Mark Moody-Stuart, Chairman of the Committee of Managing Directors (CMD) of the Royal Dutch/Shell Group of Companies and Chairman of The "Shell" Transport and Trading Company, plc. at the Offshore Northern Seas conference, Stavanger, Norway. Here are some illuminating points from that speech.
Solving the world’s energy challenges depends on business responsiveness. Energy industries will evolve to meet changing needs and environmental concerns. The threat of climate change requires precautionary action, without jeopardizing economic development. Technology is the key. Society has only begun to explore the technological possibilities for tackling greenhouse emissions. Shell has a strong commitment and distinctive approach to technology – harnessing experience, encouraging innovation, working with others, using commercial markets. All businesses face a business revolution, which is transforming markets and unleashing competition – but also offering new possibilities. Shell is vigorously pursuing internet opportunities. Businesses must also meet increasingly demanding public expectations. Shell is committed to contributing to sustainable development – integrating economic, social and environmental considerations, balancing short and long-term priorities, engaging with society.
There are very few things we can be sure about the future of energy industries. One is that they will be different. Energy industries have always evolved to meet people's changing needs. They will certainly continue doing so - probably more rapidly and fundamentally than we have been used to.
Where better to consider this future than in Stavanger - the center of a forward- and outward-looking energy industry? An industry, which has a particular commitment to two vital areas for the future - developing technology and pursuing environmental solutions.
Will energy companies continue to play a vital role in shaping this future? I think so. Of course, I'm biased. But there are good reasons for this belief.
Markets demand particular characteristics of commercial enterprises - responsiveness, organization, creativity, a willingness to bear risks and competitive drive. These will be vital for shaping our future.
Responsiveness is key. Business success depends on responding to changing conditions, expectations and possibilities for improving performance and creating new value.
I will start by considering the challenge of meeting the world's expanding and shifting energy needs - in a way that is both economic and responds to the threat of climate change. I will argue that technology is the key to this - for making more effective use of our present resources and developing new ones. At the same time a business revolution challenges us all, but also offers new possibilities. And, businesses must work to regain people's trust.
I will say something about how we are approaching these things in Shell.
Driving energy evolution
Modern energy systems have continually evolved - responding to the changing needs of customers. The challenges which will shape their future include:
· serving shifting patterns of demand,
· developing gas markets,
· extending depleting resources, and
· meeting environmental threats.
World energy demand grew by less than 1% a year during the 1990s. However, this amounted to some 750 million tones a year of additional demand - as much energy as China consumes.
Growth was affected by the dramatic collapse of demand in the former Soviet Union. Most of the additional consumption was in OECD counties, which grew by 1.4% a year.
The energy needs of developing countries increased much more rapidly for much of the decade - but then slowed as a result of the Asian crisis and, in particular, a sharp fall in Chinese consumption. This fall - which has continued since 1997 - came from a 25% cut in coal consumption, China's major form of energy. Demand for other forms of energy continued to grow strongly, as China's economy continued growing by more that 7% a year in real terms.
Overall the world consumed 6% less coal in 1999 than 10 years previously. OECD coal consumption was 3% lower. Oil consumption grew by 12%, slightly faster in the OECD. Global gas demand rose by 19% - 28% in the OECD - and nuclear by 30%.
What about the future?
Firstly, it is uncertain - as the experience of the last decade demonstrates. Energy demand is volatile, as are prices.
Secondly, the growth of energy consumption in the developed world may slow - as markets saturate and efficiency increases.
Thirdly, the energy needs of developing countries will grow strongly as they industrialize. But we should not neglect the possibilities for improving efficiency and leapfrogging technology.
Fourthly, energy supplies will change. We don't know if the fall in Chinese coal demand is permanent. But there is a clear - and understandable - global trend towards gas.
Nuclear has also been rising - as plant life has been extended - but faces increasing problems of cost and public acceptability.
In Shell, we have long seen a bright future for gas. We expect consumption to grow rapidly, particularly for power generation. Combined-cycle gas turbines have many competitive advantages - efficiency, flexibility, cost-effectiveness, safety, cleanliness, and lower carbon emissions. The challenge is to deliver gas economically and to invest in developing markets.
We are extending our LNG leadership - and pursuing further opportunities for new plants and extensions. We are investing in new gas markets, such as Brazil, China and India - recently ordering two further LNG tankers to support this.
We are also pursuing innovative ways of serving customers in existing gas markets.
Gas and power markets are converging. We aim to exploit the link between them. Our InterGen power development joint venture has been very successful, and is being expanded.
Resource levels will certainly shape the future. We don't expect significant oil constraints until at least 2020 - because of this industry's continuing ability to extend existing resources and access new ones.
Less is known about the ultimate extent of gas resources. But I believe there is still much to find. History suggests a tendency to underestimate future production - and overestimate future prices.
Environmental concerns are another important shaping force.
Air quality is improving in developed countries. However, there are still major problems elsewhere. The World Bank suggests the health effects of coal use cost China 7% of GDP.
The fundamental threat, of course, is climate change1. The rise in global temperatures appears to be accelerating. It is associated with increasing greenhouse emissions, to which the largest man-made contribution is from fossil fuels - which grew by nearly 60% in the 25 years from 1970.
The causal link is not certain and the future impact unclear. But precautionary action is imperative. This must be economic. It would be folly to jeopardize unnecessarily the economic development on which higher living standards depend. And I don't believe it is necessary.
