Getting more value from the subsurface

The three hard truths of surging energy demand, lagging supplies and higher CO2 emissions provide the oil & gas industry with a strong incentive to get more value from the subsurface. As the cost of  CO2 emissions rises, the total value from a field increasingly depends, not just on efficiently locating and recovering hydrocarbons, but on how hydrocarbons are used after they have been produced, and on the further actions taken to reduce the environmental footprint of upstream operations. In this speech, Malcolm Brinded explains how better drilling and Enhanced Oil Recovery techniques enable the industry to produce and recover more oil. He then highlights five ways of reducing the industry’s environmental footprint: CO2 Capture and Storage; reduced gas flaring; combined power and steam generation; integrated water solutions; and developing sulphur-based products to help reduce the world’s growing sulphur stockpiles.

Getting more value from the subsurface

When we think about the future, it’s clear that our industry faces inevitable transformation and difficult choices.We will have to produce more energy, while reducing our environmental footprint. To meet this challenge, we shall have to embrace change and manage it at the same time. Here in Abu Dhabi – embracing and managing change have been key to the incredible success of the Emirate, in the vision of His Highness Sheikh Khalifa bin Zayed al Nahyan, championed by His Highness Sheikh Mohamed bin Zayed.

Shell is proud of its contribution to this success through our almost seventy-year old partnership with Abu Dhabi and ADNOC. While much has been achieved, the Emirates and the broader Middle East still have great potential for economic growth. But growth requires energy which brings into focus the three hard truths of surging global energy demand, lagging supplies of “easy oil”, and rising greenhouse gas emissions. A period of economic slowdown may moderate demand growth, but the longer-term trend is still upwards, because 3 billion energy consumers will be added to the world’s population during the first half of this century. 

The three hard truths inevitably also manifest themselves in the Middle East. Shell’s most recent energy scenarios show that by 2035, the region’s annual primary energy demand could be up by 130% from the 2000 level, which was equivalent to some 8 million barrels of oil every day. Delivering all this extra energy will require huge financial investment. The International Energy Agency estimates this region will have to invest $1.9 trillion in energy projects over the period 2006-2030. That’s an average of almost $80 billion a year. While an ambitious target, if there is one part of the world that can do it, it’s the Middle East. The Gulf Cooperation Council countries alone have plans to invest $320 billion in energy projects for the next ten years, or $32 billion a year.

However, increasing supplies is not the only challenge. The pressure to reduce CO2 emissions from energy will grow, in particular from the power and transport sectors. Both sectors require different measures to curb emissions. It seems likely that the lowest-cost and most effective route to curbing emissions from coal-fired power stations – responsible for much of the growth in global CO2 emissions – is to fit them with CO2 Capture and Storage, or CCS, technology. In the transport sector we obviously can’t capture emissions from hundreds of millions of exhaust pipes. Rather, the challenge is to reduce the CO2-intensity of liquid fuels-based transport on a wells-to-wheels basis.

This can be done by mixing in the right biofuels, by building lighter-weight vehicles, developing more efficient engines, and, in the longer term, by adding CCS to liquid hydrocarbon fuel production. For a long time to come, these types of measures will provide faster and more convenient routes to reduce emissions from transport than vehicle electrification using power generated from renewable resources. But as concerns over climate change increase, some governments may nevertheless feel under pressure to attempt a rushed displacement of oil in transport. To encourage countries to tackle emissions from coal-fired power stations first, we urgently need to create international cap-and-trade arrangements that put a price on CO2 emissions and provide rewards for CO2 that is captured and stored underground.

Enhancing Value

The three hard truths provide a strong incentive to get more value from the subsurface. This means unlocking new hydrocarbon resources and maximising recovery from existing ones, while minimising the capital-, energy- and CO2-intensity of oil and gas production. There is some inherent tension in these aims. As we increasingly deal with maturing conventional fields, unconventional fields, and more difficult environments, our operations tend to become more – rather than less – energy- and CO2-intensive. As the cost of emitting CO2 rises, the total value we can get from a field no longer depends merely on how efficiently we can locate and recover hydrocarbons but also on how efficiently we use or re-use hydrocarbons after we have produced them and on the further actions we take to reduce our environmental footprint. I will return to energy efficiency. But let me first discuss ways to achieve higher production and recovery, and I will focus on better drilling and enhanced oil recovery.

