Hydrocarbon sources of the future will increasingly be a combination of ‘old’, ‘new’ and ‘nasty’ while the biggest change in global energy is the appreciation of the impact of greenhouse gases, particularly CO2, according to Shell EP Executive Vice President New Business Development, Guy Outen.

“That is, from ‘old’ fields needing enhanced recovery techniques, or ‘new’ in terms of ‘unconventional’ such as from oil sands, or ‘nasty’ in that they will be contaminated by CO2 or H2S for example”, he said.

Speaking at the AAPG conference in Perth, Outen said the sources of hydrocarbons are also changing with the easier, conventional sources increasingly concentrated in OPEC countries or in countries fully controlled by national oil companies. “That, together with the commercial potential for unconventional supply sources, is driving more geographic change in supply as well as demand”, he said.

Outen said it is now almost universally accepted that future responses will be necessary to reduce CO2 emissions. “So a wedge has formed, and is getting wider, between the need for less CO2 and the need to pursue more hydrocarbon resources that potentially generate CO2 during their lifecycle.

He said the big issue for energy companies is how to close this wedge or how to achieve more energy and less carbon. “How do we underpin security of supply and affordability, while at the same time reducing the adverse environmental and social impacts of energy production and use?” he asked.

Energy companies face three kinds of challenges: commercial decisions regarding customers, markets and arrangements; how they invest in technology and expand capabilities; and how they respond to the needs of government and non-governmental organisations, investors and business partners, and the environment.

“To properly meet customer and commercial needs we need to make the right commercial decisions and, in our industry, that often includes working in partnerships”, Outen said. Taking LNG as an example, he said Shell’s partnership with the Brunei government led to the development of its first large-scale commercial LNG plant over 30 years ago.

“Our partnership with Malaysia, the world’s second largest exporter of LNG, is extremely important to us, as is our partnership in the North West Shelf, which has extended from the very early days of development to the exciting phases 4 and 5 and beyond. We are also partners in the proposed Gorgon development.”

He said new LNG supply without markets is of no use, however, but unfortunately the two are not always perfectly matched. “Bold commercial moves to invest in regasification terminals in major markets around the Asia Pacific region, as well as in the Atlantic basin, will help match supply and benefit new gas consumers. The new LNG terminal in Baja California, Mexico, like the terminal in Hazira, India, will take Australian LNG where it hasn’t been before.”

Outen said Shell remains intent on making floating LNG a commercially competitive technology as part of a leadership position in dealing with small-scale or marginal accumulations.

“Our commercial mindset is not focused on short-term wins in markets and sectors where we already have a strong position”, he said. “To be sustainable, strategies and actions must also incorporate the longer term.”

On a global level, Shell is increasing its capital investment in oil and gas projects. “We recently announced further increases in Group capital expenditure to over $20 billion in 2006 – with 75% of that investment being in our upstream oil and gas operations”, he said. “In Asia Pacific that means – for one thing – continuing investment in supporting our partners in the North West Shelf and Gorgon.”

“Our partnership with India’s ONGC is exploring possible areas of co-operation worldwide – both upstream and downstream - and recently I signed a Memorandum of Understanding with Pertamina covering various upstream opportunities.”

Outen said Shell is especially committed to doing more of the large complex projects that are starting to dominate the global energy landscape. “Investment in developing, and deploying the right technologies is vital to the success of these projects”, he said. “A good example in Asia Pacific is the Sakhalin II project, where we are working with the Russian government, Japanese partners and Japanese and North American customers.”

“This is the world’s largest integrated oil and gas project, with a very heavy focus on sustainable development. It has been built from scratch, with no existing infrastructure, in sub-Arctic conditions. While the project has had its challenges, construction is now 80% complete and on track to deliver first LNG to customers in Japan and North America in 2008.

“Getting to this point has been a steep learning curve. We have developed both technical and management capabilities that will be very important in future developments in frontier and Arctic locations.”

He said global learning is applied to push exploration and production into deeper waters – such as the Perdido area development in the ultra deep water Gulf of Mexico as well as other challenging locations around the world. In offshore Malaysia, with our partners Petronas, we have been very pleased to record four major deep water discoveries since 2003.”

