The energy challenge

By Rebecca Goozee

In an exclusive interview, Matthias Bichsel, Royal Dutch Shell Executive Committee member and head of one of Shell’s four main businesses, its new Projects & Technology group, discusses how the global oil and gas giant is looking to meet the world’s energy needs in economically, socially and environmentally responsible ways.

“4D seismic has the potential to deliver an additional 50-60 billion barrels, twice the known reserves of the United States”

The oil and gas industry faces new challenges everyday: the economic climate; heavier and more complex crudes; increased safety and environmental legislation; erosion of expertise with the exodus of experienced workforce members; and constant pressure for innovative new products to raise the game. But with these challenges comes opportunity, and by drawing on extensive global operating expertise, Shell Projects & Technology is leveraging technology, expertise and experience to do just that. Responsible for delivery of all of Shell's major projects, technical services and technology capabilities in both upstream and downstream, as well as overseeing safety and environmental performance, Matthias Bichsel is perfectly placed to answer for the industry-giant's environmental performance and explain where the company is heading in respect of the energy challenge.

World energy demand is expected to increase by at least 50 percent by 2030. What role will oil and gas play in helping to meet that demand? And what are the challenges in order for oil and gas to remain a significant part of the energy mix?

Matthias Bichsel. In light of the world's growing long-term demand for energy, the world will need to produce energy from all possible sources. Of course, a much higher share of the world's energy must come from non-hydrocarbon fuels in the future, but Shell's own scenarios planning work makes it clear that oil and gas will continue to be the world's primary source of energy for decades to come.

Even if a period of economic slowdown moderates demand growth, there is a major gap to meet. And we have to win that new production from increasingly difficult resources - smaller accumulations, in more complex geology or harsher conditions, that are more difficult to produce or get to market - all requiring new technologies, better capabilities and greater investment.

Getting increased production from mature conventional fields and difficult unconventional fields will both put upward pressure on the energy-intensity of operations. The future of the industry depends on our efforts to both increase efficiency and reduce our environmental footprint. We will need new technologies, skilled people, lean processes and huge financial resources.

As long as hydrocarbons are needed to meet the world's energy needs, we will need to produce, process and distribute oil and gas effectively, efficiently and responsibly, using the skills and capabilities of all industry players. By combining the best of our technologies and skills through value-driven partnerships between national oil companies (NOCs) and international oil companies (IOCs), the oil and gas industry can achieve a higher production peak in the future, and push the peak back by years or decades.

How much pressure have the booming economies of China and India, as well as the West's dependency on oil, placed on E&P companies to locate and extract new reserves? And, how are you going about locating and extracting new reserves at Shell?

MB. That is the energy challenge in a nutshell. Meeting accelerating energy demand will require producing increasingly difficult resources everywhere, applying greater understanding and new tools in complex projects. Many of the world's future resources are located in the Arctic, or offshore in deepwater. And much is in the form of oil shale and oil sands - so-called 'unconventional' oil.

Shell is delivering major new resources where technology, integration and scale are key factors - from the North Sea to the Gulf of Mexico, from mining oil sands to tight gas drilling, and from standalone oil developments to integrated gas projects. To make sure we achieve this, Shell technology is extending the lives of wells and maximizing our existing resources through enhanced oil recovery (EOR), sophisticated new digital programs and clever drilling techniques.

In the 1960s, Shell used steam injection, which has proved to be one of the most successful ways of boosting oil recovery, in the large and complex Tulare reservoir of the South Belridge field near Bakersfield, California. We continue to pioneer EOR capabilities. A good example is Petroleum Development Oman, where we are working on a number of pilot projects. At Qarn Alam, steam injection assists the gravity drainage system already in place by heating the oil to reduce viscosity. At Marmul, injected chemicals are expected to boost production by around 10 percent. And gas injection is used at Harweel to free trapped oil. Injected oils produce a flooding effect, increasing the pressure in the well, helping to push the hydrocarbons to the surface.

Our smart fields expertise provides both knowledge and control by integrating digital information technology with the latest drilling, seismic and reservoir monitoring techniques. Combined with the experience of geologists, engineers and others, smart fields can help increase the total amount of oil recovered from a field by 10 percent and gas recovery by five percent, while also boosting the rate of production.

New platform designs and new approaches to planning wells, such as our 'Drilling the Limit' methodology, have reduced the time it takes to drill wells, the energy used to drill them and the costs involved. With each advance in well design and drilling, more of these valuable deposits can now be accessed. Shell's ability to conquer the challenging deepwater environment provides access to oil and gas that lies deeper, is located in dispersed reservoirs or is difficult to produce. Thousands of technologies are developed and used to meet these challenges, from large, complex production systems to smart chemical treatments to help the oil and gas flow.

How have drilling and completion techniques evolved over the last few years? And how is technology helping drive advances in this area?

MB. In 2005, it would take 60 days to drill a 13,500-foot well in a tight gas field. Now it's a little over three weeks, with technologies like rotary steerables and under-balanced drilling (UBD). Meanwhile, the wells are producing three to four times more than in 2005, due to technology improvements in areas like fracturing. So a drilling rig in 2009 can put 10 times as many hydrocarbon molecules in the pipeline as it did in 2005.

