Natural gas solving air pollution in Asia s mega-cities

Transcription

1 Natural gas solving air pollution in Asia s mega-cities Peter Coleman, CEO and Managing Director Woodside Energy Ltd. World Gas Conference Paris, 3 June 2015 Ladies and gentlemen, it s a pleasure to join you here in Paris. Woodside is very proud to be a major sponsor of the World Gas Conference. This is an excellent forum which brings together the world s gas leaders for a great exchange of ideas. Today I want to talk to you all about a subject that is often raised during conversation in the places that I travel to frequently it s air pollution, or smog. This is a serious problem for the world s rapidly urbanising mega-cities. This issue is related to the climate change debate, but it goes beyond that. Front and centre for governments in affected areas is actually a simple question How can we improve the air quality for our citizens? Closely linked to this issue of air quality of course is food and water quality. Today I ll share with you some insights on just how bad the problem is, and how I think natural gas, or more specifically LNG, can contribute to the solution. In China and India, two countries with the world s fast-growing middle classes, smog is a fundamental challenge affecting people s everyday lives. Not surprisingly, people are demanding change. Governments are listening, and dealing with the issue is a priority. The scale of this problem is staggering. Last year, the World Health Organisation revealed air pollution caused seven million premature deaths worldwide in It described air pollution in and outside of people s homes the world s largest single environmental health risk. Thirteen of the world s 20 most polluted cities were in India New Delhi had an annual average of 153 micrograms of small particulates, known as PM2.5, per cubic metre. To give this some context Perth, Woodside s home town, recorded just 7 micrograms. For me, this highlights the difference that having gas in the energy mix makes. Meanwhile, estimates for the PM2.5 level in Beijing vary from 90 to 900 micrograms, depending on who you talk to. I read with interest in the newspaper recently that for one day in March this year, Paris had worse air pollution levels than Shanghai. For those of you who were here that day in March, you would have had just an inkling of what the people in the mega-cities of Asia are dealing with every hour, every single day of the year. 3 June 2015 World Gas 1

2 The major causes of air pollution are well known. Burning coal for power generation and use of gasoline-powered vehicles are key contributors. Natural gas can and needs to be part of a cleaner air solution. Let me tell you why. I ll start with power generation. First, think about the particulates. Natural gas emits only trace particulates. And using natural gas compared to coal produces far less dangerous nitrogen and sulphur oxides. Burning natural gas produces nearly half as much carbon dioxide per unit of energy compared with coal. The recent boom in natural gas production in the United States, for instance, contributed to a 3.8 percent drop in carbon emissions in We also know that for every tonne of greenhouse gas emitted in the production of Australian LNG, at least four tonnes of greenhouse gas emissions in customer countries are avoided when LNG is used to displace coal fired power generation. 2 So while coal is at face value cheaper than gas, the full life cycle costs of coal versus natural gas are much greater. Our industry has historically been too timid to aggressively address the shortcomings of coal. But now is the time to stand up. We in the gas sector must do more to highlight the benefits of gas over the product of our competitors. Natural gas should - and must - play a key role in addressing climate change. If we limit the conversation to one based on price, we fail our shareholders and we fail those who seek reliable sources of power while helping resolve issues associated with air quality and climate change. Utilities can power their generators with cheaper alternatives to gas, but consumers will inevitably pay a higher price. There is a compelling case to make the switch to natural gas. We shouldn t forget here of course that the world is in the early stages of an energy transition. With new technology, we are experiencing an increasing use of renewable energy, particularly wind and solar. Depending on policy settings adopted, the International Energy Agency expects the use of renewables on a global scale to rise to between 15 to 30 per cent of energy supply by So natural gas will be competing with renewables, which are becoming more cost competitive. 1 Source: US EIA 2 Worley Parsons 2008, CSIRO June 2015 World Gas Conference 2

