Gas to play a key role in a balanced transition to a net-zero emissions world

On the opening day of Gastech, Steve Hill, Executive Vice President for Shell Energy, talked exclusively to Gastech News about the vital role gas will play in providing a balanced energy transition.

Why does society need more gas?

Gas has a key role to play in ensuring security of supply as the world transitions to a lower-carbon energy system. It is an excellent partner to renewables because it provides grid stability and daily and seasonal flexibility that enables the continued growth of wind and solar power. It also has a big contribution to make in harder-to-electrify parts of the transport and industrial sectors.

For an increasing number of countries, LNG is an essential part of their current and future energy mix. LNG has already proven to be a key enabler of coal-to-gas switching in the power sector around the world. But there are still plenty of opportunities for gas to enable a balanced energy transition in other countries and across other sectors. This is particularly important here in Asia, where countries that have traditionally relied heavily on coal-fired power generation are increasingly using cleaner-burning, lower-carbon gas to support their economic development.

How is Shell involved in meeting this emerging demand for gas?

In addition to being a significant supplier to long-established LNG importers across Asia, I’m proud to say that we have recently helped Vietnam, Hong Kong and the Philippines in their efforts to ensure a balanced energy transition that meets their economic growth needs, with less emissions. 

Over the last few months, we have delivered a commissioning cargo to Vietnam’s first LNG import terminal and a commissioning cargo to First Gen’s facility in the Philippines. We have also begun deliveries of cargoes to Hong Kong under a long-term contract. I’m delighted that we have been able to play a role in establishing these new LNG import markets, and we look forward to being able to meet their growing demand for secure and reliable energy in the future.

What role can gas play in helping meet net-zero targets?

Gas is an indispensable part of a balanced transition to a net-zero emissions world. Gas has an important and immediate contribution to make by enabling countries to burn less coal. And, until there is a better way to manage the intermittency of renewables, it also has a longer-term role to play in enabling renewable power growth, without jeopardising grid stability.

The pace of renewable power capacity growth over the last decade has been impressive. But the global electricity generation mix is still dominated by coal, especially in Asia. So, there is still a lot of progress to be made in this area. Beyond the power sector, gas has long-term roles to play in hard-to-electrify areas like shipping, industrial heat and as a feedstock for making essentials such as fertilisers and fabrics. However, the long-term role of gas and LNG will depend on reducing emissions across the value chain.

How can we ensure that LNG remains competitive in the global journey to net-zero emissions?

LNG projects need to be both cost and emissions competitive. It will take time for decarbonised gas technologies to be developed at scale. Until then, accurately measuring and reporting emissions along the LNG value chain and using the best quality carbon credits to compensate for them is an important step towards addressing emissions.

In 2019, Shell delivered the world’s first LNG cargoes with carbon credits to customers in Asia. Since then, we have been working hard to improve our offer. In 2022, we delivered the first pilot GHG neutral LNG cargo aligned to the GIIGNL’s MRV and GHG Neutral Framework. The priority is still to avoid and reduce emissions when possible. But compensating for emissions with carbon credits is an important step on this journey.

What role do long-term contracts play in a market that is more concerned about energy security?

Recent times have shown that energy matters and that energy security can’t be taken for granted. For consumers, it has underscored the need for a more strategic approach – through a balanced portfolio of spot supply and longer-term contracts – to provide flexibility, reliable supply and limit exposure to price spikes. Due to the capital investment and project financing that is required, project developers also need the security of demand that long-term contracts provide.

Portfolio players like Shell play an important role in underpinning new liquefaction capacity by bridging the diverging needs of producers and consumers. However, we have also recently seen more performance issues under long-term contracts. Security of offtake and supply comes from signing contracts with counterparties that will meet their obligations, regardless of market conditions.