Shell has also found a way to adapt UBD, called pressurized mud-cap drilling. This technique facilitates accurate kick monitoring on wells with total loss of mud returns, reduces safety risks and dramatically reduces the fluid volumes required for safe annular feed. This can save $1 million per well by reducing non-productive time.

In addition, we've developed a riserless mud recovery system that eliminates lost time on wells susceptible to seabed flow at depths up to 5000 feet. That has resulted in average mud and logistics savings of $1 million per well. Shell has also pioneered a surface blow-out preventer system for moored rigs, first used last year offshore Brazil. Not putting the BOP on the seafloor eliminates the need for long and heavy risers. This, in turn, allows us to use older semi-submersible rigs or drill ships that cost much less.

Energy projects are becoming increasingly technologically challenging. Take the Sakhalin II project, for example, that centers on some of the largest oil and gas reserves in the world. Can you explain the challenges specific to this project and how you have dealt with them?

MB. Sakhalin II is one of the world's largest integrated, export-oriented oil and gas projects as well as Russia's first offshore gas project. When the Sakhalin II project is fully on stream, it will supply around five percent of the world's liquefied natural gas (LNG) and make a significant contribution to strengthening global energy security. The Sakhalin II Project is developing two oil and gas fields (Piltun-Astokhskoye and Lunskoye) offshore northeast Sakhalin for production and export of crude oil and LNG.

Sakhalin II has introduced the Russian Federation to a range of innovative technologies, from LNG production to offshore development of hydrocarbon fields.  It has brought together Russian and international expertise to overcome formidable challenges and provides a potential model for similar collaboration in unlocking much-needed reserves in Arctic regions. Sakhalin II is the equivalent in size of five world-scale projects, located in a hostile sub-arctic environment, and covers a vast area in a region with almost no existing infrastructure. The float-over installation of the topsides for the PA-B platform set a world record at some 28,000 tonnes. The previous record was held by the Lunskoye-A platform at 22,000 tonnes.

There are also environmental, ecological and social sensitivities to be tackled. Two 800-kilometre pipelines, which bring oil and gas from the fields in the north of the island to the ice-free export terminal in the south, traverse mountainous terrain in an earthquake zone and cross more than 1000 watercourses, many of which are ecologically sensitive. In all, the project adopted more than 800 additional environmental, safety and social commitments. As one of the early economic benefits, there are more than 25,000 jobs on the project, 70 percent of them filled by Russian citizens.

Shell launched an initiative several years ago to improve the energy efficiency of its refineries and chemical plants. Can you explain more about this initiative and the impact it has had on improving efficiency at Shell?

MB. Improvements at our downstream facilities are already delivering CO₂ emissions reductions of about one million tons per annum. We have deployed a wide range of techniques for cost-effective carbon and energy management across our operations for a number of years. We identify opportunities for energy-efficiency improvements, changes in feedstock or power generation, catalyst optimization, carbon-capture technologies and CO₂ sales.

At Shell, we have established an award-winning carbon and energy management consultancy that integrates technology and expertise from across the company. Our expertise is gained in reducing Shell's own carbon footprint, and we offer it to the benefit of other companies facing the same challenges. Shell has been active in deploying technology across three key areas in order to reduce emissions: improving energy efficiency - such as energy optimization and operational-excellence; generating energy cleanly - introducing renewable energy sources or switching to less carbon-intensive fuels; and mitigation of emissions - preventing the release of CO₂ into the environment by capturing it for sale to industrial users or for underground storage. We assess a client's energy use and CO₂ production and compare its current position with optimum operating practices. Strategies for mitigation are then proposed, which may include energy-efficiency or operational improvement programs, carbon-abatement technologies, fuel-switching options, CO₂ sales and carbon allowance trading and offsets. Energy cost savings are typically achieved through the intelligent application of technology and by modifying behaviors and processes. Programs can be structured around minimal capital expenditure for rapid payback.

Can you explain how the energy efficiency program was deployed at the Geismar facility and what impact it had?

MB. The Shell Chemicals Geismar facility in Louisiana is a leading producer of ethylene-based industrial chemicals with a variety of end uses, including in the manufacture of detergents, antifreeze, plastics and textiles. The plant has a significant energy consumption; it uses, on average, 17 trillion Btu/yr of natural gas. In common with other Shell assets, Geismar places strong emphasis on environmental performance and continually assesses its energy consumption. In 2006, as part of a global initiative, we carried out an energy efficiency program. The team reviewed energy balances, calculated potential benefits and worked with the staff to identify energy-efficiency improvement projects with technical and economic viability for implementation. Ten out of a possible 50 energy conservation projects relating to process equipment or systems were prioritized, including the optimization of turbines, CO₂ strippers and cogeneration facilities. After implementing the energy-efficiency projects, Shell Geismar estimated that it potentially avoided an extra $14.7 million in energy costs over the two-year period 2006-2007, and reduced CO₂ emissions.

What other steps does Shell take to minimize the environmental and social impact of its activities?

