CHALLENGES AND
DEVELOPMENTS IN THE
NOC-IOC RELATIONSHIP
Malcolm Brinded
Executive Director, Upstream International
Royal Dutch Shell plc
Oxford Energy Seminar
23 July 2010
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
Malcolm Brinded is Executive Director,
Director Upstream
International.
He joined
ined Shell after graduating in engineering
e
from
Cambridge University and has worked for Shell companies
in Brunei, the Netherlands, Oman and the United Kingdom.
In 1998 he became Managing Director of Shell UK
Exploration and Production – responsible for a fifth of the
country’s offshore oil and gas business – and from 1999
until 2002 he was Shell
ell Country Chairman in the UK.
He continues as a member of the Royal Dutch Shell plc
Board, a role he has held since its formation in 2004, and
was a member of the Boards of the two parent companies
since 2002. From March 2004 until his current appointment
in July 2009,, he was Executive Director in charge of
Exploration & Production.
Malcolm
lm is a Fellow of the Institutions of Civil and
Mechanical Engineers and of the Royal Academy of
Engineering. He is a member of the Nigerian President’s
Honorary International Investor Council and a Trustee of the
Emirates Foundation and the International Business Leaders
Forum. He is also the Chairman of the Shell Foundation.
In 2002 he was appointed CBE in 2002 for services to the
UK oil and gas industry.
2
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
Long-term trends and recent developments
evelopments increase the need for win-win
partnerships between international oil companies (IOCs) and national oil companies
(NOCs), says Malcolm Brinded. IOCs and NOCs have shared interests and face
common challenges – from climate concerns to the end of “easy oil”. They
hey both also
have to deal with the after-effects
effects of the global economic recession and the upsurge
in unconventional gas in North America.
A
With a growing diversity among NOCs,
IOCs must adapt to create sustainable partnerships – particularly to support the
growth of natural gas in power generation and to preserve the acceptability of
liquid fuels in transport.. An “Open Doors” approach attracts more foreign direct
investment into the energy sector, allowing the transfer of know-how, the building
lding
up of local resource and supply-chain
supply
capacities, and the generation of significant
economic growth to host nations.
nations
It’s good to be here at the Oxford Energy
Seminar again. A lot has happened since I
was here last year – in the financial market,
in our industry and also at Shell. But let me
go back a little further in time to set the
context.
Two years ago, Shell’s scenarios highlighted
three key long-term trends.
Firstly, a surge in the global demand for
energy as a result of population growth,
increased prosperity and industrialisation.
We therefore anticipate that, by 2050,
humankind could be using twice the amount
of energy we do today.
Secondly, greater
er price volatility and supply
tightness. New conventional oil and gas
supplies cannot be brought on stream at the
same pace at which demand is growing. For
that reason all forms of energy – ranging
from difficult-to-produce
produce oil and gas, to coal,
nuclear and
nd all manner of renewables – will
have to be mobilised. Ways of saving
energy will also have to be implemented, so
that more utility can be extracted from the
available sources.
And lastly, an increase in the environmental
stresses. Scientists tell us that the world needs
to cut greenhouse gas emissions in half by
mid-century,
century, if we hope to avoid the worst
effects of climate change. So the deployment
of cleaner energy technologies will be
encouraged through a patchwork of
responses both collectively – by international,
regional and national bodies – and
individually – by cities, citizens and
companies. Our two scenarios show how
monumentally difficult that task is. Between
now and 2020, CO2 emissions are largely
locked in by our current infrastructure and the
time it takes to deploy low-carbon
carbon energy
3
technologies on a scale large enough to
make a real difference. I’ll come back to this
point in a moment.
There are a two key events that happened
since 2008, however, that the scenarios
cenarios did
not factor in:
• A global economic recession. The
severity of the recession leads us now to
believe that global economic growth will
resume at a rate lower than the prepre
recession long-term
term trend. The extent of
the downshift remains uncertain,
however. The huge public deficits of
countries across the world, and the need
to withdraw vast government stimulus
packages at some point in many
countries, are reminders that the path to
recovery is still treacherous.
