INTERVIEW - Shell sees technology breathing new life into oil
Date: 15-Nov-02
Country: USA
Author: Andrew Mitchell
"I'm convinced that we're at the start now of the revolution in drilling," Royal Dutch/Shell Chairman Phil Watts told Reuters in an interview.
"People haven't thought through the implications of this. They talk about oil as a sunset industry, but this is very exciting stuff," Watts said.
Oil majors are increasingly struggling to meet production targets as the 150-year old industry's new finds are smaller than before and fall from peak production more quickly.
BP Plc , Shell's rival to be the world's second biggest publicly held oil company behind Exxon Mobil Corp. , last month was forced to cut its oil and gas output forecast for the third time this year.
Shell has said it is on target to hit its 2002 production goal of 3.8 million barrels of oil equivalent per day. It will review its current plan to increase production by 3 percent through 2005 in February. Watts declined comment on what the results of the review might be.
RAPID PROGRESS
The oil majors have made rapid leaps in drilling and production technology since being thrown out of the Middle East's big, low-cost fields during the nationalizations in the 1970s.
The advances have opened up new producing provinces such as deepwaters off West Africa's coast that were previously technically impossible, or too expensive, to develop.
Shell hopes new technologies such as downhole sensors, fiber optics and micro-robotics will enable more fields to be found, keep them producing for longer and further reduce production costs.
"The kit that you put down the hole is so much cleverer that my generation used to use," Watts said. "The staggering thing is that since I started in 1970 you have had this continuous improvement in sub-surface energy, and I have no doubt that this is going to continue."
So-called 'smart wells' will automate the oil and gas production process in the ground with multilateral wells branching into many different parts of the reservoir. Shell's first 'smart well' is already started in Malaysia, Watts said.
RENEWABLES
Shell is putting resources into developing alternative energies such as solar and wind power - but not at the expense of its traditional oil and gas interests.
"We're in the fossil fuel business. I'm not a bit ashamed of that because that's where most energy will come from in the foreseeable future - especially in the developing world the fact of the matter is there is no development without energy," Watts said.
Shell is throwing big money into pioneering processes such as gas-to-liquids, which turns gas reserves into clean fuels such as diesel fuel and kerosene.
The company is also investing heavily in liquefied natural gas, which allows natural gas to be transported in a highly compressed, super-cold form to big consuming markets.
"That doesn't stop us having a solar business where we try to commercialize it and make money, doesn't stop us having a wind business which in particular circumstances with a favorable tax regime we can just about break even," Watts said.
"But there's only a certain rate at which you can spend those funds sensibly. If it was that easy the millions of dollars being spent on government programs, especially in the United States, would have made the sort of breakthroughs that everybody dreams about."
HYDROGEN ECONOMY
One Shell scenario sees a shift from a fossil fuel energy system to a hydrogen economy as cars are increasingly powered by fuel cells - a device that produces electricity from fuels such as hydrogen gas.
Watts said it was too early to say how quickly hydrogen might make a dent in fossil fuels' current dominance, as a whole new energy infrastructure will be needed to support it.
"The short, honest answer is I don't know. One projection shows 25 percent penetration of hydrogen into the primary energy mix by 2050. That's the high side, the successful case," he said.
"In the meantime fossil fuels - oil, and probably more gas because gas is the bridge
