CERAWeek `17: Shell to develop transition framework over next two decades

By Craig Fleming, Technical Editor, World Oil on 3/10/2017

HOUSTON – Royal Dutch Shell plans to shift its business model in the next several decades to a mix of renewables and traditional fossil fuels, said Shell CEO Ben van Beurden, during a keynote address given Thursday at the 2017 CERAWeek conference in Houston. The shift, he said, will enable the company to focus on creating less carbon dioxide, overall, but it will not target a specific industry for reduction.

Shell is concerned about governmental regulations centered on carbon pricing mechanisms. Mr. van Beurden added that the fastest and most inexpensive way to accomplish a cleaner footprint is to switch energy generation to natural gas. This was the strategy behind Shell’s BG Group acquisition, which now brings the firm’s energy portfolio to 50% gas. The integration of BG’s assets and personnel is now complete.

Going forward, van Beurden said the company will strive to balance its portfolio by targeting traditional oil and gas, integrated gas operations, shale plays and new energy methodologies, including offshore wind generators. The new business model is designed to move the company toward fulfilling its oblations under the UN’s Paris Agreement on climate change to reduce carbon dioxide emissions, starting in 2020.

“The transition toward cleaner energy will be a multi-decade initiative that will move the industry toward less carbon output by putting a price on carbon emissions.” Mr. van Beurden stressed that this initiative is important and will help re-establish the public’s trust, and the agreement will play a role in providing a mindset change.

A major plank in the transition initiative is to reduce the overall use of crude oil. Asked to envision when he thinks peak oil use will occur, van Beurden said, “within a decade, depending on several variables.” As energy demand is expected to double in the next 15 years, van Beurden sees growth opportunities in the LNG market to help fill the energy gap.

Lowering breakeven costs. On Thursday morning, Shell announced that it sold its Canadian oil sands business unit for $7.25 billion. Mr van Beurden said the oil sands operation is “a high-value” business, but he felt it could be run more efficiently by another company. Although the environmental impact of the mining operation was not mentioned, the divestiture will help Shell conform to its transition policy and build its image as a clean energy provider.

Van Beurden said Shell’s exit from Alaska offshore was due mainly to “regulatory pressures,” high development costs, and that the last well drilled by the firm was a dry hole. He went on to say, even if substantial reserves were discovered, it was not likely that the company would have elected to develop the reserves.

In Shell’s U.S. shale plays, the company has managed to lower costs 40% in the last several years. In the Permian basin, the company’s break-even cost is now $40/bbl.

In Argentina’s Neuquén province, Shell is developing its Vaca Muerta shale acreage and has purchased a substantial new block of drilling rights surrounding a successful horizontal operation. The well cost just $5.0 million and was the “cheapest” such borehole drilled in Argentina, to date. Mr van Beurden concluded by saying that within Shell’s conventional oil and gas business, “we want to make shale equally weighted with our deepwater reserve base."

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