Staying the course through tough times

2011 was a challenging year in many parts of the world, both politically and economically, and this uncertainty continues. How is Shell responding?

Let’s start with the overall macro-economic situation. We still see some of the key economies, like China, growing – if slower than anticipated. But the USA and European economies are still major areas of concern and this will impact overall growth in 2012. So it’s a mixed picture.

For a company like Shell, this means we need to be even more focused on our day-to-day business to make sure that our competitive performance stays where it has been over the last two or three quarters – which were very competitive. We need to continue to see how we can deliver benefits through innovative solutions for our customers and we need to continue to focus on costs.

How will the current political and economic uncertainties affect Shell’s investment strategy?

I’ve always made it clear that we take a long-term view and will continue to invest through all the cycles. We will keep going because this guarantees us competitive performance in the years to come.

The European single currency is in some turmoil, and the media reported that Shell plans to cut investments in Europe. Is that true?

Europe is an important region for us in terms of current production and cash flow, and we also have growth projects in the North Sea – this year we took investment decisions for major projects, for example, to develop further production in the UK North Sea.

The comments reported addressed the strong regulatory drive by the European Union and some of its member states. This is a concern to us because we believe it makes Europe less competitive.

Naturally our investment portfolio is global and therefore growth regions like the Middle East, Asia Pacific, along with Africa and South America, take a key share. And we will also invest heavily in the coming years in North America and Australia.

Shell is moving firmly ahead with new partnerships in China. What is your strategy here?

There are two strategic elements in this: first, we see global partnerships as key to the development of our company. Second, China will be a key market over the decades to come.

So Shell would like to have a firm footing there. Our partnership with China National Petroleum Corporation (CNPC)  covers both those strategic aims. We work with CNPC in countries like Qatar and Australia. And together we are developing our business in China, which is around shale and tight gas – including wells management – and many other initiatives.

Shell made major new investments in the last 12 months and other projects came on stream. What were your highlights of the past year?

We started up the world’s largest gas-to-liquids project, Pearl GTL in Qatar. This is by far our biggest success story of 2011 and a great example of how we are on the right track to becoming the world’s most competitive and innovative energy company. Over 3,500 patents have gone into Pearl and it demonstrates innovation across more than 30 years from a lab in Amsterdam to one of the world’s largest industrial developments.

Another example is that we took the final investment decision to build the world’s first floating liquefied natural gas (FLNG) facility, Prelude, off the coast of Australia. Shell is prepared to be bold, and FLNG is a good example of that approach.

In April we moved for the first time into the production of low-carbon biofuels, with our joint venture Raízen in Brazil. This is performing well and on the back of this we are working to accelerate advanced biofuels for the future.

Shell relies on a degree of stability to develop its projects. Were you surprised by the political events in the Middle East - the Arab Spring?

I think we were all surprised by the speed of it and the magnitude of it. From a business standpoint, for a company that has interests in many countries in the Middle East and North Africa it will provide Shell with opportunities to be part of some of the initiatives which are now being discussed. Revenue generation from energy production is the economic backbone for most of these countries. The Arab Spring was largely about future prospects for young people. Through the development of energy resources we can help create jobs directly or provide energy for other industries that do.

Given economic and political concerns, has the issue of climate change taken a back seat?

Climate change has to be at the top of the agenda of any energy company. The challenge we have as an industry is to produce much more energy at lower cost for the environment. Shell has two objectives. One is to help provide energy over the coming years to allow the world continued growth – and this will remain largely fossil fuels. And at the same time work on the lowering of the CO₂ footprint of the future energy mix.

In the longer term we believe a global CO₂ price will happen. We currently measure all our projects with a CO₂ price of $40 a tonne. A global price allows us to invest in the right technologies in the future.

Creative approaches have helped achieve safety records for Shell and Qatar at Pearl GTL

On the environment side, we also recognise that the triangle of energy, food and water  will be crucial in the decades to come. A growing population and improved living standards will demand more food and more energy. But both will require more water. So the stresses will increase if we don’t manage that collectively. At Shell we have already looked at the different energy resources which we have and, for example, worked out the water consumption for each. This will help us as we start a wider discussion with all other industry players and with governments.

On the subject of environmental impact, the oil sands continue to provoke debate. Why is Shell developing this resource?

