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World Petroleum CouncilAddressing Global Energy Challenges80th Anniversary Edition 1933-2013

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Addressing Global Energy Challenges WORLD PETROLEUM COUNCIL 80th Anniversary Edition Published byWORLD PETROLEUM COUNCILWorld Addressing Global Petroleum Energy Challenges CouncilAddressing Global Energy Challenges80th Anniversary Edition 1933-2013www.world-petroleum.org80th Anniversary Edition 1933-2013OFC WPC 80th Anniversary.indd 2 12/06/2013 16:0156 Haymarket, London SW1Y 4RN, UKTel: +44 (20) 7389 9650 • Fax: +44 (20) 7389 9644 • Email: publisher@world-petroleum.netEditor David Buchan obeManaging Editors Dr Pierce Riemer, Ulrike Von Lonski (World Petroleum Council)Chairman and Founder Rupert Goodman dl, Chairman, Advisory Council Rt Hon Lord Hurd of Westwell ch cbe pcChief Operating Officer Eamonn Daly, Non-Executive Directors Timothy Bunting, Hon Alexander HambroExecutive Publisher Alastair Harris, Regional Publisher Declan Hartnett, Head of Special Projects Waqās AhmedConsultant, Public Affairs Lord Cormack fsa dl, Production Manager and Design Jon Mark DeaneMarketing Administrator Chris Cammack, PA – Chairman’s Office Hilary Winstanly Editorial Consultant Jonathan GregsonSecretariat Gil Pearson, Senior Staff Writer Nicholas Lyne, Special Advisor, China Lord Powell of Bayswater kcmgSpecial Advisor, Russia Sir Andrew Wood gcmg, Special Advisor, Latin America Jacques Arnold dl,Special Advisor, Global Issues Professor Victor Bulmer-Thomas cmg obeWorld Petroleum is composed of the opinion and ideas of leading business and political figures. All information in this publication is verified to the best of the author’s andpublisher’s ability, but no responsibility can be accepted for loss arising from decisions based on this material. Where opinion is expressed, it is that of the authors. Theviews expressed and the data contained in this publication are not necessarily those held or agreed by World Petroleum or the World Petroleum Council. All rights reserved.Reproduction in whole or in part without written permission is strictly prohibited. Colour transparencies or manuscripts submitted to the magazine are sent at owners’risk; neither the company nor its agents accept any liability for loss or damage. Copyright 2013, FIRST/World Petroleum. All rights to World Petroleum are vested in FIRST.

ContentsIntroductionHappy 80th Anniversary! 9By Renato BertaniPresident, World Petroleum CouncilThe first 80 years of the World Petroleum Council 10WPC Timeline 1933-2013 24Geo-politics and CooperationUncertainty creates concern over security of oil demand 32By Abdulla Salem El-BadriSecretary General, OPECSafeguarding oil security 36By Maria van der HoevenExecutive Director, International Energy AgencyPursuing the path pioneered by the WPC 40By Aldo Flores-QuirogaSecretary General, International Energy ForumShell and CNPC venture forth together 46By Andrew BrownUpstream International Director, Royal Dutch ShellThe NOCs’ dilemma: Short-term constraints, long-term goals 50By Milton Costa FilhoExecutive Secretary, Brazilian Petroleum, Gas and Biofuels InstituteGlobal energy consumption moves east 52By Zhou JipingPresident, China National Petroleum Corporation (CNPC)Regional DevelopmentsOil trade at a tipping point 55By John MitchellAssociate Fellow, Energy, Environment and Resources, Chatham HouseAmerica’s private sector energy revolution 58By J. Robinson WestChief Executive Officer, PFC EnergyAnother opportunity for IOCs in Russia’s oil industry 62By Dr James HendersonResearch Fellow, Oxford Institute of Energy StudiesFlagship of the world’s LNG fleet 67By Mahmoud Abu-SaadStrategic Planning Directorate, Qatar Petroleum4Addressing Global Energy Challenges