• A surge in the volumes of
“unconventional”
ional” gas entering markets,
especially in North America. Over the
last couple of years, the growth in this
type of gas supply – chiefly from tight
sandstone and shale formations – has
changed the pattern of gas production
Figure 1: Long-term trends
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
and distribution – not only in the
e US but
also throughout the world. For one thing,
it has depressed gas prices in the US.
That, in turn, is now triggering new and
increased demand. And for another, it
has freed up supplies of liquefied natural
gas (LNG) for other countries. If the
successs story of unconventional gas can
be repeated elsewhere, the long-term
long
global supply of natural gas should
improve even more.
In addition to those key events, a major
resource-holding country – Iraq – is
reclaiming its position on the international oil
supply
pply market. Through a carefully crafted
series of open and transparent bidding
rounds, the country has accelerated the
redevelopment of its key oil fields, attracting
a host of the world’s largest and most
experienced oil companies as partners. The
production
tion targets of the newly awarded
contracts total nearly 10 million barrels of oil
a day – close to the current output of Saudi
Arabia, the world’s number-one
one producer.
And even as I speak, we are witnessing
another event that has repercussions
throughout the industry: the Gulf of Mexico
oil spill.
Governments, shareholding institutions and
ordinary citizens have made it abundantly
clear that they hold oil companies to high
standards. Indeed, they may be about to
draw a sharper line as to the safety and
environmental
nvironmental risks that society is willing to
bear in its quest for more energy. Regulatory
agencies are also getting more directly
involved in design and operational decisions
that in the past tended to be left to prudent
operators.
I’ll have a few more words to say about the
spill and its effect on the industry at the end
of my presentation.
In spite of these recent events, the basic
conflicting trends remain the same: the world
will need perhaps twice as much energy with
half the CO2 emissions. Or, to put it another
way, the carbon intensity of the energy we
use would have to be reduced to a quarter
of what it is today.
From this tension between more energy and
less CO2 arise two very different outlooks
4
about the future of oil and the
e role of liquid
fuels in transport.
Resource availability vs climate change
hange
In the first outlook, the overarching theme
would become the growing scarcity of oil in
relation to its demand. The decline of “easy
oil” and the relentless need for more energy
in developing nations dominate the market.
mar
Competition for resources becomes ever
more intense. As a result, traders are likely
to assume that future oil prices will not drop
below current prices; they may even
envisage prices going up significantly in the
longer term.
Given that outlook, wealthier major
resource holders would be happy to to
restrain production, given sufficient current
income. They would want to make sure that
their oil output can be sustained over many
decades in order that future generations also
get a share of their countries’ natural
endowment. This is, in essence, what OPEC
strives to achieve – and it has had a good
degree of success thus far.
In the second outlook, it becomes
increasingly clear over time that the
remaining window for substantial oil
production growth willll be curtailed by ever
more stringent climate policies, often aimed
at displacing oil from transport. As CO2
levels approach critical levels, real climate
change effects become more noticeable,
able,
and public concern grows.. Producing nations
begin to see that they may well be left with
substantial resources still in the ground at the
end of the oil era. That insight could make it
increasingly likely that a race for market
share will be set off, inevitably softening
prices.
Two very different worlds – with hugely
gely
different consequences. But whichever of
these outlooks ultimately plays out, NOCs
and IOCs will face a major common
challenge: make more energy available –
while reducing the pressures on the
environment associated with its production
and use.
As we move ahead toward increasing
energy availability, greater energy efficiency
will prove critical – particularly in developed
countries. The developed nations have an
obligation to make the most of their energy
“The world will
need perhaps twice
as much energy
with half the CO2
emissions. Or, to
put it another way,
the carbon intensity
of the energy we
use would have to
be reduced to a
quarter of what it is
today.”
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
as part of their contribution to fuelling the rise
in living standards
dards in the rest of the world.
Indeed, if there is to be an energy revolution,
it will be on the demand side, where we can
make big changes relatively quickly with the
right policies and political will.
