Shell's Watts: Industry needs more innovation, investment

March 17, 2003
The oil and natural gas business is far from being a "sunset industry," but innovation, investment, business transformation, as well as recruiting and retaining the right people are crucial, said Philip Watts, chairman of the Royal Dutch/Shell Group.

The oil and natural gas business is far from being a "sunset industry," but innovation, investment, business transformation, as well as recruiting and retaining the right people are crucial, said Philip Watts, chairman of the Royal Dutch/Shell Group.

While speaking during an Institute of Petroleum annual dinner in London, he called upon the industry to remain "as vigorous and creative today as it ever has been."

He said, "If ours is a sunset industry, it is going to be a long, cold, and dark night. Modern society depends on secure energy supplies. We face great energy challenges, nationally and globally—meeting them is fundamental for our future."

Watts went on to say that events in the Middle East are "deeply troubling" both because of the current uncertainty and also because of the longer-term potential for instability and the alienation of many in the Islamic world from the West.

Despite an unsure outlook for the global economy, Watts said, "Industry is in far better shape to respond to these challenges than we would have been a decade ago. Competitive pressures have driven a transformation in how we operate, and we should not underestimate what has been achieved."

A key issue that will affect how people perceive the oil and gas industry is how industry responds to the climate threat, he said.

"I have no doubt that precautionary action is needed, and that there is much that we can do—indeed are doing—that is economic and also helps to tackle other energy challenges such as security of supply," he said.

North Sea

The future of the mature North Sea depends on continuing investment and innovation, he said.

"The industry has invested over £200 billion in the North Sea since the 1960s—encouraged by the UK's reputation for fiscal stability," he said. "I hope last year's unexpected tax change was an aberrationU. Getting the most out of the North Sea requires a tax regime that recognizes both the pressures of maturity and the volatility of oil and gas prices."

Although the UK will become a net gas importer, Watts said, "we shouldn't get too worried—there is ample gas available to meet our needs, although with very big investment and long lead times. Norway is obviously an attractive and secure nearby source and I'm pleased at the progress the ministers are making in their discussions." Watts said.

But he also said "a one-track approach" will not be enough. "Both existing and new infrastructure will be needed to supply our future gas needs. For wet gas, it is critical to take advantage of the UK's world class processing system. Fiscal barriers to using this must be removed if Britain's petrochemical industry is to continue getting the cost-effective ethylene it needs. For dry gas, we must make the best commercial choices about using existing capacity or building new infrastructure. I believe new infrastructure has been justified."

Europe also will need gas from further afield, and this will require a "massive up-front investment," he said.

"I'm glad the EU is now sending clear signals to Russia and other exporters that they understand the need for long-term contracts. We need to resolve further issues quickly and get started on developing the supplies Europe needs," Watts said.

Acknowledging the great potential to expand the use of renewable fuels, particularly wind, Watts said, "We will all depend on fossil energy for a very long time."