Even more ‘unconventional’ than deep water and Arctic developments is the rapidly increasing oil sands business. “Across the Pacific Ocean, in Canada, we see a different kind of expansion – into unconventional sources of oil, at the Athabasca oil sands project, an expansion of which has just been decided by us together with our partners”, Outen said. “In fact, that is a typical example of a technology that has until recently been considered as ‘unconventional’ or ‘frontier’, which is now rapidly maturing.”

“Indeed I would argue that a key requirement for the continued success of international oil companies is to make ‘unconventionals’ ‘conventional’. Unconventionals are a focus of attention for us in Asia as well. In Jilin province China, we are partners in a joint venture searching for appropriate oil shales as potential sources of oil.”

Outen said Shell sees unconventional sources like extra heavy oil and oil sands as important for the future of energy security. He said they help the world to diversify its dependence on energy sources – geographically, as well as in terms of source. “For example, the Athabasca oil sands are estimated to contain as much oil as Saudi Arabia”, he said.

“The technologies emerging for enhanced and improved recovery are another important boost to diversity. If, for example, oil recovery in Venezuela were raised from its current 10% to 50% that could unlock another Saudi-scale source of oil for the world.”

An even further ‘unconventional’ technology is coal gasification. China has shown great interest in coal gasification given its massive indigenous coal reserves. At Dongting, Shell is involved in a 50/50 joint venture with Sinopec, and in China 15 new licences for Shell’s leading coal gasification technology have been acquired.

Gas to Liquids is a related, more established technology for producing clean, high quality fuels and lubricants from hydrocarbons. Products from GTL can be distributed via existing infrastructure for use in contemporary vehicles.

“Shell’s experience of developing a commercial GTL plant at Bintulu in Malaysia – a pioneering venture, by many standards – has made possible the development of the Pearl GTL plant in Qatar”, Outen said. “This involves construction of the world’s largest integrated GTL complex, as part of the government’s long term strategy for optimal utilisation of the nation’s resources, which benefits both the Qatari people and global energy supply.”

Outen said that while investments and technology developments help companies meet their commercial objectives, environmental concerns, particularly global CO₂ levels, should also be a high priority.

“We believe that the CO₂ challenge will be met by lowering CO₂ production at source: utilising CO₂ as a source for processes such as enhanced oil recovery; developing alternative applications for CO2; capturing and storing CO₂; and trading credits as part of a systemic response to efficient CO₂ management”, he said.

“In Shell, we take very seriously our share of the responsibility to reduce the impact of energy on climate change. We’re acting on that responsibility by seeking and pursuing increasingly effective ways of managing CO₂.

“That includes reducing CO₂ emissions across the hydrocarbon lifecycle. There’s a whole range of technology developments relevant here, from smart fields for exploration and production, to enhancing refinery efficiency, to reducing or eliminating emissions from fuels and lubricants.

“We’re also looking at constructive ways of taking CO2 out of the picture through sequestration. For instance, in the Draugen field offshore Norway, a project is under development to use CO₂ from an onshore power station for enhanced oil recovery.”

He said three projects are under way in Australia at the moment: one with the Queensland government owned Stanwell Corporation, to investigate the feasibility of power generation from coal, with all the CO₂ sequestered underground; the other is with Anglo American and Monash University in Victoria, looking at turning brown coal into clean transportation fuels with the CO₂ sequestered in nearby oil and gas fields. “Finally with our partners in the Gorgon venture we’re committed to sequestering CO₂ at the point of production.”

“Another aspect of CO₂ management lies in emissions trading. Shell is encouraging and engaging in this, as well as the other CO₂ management strategies I’ve mentioned. We see emissions trading as a route to finding the most economical means to reduce CO2 on a global scale.”

Outen said biofuels form another important part of the diverse low-carbon energy portfolio required to meet stakeholder needs. “Shell is partnering with Iogen, the world leaders in cellulose ethanol production, and Choren Industries, leaders in biomass gasification processes, to find more advanced biofuel solutions that balance better the wide range of stakeholder issues in this area, including land-use considerations and alternative
fuel sources.”