On the energy supply side, change
ge will
happen much more gradually – not because
of the industry’s slowness to react, but
because of the sheer size and complexity of
the supply system.
History shows that it takes at least 30 years
for any new energy type to gain just one
percent of the global supply. This lead-time
lead
was evident in the evolution of LNG. Biofuels
are reaching the one-percent
percent mark about
now, also after a quarter-century
century or so of
development. The first big wind farms were
built in the US and Denmark only 15 years
ago. And wind
d energy is only likely to pass
the one-percent
percent mark sometime in the next
decade.
There's no escaping it: the development of a
secure and sustainable energy supply will
proceed slower than many would wish.
w
It will
take many decades.
Nevertheless, we must deliver growing
amounts of energy today – especially for
people in developing nations who cannot
afford to wait until tomorrow. Condemning
many of the world’s citizens to energy
poverty is simply not an option.
Take Asia as a microcosm of the way these
trends
rends are playing out in the world.
The Shell scenario team estimates that some
800 gigawatts of electricity-generating
generating
capacity will be built in Asia just in the next
10 years. That’s the equivalent of Western
Europe’s entire installed generating capacity.
capacit
The impact on transport fuels in Asia will be
equally dramatic. China overtook the USA
last year as the world’s largest vehicle
market, with sales of nearly 14 million cars
and trucks. And there’s plenty of room for
that number to grow. There are fewer than
30 cars for every thousand inhabitants in
China, compared to more than 750 in the
USA.
Global crude oil supply
Largely because of this marked expansion of
individual mobility and the natural decline of
existing oil fields, the world will need to
produce an additional 40 million barrels of
oil a day by 2020. Most of it will need to
come from resources
ces that haven’t even been
found yet. Forty million barrels a day is about
four times what Saudi Arabia produces, or
10 times what the U.K. and Norway
together produce.
Although the International Energy Agency
does not expect global oil production to
peak before 2030, conventional oil
production is projected to approach a
plateau. Unconventional sources, mainly
extra-heavy oil and gas-to-liquids,
liquids, will take a
growing share of world production.
The IEA reckons that the world will need to
invest over one trillion
llion dollars every year for
the next 20 years in new energy projects.
That’s the equivalent of harnessing about half
of the UK’s GDP just to build energy projects.
So the challenge is daunting. But if there’s
one thing I’ve learned from my career at
Shell,
l, it’s that optimism really is a powerful
force.
It’s also obvious that win-win
win partnerships in
which all parties stand to gain are the ones
with the highest chance of success and the
ones that have contributed
ontributed the most in the
past.
So how could optimistic partnerships
between NOCs and IOCs develop over the
“There's
There's no escaping it: the development of a secure and sustainable energy supply will
proceed slower than many would wish. It will take many decades.”
decades.
5
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
next several years?
First, let me be clear: I recognise that NOCs
do not need IOCs. At Shell, we have the
utmost admiration for NOCs – for the skills
and capabilities of their people, for their R&D
programmes,
rogrammes, and for their stewardship of
national energy resources in the best interest
of their countries. NOCs today are
knowledgeable,
edgeable, capable and confident.
confident We
know very well they don’t depend on IOCs –
and they can access capital in many other
ways.
Nevertheless, they stand to gain from the
integrated global capabilities that IOCs can
bring to a partnership in three main areas:
• developing and deploying technology
and then helping to permanently transfer
and embed it in NOCs;
• widening the customer base and
extending the integrated value chain; and
• helping to build local skills and
businesses.
By combining forces, NOCs and IOCs really
can do a lot to meet the complex energy and
environment challenge. I’ll even give you
some examples of how Shell is doing it now
with several NOCs.
First, let’s focus a little more on the power
sector as an area of NOC-IOC
IOC cooperation,
before seeing how such cooperation could
unfold in the transport sector.
Growth in annual CO2 emmissions
mmissions
If we want to limit atmospheric
concentrations of CO2 to 450 parts per
million, we have a margin of only around 64
ppm left, as shown here on the right-hand
right
side of the slide.
originate from a manageable number of
fixed emission points.
