shell.com
Phil Watts; A Group Managing Director of the Royal Dutch/Shell Group
Issued on Friday 03 September 1999
Change is certainly not unexpected. We are bombarded daily with analysis of how fast and how much our world is changing. Yet, we can all still be surprised by the impact of this change. And there's another paradox. Just as we often don't appreciate how fundamentally our world is changing, we sometimes miss how little it has changed - failing to see the continuity beneath the froth.
Today, I will consider 'change' and 'continuity' in global energy markets - driven by 'choice' and 'competition'. That is the increasing choices sought by energy consumers - choices of energy sources and deals. And the choices facing all energy businesses in increasingly competitive and complex markets. Choices which will shape our world and their futures.
Shell companies are committed to offering energy choices to their customers. I will give you examples.
Chucka says scan down to BOLD highlights, Please:( IE- Oil Business will be the precursor to the Metals Mining Business of the future, the technology will change all mining!)
In discussing evolving energy markets, I will refer to the latest Shell long-term business scenarios - 'the New Game' and 'People Power'. Such scenarios have a complex logic and involve a range of assumptions. I don't intend to go into them in detail today.
A changeful world
Let me start by looking at the changing business environment facing all companies.
Businesses serve a world that is both expanding and shrinking:
expanding in the sense of more people, developing economies, increasing wealth and greater education,
shrinking through instant communications, global media, easier mobility and spreading tastes.
Two powerful forces drive these tendencies. Market liberalisation is shaking business foundations. The information revolution is expanding business possibilities. I believe we have only just begun to feel the impact of these two forces on the way we live and work.
Such tendencies raise concerns - for environmental sustainability and about the impact of global markets. These are driving new forms of campaigning politics - harnessing the power of global communications and directed at business as much as governments. People demand high standard everywhere. Increasingly, they also expect business to help solve problems. Public expectations are changing business rules.
It is the competitive response of companies to such forces - offering choices to their customers - which drives change. It always has.
Developing energy markets
Competing energy companies have driven the continuing evolution of the world's energy system.
Coal, oil, gas, hydro, nuclear and now renewables have each challenged their predecessors. But, as energy demand has increased, sales of all have continued rising. Coal supplied most commercial energy in 1910. It accounts for less than a quarter today. But coal sales have grown threefold.
Energy markets are becoming increasingly competitive - between fuels and within fuels. This competition is also much more complex. Supermarkets sell petrol, service stations food, water companies electricity and gas companies telephony. Banks trade oil - while Shell Capital supplies financial services. One aspect of such complex and competitive markets is the importance of brand. A recent study valued the world's top 50 commercial brands at $650 billion. Customers are increasingly concerned about how companies behave - and what they contribute. A good reputation is a vital commercial asset.
Commercial energy demand has grown by an average of 2% a year since 1970. What about the next quarter century?
There are two competing trends - improving energy efficiency and the growing energy needs of an expanding world.
Energy efficiency has improved steadily in recent years. There are good reasons for thinking this will accelerate.
First, we are all paying much more attention to it. Relentless competition intensifies pressure to reduce industrial fuel costs. Environmental concerns drive political action to encourage efficiency.
Second, structural changes in developed economies reduce energy needs - as services replace manufacturing, markets become saturated and populations age.
Third, new technologies are increasing efficiency. The impact of IT has only started.
Automobile manufacturers are competing to develop more efficient vehicles. Fleets change slowly but average OECD vehicle efficiency could double over the next 20 years. The efficiency of power generation, industrial processes and building design are all increasing.
( IE- Platinum and Palladium in Fuel Cell Applications)
Energy demand in OECD countries is likely to grow slowly, or even to start falling in the first decade of next century. The major source of new energy demand is in developing countries. The disparity in energy use between developed and developing peoples illustrates the potential.
Demand growth will depend on these countries' economic fortunes. The Asian crisis reminds us we can never take economic progress for granted. But there are good grounds for confidence that better economic management, liberalised markets, technology development and faster learning will enhance growth. Indeed, some believe the present buoyancy of the United States economy presages another productivity revolution - such as the one that occurred with electrification earlier this century.
