Technology is driving progress to supply China’s rapidly growing energy needs, and to find cleaner energy – from renewables and natural gas, through coal gasification, and more. The work of leading institutions such as China University of Petroleum (Beijing), and international relationships like those the university is building, are vital in enabling the global oil and gas industry to realise its full potential in creating a sustainable energy future – a vibrant future, in which China will be a key player and technology will continue to be a crucial success factor.
Technologies for a sustainable energy future
It is a great privilege for me to address you today as Honorary Professor of this eminent university. And I am excited to be back in China. I always find the energy and creativity here very inspiring.
China's economy continues to grow at an impressive rate, which is accompanied – necessarily – by rapid growth in energy needs. Technology is driving progress to satisfy that hunger for more energy. But technology is also driving progress to find cleaner energy – not just from renewables, but also from natural gas, and through coal gasification, and more.
So it is more important than ever before to see the kind of work being done at this university advancing and delivering results. It is very encouraging to see such well-targeted investment in facilities, programmes, students and research; and to see how China University of Petroleum reaches out to other academic institutions and industrial organisations around the world.
In today’s lecture, I have three aims: I want to convey my own excitement about the future of the global petroleum industry – which is nothing like the ‘sunset industry’ that some commentators like to paint, but highly vibrant and much more high-tech than many other sectors.
I would like to highlight China's role in that exciting future for oil and gas.
And I will showcase some of the technologies that will enable our industry to realise the future sustainably and responsibly.
Global energy challenge
To put these things in context, let’s consider the global energy challenge facing all of us. It is a big one. The world’s energy demand looks like doubling by 2050 from current levels.
Supply is already under pressure, as we come to the end of 'easy' oil and gas – that is, oil and gas that are easy to find and cheap to develop. But hydrocarbons will continue to supply as much as two-thirds of the world’s energy to mid-century, so we have to find and deliver the additional oil and gas needed.
In the process, it is imperative that we manage CO2 better. CO2 has reached its highest concentration in our atmosphere for the past 600,000 years or more.
Uncontrolled increase in CO2 will result in dry places of world becoming drier and wet places wetter; so millions more people may go hungry, sea levels will potentially rise further; and the spread of malaria will affect millions more people.
What should happen is that energy fuels economic growth to help lift more people out of poverty – in Asia, Africa, South America; energy that provides better living standards, so that people have access to clean drinking water, electricity and proper sanitation, and to decent incomes that allow them to have fulfilling lives.
The energy mix is changing. Renewables could account for 30% of world energy by 2050 – up from 7% in 2008. To provide the two-thirds still needed from fossil fuels, our industry is shifting to unconventional sources of oil and gas.
And, to deliver cleaner energy, there will need to be a continued shift from coal to natural gas for power generation; this is reflected in Shell’s own portfolio, where gas will account for about half our upstream production by next year.
That’s because natural gas is an important component of any sustainable global energy mix. For most countries, using more gas in their power generation can make the largest contribution at the lowest cost to meeting their emission reduction targets in this decade.
Over the longer term, gas will continue to be an accessible, affordable and acceptable energy source for the future. Combined with renewables and carbon capture and storage, it is also essential for a significantly lower CO2 journey beyond 2020.
China’s response and Shell’s contribution
China is well positioned to respond to the energy challenge in the coming years: for two reasons in particular.
First, the nation is keeping a strong focus on its energy priorities: supply security, environmental protection, and energy efficiency. These are very much in harmony with Shell’s goals – to provide more energy, from more diverse sources; cleaner, safer energy; and increased energy conservation and efficiency.
Secondly, China – like the University here – is developing relationships around the globe to meet its own and world energy needs. Such collaboration is the key to success; none of us can meet the global energy challenge on our own.
Shell is glad to have the opportunity to contribute to China’s response to the challenge.Our contribution is steered by our corporate focus in China – on growing our business, and growing our people. It is also steered by the strategic themes – of market, and technology – that our business has adopted in this nation.
Our vision is to be the leading international energy company contributing to the sustainable economic prosperity of China and our customers. And this is reinforced by Shell’s global aspiration: to be the world’s most competitive and most innovative energy company.
