The energy industry has "a responsibility to lead as well as to serve" through "better social performance," said Walter van de Vijver, managing director of the Royal Dutch/Shell Group and CEO of Shell Exploration & Production, at the Cambridge Energy Research Associates' annual energy conference in Houston earlier this month.
The industry's recognition of its social performance—"all the different ways exploration and production businesses directly or indirectly contribute to the people in the communities and societies where we operate"—is "fairly new but vital to our ongoing business success," said Van de Vijver at the CERA's Feb. 11 opening plenary session. "For Shell, this is part of our ongoing commitment to contribute to sustainable development," he said.
In recent years, many oil and gas companies have "gone public with commendable expressions of social intent," Van de Vijver said. "Now our industry needs to raise the game once again: from expressions of intent to actual, sustained social development."
He said, "This means giving our managers the right organizational structure, the right procedures and systems, the right targets and reporting mechanisms, so they can make social performance an operational reality."
Social performance impact
The oil and gas industry, said Van de Vijver, is "just starting to understand the true impact of our social performance on our business performance, and vice-versa. I expect this will be, in the next 10 or 20 years, as high on the global agenda as the environment was in the 1980s and 1990s."
There is more than enough oil and gas to satisfy world demand over the 2 decades. "But the remaining resource base is not where it is being produced today," said Van de Vijver. "Some of our industry's working assumptions then become questionable. Major players may have to rethink and refocus their strategies" to compete in this new environment.
"Three elements will make or break these strategies," he warned. "The partnerships that energy companies engage in, the technologies they utilize, and how effectively they integrate social performance into their business operations."
Van de Vijver sees new opportunities for corporate partnerships opening up "with national oil companies and with private companies that were purely domestic—Russian companies, for instance. We need to prepare ourselves for such partnerships, which have new features and new requirements," he said.
Technology is one of the major benefits that international oil companies such as Shell can bring to such partnerships, said Van de Vijver.
New technology should be focused first on exploration, "to adequately replace the traditional—but now declining—heartlands with new 'core' hydrocarbon provinces," he said. Technology also should be used to drive down costs and to maximize value in mature areas, he added.
Oil production is declining rapidly in the US and the North Sea. "Estimates put future oil production some 5 million b/d below current levels by 2020. So these regions will rely more and more on OPEC volumes and on the resource base that we see in Russia, the Caspian, and deepwater West Africa," said Van de Vijver
Moreover, he said, "Increased production will be needed from unconventional sources—for example, oil sands and geothermal—to partially offset declining non-OPEC production after 2015."
More spending needed
Van de Vijver said, "Annual investments in oil will need to double over the next 20 years, to find and develop the new resources and to build the new production capacity that is needed."
For natural gas, he said, "Annual investments will need to triple."
Van de Vijver said, "One school of thought suggests that North American gas production can continue to grow hand-in-hand with consumption, without increasing LNG imports. This would require development of substantial volumes of tight gas and coalbed methane and of arctic gas in the longer term."
However, he said, "An alternative view would see North American gas production at, or near, peak capacity. Those who hold this view say that, in order to avoid large-scale destruction of demand, a significant LNG terminal capacity needs to be constructed—soon." By 2030, he said, some 130 million/ tonnes/year could be needed.
In the future, the US gas market will compete with European markets, "with imports rising dramatically in the UK, as well as China," said Van de Vijver.
"Iran and Saudi Arabia will become major producers and consumers of gas," Van de Vijver predicted. "By 2020, Iran's export capacity will be greater than that of Canada."
He also expects Qatar to increase its role as a large exporter of natural gas well beyond 2030.
However, Van de Vijver said, "Although China has a large gas resource, it will become increasingly dependent upon gas imports to meet growing demand."