MB. For Shell, sustainable development means helping meet the world's growing need for energy in economically, socially and environmentally responsible ways. Through our portfolio and products, we deliver benefits by providing the modern energy that people need to prosper, and help reduce energy's impacts by offering cleaner products like natural gas, improved biofuels, and gasoline and diesel that help customers drive fuel more efficiently. Our operations look to create lasting social benefits, whether through employing local people or using local contractors and suppliers. We work to reduce environmental and social impacts at our operations in a number of ways: safeguarding the health and safety of our employees and neighbors; reducing disruptions to the community; reducing our impact on biodiversity; and using less energy, water and other resources when producing energy.

We have been working hard to reduce the emissions of local pollutants from our operations. Prime examples are nitrous oxide (NOx), sulphur dioxide (SO₂) and volatile organic compounds (VOCs). This has involved a wide range of investments to upgrade facilities and install cleaner-burning equipment and SO₂-capture technology. Since 1998, we have reduced SO₂ emissions from our operations more than 20 percent and NOx emissions by more than 30 percent, even though we are now using much more energy to refine cleaner, lower-sulphur fuel. And we have reduced VOC emissions from our operations by almost 65 percent since 1998. Contributing to sustainable development in this way requires a particular mindset or a different way of thinking about our day-to-day business. This means balancing our short- and long-term interests, and integrating social and environmental concerns into our decision-making.

Shell Global Solutions has acquired Cansolv, a firm specializing in the development of emission capture systems. How do you expect this acquisition to impact the business? How do you hope to utilize the technology?

MB. As global energy demand grows and the availability of easy oil and gas diminishes, strong gas treating capabilities will be required when unlocking new resources, such as sour natural gas or clean coal energy. Cansolv Technologies Inc. develops 'scrubbing' technologies to capture industrial gas emissions. It offers multi-emission technology for the control of sulphur dioxide (SO₂) and other contaminants and a carbon dioxide (CO₂) capture process for greenhouse gas reductions. The CANSOLV SO₂ Scrubbing System is a regenerable amine technology for the removal of SO₂ from combustion gases and it has been demonstrated in a variety of applications, including oil refineries, chemical plants, utilities and non-ferrous smelters.

We want to further develop technology that has the potential to clean up contaminated gases and flue gases, predominantly SO₂ solutions in the first instance. With the addition of Cansolv's technology to our portfolio, we have enhanced our capability to treat various compositions for syngas - from coal gasification, from contaminated natural gas and from refinery streams - and further differentiated our technology. Cansolv's promising capabilities in SO₂ capture will also allow us to further explore post-combustion carbon capture technology and solutions. We must 'learn by doing' in order to reduce costs, accelerate technology development and ultimately make carbon capture and storage (CCS) commercially viable on the back of emissions trading schemes.

What technologies are key to transforming E&P operations at your organization? Are there any technical developments you are particularly excited about?

MB. Technology has delivered many positive surprises in the past and will surely do so in the future. New technology will help us achieve a higher production peak for hydrocarbons, push the timing of that peak back by years or decades, and to slow down the production decline that will take place later.

Simple technology breakthroughs have transformed the value of oil and gas resources in recent years. Our smart fields technology is a prime example. The Champion West field in Brunei contains hundreds of small accumulations, with thin reservoirs. Discovered in 1975, the field lay untapped for almost 30 years, because we could not identify how to develop it economically. The eventual solution in 2005 was to drill smart wells that snake vertically and horizontally through several accumulations at once, with the ability to measure and control flow from up to seven separate sections. In 2006, Champion West contributed up to 50,000 barrels a day to Brunei Shell and we are only at the dawn of the impact of Smart Fields technology.

Time-lapse seismic, or 4D seismic technology, is another breakthrough. A study by CERA estimated that 4D Seismic has the potential to deliver an additional 50-60 billion barrels, twice the known reserves of the United States. Use of 4D seismic in Shell has generated an extra half a billion dollars net income over the past 10 years in Europe alone.

The application of new technology can significantly shift the global energy equilibrium by opening up huge unconventional oil and gas resources. A few years ago, the U.S. National Petroleum Council warned that it would be hard to maintain U.S. gas production, and large-scale LNG imports would become necessary to meet domestic demand. But advances across the industry could open some 500 trillion cubic feet of untapped unconventional gas resources in North America, possibly considerably more. That would supply current U.S. consumption for at least two decades.

Qarn Alam

In November 2006, Shell launched Shell Technology Oman, an enhanced oil recovery (EOR) research and development hub that forms an integral part of Shell Global Exploration and Production Technology organization and works in close partnership with the Oil & Gas Research Centre of Sultan Qaboos University and Petroleum Development Oman (PDO). Qarn Alam is one of the three EOR projects currently up and running.

Champion West

Located 56 miles off the coast of Brunei in the South China Sea is Shell's flagship Smart Fields project, Champion West. After laying dormant for almost 30 years, Smart Fields technology and new drilling techniques have turned Champion West into one of the world's most advanced oil and gas fields.

Ormen Lange

Ormen Lange was developed with sea-floor installations at depths of between 2800 feet and 3600 feet. Following processing onshore, gas is transported 745 miles through the world's longest subsea pipeline to Easington on the east coast of Britain.