Shell is not a newcomer to China. We have had a presence here for over a century, with an accumulated investment of $4 billion. Every part of our business is active in China: upstream, downstream, project development and technology. We are involved in more than 30 wholly owned or joint venture companies. And we are engaged in partnerships with many Chinese companies, including PetroChina, Sinopec, CNOOC, and Yanchang.
Compared with other multinational companies in China, Shell is one of the largest, with a strong market position: Shell is the No. 1 lubricants manufacturer and marketer, No. 1 international energy company supplying liquefied natural gas to the nation, and the No. 1 bitumen supplier. Shell is also a leading licensor of coal gasification technology to China’s growing market.
As I said, growing our people is central to our business. We do that in three ways: through localisation – of Shell China's 15,000 staff, 98% are Chinese; through globalisation – 10% of Shell China staff have overseas experience; and through leadership development, through a range of programmes.
I’m proud that Shell is recognised in China as a responsible energy business – for instance, through the award of Company of Best HR Management in China, the Greener China Business Award, and others.
Shell’s global operations span more than 90 countries, and the entire value chain, from finding and developing resources to selling fuel to customers. Every second of every day, 365 days a year, 300 vehicles visit a Shell retail site somewhere in the world.
In the upstream, we have major interests on every continent, and work in a wide range of conditions – from the deserts of the Middle East to the frozen seas of the Arctic, from the jungles of Asia to the ultradeepwater in the Gulf of Mexico and elsewhere. Our people have world-leading expertise in a great many fields, including heavy oil, unconventional gas, enhanced oil recovery, and much more. In the large and diverse landscape of Shell’s activities, China has an important place.
China is also growing in significance globally as a consumer of energy. New car sales here are now greater than in the US. China’s total vehicle fleet is expected to overtake that in the US around 2030.
On the supply side, China is clearly increasing its influence through alliances and joint ventures upstream and downstream. Just to mention a few: PetroChina and Shell are working together on tight gas in the Changbei project, on unconventional gas in Sichuan. Sinopec and Shell have a retail joint venture, including about 400 sites in Jiangsu; and a coal gasification joint venture in Yueyang. With our partners CNOOC, we are engaged in the $4.3 billion Nanhai petrochemicals project. And with Yanchang, we have retail joint ventures in Shaanxi and Sichuan.
Fostering innovation is a crucial part of solving world energy needs. So it was great, for example, to see Chinese teams competing in last year’s Shell Eco-Marathon – the first Eco-Marathon to be staged on three continents. This is a competition about fuel-efficiency; and two college teams from China won multiple awards in the Asia event.
Tongji University team won 3rd place for the Prototype Combustion Grand Prize, with a car travelling 940.4 kilometres on a litre of gasoline; the team from Beijing Institute of Technology came 7th in the same category. Tongji also won the Communication and Marketing Awards and 3rd place for the Safety Award. Beijing Institute of Technology was recognised as the Most Recycled Team, with the most outstanding material reuse activities. The Tongji car also won 2nd place in the Autodesk Innovative Car Design Challenge 2010. Altogether, an excellent performance from China’s young innovators!
This nation is making an impressive contribution to world energy through its investment in R&D, technology development and deployment; and in major projects at home and abroad. Just one example of overseas activity: PetroChina and Shell’s joint acquisition of Arrow Energy Ltd, an Australian coalbed methane gas company.
On the global stage, there is so much exciting technology and project development going on in the oil and gas industry, it has been difficult to select a small number to showcase to you today. Innovation is occurring from the equator to the Arctic and everywhere in between; we’re plucking resources from miles under the seabed, trapped in impermeable rocks or locked in bituminous sands; and we’re turning heavy oil, natural gas and coal into low-carbon high-efficiency products.
I hope the projects and technologies I have chosen will explain my passion for this industry, by showing you how innovation is transforming our work across the value chain: in the way we find, develop, produce and process hydrocarbons around the world.
Basin modelling is a crucial part of our exploration success. We combine empirical data gathered over decades of oil and gas exploration and production, with advanced scientific analyses based on first principles of heat flow, convection and other processes taking place in the earth and its hydrocarbon reservoirs.
We have developed sophisticated computer algorithms that are able to predict the complex interplay of fluid pressure and flow with stresses and strains in three dimensions, and to determine how oil and gas migrate from the source rock via tenuous routes into the traps, and how over time some of these traps lead and oil or gas on-migrates into their final accumulations.
