Future fuels

The company’s recent strategy update revealed that over time, and across the commodity cycle, Shell has achieved higher earnings and returns on investment in the upstream compared with its other businesses, and sees significant growth potential for oil and natural gas.

The report stressed that upstream business will constitute the major focus for future growth.

Net capital spending in 2007 was in the region of US$22 to US$23 billion, of which around 80% was invested in upstream projects.

Heading up and co-ordinating the technology programmes across the company’s global effort is Jan Van Der Eijk, Shell’s chief technology officer. The scope of his job remit is wide and the challenge substantial, but the CTO says he relishes the role and is at the helm at an exciting time for the company and industry as a whole.

“My career at Shell began in basic research and I have never lost my deep sense of the beauty and glory in technological discoveries. But I am equally aware that new technology is useless unless you know how to apply it.

That’s why my Shell colleagues and I are committed to turning innovative ideas into practical ways of providing the energy and petrochemicals societies need to grow and prosper.”

“It’s my job to ensure that the totality of our technology programmes are in line with what we want to achieve in our business aspirations, so I work with the various technology departments we have worldwide to make sure the whole operation is co-ordinated and together as an approach,” he says.

Van Der Eijk says we are on the eve of a new energy revolution, driven by the world’s need for affordable energy and by the very real threat of climate change.

Oil companies are exploring increasingly hostile environments for new oil and gas reserves, and Shell is focussed on developing the technology necessary to extract them in responsible and economically viable ways.

“We are in a very interesting period right now. In the past upstream technology was all about exploring for oil and gas reserves and bringing them to light, and downstream traditionally meant starting with oil as the base product and refining that into other marketable goods.

What we see now is that new technology developments are transcending those established boundaries,” he says.

Examples of where upstream and downstream have become blurred abound in the current energy scene, and the technology driving these changes is often attributable to Shell’s investment.

Middle East focus

The liquefied natural gas (LNG) sector involves cryogenically cooling natural gas to -162 degrees Centigrade (-260 degrees Fahrenheit) for transportation and storage, followed by regassification, which has a lot in common with downstream activities.

LNG has been thrust to the fore of the regional agenda by opportunities to work with Qatar’s vast natural gas resources, estimated at over 910 trillion cubic feet.

Sticking with Qatar, shell has been involved in the flagship Pearl gas to liquids (GTL) facility which is reportedly progressing on schedule, with the first train expected before the end of the decade.

The vast project is currently employing 20,000 people on-shore to construct the plant, and the first of three 1 200 tonne reactors has been installed at Ras Laffan.

“We are building a GTL facility in Ras Laffan. Our complex there is very large and takes gas produced from the northern fields to shore, where the contaminants are removed and the gas upgraded.

Then it can be turned into synthesis gas, which can in turn be turned into a range of hydrocarbon products, which, for example, can be used for cars and planes,” says Van Der Eijk.

Elsewhere in the Middle East, Shell’s successful partnership with PDO in Oman has been at the forefront of developing and improving a variety of enhanced oil recovery (EOR) techniques.

CO2 reinjection, and detergent-like surfacant injection has brought new challenges to the upstream activities there says Van Der Eijk. “All of these activities blur the boundaries between traditional upstream and downstream.

There are a great deal of big opportunities for a company like Shell which has upstream and downstream experience, and technology to bring all of that together and create a total package that would not be easy for others to replicate,” he beams.

Fostering a local skills base

With the high oil price has come a flurry of activity, and investment in the sector in the Middle East alone is running into the hundreds of billions of dollars.

With that investment comes the introduction of new and groundbreaking technology to the region, but money alone is not sufficient to meet the challenge of the new market realities in the Middle East’s maturing fields.

“Throwing endless amount of money at them doesn’t always solve problems. There is an element of having the right human resources and skills in place to be efficient with that investment.

We are taking strategic steps to underpin our growth, but there are constraints that aren’t necessarily financial that need to be taken into account,” explains Van Der Eijk.

“Having the capability to test R&D results in demonstration environments is crucial. This also takes time and doubling the spending won’t halve that lead-time, it simply doesn’t work like that.

In order to foster that crucial human element, a significant part of the technology boss’s focus for the future is squared on promoting opportunities from a wider global talent pool. By working in collaboration with local universities Shell hopes to align itself as an integrated player in nurturing careers in the Middle East.

“Building a skilled base has to start with an aspiration. Something I’ve definitely noticed is that governments here in the Middle East have a strong aspiration, backed up by the financial resources to make that a reality,” he says.

The companies that stand in 2008 at the forefront of technological achievement and pioneering research took a very long time to build the knowledge base and skill sets, and that’s not something that can be replicated overnight.

