Kiran Stacey Shell’s Peter Voser answers your questions – Part Two

Peter Voser

Image by Shell

In this week’s readers’ Q&A session, Peter Voser, the chief executive of Shell, answers your questions.

In the second of two posts, he discusses the future of natural gas, the controversial process of “fracking” and why biofuels are the answer to powering transport.

Next in the hotseat is Chris Huhne, the UK energy secretary, who will be answering your questions on electricity market reform next Thursday, December 23rd. Send in your questions for consideration by the end of today – Friday, December 17th – to

But for now, over to Peter:

If you were to invest in natural gas projects, in what three countries would you make your investment?
John Bruk

John, I wouldn’t stop at “three countries” – we invest in upstream projects in countries that we believe have abundant gas resources. In recent years, Shell has increased investment in natural gas projects in countries like Qatar, Australia, Russia, the United States and Canada, with a special focus on tight gas, shale gas and coal-bed methane – together these are known as “unconventional gas”. We’re currently exploring the potential for unconventional gas outside North America in countries like China and South Africa, as well as some European countries.

At Shell, we think that global gas demand will rise by 50 per cent by 2030, a faster growth rate than oil. Half of the global demand growth will come from Asia. And China, in turn, will account for half of Asia’s demand growth. In the Middle East and North Africa, the demand for natural gas is also surging – fuelled by economic growth and industrial expansion. As a result, that region’s gas consumption will approach European levels by 2020.

We think that global gas demand will rise by 50 per cent by 2030, a faster growth rate than oil

In the OECD markets, the growth of gas will depend primarily on the power sector. For instance, here in the Netherlands, better home insulation and more efficient boilers have cut in half the average gas consumption per household over the past thirty years. But in the past ten to twelve years, electricity consumption has increased by over a third, as a result of increased use of computers, televisions and air conditioning.

Is there a proven “safe technology” to exploit shale gas reserves without any environmental impact or at least without threat to human life or health?
Yassen Spassov

Yassen, thank you for your question. I realise that there’s some public concern that fracturing could affect fresh water layers in the ground. We take that concern seriously. We’ve known for a long time that shale and tight gas resources were abundant. The problem is that the gas is trapped in very tight rock, from which it cannot escape in commercial quantities, unless we use special techniques. As you will know, horizontal drilling and hydraulic fracturing are the techniques used to increase gas flow.

At Shell we follow strict procedures to ensure that the process is safe, and that we comply with regulations. We believe that we have the right skills, in fields from geology to drilling, to produce tight and shale gas safely and responsibly. First, the natural gas we produce lies far below the fresh water layers. We also take additional measures to isolate the gas from fresh water zones by designing in extra steel and concrete barriers that protect these zones underground.  These design measures are also required by regulators for that purpose.

The BP Macondo spill has recently reminded us that things sometimes can and do go wrong. But let’s also remember that energy is the lifeblood of civilisation. Whether we like it or not, producing energy, whether that is gas, wind energy or nuclear, and then delivering it to billions of customers around the world, comes with certain risks. Rather than closing our eyes to that reality, we must confront risks and manage them as effectively as we can. That requires good safety standards and well-trained people. And at Shell, we think we have both.

What are you feelings on shale gas potential in Europe?
Nick Grealy, No Hot Air

Nick, in Europe there’s also a lot of potential for tight gas, coal bed methane and shale gas. To develop these types of resources in densely populated Europe is very challenging. We will have to continue to push the latest technologies. For example, new drilling technologies allow us to drill 20-30 wells from a single above-ground location. While we don’t know yet what the impact will be, these types of natural gas resources could help lift European production levels after 2020.

What will be the share of currently “unconventional” gas in Shell’s portfolio in 5, 15 and 40 years?
Dr Sergey Popov, team leader, Asia-Pacific Energy Research Centre

Sergey, I wish I had that type of crystal ball. Let’s focus on what I do know. I know by 2012 Shell will be producing more gas than oil, and, I know, when it comes to natural gas supplies, a revolution is under way. This natural gas supply revolution has increased energy security for North America. And it has the potential to alter the energy landscape for the world as a whole. It has the potential, but whether it will actually do so depends not only on the availability of supplies. It depends just as much on the market forces and government policies that will shape the demand for natural gas.