How best to do that?
The quickest and cheapest way to reduce
those emissions is to burn natural gas instead
of coal to generate electricity.
A modern gas plant emits only half the CO2
of a modern coal plant, and 70% less than
decades-old steam-turbine
turbine coal plants, of
which there are still hundreds in operation in
the US and China. Many of these will be
decommissioned in the next 15 years, but
they should probably be scrapped tomorrow
iff the world really wants effective action on
CO2.
In deciding what replaces all that old coal
capacity, governments and utilities are
beginning to realise that natural gas capacity
is both faster and cheaper to install than
other new-build sources of electricity.
tricity. By the
way, it is also much easier to link into
intermittent wind or solar electricity than either
coal or nuclear.
And to those who are concerned about the
security of supply lines, gas is abundant
enough – and its various modes of
distribution are today flexible enough – to
allay those concerns. According to IEA, there
are enough gas resources for about 250
years at current production levels. Growing
gas supplies – including the unconventional
gas I mentioned earlier – in combination with
new pipelines
pelines and a globalising LNG market
should ensure security and long-term
term price
stability.
According to IEA forecasts, around 40% of
that margin will get taken up by the
emissions from coal-fired
fired power generation in
just three countries – China, India and the US
– between now and 2030, if no measures
are taken to abate those emissions.
So logically, the first priority has to be to
reduce CO2 emissions from the power
sector, because they are large, growing and
6
Figure 2: Growth in annual CO2 emmissions
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
Longer term, carbon capture and storage
(CCS) offers even further scope for CO2
reductions. It’s the only technology capable
of managing CO2 emissions from large-scale
large
facilities, such as cement factories, refineries
and fossil-fuel
fuel power plants. The IEA
estimates that CCS could ultimately account
for about one-fifth
fifth of the global CO2
reductions needed by 2050 – and more
than half of those needed by 2100.
So what then
hen are the challenges and
opportunities for NOC-IOC
IOC cooperation in
the gas sector?
I see them in three main areas:
• the production of more non-associated
associated
gas;
• the increase in sales of gas and gas
products in liquid forms, which hugely
increases the cost effectiveness of longlong
distance transport; and
• the utilisation of more associated gas.
Let me quickly describe each of them in turn.
Non-associated gas
First, supplies have to be increased –
particularly through technologies that unlock
“difficult” gas. That includes unconventional
gas in tight reservoirs and also sour gas.
Take Saudi Arabia, which is the third biggest
gas reserve holder in the Middle East, after
Iran and Qatar. We estimate that threethree
quarters of the non-associated
associated gas in that
country iss found in accumulations that are
sour or in tight reservoirs – or both. Shell has
been exploring for gas in partnership with
Saudi Aramco in the Rub al Khali area of the
Kingdom. We are focussing
ssing the efforts of our
50/50 joint venture
enture in 2010 and beyond
onn the sour gas resources of the Kidan
geological trend.
Kuwait too has sizeable non-associated
associated soursour
gas reservoirs, but their locations are known:
below the country’s Northern oil fields. These
reservoirs consist of fractured tight shale and
carbonate formations. The challenge for
Kuwait is to develop them in an efficient and
safe
fe manner. The recently signed agreement
a
with Shell helps to achieve this end.
7
For these two oil-rich Middle Eastern
countries, producing more gas for electric
power means a significant
gnificant reduction in CO2
emissions, freeing up oil for exports. On the
other hand, gas also serves as key feedstock
for a growing industrial sector and provides
means for enhancing oil recovery.
More non-associated
associated gas can also be found
outside of the Middle East – particularly if
one widens the search to include
unconventional sources. China National
Petroleum Corporation (CNPC) and Shell
have announced plans to jointly appraise
and hopefully develop tight gas fields in
China’s Sichuan Province. That partnership
rtnership
follows an earlier one with PetroChina, a
subsidiary of CNPC, to assess the shale gas
resources in the same province.
