Project Development & Finance

4 Competition, Commoditisation & Consolidation is finding that synchronous gas-fired power stations – which have the advantage of the inertia provided by the spinning of large heavy machines – will need to play a greater role in its electricity mix as the share of non-synchronous renewables grows and coal and peat are phased out. A related driver is that electricity is expected to take a rapidly growing share of the world's final energy consumption, rising from a fifth in 2018 to half by 2050. Meanwhile, primary energy demand will continue rising. Shell forecasts that "by 2070 the world is likely to be using at least 50% more energy than it does today". ATTRACTING NEW PLAYERS The forecast compound annual growth rate (CAGR) for LNG compares with Shell's forecast CAGR for overall gas supply of 2%. So it is little wonder that new players are increasingly attracted to LNG. A notable example is Saudi Aramco, one of the world's largest oil producers, which recently agreed to take a 25% equity stake – along with a 20-year, 5 mtpa offtake contract – in a proposed US LNG export project. This first foray into LNG, said the company's CEO, is part of "a long-term strategy to become a leading global LNG player". Like Shell, it is expecting LNG demand to grow by a CAGR of 4% to 2035 and sees "significant opportunities" in the LNG market. Even the CAGR of 2% forecast by Shell for gas is a faster growth rate than is expected for oil supply or indeed coal, which is coming under increasing political pressure as concerns escalate over what some people call global warming but others now insist is a "climate emergency"; a growing number of nations are setting target dates to phase out coal from their electricity generation. (This raises the question of what the role of gas – less polluting than coal or oil but still a fossil fuel – should be in a decarbonising world. We explore this on p6.) IMPACT OF CLIMATE ACTION The International Energy Agency (IEA) is not as bullish as Shell and Aramco about LNG's long-term prospects, but it still expects strong growth, even if determined action is taken to tackle climate change. In the central New Policies Scenario (NPS) of its influential World Energy Outlook (WEO), the IEA projects that gas is the fastest- growing fuel over the coming two decades, overtaking coal by 2030 to become the second-largest source of energy after oil. As a result, "gas consumption by 2040 is almost 45% Source: Shell LNG Outlook, 2019 LNG demand outlook to 2035 1,000 800 600 400 200 0 2018 Asia Europe Americas 2035 Mid-East & Africa Bcm 4% CAGR 59% 22% 10% 9%

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