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Contents continuedTechnical Developments50 years of 3D Seismic, and more to come 70By Sara N. OrtweinPresident, ExxonMobil Upstream Research CompanyA decade of upstream technology innovation 74By Paal KibsgaardChief Executive Officer, SchlumbergerUnconventional tech: Raising the bar, lowering the cost 78By Jeff MillerChief Operating Officer and Executive Vice President, HalliburtonBalancing risk and reward in deepwater oil and gas 82By Christophe de MargerieChairman and Chief Executive Officer, TotalNew ways of enhancing oil recovery 84By Jackie MutschlerHead of Upstream Technology, BPThe world’s undiscovered conventional oil and gas resources 88By Chris SchenkWorld Conventional Assessment Team, US Geological SurveySustainabilityTowards a low-carbon future 93By Hege Marie NorheimVice President, Corporate Sustainability, StatoilManaging water responsibly 96By Brian SullivanExecutive Director, IPIECAHow the oil and gas industry addresses social responsibility 98By Ulrike von LonskiDirector of Communications, World Petroleum CouncilManaging the IndustryInnovative financing for upstream oil and gas 102By John MartinManaging Director, Oil & Gas Group, Standard Chartered BankNever a better time to be a petrotechnical professional 106By Antoine RostandManaging Director, Schlumberger Business ConsultingHow Japan’s oil industry responded to Fukushima 111By Junichi HatanoSecretary General of Japan’s National WPC Committee6Addressing Global Energy Challenges

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IntroductionThe first 80 years of theWorld Petroleum CouncilThe span of World Petroleum Congresses over80 years takes the oil industry from infancyto maturity, from sole focus on conventionalreservoirs to today’s increasing production ofunconventional oil and gas, from heavy dependenceon luck to strong reliance on highly-sophisticatedcomputing in every aspect of exploration and production,from an industry that tended to despise gas to one thatprizes its cleaner qualities in a world concerned aboutclimate change, and from an industry in the 1930s stilldominated by the US to one with centres of gravity inthe Middle East, Russia, the North Sea, Australia, Brazil,Africa and many other producing zones.Accompanying this evolution, revolution even, hasbeen the WPC. Organisations abound in the oil andgas industry – some technical, some regional, somefocussed on producers and others on consumers.But none brings the industry together like our WorldPetroleum Congresses, which have stayed relevantthrough the years. Take the 2nd WPC in Paris, which asearly as 1937 discussed the technique of directionaldrilling to which we owe so much subsequentproduction. The 9th WPC in Tokyo in 1975 was thenatural forum to discuss oil reserves and explorationin the wake of the first oil price shock. And the 11thWPC in London in 1983 was quick, after the second oilprice shock, to tie the resulting slump in oil demandto the need for corporate restructuring. Taking theindustry forward, the 20th WPC in Doha in 2011 lookedto the future on the three key themes of cooperation,innovation and investment, and this work will becarried forward at the 21st WPC in Moscow in 2014.1930s: A League of Nations for oil and gasThe first president of the World Petroleum Congress,Thomas Dewhurst, expressed the hope that theWPC might some day become “a League of Nationsfor petroleum technologists, and indirectly andsubconsciously play a part in international good feelingand fellowship”. This wider wish was not realised as thedecade descended into war, but the WPC was to becomea permanent feature of the oil industry landscape,with an early focus on technology. The 1st Congressin London in 1933 set the tone with much discussionof the new industry of refining and in particular on theneed for international standardisation for testing ofpetroleum products. Such was the interest in this thata heated discussion on the topic of viscosity overranthe Congress timetable and could only be ended by thejanitor turning the lights off.The start of this decade appeared to reinforce thedominance of the US. In 1930 the East Texas field wasdiscovered, the largest single find in the US outsideAlaska; by 1931 it was already producing 500,000The delegates at the first World Petroleum Congress in London gather for the group photograph10Addressing Global Energy Challenges

Introductionbarrels a day. But by the end of the decade there weresigns of international oil activity shifting away from thewestern hemisphere, following nationalisation of theoil industry in Bolivia (1936) and Mexico (1938) and anacceleration in exploration in the Middle East, in additionto earlier discoveries in Iran and Iraq. The 1930s saw oilfound in Bahrain, Kuwait, Saudi Arabia and Qatar.Drilling technology continued to advance throughthe 1930s, with the landmark invention by Hughesengineers of the tri-cone bit that greatly speededdrilling. By the time of the 2nd WPC in Paris in 1937drilling was no longer considered to be limited to simplevertical operations, and at that Congress a paper wasdelivered on the topic of controlled directional drillingthat has done so much to revolutionise oil and gasextraction since.Thomas Dewhurst, the ‘father’ of the WPCNationalisationsThese started, with the exception of Russia’s 1917revolution, in the 1930s, and they have carried onsporadically ever since. The trend began in Latin Americawhere anti-colonial sentiment was perhaps strongestat the time. While Bolivia and Mexico led the takeovermoves, Venezuela pioneered the push for profit-sharingwith a 1943 move imposing taxes amounting to a50/50 split of profits. Over time, all host governmentshave increased taxes on the extraction of oil and gas,World Petroleum Council 80th Anniversary Edition 11