Shell and PetroChina already operate the
Changbei tight-gas field in Shaanxi
Province. The field supplies 3 billion cubic
metress of gas a year to Beijing and other
cities in eastern China.
Global LNG market developments
Let me now consider the second area of
NOC-IOC
IOC cooperation: greater deliveries of
gas to markets by ship – either as LNG or
GTL (gas to liquids).
The ability to liquefy natural gas and ship it
to far-flung
flung destinations has linked new
suppliers to new customers, thus
strengthening supply security.
Despite the difficult market we have today,
global LNG demand is likely to double this
decade, driven by the growing need for gas
imports – in Europe, China and a host of
other Asian and Middle Eastern countries
that will soon begin importing LNG:
Indonesia, Malaysia, Thailand, Singapore,
Pakistan, Kuwait, Dubai and Bahrain, to
name some.
So the LNG sector will have to continue its
rapid expansion and innovation to keep
pace with the growing demand.
Right now, LNG supplies
pplies are growing at the
rate of around 6-8% per year – around three
times the rate of natural gas overall. And the
number of LNG exporters is likely to increase
by nearly one-third by 2015.
“The ability to
liquefy natural gas
and ship it to farflung destinations
has linked new
suppliers to new
customers, thus
strengthening
supply security.”
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
At Shell, we are proud of our leadership in
this field. Last year,
ar, joint ventures in which
we are a partner supplied more than 30% of
global LNG volumes. And we will continue
to grow the global and regional LNG
infrastructure we have builtlt up in partnership
with NOCs.
For example, Sakhalin II – Russia’s first
offshore
e gas project and LNG plant – came
on-stream
stream last year. As people in our industry
will appreciate, the entire integrated oil/gas
project has been a huge undertaking. At the
peak of construction, 25,000 construction
workers were involved. They built two
offshore
shore platforms, two onshore processing
plants, the LNG plant and the export
terminal. They also laid two pipelines of 800
kilometres each. Over 70% of all contracts
were awarded to Russian companies, over
80% of the worked hours were by Russian
nationals and over 90% of the material and
equipment were resourced in Russia.
Last year, we secured approval for the use of
GTL kerosene blend in commercial aircraft –
only the fourth time in 100 years of aviation
history that a new fuel has been so
approved.
Strong partnerships between NOCs and
IOCs will be needed for deploying
ing the
technologies to export gas either as LNG or
GTL. NOCs can also benefit through such
partnerships from the existing positions of
o
IOCs in the gas value chain – for example
from Shell’s preferred supplier position in
premium markets.
Associated gas
The third area for NOC-IOC
IOC cooperation is
in the capturing of associated gas.
Because associated gas is tied to oil
production, its supply is trickier to manage. If
oil production quotas go down, then a
country dependent upon associated gas can
find itself short of supply.
We at Shell believe that Russia could
become one of the world’s largest LNG
exporters. There are many other countries
where we could see similar transformations.
Conversely, if oil production increases, that
country must find something to do with the
gas. Sometimes, for lack of an alternative,
the gas is flared – burned off.
Another example is provided by Qatargas 4,
a vast new LNG plant in Qatar in which we
have a 30% stake. It is nearing completion
this year. When finished, it will export LNG
to China, Dubai and the US.
There is, however, real value in capturing
associated gas instead of flaring it.
In Qatar we are also building our flagship
gas-to-liquids project – Pearl GTL. When
finished, it will be the world’s largest GTL
plant. Currently, more than 50,000 workers
from 60 nations are at work on a site the
size of 350 football fields, one of the world’s
largest industrial developments.
Gas-to-liquids
liquids technology will take gas into
new markets. Pearl GTL will produce enough
GTL fuel to fill over 160,000 cars a day and
enough synthetic base oil each year to make
lubricants for more than 225 million cars.
Shell Petroleum
oleum Development Company,
Company the
operating company of our joint venture with
the Nigerian National Petroleum
Corporation, has been hard at work
capturing associated gas to reduce flaring.
Flaring has rightly been a source of concern
forr years there, but security and Government
funding constraints have dogged progress.