Salym

Drilling is as old as our industry  - and at times has been slow to embrace change – but the last 20 years have seen dramatic improvements. One current example is Salym Petroleum Development in West Siberia. Production began in 2004 and now exceeds 130,000 barrels a day. Over 350 wells have been drilled to date. Whereas the first wells took over 33 days to drill, the average drilling time is now down to 10 days with our record being a 2500 metre well drilled in 5.6 days. At other West-Siberian operations, similar wells take around 18 days to drill Salym’s first-class performance has kept drilling costs well below the inflation and exchange rate increases of the rouble in the past 3 years. And faster, cheaper drilling justifies more wells  - and gives faster, higher production. The success hinges on technology and partnership on having the right mix between proven Russian skills and equipment and state-of-the-art Shell technologies, as well as our “Drill-the-Limit” process, encouraging teams to learn, share and challenge each other and innovate beyond what is believed to be possible.

ADCO

Here in Abu Dhabi, a similar story of innovation and partnership has reduced drilling times from an average of 49 days per well to 30-32 days, since ADCO (Abu Dhabi Company for Onshore Oil Operations) launched its Well Delivery Limit programme in 2000. Well costs have come down by over 15%, resulting in overall savings worth several hundreds of millions of dollars. ADCO is continuing to pursue improvements, focusing on well design and technology enablers. Further down the road, slim wells and underbalanced drilling might all bring additional value.  In these new areas, I hope Shell as a partner in ADCO can continue to bring our experience to the table. For example, experience gained in Oman, where underbalanced drilling (UBD) already brings benefits to PDO. In the Al Huwaisah field, for instance, flow rates from UBD wells far exceed those from conventional ones, and recovery is up to 25% higher.

Aera Energy

Another record-setting drilling operation is carried out at the Belridge complex in California by Aera Energy, a 52% Shell-owned company. At Belridge, Aera drills nearly 800 wells each year, averaging just 3 days a well in a thermal and light oil development, using an approach called “well proposals in one day”. You may think I’m joking, but it’s true. This is made possible by applying Toyota’s manufacturing thinking to E and P, using “flow cells”, where engineers and technicians all work on the same processes sitting physically in the same area. Workflows are timed from one person to the next. Every week, between Tuesdays and Thursdays, the teams select well locations, stake the proposed locations, obtain permission for the expenditure and place the standardised design wells on the drilling schedule. And work begins on the next package.

When it’s time to drill, a specialist rig moves in, just drills the surface hole, runs and cements surface casing and moves off. Another team comes in with the main rig to drill and complete the production hole. A third crew then runs the completion. This approach maximises repeatability, continuity, and speed, and reduces the number of rigs involved and thereby cuts days off the drilling time. From California to Abu Dhabi to Siberia, we are still learning to drill to the limit through innovative technology and teamwork nearly 150 years after the first well was drilled in Titusville.

EOR in Oman

At a time of surging global demand for energy, squeezing extra barrels from ageing oilfields is another crucial way to sustain production and enhance value. If our industry could increase what we expect to recover from reservoirs globally by just 1%, it would yield some 20-30 billion barrels of additional oil, as much as the USA’s proven oil reserves. There are several proven EOR techniques: all aiming to reduce viscosity and improve oil mobility by either heating with steam, by flooding with miscible gas or by using chemicals.

At Belridge, Aera uses steam injection to enhance recovery of heavy, viscous oil. In some fields more than 80% of the oil has been recovered, where we would have been lucky to recover 10% without EOR technology. As far as I’m aware, there’s only one company in the world that is implementing all three EOR techniques on a commercial scale: Petroleum Development Oman.

One of PDO’s largest EOR projects is Qarn Alam, a highly fractured carbonate reservoir that contains very sticky oil. At 220 centipoise, it is 100 times more viscous than the average Omani crude. Production there began in 1975, but, after 30 years, only 3% of the oil has been extracted. Using a new technique called “thermally assisted gas/oil gravity drainage” steam is pumped into fractures in the reservoir to heat the rock accelerating the oil flow out of the matrix rock into the fractures and down into the production wells.

PDO expects to increase recovery to 30%, a major achievement for such a complex and tight rock reservoir. Chemical EOR is used at the Marmul complex, where water treated with polymers is re-injected to boost viscous heavy oil recovery to an expected 22%. At PDO’s deep pre-salt Harweel field, hydrogen sulphide and carbon dioxide removed from sour gas streams will be re-injected into the reservoir to blend into the oil and make it more fluid. Using this method, PDO expects to increase the recovery factor by some 20%.

