August 2016, Vol. 243, No. 8
Features
Shell’s Ajay Shah on Developing Gas Markets
Shell Vice President Ajay Shah leads a global team responsible for gas market development from the regasification terminal through to the local downstream market. He has worked in Shell’s gas and power division for over half his career and was part of the team responsible for the start-up of Hazira, Shell’s LNG regasification terminal in Gujarat, India. Gas Matters Editor Mark Selby met with Shah at Flame 2016 in Amsterdam to discuss the outlook for global gas markets against a backdrop of burgeoning LNG oversupply and increasing carbon regulation.
Selby: What are your responsibilities at Shell?
Shah: I’m focused on the development of gas markets – markets that have indigenous gas production and will need LNG in due course, or where there’s never been significant gas consumption. So there are two dimensions to my role: one is how to bring LNG to a market that is already using gas, and the other is how to develop a market that hasn’t really used gas before.
Part of the history of a company like Shell is that we’ve seen many evolutions of gas marketplaces around the world. We think we have a role to inform and explain how these things work. There’s such a surfeit of knowledge that, first, you want to bring people up to speed as to how it all fits together, but also inform them of the risks and the challenges – that it is capital intensive, but that the benefits do accrue over a longer period of time.
Selby: What is your view of the current market?
Shah: We’re at a bit of a crossroads right now. It’s a changing environment both in terms of supply-side and demand-side dynamics. There are two extreme end points: one where the U.S. changes the dynamics of the gas market completely and results in a whole new normal, versus another extreme, where the great cycles of the past 15-30 years simply continue.
The reality will most likely be something in between – as it was ever thus – and I think there are a number of similar markers of the current reality on which you can reflect back in time.
There are some structural pieces that are different relating to shale gas in the U.S., in particular, but there are lots of things that are the same – the access to capital, the absolute cost of our value chain, the relative lack of fungibility of this product vs. more traditional energy products, the fact that transporting gas across the world is a big chunk of the cost in the value chain.
So there are lots of things that are the same, but a few things that are a bit different.
Selby: Are you seeing more difficulty for new projects to secure finance?
Shah: I don’t think it’s any more or less difficult than it has been. It’s always hard to put these things together; they’re complicated, big-value, integrated projects that tend to have lots of dynamics around them. For example, a particular project in a particular part of the world with government backing will have a very different dynamic than a purely privately driven tolling-type model.
The cost/demand/financing triangle always ends up being a factor in new projects, because ultimately we’re talking about billions of dollars of investment. To make a decision, you need to have many of those pieces together. They don’t all have to happen perfectly, but they do eventually need to come together.
Selby: Where do you see the biggest opportunities for new demand?
Shah: Rather than picking a country let me talk more about regions. The “other Asia” has a very interesting dynamic. We’ve historically looked at Japan/Korea/Taiwan as the main gas markets, and now India and China have emerged and will continue to do so. They remain the elephants in this room, but there’s a whole bunch of other emerging markets.
Singapore is one that’s already down the road; Malaysia and Indonesia are on their way up and then you have the next ones: Vietnam, Myanmar, emerging economies that are hungry for energy, but which tend to burn oil today with coal also in the mix.
These are areas where gas can make a huge difference – not only in terms of cost but also in terms of air pollution reduction. In these markets, it’s such a big issue. You walk around the streets of Jakarta or a large city in China and it’s tough. If you can do anything to clean up the air quality – and gas can help here – then clearly you can make a big difference to people’s lives.
An additional benefit of switching to gas is that it will, of course, displace higher CO2-producing hydrocarbons.
Selby: What other regions are you focused on?
Shah: In North Africa, Morocco is starting to think about LNG imports. In East Africa, there have been some big gas discoveries and developments, but there also needs to be a domestic marketplace developed in Tanzania, Kenya and Mozambique.
We’ve always thought of South Africa as a place where gas markets could take off because it’s such a big coal user. And then there’s Ghana, the Ivory Coast – even Nigeria is thinking about how can it bring gas to places that are remote from its relatively sparse pipeline connections.
On the other side of the world, we’re looking at many locations in South America. Brazil is probably one of the most interesting but also one of the most challenging markets because it’s primarily a hydro-based electricity market that you need to be able to balance with gas. But there are also places like Chile, the Caribbean and Central America, as well as Uruguay and Argentina – so there is a lot of scope for developing gas markets.
Selby: What characteristics do you look for in target markets?
Shah: There needs to be some kind of energy dearth. There needs to be latent demand that’s unsatisfied; a generally growing economy – almost everywhere in Africa is like that – and an understanding of the bigger energy picture, of how the pieces fit together rather than just wanting to buy and consume. And there needs to be really strong government support, including support by the NOC and the ministry of energy, because these are complicated chains to put together.
I think back to Europe in the 1950s when governments and companies were thinking about how to develop a gas market – first of all country by country, and eventually how they were going to connect. There need to be some similar efforts in parts of the developing world.
Visit the Gas Matters homepage to read the full-length Shell interview
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