I’m therefore very pleased that we have just
brought a major integrated oil/gas project
on-stream – the Gbaran-Ubie
Ubie project. It will
be capable of producing 1 billion cubic
cub feet
of gas a day from both associated and nonnon
associated fields. That’s equivalent to about
a quarter of the gas currently produced for
“Strong partnerships
rtnerships between NOCs and IOCs will be needed for deploying the
technologies to export gas either as LNG or GTL. NOCs can also benefit through such
partnerships from the existing positions of IOCs in the gas value chain – for example
from Shell’s preferred
ed supplier position in premium markets.”
markets.
8
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
export and domestic use in Nigeria. It will
also produce as much as 70,000 barrels of
oil per day.
Most of the gas will go to the Nigeria
Liquefied Natural Gas plant in Bonny to
support existing export contracts. But some of
it will fuel gas-fired
fired power plants, bringing
electricity to many people in the area for the
first time.
Overall, Shell and its partners in Nigeria
Niger
have spent over $5 billion on associated-gas
associated
gathering facilities since 2000. When
completed, they will cover more than 75% of
SPDC’s production potential. And more such
projects are on the way.
Iraq is another case in point. We signed a
provisional Heads of Agreement with the
Iraqi Ministry of Oil in 2008, setting out the
commercial principles to establish a joint
venture with the aim of capturing and
processing natural gas in southern Iraq that
otherwise gets flared.
By the end of 2009, projects jointly
intly
executed by Shell and South Gas Company
had already resulted in 135 million cubic
feet per day of gas and 500 tonnes per day
of liquefied petroleum gas (LPG) being
gathered that was previously flared. And
that’s even before any binding deal was in
place.
lace. Those volumes represents 20% of the
currently flared gas, and over a third of the
current Iraqi LPG import requirements.
It also represents about 4 million tonnes per
year of CO2 that are not released into the
atmosphere. That’s equivalent to keeping
keepin
more than 600,000 cars off the roads for a
year.
those of hydrocarbon-fuelled
fuelled transport cannot
directly be captured through CCS.
So the key challenge for NOC and IOCs is
to preserve the environmental and
d societal
acceptability of liquid fuels in transport.
How best to do that? By reducing the CO2intensity of liquid transport fuels on a wells-towells
wheels basis. In particular:
• Increase the supply of sustainable
biofuels: widen the customer base and
extend the value chain. Shell is already
the world’s largest supplier of biofuels.
But we’d like to do more. We recently
announced a proposed joint venture with
Cosan in Brazil that will produce and
distribute ethanol from sugarcane – which
can deliver around 70% CO2 savings on
a well-to-wheel
wheel basis when compared
with conventional fuel. We are also
developing technologies for advanced
biofuels using new feedstocks and new
processes.
• Increase efficiency of oil production
operations and refineries. At Shell, we
are implementing a CO2 and energy
management programme at our refining
and chemicals plants. We also installed
an advanced information system that
helps operators improve efficiency at
plants. Together, these have led to a total
2% energy saving in 2009 at our
manufacturing facilities. Another example
is our expansion project at the Texas Port
Arthur refinery, part of the Motiva
Enterprises joint venture that we have with
Saudi Aramco. It will result in a near
doubling of throughput with less emissions
per barrel of product.
Reducing
educing carbon intensity of transport
Let me now turn to the transport sector.
According to the IEA, oil demand from
transport is set to grow. Worldwide, the
number of cars and trucks on the road is
expected to rise from 900 million today to
about 2 billion by mid-century.
century. So demand
for mobility and – by extension – oil is
growing.
But, inevitably, as the remaining atmospheric
CO2 headroom shrinks, pressure for
fo lower
emissions from transport will grow. Unlike the
CO2 emissions of the fossil-fuel
fuel power sector,
9
Figure 3: Gbaran-Ubie project in Nigeria
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
• Leverage the combined IOC and NOC
know-how
how and wider stakeholder
relations to stimulate the policy
frameworks and demonstration projects
that will accelerate successful wide-scale
wide
deployment of CCS.
