terms of carbon dioxide emissions and particles and is the perfect bridge towards a low-carbon future,” Lund commented.
Peter Voser, chief executive officer of Royal Dutch Shell, recently emphasised the time constraints facing renewable energy sources, in a commentary for the Times Online.
“Some people hope that that future can arrive as fast as the next big hit in consumer electronics. That is unrealistic. Over the past century each new energy technology, once proved, has taken about 25 to 30 years to grow to providing 1 per cent of the world’s energy. Biofuels are just now reaching that mark. Wind could be there by 2015, 25 years after the world’s first big wind farms went up in Denmark and the United States,” he said.
“It simply takes time to build the industrial and people capacity needed to produce energy on a massive scale. And to learn by doing. Today’s largest wind turbines have nearly 100 times the generating capacity of the ones available in the mid-1980s,” Voser added.
Although Voser was speaking prior to the conference, some of his points rang even more true following its conclusion. “Society’s great hope for accelerating the pace of change lies with aggressive government policies, incentives and financial support for new energy technologies, from the lab all the way through commercial deployment. Indeed, every major new energy source since coal and oil has flowered thanks to extensive government support and a regulatory framework conducive to private investment,” he said.
Voser also believes natural gas will play an important role in controlling emissions in the short and medium term. “Companies are already taking important steps towards a more sustainable future. They are improving the efficiency of facilities and reducing emissions. For instance, Shell chemical plants are nearly 8 per cent more energy efficient than they were in 2001, Voser stressed.
“And we are providing energy-saving advice and products to our customers. We are also raising production of cleaner-burning natural gas. When used to generate electricity, natural gas emits 50 per cent less CO2 than coal. It can help to build a bridge to a future when renewable energy comes of age. By 2012 more than half Shell’s production will be natural gas,” he added.
As a realisation dawns on the industry, a number of acquisitions of natural gas companies could occur. Last month ExxonMobil announced it had agreed to but XTO Energy, a natural gas company, in a US$29 billion deal. XTO claims about 45 trillion cubic feet of gas, with much of it trapped in tight shale formations. Technology which has been developed over the past decade means extracting the gas from formations such as these is much cheaper.
“Natural gas is really well-suited to meet that growing power generation demand, both from the standpoint of its lower environmental impact, but also its capital efficiency and its flexibility,” Exxon Mobil chairman and CEO Rex Tillerson told analysts on a conference call.
Analysts believe this move is a clear sign of things to come. “Exxon is the group leader, and it sets the trend. I would expect more acquisitions in the next three to six months,” Fadel Gheit, senior energy analyst for Oppenheimer told the Associated Press.
One of the worries of natural gas companies is the ‘dirty’ image of gas mainly due to its link with other fossil fuels. Speaking to the Daily Telegraph, Aubrey McClendon, chief executive officer of the Chesapeake Energy Corporation, the largest independent production of shale gas in the US, revealed: “We need people to stop associating natural gas with coal and oil.”
At the Copenhagen gas conference, Ian Smale, head of policy and strategy at BP, also played up the role of gas. “Gas will have a bigger role. Nuclear will not happen fast enough, wind will not happen fast enough, carbon capture and storage (clean coal) will not happen fast enough,” he stated.
The answer to the world’s short and medium term energy demands is not going to be renewable energy, this much is clear. Oil and gas companies have spotted a future trend in natural gas and are putting their full and considerable force behind it. While the politicians continue to argue, it seems the major oil companies have made their minds up: gas is cheaper, cleaner and, most importantly, the future.
“We are a company with huge gas reserves. If we succeed in commercialising this technology, natural gas can become an even bigger part of the solution to the climate challenge,” Lund concluded.