When it comes to natural gas supplies, a revolution is under way

I think overall that global natural gas demand will grow strongly, driven by economic growth and the thrust towards lower carbon fuels. In the electricity sector for instance, lower-cost gas fired generation will replace coal-fired generation where possible. Growth in renewable energy also means more gas fired power plants are required to provide flexibility.

Shell is set for strong growth in tight gas, with North America resources potential of around 40 trillion cubic feet equivalents, following a series of acquisitions and acreage deals. Shell now has an opportunity to deploy technology and drilling know-how at a large scale, to grow production and to reduce unit costs. Shell’s North America tight gas production could double from 2009 to 2015, with the potential to reach over 400,000 barrels of oil equivalent per day (boe/d), subject to the pace of investment.

Why is Shell – along with other large oil companies – so slow to evaluate and adopt new technology?
Scott Peters, president, Apex Spectral Technology

Scott, I don’t think we are slow but we don’t spend enough time talking about what we do, and we must learn from your feedback. We recently adopted a new technology strategy, with the explicit aim of making Shell the most competitive and innovative energy company in the world.  It has three principal goals:

  1. We want to come up with innovations that improve our existing business activities. For example, our chemicals business is helping manufacturers to make many everyday products that save energy. Think of building insulation materials that are lighter and more energy-efficient foams that improve the energy efficiency of refrigerators and freezers, washing detergents that clean at lower temperatures and materials that help car manufacturers to build lighter, more fuel-efficient cars.
  2. The second goal of our innovation strategy is to develop more of the groundbreaking technologies that open up new markets. An example would be floating LNG, which will allow us to produce and liquefy gas at sea on massive floating facilities. That opens up gas resources once considered too remote to tap. Our floating LNG plans for Australia are most advanced, but we think that there are opportunities to use this concept in other areas.
  3. The third part of the strategy is emerging technologies exploring the frontiers of science and technology in fields from the subsurface sciences to computation, but also in an area like hydrogen. Major innovation is taking place, especially in areas like computing and algorithms, nanotechnology, fundamental chemical processes, catalysis, biotechnology and exploration technologies. Some of these are higher risk opportunities. But they may lead to new businesses in the longer-term and allow us to adapt to major shifts in the global energy market in the coming decades.

How will biofuels, such as Brazilian ethanol, change the dynamics of the oil industry?
Marcos Lima

Well, Marcos, it has already changed the dynamic of the energy industry in Brazil, and we may start to see biofuels use increasing elsewhere. As you know flex-fuel cars that can run on either ethanol or the gasoline/ethanol blend now make up 40 per cent of the private fleet and 90 per cent of new cars made in Brazil.

Globally by 2015, growth in the production of easily accessible oil and gas will not match the projected rate of demand growth, and alternative energy sources such as biofuels will become a much more significant part of the energy mix. Indeed at Shell, we believe that, of all the low-carbon transport fuels, biofuels can make the biggest contribution to tackling CO2 emissions in the next two decades. We expect their share of the road transport fuel mix to increase from somewhere approaching 3 per cent today to around the 9 per cent mark by 2030.

Shell is already one of the world’s largest distributors of transport biofuels and we are now moving into production further following the agreement of a proposed $12 billion dollar joint venture with Cosan, Brazil’s largest biofuels producer. This will allow us to produce ethanol from Brazilian sugarcane, which can reduce fuel-related emissions by between 70 per cent and 90 per cent compared to standard petrol.

As I have said, meeting the expected growth in global demand will rely heavily upon alternative energy sources, like biofuels, but they are, in general, more costly than conventional sources. This will put upward pressure on oil prices in the longer term. However, the pace of new investments and of learning curves could lower eventually the cost of alternative energy sources.