3 Solar power has the greatest potential for disruption to the current business model for power generation. We can expect that energy storage the missing link of solar adoption will be cheap enough and technologically deployable on a large-scale in the not too distant future. And there are advances in long transmission technology that are extending the affordable distance of power transmission. But there are also complementarities here. When it comes to power generation more, not less natural gas will be needed. This is because gas is efficient, large scale, and provides electric power system security for interruptible supply from renewables. Gas-fired power generation will be necessary to ensure stability of supply, cogeneration heating and peak shaving because gas can be turned on and off and operated remotely. This provides flexibility and a better balance between gas and renewables. Natural gas and solar companies could also partner to capture market share in power markets and increase the overall market for electricity by connecting to untapped markets. In this way, today s theme of the perfect combination of gas, electricity and renewables rings true. Gas and renewables together will be an integral part of the solution to easing the challenge of outdoor air pollution. I say outdoor because air pollution also remains a problem indoors in the word s developing countries. In India, for example, an estimated 700 million people still rely on solid fuels and traditional cooking stoves. In 2012 there were close to 1.7 million premature deaths attributed to household air pollution from coal, wood and biomass powered cooking in the South East Asia region with India shouldering the biggest burden. 3 So there is a strong case here too for governments to boost the use of natural gas as a cooking fuel. In other areas, I think transport represents a huge opportunity for the natural gas industry. The number of cars in China alone is expected to increase seven fold to 270 million by For those of you who have not visited India or China, the auto rickshaw is a common form of transport in places where space and money is at a premium. These poorly maintained, lightweight two-stroke gasoline-powered three-wheelers don t have the emissions controls of modern engines and cough up roughly 13 times more lung- 3 Source: WHO 4 Source: IEA June 2015 World Gas Conference 3

4 damaging particulates than other engine types each rickshaw producing the equivalent soot and particulate emissions of 10 jeeps. 5 Today, five million auto rickshaws ply India's streets with roughly 80 percent of these iconic openair taxis still boasting two-stroke engines in midsize cities such as Pune, Rajkot and Surat. But there s been some really encouraging developments in the last decade. In 2005 in Ahmedabad, officials fretted over India's seventh-largest city's air quality as nearly 300 new vehicles, including auto rickshaws, joined its roads on a daily basis. So they mandated CNG auto rickshaw engine retrofits, installed CNG pumps citywide and facilitated bank loans for prospective auto rickshaw buyers. The result was that in 2009 the city had dropped to the 66th most polluted in the nation, down from fourth in Today all its 115,000 auto rickshaws and 1,650 city buses use CNG and other cities are emulating this CNG example. 6 Delhi has also banned two-stroke auto rickshaws and replaced with modern CNG fuelled vehicles. So there is a real opportunity here to build on the success of places like Ahmedabad and Delhi. Undoubtedly we will see increased interest in the use of natural gas in vehicles in future, as more and more governments come to terms with their air pollution issues and focus on reducing emissions. According to figures from Wood Mackenzie, global demand for LNG in the transport sector is tipped to grow from less than 5 billion cubic metres in 2012 to over 80 billion cubic metres in This represents an increase from less than one per cent to more than 10 per cent of global LNG demand. Heavy-duty trucking is expected to be the greatest driver of natural gas vehicle demand nearly 45 billion cubic metres by Wood Mackenzie says that China will remain the single largest market for gas in transport, with 45 billion cubic metres by This is attributed to a low cost of vehicles; strong vehicle market growth encouraging fleet investments in gas; and financial support from regional governments, keen to reduce emissions in cities where particulate pollution and smog is such a huge problem. Actually, I ve said this before at conferences in the past year, but I don t think people have fully opened up their minds to the potential of natural gas. I don t think that we, as suppliers, should be afraid of extra supply coming into the market. My own view is that as more supply comes into the market and plays a greater role in the energy mix, people are going to find more things to do with it. Additional supply carries potential for new applications for gas, spurring demand. At this stage, the uses of natural gas are quite rudimentary and are the same uses that we have had for the past 50 years. For many in the audience today, the only real access you get to gas as a consumer is through the gas burning on your stove. We also typecast gas as a fuel for power generation. 5 Source: Scientific American 6 Source: Scientific American 3 June 2015 World Gas Conference 4

