How do you see energy supply and demand evolving over the coming two decades and how is Shell positioning itself for the future?
Global demand for energy will surge as a result of population growth and industrialisation, so that by 2050 we could be using double the amount of energy we do today. Against this backdrop there will be growing environmental stress and increasing calls from governments around the world for a more sustainable energy system. To manage the supply side, there will be a need to mobilise all forms of energy, ranging from difficult-to-produce oil and gas, to coal, nuclear and renewable.
But the demand side must be managed as well. We need to become more efficient at using energy. There are also technical solutions that can be pursued to capture and store the CO2 that would otherwise be emitted into the atmosphere. Shell has long experience of many different energy sources, including natural gas, which is the cleanest-burning fossil fuel and biofuels, which can be made to have a low carbon footprint. This leaves us well-positioned for the future, so we continue to invest. This year alone Shell has plans to make a net capital investment of around $29 billion. With an unrivalled tradition of technological innovation, I see the energy transition as a huge opportunity for Shell.
Why is it relevant that the next World Petroleum Congress will be held in Doha?
Over the past couple of decades Qatar has emerged as a very significant player in global energy under the wise leadership of His Highness Sheikh Hamad Bin Khalifa Al-Thani, The Emir of the State of Qatar, and the effective implementation of His Highness’s vision for the energy sector by His Excellency Abdullah Bin Hamad Al-Attiyah, Deputy Prime Minister and Minister of Energy and Industry.
Already Qatar is the world’s leading exporter of liquefied natural gas (LNG) and the gas-to-liquids (GTL) capital of the world. By the time of WPC 2011, Qatar will have extended its global lead in both LNG and GTL considerably.
I am proud of the role Shell is playing in this as Qatar’s partner in the Pearl GTL project and the Qatargas 4 LNG project. I think it is entirely appropriate for Qatar to host one of the leading global conferences in the energy industry.
Shell has invested heavily in Qatar’s Pearl project, but does GTL have a future elsewhere?
Pearl GTL in Qatar is a significant project for Qatar and for Shell. As the world’s largest GTL project, it also marks a step-change for GTL. I am satisfied with our progress in the construction of this project, and I look forward to the completion of major construction by the end of this year. Pearl GTL will produce 260,000 barrels per day of products, including 140,000 barrels per day of GTL products. Each GTL product has qualities that we believe will appeal to customers. GTL kerosene is one example, and I was pleased to see a Qatar Airways Airbus A340 making the first ever commercial passenger flight using a 50-50 blend of GTL and conventional jet fuel in October last year.
In Qatar, we are working with Qatar Petroleum on both GTL and LNG projects and both are economically attractive for us. I believe LNG and GTL also both represent attractive options for gas resource holders to monetize their gas. One thing to bear in mind is that GTL offers access to the oil product markets for gas resource holders and that can be a good strategic diversification. Of course, you need to have the right combination of abundant gas and the capacity – not least in terms of labour – to build the huge plants that are needed.
We remain interested in new GTL opportunities, but our main focus now is on delivering Pearl GTL itself. We have over 50,000 workers onsite in Ras Laffan Industrial City. Onshore commissioning is well under way. Offshore we have completed our drilling campaign – with record times for the North Field. We are proud to be a pioneer in GTL. We have more than 35 years’ research in producing liquid fuels from non-oil sources and started up the world’s first commercial GTL plant of its type in Malaysia in 1993.
How do you see the energy mix developing in the future?
Shell’s scenario work shows that by the middle of this century 30% of the world’s energy could come from wind, solar and other renewable sources. The build-up will be slow because these sources need a lot of development before they can become commercial on a large scale. In the meantime fossil fuels and nuclear will remain the main source of our energy needs. So we will do our part to continue to develop difficult-to-produce oil and gas to supply the world with the energy it needs. Gas is becoming an important transition fuel as it is cleaner and less carbon intensive than coal or oil while there will be a greater variety of transport fuels, including biofuels, electricity and hydrogen. Everything from cars to homes will become more energy efficient than today.
What about the future role of unconventional energy? Is it environmentally sustainable?
As I mentioned earlier, fossil fuels will provide the bulk of the world’s rapidly rising energy needs to give renewable and sustainable energy sources the time to be developed. Unconventional oil and gas have a role to play in the global energy mix. Shell has made a strategic choice to work responsibly across a broad energy portfolio including unconventional oil and gas though nearly all of the energy Shell produces globally is conventional oil and gas.
What are the implications for Shell and deep-water E&P in general of the Gulf of Mexico oil spill?