Shell scenarios - created before the Asian crisis - suggest overall energy demand could increase by 60-80% between 1995 and 2020.
An important challenge - and an opportunity - will be meeting the energy needs of rural people. Despite rapid urbanisation, there will still be some three billion rural dwellers in 2015. Providing clean and efficient energy will require dispersed systems and new commercial methods.
I referred to the impact of environmental concerns. Many of these are focused on energy - as a major contributor to both local air pollution and emissions of greenhouse gases. These concerns will - and I believe must - drive continuing energy evolution.
Governments are still discussing how to fulfil Kyoto targets, in particular the role of 'flexible mechanisms'. Shell companies supported the agreement and support the use of these mechanisms - to allow change to be encompassed efficiently. They will also encourage the transfer of advanced technology to developing countries. Actions to meet Kyoto targets - through taxes or permit trading - will put a cost on carbon emissions, which will influence investment decisions.
Shell companies are committed to reducing greenhouse emissions from their own operations. Our target is a 10% reduction on the 1990 emission level by 2002 - double the Kyoto target, five years faster. We are already well on the way to achieving this and expect emissions to be 17% below 1990 levels by 2003, despite a substantial growth in business.
Energy evolution has resulted in steady decarbonisation of global energy - reflecting the varying carbon contents of fuels.
The marked difference between fossil fuels is shown in the emission factors for the United Kingdom. Burning oil and gas produces far less greenhouse gases and pollution than burning coal - in the case of gas not much more than half the carbon dioxide and a fifth of the methane.
It is important to stress that the trends of decarbonisation and increasing energy efficiency in all fuels are complementary. But it will be a process of evolution. Energy systems which produce and deliver the energy to sustain billions of lives cannot be abruptly changed. And, with such a huge and capital intensive industry, change must be economically efficient. This cannot be achieved on the basis of 'one size fits all'. Needs vary, conditions change and technology advances. People will choose what is most competitive for their needs at that time.
Energy markets will evolve by energy companies competing to offer choices to their customers.
Let me now focus on individual fuels, following the logic of decarbonisation.
Forests have a future
The proportion of traditional biomass energy has fallen steadily - to about a tenth of energy today. Absolute consumption has grown. Collecting firewood is a time-consuming and demanding burden - largely undertaken by women - and a major contributor to deforestation. Burning it in houses damages health.
New growing and conversion technologies offer the potential for using biomass to provide efficient energy. Derived from sustainably grown wood, biomass energy is carbon neutral. Replanted trees reabsorb the carbon dioxide released by combustion. In due course, modern biomass fuels could play an important part in the evolving energy mix - producing power for dispersed rural communities and grid distribution.
Shell companies have been involved in forestry since the 1970s. They have interests in companies managing 135,000 hectares of plantations - with a further 50,000 hectares of conserved natural forests and wetlands. These plantations fix some 4 million tonnes of carbon dioxide annually.
Combining this expertise with Shell experience in such areas as gasification offers the potential for developing a biomass energy business. Shell Renewables launched its first commercial biomass operation in Norway this year.
Turning point for coal
Let me turn now to coal - the resources of which far exceed those of oil and gas.
Coal accounts for about a quarter of commercial energy, and 40% of power generation. But its future may be affected by its environmental disadvantages - as well as the much greater efficiency of combined-cycle gas.
One Shell scenario reflects the possibility that, as carbon costs increase, coal - and also oil - will be driven from OECD power generation by 2020. However, countries like China - with 11% of world coal reserves and 30% of current consumption - will want to use their resource.
Shell companies have a small coal business, in Australia and Venezuela. This is a successful business which is performing well and has good assets. Nevertheless, we don't see coal as a core business and it is being sold.
But we should draw a distinction between 'traditional' and 'new' coal.
Clean coal technology, such as the Shell Coal Gasification Process - which is unaffected by the sale - offers the potential for ameliorating coal's environmental disadvantages. Two possible projects using this project are being developed in China - a 400MW power plant at Yantai in Shandong and a chemical feedstock plant at Dongting in Hunan.
