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Canada: a proving ground for responsible oil & gas development

Speech given by Marvin Odum, Upstream Americas Director, Royal Dutch Shell plc, at the London Energy Roundtable: Canada Europe Energy Summit, in London, England, October 11, 2011.
Marvin Odum

Canada is a growing supplier of energy. And in a resource constrained world, Canadian energy development provides a clear opportunity to meet global demand in a secure and stable way. Capitalizing on that opportunity depends on development of infrastructure and promoting economical, safer, more responsible oil and gas exploration and production. In this speech, Marvin Odum, director of Shell’s Upstream Americas assets, discusses Shell’s contributions to Canada’s energy future through oil sands, natural gas and First Nation collaboration. He also addresses policy issues that are imperative to the company’s continued success in Canada, and Canada’s future on the world energy stage.

Canada: a proving ground for responsible oil & gas development

Thank you very much. It is a pleasure to be here.

I appreciate Mungo’s kind introduction. I have been involved with Shell’s operations in Canada for many years, including in my current position as director of our upstream businesses in the Americas.

This has certainly given me a clear view of the tremendous opportunity Canada has to become an even bigger player on the world energy stage than it is today.

Of course, doing so requires having the right policies and the right investment climate in place so that Canada can leverage its resources in the most effective way possible.

Canada has a lot of partners willing to help them do it. The attendance here today is a testament to that.

For our part, Shell has been in Canada for more than 100 years. We started with a gasoline tank facility in Montréal in 1911, with just six employees and capital of only $50,000.
We now have 8,200 employees there. Canada represents approximately 8 percent of our global oil and gas production and an even larger portion of our global resource base.

But a key question remains: Will Canadians – and consumers throughout the world – be able to enjoy the full benefits of those resources?

We appreciate the regulators in Canada who are working hard to ensure Canada lives up to its potential to meet future global energy demand, while adding security and stability to our markets and promoting responsible production and operations.

And that last point is important.

Canada has been – and will continue to be – a leader on environmental management within our industry. I’ll say more about that in a moment.

I’ll also talk about what Shell is doing in three areas in particular, before discussing some of the policy issues that are imperative to both our continued success in Canada and Canada’s future on the world energy stage.

The three things I’d like to briefly address are:

  • Oil Sands
  • Natural Gas 
  • and our First Nation work in the country as an example of the importance of working closely with communities.

Oil sands

Let’s start with oil sands:

In May, we announced that we had begun commercial production at our Scotford Upgrader Expansion project in Alberta.

Work began on this project in 2005, alongside our partners Chevron and Marathon. In that short time, we have expanded production by 100,000 barrels per day of heavy oil capacity to 255,000 barrels per day.

In less than a decade, we’ve built a business capable of delivering enough oil to meet approximately 15 percent of Canada’s domestic demand.

For good reason, this expansion project has been one of our top priorities over the last few years – not just in Canada but also across our global operations.

Over the next decade, we see opportunities to increase oil sands production further, while at the same time lowering the costs of this energy and reducing our environmental footprint.

For example, we know that – in Canada and around the world – water is increasingly becoming a topic of concern.

We also know that there are real and legitimate concerns about the impacts of increased oil sands development on water use.

For those of you who may not be familiar with the oil sands development process, water is required to separate the oil from the clay and sand.

At our Athabasca mine, 85 percent of the water we need comes from recycling the water used in our operations.

We have research and development efforts underway that will reduce water use from the nearby Athabasca River, and our goal is to eliminate the need for water from the river altogether.

One specific challenge related to oil sands mining and water is the management of tailings – the water and solid particles that result from the process of separating oil from sand.

Shell was instrumental in commercializing new technologies to accelerate reclamation, such as the new Atmospheric Fines Drying process.

We were also instrumental in establishing an Oil Sands Tailing Consortium – a group of seven companies working collaboratively on tailings management solutions.

We believe that the relationships we’re building – and the progress we’re making – will allow us to deploy advanced reclamation technologies that can dramatically reduce the footprint of the operations – and to do it more quickly.

This is just one example of collaboration within our industry on common environmental issues.

I’ll offer another example in the emissions arena.

Independent analysis shows that fuels produced from oil sands bitumen emit 5 to 15 percent more CO2 than the average barrel of crude on a life-cycle – or “wells-to-wheels” – basis.

Shell’s oil sands operation is already at the lower end of this spectrum, thanks to measures we put in place over the last decade. The high energy efficiency of our original designs has been driven by Shell placing an internal price on carbon for all of our projects globally for nearly a decade now.

One of the largest opportunities to improve our own emissions intensity is through large-scale carbon capture and storage (CCS).