Introductionwhich in every country except for the US are in any caseowned by the state. However, some states went furtherto maximise control over their petroleum deposits,especially where these constitute a country’s mainresource. Nationalisations continued in the 1950s (Iran),the 1960s (Iraq), the 1970s (Kuwait, Saudi Arabia), andeven in 2012 (Argentina). This has totally changed theshape of the industry. Up to 1970 it could still be saidthat the sector was dominated by the original, privatesector ‘Seven Sisters’ which, after multiple mergers,survive in the shape of ExxonMobil, Chevron, BP andRoyal Dutch Shell. However, the sisterhood that todaycontrols access to around 80 per cent of the world’soil and gas reserves is state-owned or controlled, suchas Saudi Aramco, Gazprom, Rosneft, China NationalPetroleum Corporation, National Iranian Oil Company,PDVSA, Petrobras, Petronas, Pemex and Statoil.1940s: The wartime interruptionThis decade was fallow in terms of internationalcooperation – the Congress planned for 1940 in Berlinnever took place – but fertile in terms of expansion ofresources, technology and operations. The war broughthome the centrality of oil. Japan’s attack on the USwas partly motivated by the oil embargo that the USimposed on it. Germany’s failure to capture the Sovietoil fields of the Caucasus and the Caspian played apart in its overall defeat. However, war-time Germanywas able to transform coal into fuel oil through theFischer-Tropsch process, the basis of further post-wardevelopment of synfuel projects; the biggest of theseis Shell’s Pearl plant in Qatar which started operationsto turn gas into liquids in 2011.The decade also saw two landmark events. One wasdiscovery in Saudi Arabia in 1948 of the first of the fivereservoirs that make up Ghawar, the world’s biggest oilfield. These five reservoirs were discovered individually,starting in 1948 with Ain Dar in 1948 and ending withHawiyah in 1953. But they all showed the contact pointbetween oil and water coming at the same depth,indicating that they were essentially part of one hugereservoir 280 kms long and 40 kms wide. Ghawar’sproduction peaked at 5.7 million barrels a day in 1981,but still amounts to some 5 million b/d. The otherlandmark event came in 1947 when Kerr-McGee of theUS struck oil in the Gulf Mexico using the first offshoreplatform ever built in water that was deep enough to beout of sight of land (10 miles off the Louisiana coast).Clever conversionsDuring the Second World War, Germany used the Fischer-Tropsch process, invented in Germany in the 1920s, toThe birth of offshore exploration – Oil is struck at Ship Shoal 32, about 16 kilometres off the Louisiana coast in November 194712Addressing Global Energy Challenges

