President of Shell Gas & Power Discusses Energy Trends

By: Adarsh Das, MBA 1

Posted: 2/7/05

When Jose Lima asked nearly forty Ross students if they knew what Liquefied Natural Gas (LNG) was, nearly all the Ross students present raised their hands. Jose Lima seemed slightly surprised, but then noted that after all he was speaking to members of the Energy Club.

A guest speaker for the Ross Energy Club on February 2, Jose Alberto Lima is the President of U.S. Shell Gas & Power LNG division Lima, a Brazilian who has worked for Shell in the U.K. and U.S.A. for nearly 15 years. He began with an informational video about the basics of the LNG industry. LNG is Natural Gas, cooled and liquefied to about 260th of its volume as a gas, without any pressurization. It is the same fuel that goes into many of our homes as heating and cooking fuel, and appears on our monthly utility energy bills.

Lima focused his presentation on two distinct but related ideas. First, he pointed out trends in worldwide energy markets which if left unaddressed would result in supply side problems for the U.S. household and power sectors within five years. Second, Lima presented a clear argument for LNG as a highly appropriate fuel source to meet these requirements in the short term. He insisted that if the capital investments required to create LNG handling infrastructure are not in the short term, energy shortages could be acute. Finally, Lima also made a case for why Shell is 'able, willing, and capable' of helping with the infrastructure required to make this change happen.

Lima mentioned that natural gas is an easy-burning fuel that results in little pollution compared to coal. He pointed out that in recent years electric power utilities have increasingly relied on natural gas burning power plants to generate peak-demand power. According to Lima, this rise in power generation using natural gas has been the main driving force behind the steady rising trend demand and price for natural gas. In 2003, the U.S. consumed about 125 million metric tonnes (mmt) of natural gas per year, about 24% of its overall energy consumption. Given present trends, natural gas requirements could rise to 290 mmt in 2013, with a shortfall of up to 68 million metric tones per year.

On the supply side, the U.S. possesses substantial, but inadequate natural gas reserves, and has been a net importer of natural gas for many years. Some of the short-term shortfall will be met by in Canada, historically the biggest exporter to the U.S., is growing too slowly to keep up with U.S. requirements, and is increasingly consumed inside Canada. Natural gas is available in large quantities around the world, outside of the 'sensitive' middle-east region, in places such as Venezuela, Russia.

Lima noted that LNG infrastructure required to create a long term, stable supply of natural gas, would consist of gas liquefaction plants at production sites, huge LNG double hulled gas tankers carrying the liquefied gas to the U.S.A., and receiving tanks located offshore or near the coast to regasify and store gas for transportation to the consuming areas by pipeline. Lima said the technology for LNG production and transport is extremely well proven and safe, as shown by the fact that many countries such as Japan and Korea depend on natural gas for a large proportion of their energy supply.

Lima mentioned that creating this infrastructure would require huge capital investments for the entire value chain, of the order of $1-2 billion for field production, $1-2 billion for liquefaction, $1-2 billion for shipping and about $700,000 for storage.

According to Lima, Shell and other oil majors such as Exxon can work with banks and financial institutions to create this infrastructure, but would need government clearances at federal, state and local levels. However, banks need to see these clearances and be assured that the entire supply chain is 'tied up' before they would invest, and as a result are likely to not fund many of the plans. Lima mentioned that of the 45 LNG gasification projects announced along the U.S. coastline, only 2-3 would actually materialize.

Shell itself plans to take a portfolio approach to the U.S. LNG market, creating regasification assets along the entire U.S. coastline, both on the east and west. Shell's proposed infrastructure, some of which has already got clearance from the governments of U.S. and Mexico, will be a combination of offshore floating, offshore moored, and on-shore facilities.

Though Lima was reasonably certain that the LNG 'gold rush' which is on at this point would result in stable natural gas supply in the long term, he expected problems in the short run, which in his opinion, 'must be managed'. He also hoped that local governments along the U.S. coastline would take a more positive approach to permitting the regasification terminals, while maintaining the highest standards of efficiency.