Oil's competitive future
Turning to oil - which overtook coal as the world's principal energy source in the 1960s. Its market share has fallen, but oil still supplies a third of all energy. Despite significant discontinuities - particularly in the early 1980s - oil consumption has doubled in 30 years.
Shell scenarios suggest that OECD oil demand may peak in the next decade - because of increasing vehicle efficiency and competition from gas. Environmental measures will encourage these economic trends. The growth of non-OECD oil demand will depend on how quickly and how strongly Asian and Latin American economies recover. Demand will be spurred by increasing transportation, particularly in China. By 2020 OECD oil demand could have fallen from half the total to less than a third. However, overall demand could rise by nearly 2% a year - slightly faster than in the quarter century to 1995.
Environmental concerns and vehicle efficiency are driving tighter oil product specifications in the United States and European Union. Meeting these specifications requires major investment and makes refining more complex - affecting crude and product flows. Pressure for tighter specifications - particularly lower sulphur levels - will continue. And will spread to other countries.
The key factor affecting oil supplies has been the industry's ability to reduce costs. That competitive drive will continue - indeed recent very low oil prices have increased the pressures.
This capacity comes from several thrusts:
a relentless focus on costs,
better technology,
improved learning, and
more effective dissemination.
Let me give some Shell examples.
In Malaysia, a continuing focus on improving effectiveness has reduced operating costs by two-thirds in five years.
In Oman's Yibal field, advances in well technology have achieved a fourfold reduction in well costs per daily barrel of production. Wells are now cheaper than during primary development. Petroleum Development Oman calculates that technology advances have delivered $1 billion in reduced costs and additional production in four years - as well as substantial additional reserves.
In the Gulf of Mexico, Shell Oil recently brought Ursa, its fourth deep-water tension-leg platform, into production. Focused learning has reduced the capacity cost by 60% compared with Auger, its first such development. They intend to continue improving.
Major improvements will come from extending such learning across all operations.
The recent prolonged period of low oil prices - the average Brent price for the 12 months from June 1998 was just over $12 - has focused attention on the potential for low prices to persist.
With continuing surplus capacity, current price levels depend on producing country production restraint. Demand and supply inelasticities mean that even small changes in OPEC production can create large, short-term price movements.
Prices will remain under pressure because:
Chuckadds a stress on HEAVY OIL BELOW:
technological advance and the spread of best practice will continue to drive down marginal costs, and
capital intensive industries have a tendency to over-invest in face of price volatility.
It is not just within conventional oil that costs are being reduced. Non-conventional projects can now be competitive even at low prices. Heavy oil in all its forms could be an important component of liquid production in the future. And conventional oil is bound to face growing competition from NGLs as gas production increases.
This uncertain price environment must affect investment decisions. There will be strong competition for funds and a focus on low cost resources. Individual projects and portfolios will be tested for robustness at low oil prices.
I think the oil business may become more like the gas business - with closer attention to all the links in the value chain from well to consumer. Low cost resources means more than just low technical costs - crude quality, transportation and, of course, fiscal terms are important components.
As an aside, some 40% of the world's VLCC fleet was built in the 1970s. Under international regulations these vessels must be scrapped when they are 30 years old. Tanker availability will be an issue in expanding long-distance crude flows.
With the growing complexity and competitiveness of energy markets, I believe that 'security of demand' - developing markets and maximising value throughout the chain - will become increasingly important.
Key role for gas
Let me turn to gas, focusing on four key aspects. ... it continues on...
ChuckaChange is good sometimes. Heavy OIL from our BM sands' Minerals is a true connection here. Limestones that are processed cleansed via the Crackers of the mine JV with Syncrude..see
syncrude.com
Index:
Aurora Mine
Discovery Mine
That other one ...Click at Syncrude 21 then Debottleneck Mine.( Gads see that Diagram of the Vacumme! )
Debottleneck 2
Engineering Design Specifications
The Basis for debottlenecking the Bitumen Conversion facilities is to add a Vacuum Distillation Unit generating 38 percent lift (plus 11.5 percent lift in the DRU's) to a minimum cut point of 499oC for 55 percent of the bitumen entering Upgrading. The topped bitumen as Vacuum Resid will be fed to the Coker Reactors and make up 40 percent of the LCFiner feed while Atmospheric Bitumen (from the DRU) will be fed to the Coker Scrubbers and the remaining portion as LCFiner feed.