Introductionconvert coal into oil. By war’s end it had 11 coal-to-liquid(CTL) plants producing 10 per cent of its total fuel andaround a quarter of its motor fuel. South Africa is anotherpetroleum-poor but coal-rich country, and during theapartheid era, it developed CTL in order to offset theUnited Nations oil embargo imposed on it. Todaythere is somewhat more interest in using theFischer-Tropsch process to turn gas into oil, giventhe solution that this provides for ‘stranded’ gasdeposits without easy transport and given thatthe thermal efficiency in GTL is slightly higherthan in CTL. Sasol of South Africa has built theOryx gas-to-liquids (GTL) plant in Qatar, andhas plans to develop GTL in the US to takeadvantage of cheap shale gas there. For itspart, Shell built its first GTL plant in Malaysia,and has now completed the very big, and expensive,Pearl GTL complex in Qatar. At a cost of US$19bn, Pearl isproducing 140,000 barrels a day of GTL gasoil, keroseneand naphtha for cars, planes and plastics.1950s: WPCs revivedThe 3rd WPC was held in the Hague in 1951 in whatthe secretary-general of the time described as “a moodof excitement and challenge” at renewed internationaldialogue after so long a lapse. For the first time theeconomics of the industry came up for discussion, inparticular influences on oil-pricing such as transportwhich by now was increasingly by tanker ships. In thebackground, too, was the growing resource nationalismof oil-producing countries, spreading from LatinAmerica to the Middle East, which wasby now increasingly displacing the US inthe export market. By 1950 Venezuela hadestablished a 50/50 split of royalties andtaxes with the international oil companies,and in 1951 Iran nationalised its monopolyproducer, the Anglo-Iranian Oil Company(forerunner of BP), though this was partiallyreversed after the 1953 coup.By the time of the 4th WPC in 1955 in Rome,technology discussions gave increasing weightto the development of seismic reflection thathad become the main instrument for delineating oildeposits, as well as continued discussion of directionaldrilling and fracturing as techniques to exploit suchdeposits. The 1950s saw a surge in alternative usefor oil and gas, as a result of the wartime boost givento synthetic detergents (as a substitute for soap) andof the advances in petro-chemistry. But refining ofstandard petroleum products remained a concern,for instance the discussion at the Rome Congress onThe Methane Pioneer carried the first cargo of LNG across the oceans in 1959, from Lake Charles, Louisiana to Canvey Island, UKWorld Petroleum Council 80th Anniversary Edition 13

IntroductionPhoto: OPEChow to widen the range of middle distillates to fuel anincreasing range of petrol and diesel engines.The 5th WPC in New York in 1959 was timed to reactto two developments. One was the very first transport, inJanuary of that year, of a cargo of liquefied natural gasin the hold of the aptly named Methane Pioneer from theUS to Britain. The New York Congress could thereforebe reassured that this new form of gas transport wastechnically and economically feasible, though the firstregular LNG cargoes did not start until 1964 with ashipment from Algeria to Britain. The other developmentwas the emergence of nuclear power – following theopening of the first civil reactor in the UK in 1956 – whichprompted anxious discussion of the extent to whichnuclear might displace oil in the overall energy mix. Inthe event, such anxiety has proved misplaced.LNGShipment of liquefied natural gas was pioneered in thelate 1950s, commercialised by the mid-1960s and todayaccounts for more than 10 per cent of world gas demand.Qatar and Australia are the biggest LNG exporters,and east Asian countries the biggest importers. Thereare wide regional differentials in gas prices aroundthe world. At one end of the range is Japan, which iscurrently willing to pay very high prices for gas after theFukushima earthquake/tsunami knocked out many of itsnuclear plants, and at the other end is the US where theshale gas glut has lowered prices. Such differentials mayeventually converge through LNG trade. LNG is a flexibleOne of the first meetings of OPEC after its founding in 1960alternative to the rigidities, physical and contractual, oftransporting gas by pipeline. Adding further flexibility isthe development of floating LNG facilities which allow gasto be liquefied or re-gasified at sea.1960s: The calm before the stormMajor oil-exporting countries formed OPEC in 1960,angered by the way that the unilateral decision by theinternational oil companies to cut the official priceof crude also unilaterally reduced oil producers’ taxrevenues. OPEC has since become the major determinantof oil supply, but it was the 1970s before it made a majorimpact. Much of the work therefore of the 6th WPC inFrankfurt in 1963 focussed on ways to introduce evermore precision into exploration and production. At aboutthe same time, Humble Oil in the US was inventing andtesting a form of 3-dimensional seismic.A feature of both the 6th WPC and the 7th one inMexico City in 1967 was an examination of oil reserves.An attempt was made to quantify reserves into thecategories of proven, probable and possible, but becausethese categories depend on changing economics andtechnology no definitive conclusion was reached then,or indeed later. The following year, however, saw aserious addition to oil supply outside OPEC. In 1968Arco (subsequently part of BP) and Humble Oil (Exxon)struck oil at Prudhoe Bay on Alaska’s North Slope. Thisdiscovery, plus development of another non-OPEC oilprovince, the North Sea, provided some balance toOPEC’s market power.Seismic breakthroughSeismic waves were first used to detect oil in 1924.However, for a long time the technology used was twodimensional(2-D) seismic recording using straight linesof receivers, which provided only strips or snapshots ofinformation. This was rather like getting a piecemealphoto of a human face that gave no indication of thelocation of eyes, mouth or nose. But in 1963 came theinvention of 3-D seismic surveying, a technique able toprovide information continuously through the subsurfaceand therefore to revolutionise oil and gas detection. Inthat year Whit Mounce of Humble Oil, a predecessor ofExxonMobil, came up with a method for 3-D imaging. Inorder to process the far greater volume of data, Humble Oilteamed up with Geophysical Services Inc (GSI) to developand build the first digital seismic recording system in 1964.14Addressing Global Energy Challenges