“It’s not a simple journey, and it will take time, but that is understood here and they have an international outlook. Such development cannot happen in a vacuum and the governments and companies in the region are looking to do this in conjunction with international companies, invite them in and be part of that process,” says Van Der Eijk.

Through national oil companies, their subsidiaries, and government-backed education initiatives this evolution seems more likely to take hold than ever before in the region.

“I’m sure that it can be done and it will be done, it just takes time. A good example is Singapore, which started this journey a while ago but it proves it can be done, and now they are climbing that ladder very fast.

Future fuels

Part of Shell’s philosophy for the future is based on the ‘three hard truths’ premise. Accommodating these principles will require the intelligent application of cutting edge technology, but also signals a fresh approach to where we look for the energy source.

The first of the ‘hard truths’ is that demand for energy is growing rapidly, as several large countries enter the most energy-intensive phase of economic development. Second, supplies of easily accessible oil and natural gas will probably no longer keep up with demand after 2015.

To close the gap, the world will have no choice but to use energy more efficiently and increase its use of other sources of energy.

This means, Van Der Eijk says, more renewables like solar, wind and biofuels, more nuclear energy, more coal, and more oil and natural gas from difficult-to-reach locations or unconventional sources like oil sands.

And third, that as a result, CO2 emissions from energy, responsible for more than half of man-made green-house gas emissions, are set to rise, even as concerns about climate change grow.

“Of course, climate change will influence where Shell’s research and development investment goes in the years to come.

I think we will see rapid developments in harnessing photovoltaic energy, the application of concentrated solar power, significant new developments in biofuels – following investment in biotechnology, and significant improvements in enhanced oil recovery and oil sands techniques.

In a space of just ten years Van Der Eijk predicts significant changes in these energy harvesting areas, and ones that may change the energy landscape for the decades ahead.

“The world needs more energy, so it’s very exciting working in a field to meet that need. We need to do this in a responsible manner, because of planetary health concerns, and environmental factors have proven themselves a real driver for innovation.

Looking away from the fuel source arena, he says great advancement in computer processing power will dramatically improve the seismic data retrieval and analysis, shifting the physical goalposts as we progress.

Also, with increased computing power will come a greater ability to control plants and operations, improving efficiency and resources.

The advent of the manipulation of matter at a very small scale – nanotechnology, will lead to the creation of new materials, and smaller sensors which in turn will improve output and squeeze more energy from the traditional resources at our disposal.

Leaps in medical sciences will come together with biotechnology to enhance the way energy is extracted from biomass, an area in which we are making progress and directing significant investment at too.

The race to meet the energy challenge of the 21st century is one in which technology will play the decisive role. Van Der Eijk characterises his mission as a marathon, not a sprint, but the pistol has fired and a huge contest is on.

“At Shell we have an enormous capability, but also we are engaged in an enormous competition, so our goal, and my task is to make sure we have a clear strategy and get the most important things right,” he concludes.

Shell and Oil sands

Oil sands are a mixture of heavy oil and sand. If near the surface, they are dug up in open-pit mines and the oil separated out using warm water. If deeper underground, the oil is made to flow to the surface through conventional wells, often by heating the mixture “in situ” to make it flow.

Canada’s oil sands are thought to be the world’s second-largest source of oil after Saudi Arabia’s. Extracting and refining them into transport fuel requires a lot of water and more energy than conventional oil. That means more CO2 emissions on a life-cycle basis for minable sands and more still for in-situ production.

The Athabasca Oil Sands Project (Shell share 60%) is our first minable oil sands operation. The capacity of the current operation is 155,000 barrels of oil a day, with construction under way to expand by another 100,000 barrels a day.

The current operation’s advanced design has reduced the amount of energy used during processing compared with other oil sands operations.

And the operation has a greenhouse gas management plan developed with the help of Shell Canada’s independent Climate Change Advisory Panel that includes an aggressive voluntary target to reduce CO2 emissions by 50% by 2010.

While the panel was disbanded with the full integration of Shell Canada’s operations into our global business in 2007, its extensive input will continue to underpin the operation’s work to meet its 2010 target.

For example, Quest, a large-scale CO2 capture and storage project is under consideration. It would store more than 1 million tonnes of CO2 per year from Athabasca’s Scotford Upgrader.

In early 2008, a critical assessment of the sustainability of oil sands projects by the Pembina Institute and WWF, acknowledged the environmental leadership of our current operation.

We also have a number of small in-situ oil sands operations in Canada’s Cold Lake and Peace River areas, and are considering expanding several of these.