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Interview with Cederic Cremers, Country Chair Russia, Shell For Sakhalin Oil & Gas 2019

Published on 2 September 2019 by Vladislav Sebyakin

Interview with Cederic Cremers, Country Chair Russia, Shell


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What are your predictions for the global LNG market over the next 5-10 years? What are your expectations for supply and demand for the period 2025-2030 onwards?

The world’s energy system is living through an unparalleled transition.  The number of people on the planet is rising and people’s living standards are increasing. The combination of these trends means the world will need more and more energy. Our 2019 LNG Outlook estimates that the global energy demand is set to grow by 18% by 2035.

The rising need for energy is accompanied by two other drivers of the current energy transition. These are the challenges of air quality and climate change. Unclean air today kills about seven million people a year, according to the World Health Organisation. Climate change is another impactful issue. It is a global problem that needs a global solution.

So the big issue that we face is meeting the global rising energy demand while simultaneously managing climate change and improving local air quality i.e. cutting emissions. This means the world needs more and cleaner energy.  

To resolve this issue the world will need to use all the possible solutions, and we are convinced natural gas is one of the most important ones.  Gas is the cleanest fossil fuel, it emits between 45% and 55% lower greenhouse gas emissions than coal when used to generate electricity. It also produces less than one-tenth of the air pollutants, which makes natural gas a very attractive option in areas impacted by air pollution.

Gas-powered turbines are quick and easy to bring on stream. In a world using more and more renewable generation, which is vulnerable to cloudy or windless days, the flexibility of gas turbines makes natural gas the ideal partner for wind and solar power. And there are many other uses for gas in the energy system, such as a cleaner fuel option for shipping and heavy road transport.

This is why we see the future of gas as strong. Gas is expected to meet almost half (41%) of the additional energy demand by 2035.

This is already happening. We see tangible results of gas displacing coal in China. China’s success in making the air cleaner for millions of people shows the critical role that natural gas can play in providing more cleaner energy to the world. In 2018 alone usage of gas instead of coal led to 176 million tonnes savings in carbon dioxide emitted by Beijing and surrounding areas. That is equivalent to cutting completely all CO2 emissions from 37 million cars!

LNG, as the most flexible arm of natural gas, continues to be the fastest growing gas supply source. The global market for LNG is on the rise. In 2018 LNG trade reached 319 million tonnes – that is enough to power 643 million homes, which is much more than we have combined in all the European countries, including Russia!

Since the beginning of this century LNG production has already increased more than threefold.  The number of countries importing LNG has increased fourfold. They chose LNG for different reasons. Some of them are compensating fluctuating seasonal demand. Some balance the declining domestic production; some are small-scale importers, where a pipeline just would not make sense.  And their number continued to grow in 2018 with Bangladesh, Panama and Gibraltar joining the LNG customers club.

So in conclusion, we expect LNG demand to grow by an average of 4% per annum till 2030, leading to a potential shortfall in supply by the mid-2020s, and more new projects are needed to be sanctioned soon to avoid this possible crunch.

 

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How much growth do you anticipate for LNG as a transportation fuel – for both marine transport and truck fleets – and how soon is this likely to take off?

It’s been taking off for quite a while now. We see LNG growing not only in generation, industry and buildings, but also as a transport fuel, driven by economic and environmental benefits.  And the potential of this development is immense. Heavy duty transport (marine, road and railroad), which are much more suitable for conversion to LNG, rather than electrification due to high energy density requirements, represent approximately half of transport energy demand, with light mobility (eg. cars, vans) being the other half. And for the last couple of years we see how fast this is already rolling out.

Slightly less than 4 hundred thousand LNG-propelled trucks and busses on the Chinese roads consumed 6.7 million tonnes of LNG in 2018. The same trend is picking up in Europe where 155 LNG filling stations fuel a European LNG fleet of 5.5 thousand vehicles. This number is expected to grow drastically to 280 thousand trucks over the next decade. 

 

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As an example, to facilitate the mass scale adoption of LNG as a road fuel in Europe, there are projects like BioLNG EuroNet. This is a consortium of companies, co-funded by the European Union. It will see 2 thousand more LNG trucks on the road, 39 LNG stations and a plant to produce 3 thousand tonnes a year of BioLNG from organic waste. 