IntroductionGSI’s subsidiary on the project, Texas Instruments, wenton to become a global company. Seismic is now used notjust in exploration, but also in reservoirmanagement through 4-D seismic whichmeasures flows over time.1970s: Turbulent timesThe 8th WPC in Moscow in 1971symbolised the new energy interactionbetween the Communistand non-Communist parts of theworld. By then the Soviet Union wasselling gas to western Europe and importing pipe andequipment from the west. Nonetheless, these tworegions of the world still operated under very differentcommercial conditions. The Soviet bloc had an oilpricing system only loosed linked to that operating inthe non-communist world, where OPEC was beginningto flex its muscles. So there was relatively littledebate of oil prices and economics in Moscow, wheremost discussion focussed, as usual, on drilling andproduction, on geology and geophysics, and on refining.However, the world was turned upside down beforethe next WPC meeting, the 9th Congress, in Tokyo in1975. The Yom Kippur war broke out in 1973. Araboil producers embargoed supplies to the US and tocertain European countries judgedto be supporting Israel. As insuranceagainst future oil cut-offs, the majorindustrialised countries founded theInternational Energy Agency, whoseprimary aim was to devise andmaintain a system of oil stockpiling andsharing in future supply emergencies.Rapid moves were made to developnon-OPEC sources of supply; the USapproved construction of the Alaskaoil pipeline in 1973, while the firstNorth Sea oil came ashore in Britainin 1975. Not surprisingly, the widestinterest at the Tokyo Congress was inpapers on conventional reserves ofoil and on alternative sources such ascoal gasification and liquefaction, oilshale and oil sands. However, authorsof the papers could not escape theconclusion that most of the word’soil still lay in the Middle East and much of its gas; in1971 the world’s largest conventional gas field wasdiscovered stretching across the Gulf, inQatar known as North Dome andIran as South Pars. By the timeof the 10th WPC in Bucharestin September 1979, congressparticipants were showingnotable caution in making anyforecasts about this volatileworld of petroleum. The Iranianrevolution, then underway,was in the process of bringingthe country’s oil exports to avirtual halt with a consequentimpact on world oil prices. Iran’s oil output fell from 5.3million b/d in 1978 to 1.3 million b/d in 1981.From confrontation to cooperationWhat might be loosely called the governance of today’s oilworld emerged in the 1970s, with the development of theOrganisation of the Petroleum Exporting Countries (OPEC)as a muscular protagonist of oil producing countries’interests, and the creation in 1974 of the InternationalEnergy Agency (IEA) as a countervailing force to protectoil-consuming countries’ interests. Both bodies haveThe 1973 oil crisis spurred the rapid development of non-OPEC suppliesWorld Petroleum Council 80th Anniversary Edition 15

World petroleum Congress 2017Host CandidateCopenhagenGatewayto the North

Why Copenhagen?› Located in one of the most innovative anddynamic petroleum regions in the world.› A safe, clean and cosy walkable capitalcity rich in culture and history.› A world class congress centre close tocity centre hotels.“We trust that the Arctic perspective with its currentand future petroleum exploration and developmentopportunities and the North Sea region, which hostsa significant number of key industry players, willprovide our capial Copenhagen wih a very strongcandidacy to host the WPC in 2017.“As EU commissioner for EnergyI would like to express my supportto Copenhagen’s and Denmark’sannounced candidacy to host thePetroleum Council Congress in 2017.helle thorning schmidtPrime Minister of Denmarkgünther h. oettingerMember of the European Commission