The Coker Scrubbers have established topping capability through combo operation that allows, together with the Vacuum Unit, topping of 100 percent of the coker reactor feed. The required Vacuum unit capacity to support the configuration described above is 175,000 bpd. The design basis is 27-mm flash zone and cut point of 4990C for a lift of 38 percent. The Vacuum tower diameter will be 50 feet to accommodate the unit-sizing basis plus future increases in Vacuum capacity requirements of 305,000 bpd. The unit will be capable of increasing cutpoint from 4000C to approximately 5250C when full capacity is not required.
The Vacuum Unit will produce light and heavy vacuum gas oil cuts fed to the Light and Heavy Gas Oil Hydrotreaters respectively. The tower flash zone and wash zone are particularly important in preventing solids and CCR carry-over into the product streams. An inlet horn and washed grid provide the de-entrainment required.
The vacuum tower will be heat integrated with the DRU's through HVGO pump around heat exchange with the DRU furnace feeds to provide substantial heat recovery. The Vacuum system will be a three-stage steam ejector package using 150-lb motive steam.
The fluid cokers crack hot bitumen into distillates suitable for hydrotreating, process refinery fuel gas, and ship product coke for storage. With the integration of a Vacuum Distillation Unit into the Bitumen Conversion facilities, the coker feed system will be reconfigured to route vacuum resid directly to the coker reactors and atmospheric bitumen plus hydrocracker resid to the coker scrubbers.
The design basis required to support bitumen consumption is 107,000 bpd per coker consisting of 43 percent vacuum resid as reactor feed and 57 percent atmospheric bitumen and hydrocracker resid as scrubber feed achieving 77.5 percent liquid yield. The debottleneck of the Cokers involves debottlenecking the compressor turbines and new interstage cooling for the gas compressor, replacement of the product coke line and new scrubber recycle pumps.
The LCFiner feeds a mixture of 60 percent atmospheric bitumen (DRU) and 40 percent vacuum resid and hydrocracks to convert pitch and CCR to hydrotreatable distillates. LCFiner resid is fed to the coker scrubbers via the existing system. The LCFiner design basis is to increase the CCR in the feed allowing improved pitch and CCR conversion. The volume feed basis is reduced to 50,000 bpd although the CCR feed increases. The debottleneck of the LCFiner requires improvements in off gas handling. The off gas capacity requirements are met by replacing the Tail Gas compressor gearbox. Other changes include an improvement of the PSA capacity to 80 MSCFD. Plants 6, 7, 8, 11, 15, 16, 18, 30, 31, 32, and Plant 12 Tail Gas Line will be debottlenecked to support the DB2 Design Basis of 94 million barrels per year of SSB.
As part of Syncrude's goal of securing Canada's energy future and ensuring the long-term growth of the oil sands, production increases are required. These will come from both continuous improvement and logical step changes in production.
Building on the Stage 1 Debottleneck Project (DB1), which produces nominally 82 million barrels per year of Syncrude Sweet Blend (SSB), Stage 2 Debottleneck (DB2) utilizes excess bitumen provided by a size-optimized first remote lease mining train on Aurora 1 to produce nominally 94 million barrels per year of SSB.
Production from the Mildred Lake West Mine will be replaced in two stages by the first two stages of Aurora North. The first stage will replace production from the South quadrant of the West Mine.
Objectives
The stage 2 Debottleneck objectives are to design, build, and commission the facilities and equipment that would enable Syncrude to achieve 94 million barrels per year of Syncrude Sweet Blend. The production buildup is to be aligned with increased bitumen supply following the startup of Aurora 1 in May, 2000.
Architectural rendering of Plant 37-1
(Vacuum Distillation Unit)
..>>
Let there be tailings...IN THE BEGININING... THERE WERE LEFT OVER TAILING PILES! BMD Genesis! LOL In the end there was PGMs and Oil.
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