Global energy demand continues to grow and oil sands will play a role in the future energy mix. We have proven over the last few decades that we can improve the reliability of the development of the oil sands operations and we are taking action around the performance of our operations when it comes to water use and CO₂ emissions. For example, we are close to taking a final investment decision on a carbon capture and storage project called Quest, which would store more than a million tonnes of CO₂ every year. That is the same as taking 175,000 North American cars off the road.

The BP Macondo oil spill in the Gulf of Mexico had a major impact both on the environment and on public perception of the industry. Is this considered history or will it continue to affect the industry?

The industry will continue to be measured against this event. It will take a number of years before we can overcome the reputation impact on the industry. And hence top performance on safety is an absolute must.

In 2011 Shell had its own incidents on a smaller scale: the Gannet North Sea oil leak, the Bukom refinery fire in Singapore and at the end of the year the Bonga leak off the coast of Nigeria. What has Shell done to manage such risks?

First of all, over the last few years we have made big improvements in our safety performance. I’m pleased with how the organisation has worked on this in a very diligent way.

At the same time, we had three serious incidents this year. I’m pleased with how our teams responded and quickly regained control of these situations. Investigations are ongoing around the causes. And we will certainly implement into our processes all of the lessons we draw from these incidents. But they highlight the fact that we need to maintain a world-class level of safety in our operations.

On the subject of operational and reputational risks, last year Shell Petroleum Development Company of Nigeria Limited (SPDC) started publishing details of oil spills in Nigeria on line. But not long afterwards UNEP published its report on spills in the Niger Delta, which included criticism of SPDC. Is it being open enough on this issue?

SPDC is very transparent around how it operates, on operational incidents, and how it resolves them. On the spills website it publishes photos, reports and official documents about every confirmed spill from facilities of the joint venture operated by SPDC. I am not aware of any other oil company in the world that is so open.

Following the Bonga leak off Nigeria’s coast, Shell used its global homepage to link to regular updates and provided images of the affected area. Less than a week later the operator Shell Nigeria Exploration and Production Company (SNEPCo) flew journalists to view the site. But more can be done. For example, SPDC has been in negotiations with a respected international organisation for some time to launch an independent scientific advisory panel to review SPDC’s spill remediation techniques. I hope it will be up and running in 2012.

SPDC has welcomed the UNEP report and accepted the recommendations that relate to its operations. It is now working to implement them. The government is currently developing a response plan, and SPDC is supporting that work. Efforts to bring real change must also address social and economic problems in the Niger Delta, which are the root cause of the oil theft and sabotage that damage the environment. That will require a joint effort by many players with government in the lead, and SPDC will play its full part.

Looking ahead, in 2012 Shell will for the first time produce more natural gas than oil. Will the proportion of gas continue to grow into the future?

Shell’s portfolio will have a higher proportion of gas at the end of this decade – but we also have some significant developments on the oil side as well.

A lot will depend on the second half of the decade. Will we be able to drill in the Arctic and will we be successful? How fast will Iraq develop? Future investment decisions will also have a major impact on the mix. We want to maintain our leadership in the world gas market – in particular liquefied natural gas (LNG).

Peter Voser visits Pernis refinery in the Netherlands on Shell Safety Day

It is clearly a busy time. How do you find time to relax?

I always sleep well, even in times of crisis. Challenges are here to be managed. But sleep alone is not enough. You have to be disciplined and carve out time for yourself and your family and recharge your batteries.

Diving is the best way for me to relax. The nature underwater is astonishing and as a diver you have to work with others, as a team. I enjoy working as part of a team.

Is teamwork what makes a good leader?

It may sound obvious, but a good leader leads well. Which means you set the right targets and the right accountability structures so that people can deliver against them and, by doing so, develop themselves. Shell leaders must personally develop the best people. When we have the best people we will stand out among our customers and partners and improved business results will follow. A good leader also needs to take measured risks.

In total around a million people work for the Shell brand. They all provide input in different ways. I’m learning from everyone around me. I also get clear steer from the Executive Committee and the Board. So the CEO doesn’t deliver Shell: it’s all Shell people who deliver Shell.

*Peter Voser spoke to Charlotte Brookes and Rob van’t Wel.

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