Canada has been a leader in this field for a long time. Both the Canadian and provincial governments have supported our project, both financially and by providing the appropriate regulatory framework.

Our commitment to CCS projects, and our investment in them, is rock solid.

When it’s completed in 2015, our Quest CCS project will be capable of capturing, transporting and safely storing CO2.

This project, at the Scotford Oil Sands Upgrader in Alberta, will capture 1 million tons of CO2 per year, or roughly the equivalent of taking 175,000 cars off the road.

This is not just an idea.

We have drilled three test wells to confirm that the reservoir will hold the CO2, and the government has advanced specific regulation to safely manage the injection of CO2 into this deep sub-surface structure.

We have also engaged face-to-face with all 400 local stakeholders and landowners to explain the details of the project.

As the world’s first application of CCS for oil sands, this is a project that is important not just because of what it means for Shell and Alberta; but also because it will provide a huge knowledge base around CCS that can be drawn on globally.

Around the world – including right here in Europe – we’ve seen that getting CCS projects off the ground can be challenging. Many of you will be familiar with the difficulties Shell’s own Barendrecht project in the Netherlands ran into over community acceptance.

But here in the UK, the government’s commitment to a demonstration program is welcome and Shell is involved in the offshore CO2 transport and storage elements of two projects. We very much hope to see a number of EU and UK demonstrations take off in the next year or so, and to be part of it.

Meanwhile, Canada stands out as a leader with a head start on CCS.

They have the funding, the proper regulatory environment and engaged industry partners. We’re proud to be one of them.

Going beyond CCS, we will continue advocating for more effective CO2 regulations to reduce greenhouse gas emissions and will continue our own work on key elements, such as commercializing lower-CO2 fuel options for transportation. I’ll say more about that in a moment.

Natural gas

Let me turn now to natural gas.

As you are all aware, we have seen a drastic change in the supply of natural gas over the past few years.

New technologies have enabled natural gas that we once thought was inaccessible to be extracted. And this has resulted in a boom in natural gas development.

Accessing these resources is important for many reasons. Among them: Natural gas is the quickest way to tackle emissions concerns in the power sector, since modern gas plants emit half the CO2 of new coal plants.

But there are a number of concerns regarding how these resources are developed.

This summer, Shell released our onshore gas principles – principles that establish how we will operate when we pursue these natural gas developments.

These principles include:

  • How we design, construct and operate our wells and facilities in a safe and responsible way
  • How we will protect groundwater and reduce water used in the process
  • How we will protect air quality and control fugitive emissions
  • How we will reduce the physical footprint of our operations
  • And importantly, how we will engage with communities on the socioeconomic impacts of our operations and help them take advantage of the tremendous benefits these developments can provide.

I won’t go into details on these, but I welcome any questions you may have.

It’s critical that we get onshore gas development right – whether we’re talking about tight gas, shale gas or liquefied natural gas (LNG), all of which have implications for Canada.

For example, Shell is working on an LNG export joint venture in British Columbia.

We are working with an international coalition of companies representing the production, transportation, usage and construction/equipment sides of the equation.

When it comes to projects like this, the most critical part, other than the buy-in of the host country, is of course, connecting supply with the market. This coalition was put together with that in mind.

Another example, about a month ago, we announced a plan to have LNG available for heavy-duty fleet and trucking companies to use as a transportation fuel beginning in 2012 in Western Canada.

The plan is to produce LNG – with a technology that is now commercial at a small scale – at one of our gas processing facilities in the foothills of Alberta.

It’s my expectation that we will use some of the production from these new tight gas developments to supply this reduced-carbon-intensity transportation fuel.
By making LNG available on the heaviest truck route through Western Canada – the route from Vancouver through Calgary and up to Edmonton – we are creating the opportunity for the market to choose LNG as a sustainable transportation fuel.

This is our first investment of this kind anywhere, and we’re excited about the potential it represents to reduce emissions, while also helping to meet global transportation fuel demand.

First nations

The third item I want to provide an update on today, as it relates to Canada, is Shell’s relationship with our First Nation neighbors there.

I mention this because it is such an important topic in further oil and gas developments in Canada.

As this audience is aware, there are unresolved issues between the Canadian government and the First Nations.

Shell believes that business and government have a shared responsibility to address these issues and to work collaboratively to see them resolved.

We acknowledge and respect the rights of the First Nations. And we look forward to working closely with them for many years to come – including on the LNG export project in British Columbia that I mentioned earlier.

As new opportunities arise for Canada in the world energy arena, we intend to continue to do the kind of work we’ve always done to be a responsible neighbor.