Another example: when we’re looking for tight gas – that is, natural gas trapped in rock formations with very low permeability, in the micro and nano-Darcy range – we want to know the sweetspots of the reservoir that are more likely to give up their treasures.
Here, we use basin modelling to predict, not only where the high gas concentrations could be, but also what the plasticity of the rock is, to then know where fraccing works best and to define the optimal combination of pressure, flow rate and proppant volume to use to open the rock. The tools of basin modelling are integrated with others such as seismic imaging and remotely sensed potential field data – telling us about the gravity and magnetic fields in place and enabling us to deduce the structural history of a basin.
I should quickly touch on seismic imaging, which has advanced dramatically in my career – from 2 dimensional to 3 dimensional static images, and then to 4 dimensional time-lapse imaging. I vividly remember starting out as a geophysicist 30 years ago, poring over paper seismic sections that were several metres long, colouring them with crayons and trying to find new exploration prospects.
Shell’s proprietary visualisation technology, combined with proprietary computing algorithms, now enable us to carry out 5¬dimensional seismic processing, taking into account not just the x, y and z axis of space but also the seismic acquisition azimuth and offset angles – which are essential for imaging highly complex terrains, such as under the salt in the Gulf of Mexico or under mountain ranges.
The second stage of the value chain: Developing.
Shell has particular expertise in developing deepwater prospects – we have been a leader in this field for nearly 30 years. One of our most challenging developments recently was the BC-10 project, in about 1,780 metres of water, in the Campos Basin offshore Brazil, an area with difficult metocean conditions throughout the year.
BC-10 has some striking features besides its depth: low pressure in the reservoirs, which are small to medium-sized; the oil is heavy, under a seabed terrain made unstable by shifting sands; the sea bed itself exhibits near-freezing temperatures and – as you would
expect – the water pressure at depth is very high.
The first phase of this project involved three fields, which have been developed with subsea wells. Each field is tied back to a centrally located floating production storage and offloading vessel (FPSO).
This was the first development of its kind based fully on subsea oil and gas separation, and subsea pumping. BC-10 also includes the first application of steel tube hydraulic and multi-circuit high power umbilicals, which deliver power to 1,500 horsepower pumps on the sea floor. And it is the first application of lazy wave steel riser technology on a turreted FPSO, which prevents fatigue of the material which would otherwise result from the constant movement caused by the swell.
Thanks to all these technology firsts, and the overall approach to development at BC¬10, production has been excellent: 5 months after we announced the start of production, the project had already delivered over 1 million barrels of oil.
I will quickly mention another deepwater project with its own share of world firsts: Perdido, in the Gulf of Mexico, which achieved first production last year.
This project is in 2,450 metres of water – the world’s deepest offshore drilling and production facility, which acts as a hub for three individual oil and gas fields. The facility – a spar – gathers, processes and exports production within a 48 kilometre radius. There are 22 wells directly accessed from the spar, and another 13 tiebacks from subsea completions. One of the fields being developed, Tobago, is currently in the process of becoming the world’s deepest completed offshore production, at around 2,925 metres.
I find these figures exciting – especially when I think that, in just over a decade, we have doubled the depth of the water and vastly expanded the range of conditions that we can work in. Who knows what you students will be able to achieve in the next decade? One thing I am sure of: you will be as excited as I am by what we can achieve with technology solutions.
Lastly under ‘Developing’, I would like to emphasise the vital importance of drilling excellence, and the range of technologies now available to achieve that.
For instance, Shell is the industry leader in the use of underbalanced drilling. It is essential to use this technology in tight rocks, to ensure that the drilling fluids don’t damage the reservoir and the hydrocarbon flow conduits.
Bringing down the costs of drilling is vital to making tight gas or shale gas development projects work, such as our joint ventures with PetroChina in Changbei or the Jinqiu and Fushun field in Sichuan province. Here we use a number of technologies. Our soft torque rotary drilling system, for instance, helps us to reduce the drillstring vibration and control the RPM of the drillbit. As a result we can drill faster and the drill bit lasts longer. This saves time in drilling and tripping – and thus saves money.