All of us at Shell are deeply saddened by the loss of life and the environmental consequences due to the Deepwater Horizon incident. We’re confident that the incident will be thoroughly investigated and findings will be communicated across the industry to prevent such events from occurring in the future. We have joined forces with other oil companies is helping deal with incident and we are participating in an industry task force looking at recommendations on improvements or precautions that will help prevent such an incident from occurring again in the future.
The Gulf of Mexico has not experienced an incident of this magnitude in many decades of offshore drilling and production, and our thoughts continue to be with those affected by this tragic. Safety is, has been, and forever will be, our number one priority. It is our core value. Shell has never had a significant offshore well incident or platform spill in the deep water Gulf of Mexico related to its exploration and production business.
Although the cause of the incident may not be known for months, we have taken a number of proactive steps to reinforce safety and prevent a similar incident from happening in our offshore operations. One immediate step was to review of all safety emergency systems, including blowout preventers and related equipment.
What are the main areas that you have identified in which Shell can cut costs and make efficiency gains?
We have made a good start in Shell. We managed to cut costs by more than $2 billion last year and have targeted a further $1 billion this year. So cost reduction remains an urgent priority for us. There is a possibility that inflation could soon return to the industry and that is a good reason for us to maintain our focus on internal and third-party costs.
The focus of the restructuring last year was to make Shell a simpler place to work with clearer accountabilities. This translated into fewer people taking strategic decisions and more people implementing. We now have a flatter organisation with fewer leaders and tougher performance Management – more delivery, less discussion and a sharper focus on results. We continue to concentrate on introducing simpler processes and increasing momentum in contracting and procurement savings. But our strategy doesn’t just revolve around cost reduction; we also focus on growth – operational growth and financial growth.
We had three significant new production start-ups in 2009: the LNG plant at Sakhalin in Russia, the deep-water Parque das Conchas project in Brazil, and a new chemicals production plant in Singapore. In March this year the Perdido development in the Gulf of Mexico started up. Looking into 2010-11, we plan to bring 13 key projects on stream in upstream and downstream. And we work on generating new options for further growth over 2014-20. The key projects under construction will enable us to access 11 billion barrels of resources. And the new options for future growth would yield an additional 8 billion barrels if we proceed with them.
What is the future of refining in Europe and North America? Is there an inevitable drift in capacity to the Middle East and Asia, and how does Shell see itself fitting into this picture?
Shell looks at its refinery portfolio from both an asset and a geographic perspective. We are constantly reviewing the portfolio to ensure that our facilities are competitive in the markets where we operate. As a result of these reviews, we are divesting ourselves of some plants and investing in others.
At present our most visible growth investments are in regions outside Europe – projects like the Shell Eastern Petrochemicals Complex in Singapore and the expansion of Port Arthur refinery in the US. But this doesn’t mean that we will not continue to invest in European refining where this makes sense. In mature markets like Europe, this may not be about growing volumes: here the focus is on value growth, and there are plenty of opportunities to add value through investments in existing assets and markets.
What’s the outlook for the LNG market?
Despite the difficult LNG short-term market we have today, world-wide LNG demand is likely to grow and grow much faster than overall gas demand. In fact, it could double this decade. This growth will be driven not only by China, but also by Europe’s growing import dependency, and by a host of countries in Asia that will begin importing LNG, including Indonesia, Malaysia, Thailand, Singapore and Pakistan, and here in the Middle East, Kuwait, Dubai and Bahrain.
Substantially increasing the share of gas in the power generation mix is by far the cheapest and quickest way for many countries to deliver a material cut in C02 emissions – and for many, it’s the only realistic way to meet their 2020 pledge. Thankfully, gas is abundantly available. The IEA says there’s enough technically recoverable gas to supply the world for 250 years at current production levels. We see more LNG supplies, more LNG ships, and more pipelines, which means more gas for more customers in more markets. There is a very fast ramp-up in production of unconventional gas in North America. This changes the US gas supply picture dramatically and frees up LNG supplies for other countries.
Expanding the world’s gas resources, and bringing these to market, is not easy or cheap. In addition to tapping conventional and unconventional onshore resources, we will also have to develop new unconventional or stranded resources.
Shell is a pioneer in the LNG industry as well as technical leader. Today we are technical adviser to projects that produce nearly 40% of global LNG supplies. We are driving rapid progress on floating LNG plants. This will allow us to bring to market resources once considered too remote or expensive to tap. We are also building on our experience in the sub-Arctic to develop cost competitive and environmentally acceptable solutions for full Arctic conditions. In addition we are also seeking to leverage our unconventional gas experience to develop coalbed-methane based LNG projects. Of course, gas suppliers need security of demand to justify investments in new supplies. That’s why it’s important for governments to give clear signals about their commitment to gas and CO2 pricing.
