Shell Exploration & Production

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Energy Choices, Energy Futures

Rich Sears

Shell

“Our ignorance is not so vast as our failure to use what we know”

Dr. M. King Hubbert

Knowing What You Know …and Don’t Know

Definitive Statements on Technology

The Longitude Problem can only be solved with astronomy.

The greatest shortcoming of the automobile is that they scare horses.

Airplanes need to be made of the lightest materials available.

Germanium is the element of choice for semiconductors.

Cold fusion works … doesn’t work … works … doesn’t work … maybe works …

There’s little chance of finding substantial oil reserves in:•California, 1885•Texas, 1891 •North Alaska, 1960’s •The North Sea, 1960’s •Deepwater, globally, ~1980

There are huge natural gas resources beneath the Columbia Basalts, 1980’s

US oil production is near it’s peak

•1920,1921,1931, 1939, 1949,

Production will never be possible >60 miles from shore, 1970’s

More Definitive Statements About Energy- things I’ve read, heard or said -

- 75 BBOE- 30 BBOE

- 21 BBOE- 76 BBOE

- 80 BBOE?

1956

- things I’ve read, heard or said - and so …

>150 miles

Global oil production will peak shortly, 2000-2005

Global oil production will continue to grow for several decades, 2000-2005

Known oil reserves represent 30-40 years supply, 1970’s-2000’s

Ethanol from corn grown in the US can supply all of our gasoline needs, 2000’s

We could switch from petroleum to renewables if we chose to, 1970’s-2000’s

………..

The Future is About Choices

What Will Shape the Future of Energy?…and the Future of the Energy Business?

By 2050

• demography: 8-10 billion people

• increasing incomes: average $15-25k/capita

• urbanisation: 80% of people are living in cities

• liberalisation of markets? or not?

• increasing accountability

• 2-3 times increase in demand

• increased environmental awareness

• ………….

The Future is About Choices

Choice 1:

We choose to bury our head in the sand and not worry …

Korea

Thailand

BrazilMexico

India

China

Climbing The Energy Ladder

Source: IMF, BP

GJ/capita

GDP/capita (‘000 1997$ PPP)

Japan

EU

Australia

US

0

50

100

150

200

250

300

350

0 5 10 15 20 25 30 35

• +$25k/capita:little extra energy needed.

• +$15k/capita:services start to dominate growth.

• +$10k/capita:industrialisation near complete.

• +$5k/capita:industrialisation and mobility take off.

Source:http://www.aapg.org/explorer/2000/06jun/usgs_assess.cfm

USGS 2000 Global Resource Assessmentexcluding the USA

The Future is About Choices

Choice 2:

We can predict the future by extrapolating from the present …

Primary Energy Demand and Supply

Source: Shell “Long Term Energy Scenarios to 2050” http://www.shell.com/static/royal-en/downloads/scenarios.pdf

0

200

400

600

800

1000

1200

1970 1990 2010 2030 2050

Primary Energy Supply

Nuclear

Coal Gas

Hydro

Bio -Other

Natural Gas

Oil

Coal

EJ

0

200

400

600

800

1000

1200

1970 1990 2010 2030 2050

Primary Energy Demand

Latin America

Japan/ANZ

Africa/ME

Asia

FSU & CEE

US/Canada

W Europe

EJ

million bbls per

day

3,000 bln bbls

+ 350 bln bblsof NGLs

+ 850 bln bblsheavy oil andbitumen

excluding shales

Ultimate Recoverable Resource

Source: based on USGS mean estimates, June, 2000

0

25

50

75

100

125

1950 1975 2000 2025 20XX

2% per annum

7.5% per annum

Global Oil Production

Today:84 mln bbls/d

20,000

1,000

500

100

5,000

10,000

10 1,000 100,000

$ per peak kW(constant 2000$)

Cumulative MW installed

Source: adapted from IIASA--WEC, 1995

2008 Wind (est.)

1981

1998

Photovoltaic systems20%

1982

1987

Windmills

20%

1963

1980Gas turbines

20%

10%

199815%

2020 US PV (est.)

Experience Drives EfficiencyEfficiency Gains in Renewables

1800 1850 1900 1950 2000 2050 210010-2

10-1

100

101

102

Decarbonization of Primary Energy

Ausubel / Meyer, American Scientist (March-April 1996)

Methane: H/C = 4

Oil: H/C = 2

Coal: H/C = 1

Wood: H/C = 0.1

Hydrogen “Economy”?

Methane Economy?

H / C

Source: after Marchetti (1985) Year

∆t = 300 years (length of process)

1935 (midpoint of process)

NonfossilHydrogen

The Future is About Choices

Choice 3:

We hope that a miracle occurs …

Evolving Shares of Primary Energy

Source: Nakicenovic, Daedalus 125(3), 1996

The Future is About Choices

Choice 4:

We innovate and adapt …

million bbls per

day

3,000 bln bbls

+ 350 bln bblsof NGLs

+ 850 bln bblsheavy oil andbitumen

excluding shales

Ultimate Recoverable Resource

Source: based on USGS mean estimates, June, 2000

0

25

50

75

100

125

1950 1975 2000 2025 20XX

2% per annum

7.5% per annum

Global Oil Production

Today:84 mln bbls/d

= approx. 1000bbls/sec

Global Discoveries“Creaming Curve”

Looking forward,the end of “easy”oil

Looking back,it has rarely been “easy”

The Three Shell Global Scenariosto 2025

Source: Shell Global Scenarios to 2025; http://www.shell.com

Where Do We Start?