Now let’s move on to the third stage of the value chain: Producing.
My main example for this is liquefied natural gas, or LNG. This is what you get when you cool natural gas to minus 160 degrees Celsius. Of course, that also means that it shrinks in volume about 600 times, and so can be transported by ship.
LNG offers flexibility to both consumers and producers of natural gas. Unlike pipeline gas, it’s not restricted to a specific destination – the tankers can be directed to anywhere there is demand and a facility to turn the LNG back into its gaseous state for distribution through existing onshore infrastructure.
The first commercial LNG liquefaction plant – in Algeria, in 1964 – used Shell technology. Since then we have invested constantly in new technology and project development. Today we are involved in LNG production in Australia, Brunei, Malaysia, Nigeria, Oman, Qatar and Russia, as well as regasification projects in Mexico and India.
Our technologies continue to lead the world – for example, the use of Dual Mixed Refrigerant in liquefaction. When you use one mixed refrigerant you get a more flexible process design than if you used a plain refrigerant. The additional degree of freedom provided by DMR – having two mixed refrigerant cycles – results in better power utilisation and better efficiency over a wide range of ambient temperature variations and changes in feed gas composition.
This is good news in conventional onshore LNG plant. But we’re pushing the envelope even further now, and pursuing the possibilities offered by offshore LNG processing – that is, liquefying the gas where it is produced, using what we call Floating LNG.
This takes proven technologies: not just DMR, but also Shell’s extensive expertise with floating production, storage and offloading facilities – FPSOs. In fact, the world’s first ever oil FPSO was the Shell Castellon, which was built in Spain in 1977.
Combining and refining many proven technologies, we are developing a facility that will enable gas to be monetised as LNG from fields that are remote from the coast and consumers and that are relatively small but perhaps many in number. Not only will the use of FLNG have the potential to reduce the costs of producing the gas, it will also reduce the environmental impact while delivering the benefits of gas supply to consumers who need it – a truly sustainable outcome.
As another dimension of sustainable production, I’d like to just mention enhanced oil recovery – a very powerful route to making the most of oil fields. Of course, China has the world’s largest polymer-flood EOR field, at Daqing.
At Shell we have a range of exciting EOR schemes in use and a number under development. For instance, we have several steam injection schemes in the Middle East, Canada and the USA – where, as an example in California, we were able to improve the recovery factor from 10% to 80% in parts of the field.
We are also currently commissioning a field in the Netherlands that was found more than 50 years ago, and EOR is breathing new life into it for another 20 or more years.
In addition, in several countries we have chemical and miscible gas injection projects under way.
And we have successfully trialled low-salinity waterflooding in a number of fields. This is all about tuning the ionic composition of water to change the wettability and other parameters in the reservoir, which in turn improves oil recovery – an exciting and potentially quite low cost EOR solution.
Finally, to the fourth stage of the value chain: Processing.
In this context, I would just like to highlight Gas to Liquids, or GTL, as a great example of Shell’s global technology engine in action. Discovery and development of this technology began in our Amsterdam labs in the 1970s. By 1993, demonstration was under way on a commercial scale, in Bintulu, Malaysia. Today, world-scale deployment is in construction at the Pearl GTL project in Qatar, which will produce 140,000 barrels per day of GTL products plus 120,000 barrels a day of natural gas liquids and ethane.
GTL has been a focus of Shell’s technology efforts, consistently, for 40 years. And we have over 3,500 patents to prove it, covering every stage of the GTL process.
These are just some of the developments that make me very excited about the future of petroleum, here in China and worldwide.
None of them would be possible without ‘open innovation’ in the kind of partnerships to which I have referred.
Investment is the other key ingredient: that’s why Shell maintains the biggest R&D and technology deployment spend of our international oil company peers, at $1.1 billion annually; and it’s one of the reasons we’re top of the US Patent Scorecard in the energy and environment sector again last year.
As I close, I would like to applaud the contribution of our university partners as well as industry partners to what has been achieved to date, and what will be possible in the future. China University of Petroleum in Beijing makes its own outstanding contribution.
I am very honoured by being awarded an Honorary Professorship at the University.
And now I look forward to hearing your own ideas for future innovation and technology development, to secure China's role in the global energy future.