• Develop fuel-saving
saving oil products. Shell, for
example, has developed gasoline blends
(e.g., FuelSave) and lubricants (e.g.,
Helix) that to improve a car’s mileage.
We also have developed energy-saving
energy
products for a country’s infrastructure –
namely, road-paving
aving materials (e.g., Shell
WAM Foam Asphalt and Shell
Thiopave).
• Finally, we should become a part of the
e-mobility
mobility value chain through natural
gas. Low-carbon
carbon power paves the way
for electric vehicles. As discussed
previously, burning less coal and oil and
more gas in power stations will slow
down emissions growth from electricity
generation.
So, I see two broad areas where there is
substantial scope for cooperation between
NOCs and IOCs in the face of the changes
in the energy landscape:
• supporting both associated and nonnon
associated natural gas as well as LNG in
power generation as they displace coal
and oil, to reduce CO2 emissions quickly
and cheaply and thereby facilitate the
development of electrical transport;
• maintaining the acceptability of liquid
l
fuels in transport, chiefly by supporting the
expansion of biofuels, efficiency and
CCS.
NOCs: a diverse community
Now let’s move on to two key insights I
shared with the group last year, which I
believe will shape – even more now than last
year – the type of relation
tion between an IOC
and an NOC.
First, IOCs must recognise that the same
approach cannot be followed with all
NOCs. There is no such thing as a typical
NOC. NOCs differ widely in their origins,
objectives and focus. These differences
influence how NOCs respond to the energy
10
challenge I explained earlier and thus
determine how IOCs can play the most
ost
supportive partnership role.
For example, some NOCs are more focused
on domestic resources.
esources. These are usually
found in countries with large oil and gas
reserves. Their primary role is to deliver
economic rent from the nation’s petroleum
wealth. They prefer to bring
g in third parties
such as IOCs and service companies – for
technology, operational expertise and, in
some cases, capital. Increasingly they also
welcome other NOCs as co-investors.
Then there are those NOCs increasingly
focused on developing international
resources. They aim to secure supplies for
their growing domestic energy needs –
possibly because their country’s national
resources are not large, or are becoming
depleted. These NOCs – with the strong
backing of their home governments – can
often be excellent partners for the long term
t
in international joint ventures.
We are pleased to have struck such a
partnership with CNPC and its subsidiaries. I
mentioned earlier our co-operative
operative projects to
find and produce more gas in China. But we
also have a few joint projects in the works
outside of China. In March, for example,
example we
announced an agreement to buy Arrow
Energy in Australia for $3.2 billion. Upon
approval of the purchase by the Australian
federal court, the joint-venture
venture operator would
supply LNG from coalbed methane – a type
of tight gas.
There are of course some NOCs that are
truly global players. They are very similar to
IOCs in terms of their business models, but
retain partial government ownership. They
are sometimes called the INOCs. Such
companies co-operate
operate with other IOCs
chiefly in projects where innovation,
n, costcost
management and risk sharing are key. Think
of companies like Petronas – a partner with
Shell in Iraq and Egypt as well as in
Malaysia – and StatoilHydro – partnering
artnering
with Shell in Ireland as well as in Norway.
Finally, let’s recognise that, when NOCs
OCs
focus for decades on their own national
petroleum resources, they develop highly
advanced technical and commercial skills.
For example, Russian companies are
“In Shell, we try to
understand
differences among
NOCs – not just in
terms of resources
and assets, but in
terms of history,
company culture,
ambitions and
aspirations. We
need to understand
these aspects to
determine how we
can best adapt
what we have to
offer to meet their
needs and be their
partner of choice.”
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
accustomed to sub-arctic
arctic and arctic
conditions and technology. That’s their area
of expertise.
In Shell, we try to understand differences
among NOCs – not just in terms of resources
and assets, but in terms of history, company
culture, ambitions and aspirations. We need
to understand these aspects to determine
how we can best adapt what we have to
offer to meet their needs and be their partner
of choice.