Shell recently transferred our global EOR research leadership and much of the EOR research to a new centre in Oman, working in an innovative partnership with Sultan Qaboos University and PDO. An important part of the centre’s work will be to develop methods to reduce the energy intensity of EOR operations. Which brings me to the broader point of energy efficiency and reducing our environmental footprint.

Reducing the environmental footprint

We must harness the same strengths we apply to recover more oil and gas – innovative technologies and partnerships – to increase efficiency and reduce emissions and waste in our upstream operations.The key opportunities in the Middle East are to:

•  deploy CO2 capture and storage technology across the region,
• reduce flaring of associated gas,
• reduce discharge of waste heat and water, 
• and develop solutions for the coming stockpile of sulphur.

Abu Dhabi plays a leading role in formulating a regional response to the CO2 challenge as outlined in HH Sheikh Khalifa’s vision. Your national initiative, under the umbrella of Masdar, with other government entities and partners, aims to reduce the UAE’s CO2 emissions by almost 40% and increase oil recovery by an additional 10% through CO2 injection.

Another way to reduce emissions is to put out gas flares. The World Bank reports that the Middle East still flares 30 billion cubic metres each year – that’s enough to feed a 20 million ton liquefied natural gas plant. Iraq accounts for nearly a quarter of that.

Shell recently agreed with the Iraqi government to create a joint venture with Iraq’s South Gas Company to collect and process the currently flared associated gas for domestic use and, in future, for exports of liquefied natural gas. This way, Iraq would create a new, reliable supply of domestic energy, reduce greenhouse gas emissions, and generate economic value. In Iraq we will make use of the experience in gas gathering and processing gained in Abu Dhabi in the past 30 years, through our excellent cooperation with GASCO.

Another innovation that should become a standard practice in our industry is to capture exhaust heat from local power stations and make much better use of it, for instance, to produce steam for EOR purposes. At Qarn Alam, PDO is planning to use this method to generate over 80% of the required steam. Similar plans exist for other fields.

Once all these energy efficiency plans are implemented, PDO’s total gas savings through cogeneration will be half a trillion cubic feet over 20 years, well enough to fuel the roughly 600 MW power requirement of Muscat.

Another issue that is rising up the international agenda is fresh water scarcity. The energy industry consumes, produces and discharges huge amounts of water – and we need to focus much more on the impact this has. Take the massive Pearl Gas-to-Liquids project in Qatar. In a largely arid region like Qatar, the use of large quantities of fresh ground water is impossible while desalination of seawater is energy intensive. But like any large project, Pearl GTL still needs a lot of water, in this case almost 200,000 barrels of water each day for cooling and process usage.

The good news is that the GTL plant - by virtue of the fundamental chemistry of the reaction on which it is based - also produces a lot of water, in the case of Pearl GTL over 210,000 barrels, more than it consumes. All of the water will be re-used. So the project will not deplete or impact local water resources. Pearl GTL’s water management solutions place it in a different class of sophistication from the norms of our industry. And we continue our research into next generation water management solutions.

Finally, we need to do something about the world’s growing sulphur stockpiles, which total about 21 million tonnes – enough to fill a cargo train stretching from Abu Dhabi to Amsterdam. As we increasingly come to rely on hydrocarbons with a high hydrogen sulphide content, that train is rapidly getting longer.

To help tackle this problem, Shell researchers have developed new sulphur-based products for use in fertilisers, road asphalt, and concrete. We are completing successful tests on all of them. The fertilisers enable higher crop yields, sulphur-asphalt can carry heavier loads and be produced in a less CO2-intensive way than conventional asphalts, while the sulphur-based concrete is more flexible than concrete based on Portland cement, and resistant to salt water and acid. We see good business in these new products – especially as the expected global sulphur surplus ramps up post 2010.

Conclusion

There is plenty of evidence that our industry is capable of embracing change. But let’s not underestimate the challenge posed by the three hard truths. Getting more production from mature conventional fields and difficult unconventional fields, will both put upward pressure on the energy-intensity of operations.

So the future of the upstream industry depends on our efforts to both increase efficiency and reduce our environmental footprint. Recovering more and wasting less are two sides of the same coin. We will need new technologies, skilled people, lean processes and huge financial resources. As we plot our course into the future, we can take heart from the example set by Abu Dhabi, with its strong focus on mobilising human talent and international partnership. In Shell, we’re proud to play our small part in supporting Abu Dhabi’s continuing transformation and progress.