Natural gas seems like the best solution to replace coal in power generation to keep to International Energy Agency's 2°C — or 450 ppm1 — scenario. Total has decided to operate as a global, integrated player across the natural gas value chain. That will require meeting a number of challenges to deliver on the promises of this abundant, affordable, flexible energy. Below, a primer on what that will entail.
There was a time not so long ago when hydrocarbon exploration primarily meant oil, which offered unmatched energy efficiency and logistical advantages. But those days are gone. Natural gas is shaping up to be the second biggest fuel of the global energy mix, knocking coal off its perch within the next 20 years. Gas has many pluses, including plentiful worldwide supply, flexible shipping destinations when liquefied, cost competitiveness and lower greenhouse gas emissions. The energy majors have good reason to give it pride of place.
But things are not quite that simple. To carve out a niche for itself in the everyday life of industry and households globally, natural gas still has a number of challenges to meet, from competitiveness to logistics and developing new uses, such as transportation. Through its climate commitments, Total has reaffirmed its strategic choice to be a global, integrated gas and liquefied natural gas (LNG) player2. It's an excellent position and vantage point for analyzing and appreciating the major issues that make natural gas more than a promise.
Yamal LNG is one of the world's largest and most complex LNG projects. Located 600 kilometers above the Arctic Circle, it took unparalleled construction and logistics resources to bring it on stream in late 2017.
There is no real specter of a gas shortage or eventual peak. That is because gas resources are sufficient to meet the planet's energy needs for 140 to 200 years — even 250 by some estimates — at current production rates. "The unconventional gas revolution, chiefly in the United States, and the discovery of new resources, as in East Africa and the Mediterranean, position gas as a widely available energy for years to come, to meet growing energy demand," says Jean-Michel Lavergne, senior vice president, strategy business development R&D, in Total's exploration & production.
With the arrival of both new producing countries, such as the United States and Australia, and new consumer countries, LNG plays and will continue to play a central role in the gas market. Demand is expected to grow by 5% a year between 2015 and 2025. "Total is being quite proactive about LNG," notes Lavergne. "We now have 11 operating liquefaction plants in our portfolio, with a total production capacity of over 12 million tons a year. We're also partners in giant projects such as Yamal LNG in Russia, which recently started up, and Ichthys LNG in Australia. " These projects will give Total steady LNG production close to strategic markets such as Asia, which is currently driving global gas demand. "But the important thing, when you want to supply affordable energy, is to prioritize the development of the most competitive projects and make sure you lower liquefaction costs, through modular solutions for example," Lavergne points out.
Ways must also be found to lower logistics costs at every link in the LNG value chain. "Gas has always been handicapped by steep logistics costs," says Laurent Vivier, Total's senior vice president, Gas. "It requires complex infrastructure and energy to transport." To give an example, while it costs $1 to ship a barrel of oil that sells for $50, the cost for LNG is double that because of the steps required to move it, including liquefaction, shipping and regasification.
As a result, a certain number of countries are priced out of using gas as an energy source, for lack of infrastructure to handle LNG carriers arriving in their ports. "It's a problem for which we're supplying a solution by proposing simpler, smaller facilities we can get up and running faster. Downstream, the development of FSRUs3 — floating units three to four times cheaper than onshore terminals — opens the gas market up to new players, in particular developing economies that see gas as an excellent opportunity in terms of the environment, the energy transition, geopolitics and the business model, " he comments. "Our strategy is clear. We have to be able to carry out projects costing several billion dollars while also getting the gas to consumer markets. Our credibility and desire to make energy available to the greatest number depends on it."
This downstream integration stretches all the way to the end customer, whether industry, such as power generators, or consumers, for heating and hot water4. This is the goal Total is pursuing by expanding its portfolio in the B2B market, where it supplies more than 500,000 sites in several countries in Europe, or going after the French B2C market directly by offering a new natural gas and green power solution, Total Spring. "Operating downstream makes strategic sense for us. Unlike selling fuel at our service stations, we weren't part of consumers' daily lives. We have invested to change that. It makes sense, of course, in terms of value creation, but also of our commitment to better energy," says Vivier.
But Total is also stepping up to the plate to develop new uses for natural gas, such as transportation, and invest in power plant projects as needed. "It's vital that we have a 360-degree view of the gas market, whether in production, purchases from other producers or sales. The strategy we opted for, of being active across the value chain through case-by-case solutions, gives us a secure position in the market. Our markets are global, too, and we're the only energy company doing B2B and B2C business worldwide."
Climate challenges and the commitments made to keep warming under 2°C are also global in scope. Does gas, which is, after all, a hydrocarbon, have a long-term future? "We have to get one thing straight," emphasizes Vivier. "The International Energy Agency doesn't forecast a dominant role for renewables for some time, since they're currently more expensive and less practical than coal. So we know we have to keep making gas more available and affordable to a growing number of countries, so it can serve, among other things, as a transition energy on the road to renewables."
That's because gas emits only half as much carbon as coal when used to generate power. An independent study by CIRAIG recently spotlighted this. Gas already has several wins under its belt. On April 21, for the first time since 1882, the United Kingdom generated power without burning a single gram of coal. Gas-fired power plants accounted for half, renewable energies for 30% and nuclear power plants for 18% of production. "This didn't happen by chance," according to Vivier. "The British have found a way to create an energy price signal that enables those involved to make decisions that take the climate factor into account. Gas fits seamlessly into such a configuration." Whether you call it a tax or an offset, once the decision is made to price in an energy source's negative externalities, gas has a strong hand to play.
But carbon, as major as it is, isn't the only environmental challenge gas faces. The methane emitted during its production and transportation is another issue Total is working on with the U.S.-based non-profit Environmental Defense Fund and UN Environment's Climate & Clean Air Coalition. "Total has pledged to learn more about and strictly limit our methane emissions. We kept our direct emissions in our reporting scope to less than 0.5% of the gas produced last year," notes Lavergne.
What if gas leapfrogged oil to become the top fossil fuel in the global energy mix? It's an idea worth keeping an eye on according to Total's senior vice president, gas, who is interested in new markets for the energy source. "Residential, manufacturing, power generation and now transportation are uses that will continue to grow. Transportation is especially promising, and although oil will remain irreplaceable in some sectors, such as aviation, moving ships using LNG or trucks using natural gas vehicle fuel will help expand the large-scale use of gas."
Renewables are sure to be a big part of the global energy future eventually. Those same renewables require a partner energy to offset their intermittent availability. Sometimes it's not windy out; the sun doesn't shine consistently. So gas offers solutions that can strengthen renewables projects. "In off-grid areas, we can install solutions combining LNG and photovoltaic solar that replace diesel fuel-powered generators cost-effectively, with our new affiliate Total Solar, " says Vivier.
"Our role is to make sure that the gas is produced as affordably as possible and made available to as many people as we can," concludes Lavergne. "And our ambition is to become the responsible energy major, the one that successfully anticipates and best supports what will happen in the highly complex world of energy."
That's one more promise you can take to the bank.
1 This is the cap set for atmospheric CO2 concentrations, or 450 parts per million (the number of carbon molecules in a cubic unit of dry air containing a million molecules, all types of gas inclusive).
2 In November 2017, Total announced it had signed an agreement to acquire Engie's upstream LNG business. When the acquisition closes around mid-2018, Total will be the world's second-largest LNG supplier.
3 Floating Storage and Regasification Unit, explained here.
4 The average European customer's bill is around €600 a year.