Consider the recent sharp fall in Chinese coal demand. Allowing for increasing use of cleaner fuels, this amounts to a reduction the equivalent of nearly 3% of annual carbon dioxide emissions from the global energy system. As I said, we have no idea if the reduction will be sustained. However, it is an indication of the possibilities.
This shows the supreme importance of helping countries like China to increase energy efficiency and switch to cleaner fuels. We are working both to develop indigenous gas resources - for example in our joint venture with the China National Petroleum Company to supply gas from the Ordos Basin to customers in northeast China - and to deliver economic LNG.
The drive to reduce carbon dioxide emissions is already having a profound impact on the way governments and business think. In Shell we are committed to reducing our own emissions and to contributing to wider solutions.
Responding to these energy shifts will be a decisive challenge for energy companies. We see them as commercial opportunities.
Delivering solutions
Technological advance is the key - for solving energy challenges and realizing their commercial possibilities.
In Shell we have a strong commitment to technology development - more so than some of our competitors. I think we also have a distinctive approach.
This has several elements:
· harnessing our unique reservoir of experience,
· using internal markets to encourage innovation,
· leveraging this internal capabilities by working with others, and
· using commercial markets to achieve industry-wide scale and delivery.
Shell is responsible for more oil and gas production than any other private company. We have the most experience of creating LNG ventures and of developing and operating deep-water reserves.
The business value of these positions is what we make of them. But they do offer a unique reservoir of experience, which we are determined to exploit.
This means developing and maintaining the cadres of experts who embody shared experience - not just as data in a filing cabinet but in their ability to judge new possibilities.
The experience of six LNG schemes has enabled Shell designers to reduce LNG unit capital and operating costs. The recently commissioned Oman LNG plant - with the biggest ever-processing trains - has the lowest unit capital cost of any green-field development.
Seismic is another area where Shell companies can apply particular experience. Norske Shell recently used time-lapse seismic to track changes in the Draugen reservoir - enabling them to shift a planned well and gain what we believe is a world record well production of over 70,000 barrels a day.
We harness our experience systematically.
Shell E&P has developed an approach called Realizing the Limit. This starts by understanding what is required to do each element of a task perfectly - with present technology - and then systematically harnesses our experience to pursue this perfection. The approach is being used to speed drilling, maximize the value of subsurface knowledge, make the best use of capital and increase production.
Using Drilling the LimitTM Shell companies around the world have been able to cut drilling times by more than a fifth on average. In the UK, they were halved. In the Gulf of Mexico deep water, we drilled twice as fast as our benchmarked competitors. Norske Shell has also achieved significant reductions in drilling times and well cost.
Experience also lets us focus on the technological solutions that matter.
A major problem in going into deeper water is how to prevent the great weight of the column of drilling fluids - from a rig perhaps two kilometers above - from damaging unstable formations. The Shell sub sea pumping system provides a solution.
Another challenge is to extend drilling reach while retaining the well bore to allow the high productivity necessary for deep-water economics. Shell expandable tubular - enlarged in situ - provide a solution.
Staying ahead requires more than just periodic advances. We need a constant flow of innovations - delivering new business value as quickly as possible.
We have developed an internal venture capitalist approach, Gamechanger, to harness the creativity of all Shell people.
They are encouraged to put forward ideas to a panel of their peers who decide - within a week - if they are worth developing for submission for expert review. After this a rapid, structured process tests business value and technical feasibility - with the aim of delivering successful ideas for business implementation or commercialization within a year.
Gamechanger has delivered striking successes in key areas - cheaper exploration, intelligent wells, non-conventional energy, energy conversion and environmental improvement.
We seek to leverage our internal capabilities by working with others. This includes research alliances with key technology institutions around the world - including NTNU in Trondheim.
We also join with others to commercialize our advances - using commercial markets to achieve industry-wide scale and delivery. For example, expandable tubular are being marketed through joint ventures with Halliburton and Baker Hughes.
I mentioned Gamechanger ideas for intelligent wells. We see huge potential from making wells smarter - combining multilateral extensions, real-time measurement, automated control and down hole processing to improve recovery and reduce environmental impact. We have formed the zWellDynamics joint-venture with Halliburton to push such advances forward.
Technology advances are essential for meeting the environmental challenges.
The advantages of gas extend beyond power generation. Gas-to-liquids provides ultra-clean, zero-sulphur fuels to help cut vehicle emissions. We believe it now offers an alternative to LNG for commercializing distant gas. Costs are being driven down - most recently by a breakthrough in catalyst technology from our Amsterdam laboratory. We are planning to build a second larger-scale Shell Middle Distillate Synthesis plant, possibly in Indonesia.
We are also looking at ways of increasing the efficiency and cleanliness of coal use - using the Shell coal gasification process. We are applying this at Dong Ting in China's Hunan province, as the first of a series of projects with Sinopec.
I believe society has only begun to explore the technological possibilities for tackling greenhouse emissions - for increasing energy efficiency, transforming the ways we power vehicles and generate electricity, sequestering carbon dioxide, and commercializing renewable energy. Shell companies are contributing in all those areas.
Let me give just one example. Together with Siemens-Westinghouse we are investigating generating emission-free power from gas in solid-oxide fuel cells, re-injecting the carbon dioxide. There is wide potential but offshore power generation is an obvious first market. The first onshore pilot will be installed at Kollsnes here in Norway.
22-08-2000
Source: Shell Oil Company
© 2000 Mena Report (www.menareport.com)