Introductionevolved since. OPEC is now seen more as a stabilisingforce in the world oil market, adjusting output to smoothprice fluctuations and producing an annual World OilOutlook publication. A parallel body for gas, the GasExporting Countries Forum (GECF), was set up in 2001,though as its title indicates, it is more of a forum fordiscussion of gas issues than an organisation designed toinfluence the gas market and prices. The IEA was set up todeal with the oil supply crisis arising out of OPEC’s 1973-4 oil embargo on certain western countries, and has anemergency oil-sharing mechanism among its members.But the IEA has evolved into the world’s premier body forenergy analysis, and forged links with the major energyimportingcountries of China and India. IEA and OPECofficials feature regularly at WPC Congresses, and takea major role in the producer-consumer dialogue in theInternational Energy Forum.1980s: A new price regimeThis was the decade in which the old system of settingof oil prices administratively, first by the international oilcompanies and then by OPEC, definitively broke downin the mid-1980s, and was replaced by the setting ofoil prices through trading. Nationalisations had also bythis time disrupted the vertically-integrated operationsof the international oil companies which increasinglyhad to go on to the oil market to buy the crude theyno longer owned but which they still needed to keeptheir refineries going. Futures trading developed, partlyfor the usual reason of reducing price risk and partlybecause western oil majors needed a price benchmarkto show to their tax authorities (which were now ableto take a more active interest in the newly-openedup internal workings of the oil companies). Futuresexchanges developed the benchmarks of Brent, WestTexas Intermediate and Dubai.But this revolution in pricing was to come afterthe 11th WPC in London in 1983. This meeting waspreoccupied with the drop in oil demand that followedthe surge in prices caused by the Iranian revolution, butalso with the rising cost of discovering and producingincreasing amounts of oil in frontier regions outsideOPEC. By 1985 the non-OPEC share of oil output roseto 69 per cent of the world total, compared to only 50per cent in 1978. With their lower share of world output,OPEC countries found they could no longer imposetheir official pricing on the market and the oil pricecollapsed in 1986. Thereafter OPEC countries switchedto controlling their own production through quotas inorder to influence prices.By the time of the 12th WPC in Houston in 1987,the industry was having to cope with a much loweroil price. Some congress participants bravely tookthe lower oil price to be “a stimulating challenge” toThe Eleventh World Petroleum Congress in 1983 took place in London18Addressing Global Energy Challenges

Introductioncontinued exploration and production of oil. Ways werediscussed of cutting exploration costs, such as the useof 3-D seismic reducing the number of dry wells drilled– or avoiding exploratory costs altogether by focussingon enhanced oil recovery from existing wells.Today’s oil pricing: Legacy of the 1980sSince the 1980s the level of oil prices has been left to themarket to decide, particularly the futures exchanges thattrade the benchmarks of Brent, West Texas Intermediateand Dubai off which most of the world’s oil is priced.These futures contracts are standardised in everythingexcept price – which makes them an ideal medium forprice discovery through trading, but not necessarily forallocating specific grades of oil to specific destinations.So, in parallel with the futures exchanges, over thecounter (OTC) trading has developed, using the futuresmarket prices as benchmarks but introducing premiumsor discounts to reflect quality, transport and destination.Price reporting agencies such as Platts, based in the US,and Argus, based in the UK, specialise in recording pricesin these OTC markets. Unstable prices pose a commonproblem for both producing and consuming countries,but they have different remedies. Many consumingcountries stabilise their retail oil price by loading it withtax, while producing countries in OPEC stabilise the priceby controlling output.Futures trading in the pit at the New York Mercantile Exchange1990s: Geo-political and climate changeThe ending of the Cold War at the start of this decadehad consequences for the energy industry. It allowedthe United Nations to present a common front againstSaddam Hussein’s Iraq for its 1990 invasion of Kuwait(on a pretext over oil), and, under US leadership, tomount a huge military coalition that expelled theIraqis from Kuwait the following year. However, thefact that Saddam remained in power kept Iraq underUN sanctions which effectively restricted Iraqi oilproduction for the rest of this decade and into the nextone. A second consequence was increased east-westenergy trade between Europe and Russia, and a thirdresult of the collapse of communism in Russia was theprivatisation of the country’s large oil sector. By 1997the Russians could report to the 15th WPC that they nowhad 15 vertically-integrated joint stock oil companies.The first Gulf war produced the third sudden andsharp oil price spike in 17 years. But the oil market,and in particular the IEA’s emergency oil mechanismwhich put extra oil onto the market, coped so well thatthere was little disruption in the market by the timethe 13th WPC met in Buenos Aires later in 1991. TheCongress was therefore free to concentrate much ofits content on the fact that it was not only the firstCongress to be held in South America, but also in thesouthern hemisphere. There was a focus on Argentina,Oil fields in Kuwait burn during the 1990-1991 Gulf WarWorld Petroleum Council 80th Anniversary Edition 19