In the marine sector, at the beginning of this year there were close to three hundred  LNG-propelled ships on water, including ferries, barges, service ships, even cruise ships, icebreakers and oil tankers in Europe, Asia and America, and about half of this number on order. New LNG port bunkering facilities, small scale LNG carriers and specialised bunkering vessels are being launched around the globe. We anticipate that LNG as a marine fuel alone will be around 35 million tonnes per year by 2035. But if you look at the overall potential of this sector, it is huge.  If the entire marine sector was converted to run on LNG, it would be about a quarter billion tonnes of LNG a year, compared to total 300mln tonnes of current global LNG consumption today.

 

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How do you think Russian LNG projects will compete with other global LNG exporters, such as the USA, Canada, Australia, Qatar & East Africa, in the coming years? Which do you see as the biggest competitor to LNG from Sakhalin? What are the most crucial factors for maximising the opportunities for Russian LNG?

We expect some 35 million tonnes of additional supply in 2019 and our projection shows it will be absorbed by the market. It also shows the demand will reach about 384 million tonnes in 2020. Until 2030 we expect LNG demand to grow by an average of 4% per annum.

This provides a great opportunity for Russia and for the LNG market in Russia in terms of starting up new LNG supply projects. Given all the natural advantages Russia has – abundant reserves, a profound expertise, a professional workforce and favourable geographic location, the country is well positioned to reap the benefits of rising LNG demand. For that Russia’s LNG industry needs strong government support, a determination to keep costs down and a helpful fiscal landscape. We believe Russia has the opportunity to become some 15% of the global LNG market in the next decade – maybe even more, rather than the ~5% today. And through this not only help meet the world’s rising energy demand, but also provide a crucial contribution to reducing global emissions and improving air quality. A key contribution by Russia to the global energy transition challenges.

 

Sakhalin has always been an innovation hub and a record-breaking region in the global oil and gas industry, and this is a major theme at Sakhalin Oil & Gas 2019. Where do you see future innovation?

Russia has got a record of excellent expertise and innovations in many areas of oil and gas production. Examples are multiple, to name a few let’s mention developing infrastructure in the harshest northern environments or building and operating large and complex pipeline systems.

Today we are living through the largest energy transition ever, and to my mind, in the foreseeable future it will remain an important driver for innovations. The need to supply more energy – and cleaner energy – will undoubtedly change the energy landscape. For decades companies like Shell have delivered the energy and petrochemicals that have helped spread prosperity in the world.  But to continue – and to thrive – companies must adapt to the energy transition ahead of us.  

We at Shell do that - rapidly adapting as we speak. We are already more gas than oil, which is important as we enable the shift from coal to gas, particularly in Asia.                                               

Shell is now involved with battery electric vehicle charging, low-carbon biofuels, hydrogen and liquefied natural gas and GTL fuel for transport. We see the need for a variety of fuels in the future transport mix. Our retail business has the ambition that, by 2025, 20% of its fuel margin will come from lower-emission energy sources.

We also invest in power and are growing a business that spans generation, including solar and wind, trading and supply direct to customers.

But this is all only part of Shell’s process of adaptation. That is the ‘What’. The ‘How’ we work is also changing. Digitalisation, for example, is transforming our work, reducing costs and increasing productivity. In addition, it offers opportunities to connect to customers in new ways to offer innovative products, services and solutions.

 

How far can the Sakhalin region develop its role as a centre for scientific and technical innovation in the oil & gas industry?

Sakhalin became the testing ground for many new technical solutions, practices and achievements. The island became home to Russia’s first oil and gas production from fixed offshore platforms; the seismic protection systems of the offshore installations; the first-ever LNG plant in the country; complex integrated programmes for protection of endangered species; delivery of large scale projects in harsh and wide-ranging conditions; and all of these resulting in the opening of a new important energy source for the whole region.

But the most important thing, to my mind, lies on a different front. Sakhalin has served as a model for the joint work and co-education of the Russian companies and their partners from many other parts of the world. Sakhalin projects’ successes are rooted in deeper national - international cooperation, which proved to be very effective and capable of finding new original solutions to technical, environmental, logistical and all other challenges. I am sure new achievements are yet to come, and we at Shell are ready to support them by sharing our expertise and experience.   

 

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