0

200

400

600

800

1000

1200

1970 1990 2010 2030 2050

0

200

400

600

800

1000

1200

1970 1990 2010 2030 2050

-

-

-

-

Price?

Techno

logy?

Climate

Chang

e?

Supply

and D

emand

?

1975 1985 1995 2005 20156

4

2

0

MM

bbl

/d

1986 proventechnologies

1986-1995new technologies

1995-1999new technologies

1999+

North Sea Oil ProductionAn Historic Perspective

Source: ENeRG (European Network for Research in Geo Energy)

The “3E’s” of Energy Supply

Economics

Energy SecurityEnvironment

Hidden ChallengesOpacity vs. Resource Base

0

100

200

300

400

500

0 20 40 60 80Price Waterhouse "Opacity Index"

Oil Resources(discovered

+undiscovered)

Billion Bbl

Source: PriceWaterhouseCoopers, The Kurtzman Group, USGS, MMS

Investing to Deliver Energy$16,500 billion 2001-30 (RT 2000$)

oil

gas

coal

electricity

Source: IEA, 2003

OECD

non-OECD

Deepwater Milestones

600 m

800 m

1000 m

1200 m

1400 m

1600 m

1800 m

2000 m

2200 m

2400 m

Cognac1978

Bullwinkle1988

Conoco1989

Petrobras1989

Na Kika2003

Petrobras1999

Mensa1997

Petrobras1997

Ursa1999

Ram-Powell1997

Mars1996

Auger1993

Na Kika FieldGOM

O&G Technical InnovationUS Patents - Upstream Oil & Gas

Source: US Patent Office

“Big 3” Oil Field Service Companies

Integrated Oil & Gas “Majors”

National Oil Co's Academia

Entrepreneurs & Small Businesses

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

High Resolution 2005

Advances in image processing can come from geophysical, astronomical, medical research

High Resolution

1980’s

High Resolution 1990’s

Resolution Enhancement

High Resolution

1960’s

Field Volume and Recovery Factor

IHS Energy

resource volume(bln bbl)

0

1,000

2,000

3,000

4,000

5,000

0 10 20 30 40 50 60 70 80 90 100(%)

oil in place

recoverableaveragerecovery34%

Improving RecoveryTroll Oil Field, Norway

MMBO

After Morten Ruud, Hydro Oil & Energy, 2004

0

500

1,000

1,500

90 91 92 93 94 95 96 97 98 99 00 01 02

Troll Blong-term test gas

province

horizontal well gas province

startup Troll B

Troll C

injectionwells

multi-laterals

startup Troll C

sub-sea pilot

additonalwells

1995 RecoveryEstimate 40%

2002 RecoveryEstimate 70%

New Technologies:

Biology, Chemistry, …

Current Technologies: Geologic & Reservoir Modeling, Horizontal Wells, …

The Potential of Smart Fields

Measurement and Controlflow, pressure, temperature…..

Downhole Processing separation, compression

1 - 5 km

2 - 5 km

New Challenges:

Complex System Modeling

Novel Sensors & Controls

Reservoir Imaging seismic, electromagnetic

The Global Trend Towards Difficult Hydrocarbons

Remote

Marginal

Tight Gas

CoalbedMethane

Coal

Gas

Tar & Bitumen

Oil ShalesGas Hydrates

Gas Shales

Heavy Oil

Conventional

Contaminated

Carbon Intensity

Increasing Cost

Adapted from Holditch & Hart’s E&P

Resource Volume

Fundamental Technology Challenges:

Increasingly Expensive

High Carbon Content

Current

Emerging

The Climate Challenge

Global Carbon EmissionsGtC / Year

15

20

5

10

02020 2060 21001980

1000ppm

550ppm450

ppm

ºC

6 -

5 -

4 -

3 -

2 -

1 -

0 -

Projected Range ofTemperature Increase

2100

2300

Year

Year

Can we provide energy while limiting

atmospheric CO2 to less than 550 ppm?

An Integrated Value Chain for Electricity and CO2

860 MW gas-fired power station

Meet offshore power requirements

Secure energy supply for mid-Norway

CO2 capture for offshore injection

Up to 2.5 million tons ofCO2 annually

Electricity generationat Tjeldbergodden

CO2 capture and transport

CO2 for enhanced oil recovery/storage

Enhanced oil recoveryfrom:

Draugen

Heidrun

Future potential

Where Shell Is Now Looking to Fuel the Future

Exploration and Production

Refining and Chemicals

Gas and Power

Renewables

Locations of Projects Announced in 2005 and 2006

1908 Personal Transport

A Few Last Thoughts

• These are complex and difficult problems. You can not just pick the “winners” and “run with them”.

• Companies, governments, universities, NGO’s, … do not have all the answers, and can not be expected to be perfect.

• Companies, governments, universities, NGO’s, … will generally behave predictably.

• Collaboration between government, NGO’s, industry and universities is necessary to bring different ideas together to create sustainable solutions.

• Technology can be a key to a clean & sustainable energy economy

• Scale matters

“People who stay in this business must conquer things”

JW PittmanShell Oil Company

February 1966