That won’t change, and it shouldn’t.

Right now we are working alongside a number of First Nations with respect to oil sands in areas such as landscape projects designed to minimize our impact on the land and water reclamation, where we are drawing on their traditional knowledge to make projects better.

We’re also providing education, training and employment opportunities – something we’re very proud of.

In June, we announced that in the previous six years we’ve spent more than $1 billion with Aboriginal contractors on our oil sands operations – a milestone it took our competitors more than 20 years to achieve.

Reaching this milestone headlines our commitment, wherever we operate, to ensure the communities around us benefit from our presence there.

Policy

I’d like to turn now to some of the policy issues we see on the horizon, and some of the opportunities we see for continued investment in Canada.

We remain steadfast supporters of infrastructure projects that will allow Canadian oil and gas products to be delivered safely to global markets.

Through these projects, the potential exists – right now – to create jobs, to generate huge government revenues and contribute to a more reliable global energy supply.

The TransCanada Keystone XL pipeline is a shovel-ready project that will stimulate economies on both sides of the Canadian/U.S. border.

Construction of the line in the U.S. is expected to create approximately 20,000 direct jobs and perhaps five times as many indirect jobs. GDP impact on both countries is notable.
One thing these estimates don’t reflect is the energy and economic security the pipeline will provide. It will expand crude supplies from one of the most stable, democratic countries in the world.

In the example of the Keystone XL pipeline, the product may flow directly to the U.S. but doing so backs out supplies from other countries to serve other markets, including Europe.

My confidence is high that the pipeline will move forward, especially given the jobs, economic impact and energy security at stake, despite all the noise, as it is used as a political football.

Turning now to the UK, there are many opportunities to expand the already positive trading relationship with Canada.

We all know the UK is one of Canada’s largest trading partners. It’s Canada’s second-largest export destination in the world, but only its sixth-largest source of imports.

And these imports can grow – particularly in service to the energy industry.

The decision to expand the UKTI trade office in Calgary to a full-fledged consulate is testament to that opportunity.

This will support even more business in Alberta – the heart of oil sands development in Canada.

We agree with Prime Minister Cameron’s recent comments that the “best customers” create the best opportunities to do even more business.

This is why agreements like the EU-Canada Comprehensive Economic and Trade Agreement are so important.

In addition to addressing tariff issues and investment opportunities, the agreement aims to address non-tariff barriers that arise from regulatory differences.

It also aims to strengthen regulatory cooperation – an important step forward as we look for ways to generate new economic opportunities in both the UK and Canada.

It is in the context of these positive steps forward that I will now raise an issue that may set this back.

The European Fuels Quality Directive (FQD) has been in the headlines lately, as I’m sure you are aware.

The latest movements of the FQD with respect to the Canadian oil sands are very concerning.

Clearly, decisions relating to this objective rest with others.

However, acknowledging that the EU and Shell have a common objective in reducing greenhouse gas emissions, I’d like to share our thoughts on the directive.

We are disappointed that the EU plans to move ahead with legislation to single out only oil sands within the FQD. It’s disappointing for several reasons. My perception is:

• It is not driven by any comprehensive scientifically derived data to support singling out oil sands.
• As such, it ignores other high CO2-intensity sources of crude that actually serve Europe.
• It does not reward process improvements to reduce greenhouse gases and therefore is unlikely to encourage a change in business as usual.

Let me be clear: It is important to pursue low-carbon legislation that drives performance improvement. Shell is, of course, on record in support of various proposals aimed at limiting and mitigating the effect of carbon on our atmosphere.

We believe the best approach to doing that is pursuing regulations that drive performance improvement and are based on sound science and accurate data.

The provisions currently discriminating against oil sands unfortunately will not help achieve this goal.

We believe there is still scope to reach a solution on this issue that can deliver on FQD greenhouse gas emission reduction targets for the European transportation sector and avoid the discriminatory approach the Commission is advocating.

Shell stands ready to work with EU member states, including the UK government, to that end.

Getting this right is important because the EU will continue to confront these issues as demand for energy grows and as new resources are uncovered.

Conclusion

One thing is certain: Canada is a growing supplier of energy. And in a resource-constrained world, Canadian energy development provides a clear opportunity to help meet global demand in a secure and stable way.

Capitalizing on that opportunity depends on development of infrastructure, promoting economical, safer and more responsible oil and gas exploration and production.

And there’s perhaps no better proving ground than Canada.

The technologies we are employing there, the operating standards we are developing and the partnerships we are forming all stand to be a significant help as we strive to meet our energy challenges.

Thank you very much.