IntroductionPhoto: UNICABolivia, Chile, Peru and Brazil, and also on South Africa,Indonesia and Australia.It was inevitable that the 14th WPC in Stavangerin 1994, Norway’s oil capital, would put the spotlighton the environment. Norway is not only the mostenvironmentally-minded of all energy exporters, butStavanger was also the first WPC since the Rio EarthSummit of 1992. Rio produced many documentson biodiversity and sustainability. However, mostchallenging for the petroleum industry was the UNFramework Convention on Climate Change, whichaims to reduce man-made greenhouse gas emissionsthat are largely produced by burning fossil fuels. TheStavanger Congress was presented with a WPC Code ofEnvironmental Conduct. This was adopted as voluntaryguidelines rather than anything mandatory that wouldhave violated the WPC rule of political neutrality andnon-intervention in matters of policy.The 15th WPC in Beijing in 1997 gave the industry agood glimpse of the future. On the supply side, there wasdiscussion of clever technology such as 4-D seismic(with time constituting the fourth dimension) and the useof microbes to enhance oil recovery. But above all, theBeijing Congress gave participants some idea of what theexpanding Chinese economy would soon add to demandfor world petroleum. China’s petroleum industry hasmade valiant efforts to match domestic demand withBrazilian sugarcane being harvested for ethanol productiondomestic supply; by 1997 Daqing, the largest Chinese oilfield, had been producing over 1 million barrels a day for21 years. But since 1993 China has been a net importerof oil in ever-increasing quantities.Petroleum use and climate changeIn the 1990s climate change became an issue for thepetroleum industry as well as for the world, though somecompanies and countries were quicker than others torecognise this. Some international oil companies beganto diversify into renewable energy sources such as windand solar power. Today most of these companies havereturned to what they regard as their core business of oiland gas, while retaining an interest in bio-fuels. However,companies have focussed on reducing the carbonintensity of their own operations in extracting oil and gasand manufacturing fuel. Natural gas, long considered arelatively worthless by-product of oil, began to be prizedas the cleanest of the fossil fuels.2000s: Social ResponsibilityThis decade saw some huge geopolitical events with rippleeffects on the oil market – especially the 2001 attackson the US, America’s riposte in invading Afghanistan andIraq and the violent aftermath in both countries, and theconfrontation over Iran’s nuclear programme. But it wasa largely a good decade for the industry. The oil priceslump in the late 1990shad had two effects. Onewas to trigger mergersamong virtually all theinternational majors inorder to turn themselvesinto supermajors to gaineconomies from greaterscale. The other was togive the industry whatJohn Browne of BP toldthe 16th WPC in Calgaryin 2000 was “the newagenda of productivity”,doing more with less. Thisset up the industry well fora decade that saw steadilyincreasing oil demand andprices until the financialcrisis hit in 2008.20Addressing Global Energy Challenges