5 But gas is actually unique because it can be used in many different forms compressed or liquid. We know that these uses haven t been fully exploited yet. There is a role for both industry and government to promote these natural gas alternatives and to find ways to incentivise the switch to gas. Governments dealing with the problem of air pollution have an added impetus to explore these alternatives. For a start, I think we need to better deal with intellectual property barriers around research and development. We also need the right infrastructure in place to enable the change. Imagine if gas came in a cost-efficient liquefied or highly compressed form that we could put in a motor car. That s what we would do. Just like we saw in the development of oil-based products like kerosene and gasoline, this will happen over time. When this happens, and it s cost efficient, it will of course be hailed as major breakthrough in reducing the problem of outdoor air pollution. So, the anticipated energy demand in future throughout the mega-cities of Asia is huge and as I ve mentioned I expect we don t even know the true extent of it yet. We need to remember that decisions are being made on a daily basis against the backdrop of overarching concerns about air quality and climate change. Based on current modelling, by 2030, world total energy demand will grow 20 per cent. Ninety per cent of that energy demand growth will come from the developing world. A massive 50 per cent of that world energy demand will come from China and India 7. Much of this demand will come from what I ve been referring to as the mega-cities of Asia. These are cities of more than 10 million people. That s half Australia s entire population. These are cities like Mumbai and Shanghai. Cities who will set the policies for their citizens, cities who are grappling with this devastating air pollution. By 2025, Asia alone is expected to have 28 mega-cities. As decisions are made about these cities energy futures, we as an industry need to be able to clearly communicate the benefits of natural gas. This includes for power generation, as cooking fuel and in transport. I would add that in many circumstances, the case for LNG over pipeline gas is also clear. LNG is easily transportable and there is flexibility in terms of source and destination. LNG carriers also use their own LNG to power themselves from A to B. However, LNG suppliers do have to earn their place in the queue. As you know, Australia is on the cusp of becoming the world s largest exporter of LNG. With this in mind, we re striving to become a world-class producer, trader and marketer of LNG. Not just known as a developer of LNG projects. This is firmly at the forefront of Woodside s thinking and strategy. 7 Source: World Energy Outlook 3 June 2015 World Gas Conference 5

6 As a company we ve got a great track record 25 years of safe and reliable supply of more than 4000 cargoes of LNG to Asia. But we know that our place in Asia s energy mix in the future is not guaranteed. We have to earn it. Clearly there is a compelling case for LNG in the mix, especially when it comes to air pollution concerns. There will be some complementarities with renewables as part of the solution. But we can t forget that we re also in competition with coal, with nuclear, with renewables and with other sources of gas supply. From Woodside s perspective, we know that we need to ensure that we are demonstrating worldclass reliability and safety and that we are being as cost effective as we can be. The future will require us to not only deal with National Oil Companies but also with the mega-cities of Asia. So we re adapting our business model as we see the dynamic of our customer base changing. Our strategy is to source LNG globally at the lowest cost. What that does is it allows us, then, to get into many of the developing markets, particularly within the Asia region. We also recognise the significance of disruptive technology, which could easily transform the future of any one energy source in the mix. The opportunity is immense. India today, only takes about 13 million tonnes per annum of LNG. To put that into context, the Japanese take over 90 million tonnes per annum. You know the populations. One has 1.2 billion people, the other one has just over 127 million people. So there's huge opportunity. We re conscious of the greater role that we think LNG can play in Asia s mega-cities as I ve explained to you today in power generation for factories, for residential electricity, as a cooking fuel and in transport. This is an opportunity for us to grab and it s not one that s going to wait for us. There is unmet demand there now, as the mega-cities of Asia grapple with their huge air pollution issues. They are looking for answers and we the LNG industry can offer a solution. Thank you. 3 June 2015 World Gas Conference 6