The value of Open Doors
As we look towards the future, I strongly
believe that stability in our industry will be
greater if commercial entities are allowed the
freedom and trust to find the most costc
effective solutions.
Although it is often overlooked by
nationalistic extremists, the evidence suggests
that countries with an “Openn Doors” attitude
to
o NOC-IOC
IOC partnership attract much more
foreign direct investment into their
eir energy
sectors.
In practice,
tice, this means more exploration
wells are drilled, reserves grow more quickly,
production grows faster and is maintained at
higher levels, more energy is freed up for
exports, and more revenue flows to the
national exchequer.
Here are a couple of examples – in Qatar,
proven reserves are now around five times
what they were in 1990. In Angola, nearly
10 times. In both countries, production is
growing very rapidly – and foreign oil and
gas sector investment averages around $10
billion a year in each case. Both are
countries with a relatively Open Doors
approach to IOC investment and
technology.
Investment and reserves growth are
considerably
bly less in some other countries.
countries
So I do think that if we let partnerships
flourish, we could see some really positive
surprises in coming years in the many
countriess that have yet to realize their full
productive potential.
The Deepwater Horizon
Let me now end by saying something about
the importance of health, safety and the
environment (HSE) as a technology theme for
IOC-NOC partnerships.
As the Deepwater Horizon incident has
shown, we can never take HSE for granted.
The industry must incorporate all applicable
lessons from the incident into well design and
drilling procedures. We also have to be
better prepared in the event of a major deepdeep
water blowout.
To that end, Shell and three other major Gulf
of Mexico operators have just announced
that they will immediately start the design,
procurement and construction of equipment
to improve the industry's capability to contain
an underwater blowout. The four sponsors
onsors
will form a non-profit organization – the
Marine Well Containment Company – to
operate and maintain the system. Other Gulf
of Mexico operators will be encouraged to
participate in the new organization and
support the readiness of this system.
The industry
ndustry must rebuild trust in order to
demonstrate that it can produce energy in a
safe and environmentally responsible
manner. The demand for more energy
compels us to continue developing deepdeep
water fields. We at Shell began reinforcing
our deep-water welll design and safety
procedures in 2007, when it became clear
that we would be moving into ultra-deep
deep
water around the world.
HSE will continue to be a central component
of our partnerships with NOCs. Shell is
sharing our continually expanding
knowledge in this area with many of our
“As
As we look towards the future, I strongly believe that stability in our industry
industry will be
greater if commercial entities are allowed the freedom and trust to find the most costcost
effective solutions.”
11
Malcolm Brinded: Challenges and Developments in the
the NOCNOC-IOC Relationship
partners and host governments. And of
course the demand for this has been greater
than ever in the last three months.
To sum up
So, in summary, demand for oil is expected
to rise. More of it has to be supplied in the
short to medium term.
But, longer term, climate regulations are
expected to become tougher and put
pressure on liquid fuels. To maintain space
for liquid fuels over the longer term, we need
to work hard on their environmental
acceptance by promoting efficiency and
biofuels.
sector through increased reliance on natural
gas now and CCS later – and do what we
can to support carbon pricing and
legislation.
Through natural gas, our industryy becomes
an integral part of the E-mobility
mobility value chain.
The role of natural gas will thus be crucial for
our industry and society.
All of these challenges will strengthen the
links that bind NOC and IOCs and establish
new ones. And together we can then move
the world to a sustainable energy future.
Thank you.
For the same reason, we need to work hard
to reduce CO2 emissions from the power
12
Recent speeches by Executive Directors
Natural gas: a vital part of Europe’s energy futures
Malcolm Brinded
The future of global energy and the role of the Middle East
Malcolm Brinded
Energy strategies for sustainable development
Peter Voser
Shaping the future of energy together
Peter Voser
Shell Downstream: Getting the most out of every drop of energy
Mark Williams
Future trends in raw materials and energy sources in Europe
Jorma Ollila
A brief look at the future of energy
Peter Voser
The energy company of the future
Peter Voser
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