IntroductionIn these relatively benign market conditions, theindustry began to pay more attention to social andenvironmental aspects and consequences of itsoperations. The 17th WPC in Rio de Janeiro in 2002was the first to treat the theme of sustainability – in allits social and environmental aspects – as part of themainstream of the congress, not just as a side-event,and to include NGO leaders as speakers. This workwas carried on to the 18th WPC in Johannesburg in2005, with a particular focus on maintaining the humansustainability of the petroleum industry by introducingthe WPC Students Programme, and to the 19th WPC inMadrid in 2008 that included a special session on waterand the energy industry. Corporate social responsibilitywas made a theme of the Calgary Congress by, amongothers, Dick Cheney then CEO of Halliburton andshortly to be US vice president. The 17th WPC in Riode Janeiro in 2002 carried the social responsibility andenvironmental themes further by integrating them intothe WPC itself with the creation of special excellenceawards in these areas. Statoil won the technicalaward at Rio for its underground storage of CO2, andSchlumberger won the social responsibility award for itseducation programme. The 18th WPC in Johannesburgmaintained the same social and environmentalfocus. There was a stress on partnerships – not onlybetween national and international oil companies,but also between theoil industry in generaland non-governmentalbodies campaigning formore transparency andless corruption in the oilsector. This first WPC inAfrica was unique inthat it was jointly hostedby the five leading oiland gas powers onthe continent, givingthe major producers –Nigeria (Africa’s largestoil producer), Libya(its largest holder ofoil reserves), Angola(its main operator indeepwater), Algeria (theleading gas producer)and South Africa (its specialist in liquefactiontechniques) – a platform to show their wares. The19th WPC in Madrid put sustainability into practice andwas the first to offset its carbon emissions footprint,an initiative that was copied by future organisers. Thediscussions in Madrid were dominated by a spike inthe oil price to the highest levels in history. Finally,the 20th WPC in Doha brought the Congress for thefirst time to the Middle East. An extra stream wasadded to accommodate the great interest in gas, andit attracted the highest number of delegates ever.The 2014 Congress in Moscow will take the issueof sustainability further and address it under suchaspects as development in the Arctic.Corporate social responsibilityThe 2000s saw growing awareness that the petroleumindustry needed to minimise its impact, not only itscarbon footprint but also its pressure on finite watersupplies and, via bio-fuels, on food resources. The 2010Deepwater Horizon accident and massive spillage in theGulf of Mexico reinforced the necessity for greater safetyand environmental precautions. This awareness has madecorporate social responsibility a priority for individualcompanies, not necessarily because of mandatorygovernment regulation but because CSR is considered partof an oil company’s general licence to operate in society.The 2010 Deepwater Horizon accident reinforced the need for greater safety precautionsWorld Petroleum Council 80th Anniversary Edition 21

IntroductionThe Ninth DecadeThis anniversary publication looks forward as wellas back. It focuses on five key areas for the future:geo-politics and global cooperation in the petroleumindustry; major regional developments in Asia, the USand Africa; technical advances; environmental andsocial sustainability; and organisational and financialissues for the industry.Geo-politics and cooperationIn recent decades, the geo-politics of the oil industryhave largely shifted from confrontation to cooperation.This emerges from the first three articles – by AbdallaSalem el-Badri, Secretary General of OPEC, Maria vander Hoeven, Executive Director of the InternationalEnergy Agency, and Aldo Flores Quiroga, SecretaryGeneral of the International Energy Forum thatorganises the global consumer-producer dialoguefor the petroleum industry. OPEC, formed in 1960to defend exporting countries’ interests, and theInternational Energy Agency, created in 1974 as theconsuming countries’ riposte to OPEC, now cooperatein the International Energy Forum’s consumerproducerdialogue instituted in 1991. Largely gone,too, is the era of nationalisations that started in LatinAmericas in the 1930s, when the WPC was young,and still sporadically continues there. Today the WPCis a forum for international oil companies (IOCs) andnational oil companies (NOCs) to discuss cooperation,as outlined in this publication in separate case studiesfrom Andrew Brown of Shell and Milton Costa Filhoof the Brazilian Petroleum, Gas and Biofuels Institute.A third category – INOCs or International National OilCompanies – has also evolved in the shape of stateownedcompanies that operate outside their own stateterritory. For a prime example of an INOC, read thearticle by Zhou Jiping, President of the China NationalPetroleum Corporation.Regional developmentsThree quarters of China’s oil production is domestic inorder to satisfy that country’s soaring demand. Suchis Chinese oil demand today that, as John Mitchellof Chatham House shows, it now outstrips what thebig Middle East producers have available for export.Luckily for the balance of world supply and demand,the US is now reducing oil imports thanks to its homegrownrevolution in hydraulic fracturing to releaselarge quantities of oil (and gas) trapped in shale rock. J.Robinson West of PFC Energy examines how this “backto the future” US energy revolution came about, and whatit portends. Also to be weighed in the balance againstthe rise in Chinese oil imports is the expected supplyincrease from major producers such as Russia. JamesThe Twentieth World Petroleum Congress was held in Doha, Qatar in 201122Addressing Global Energy Challenges

IntroductionHenderson of the Oxford Institute for Energy Studiesgives us a sweep of Russia’s petroleum industry fromits beginnings in the Caspian to its new frontiers in theArctic. The world of natural gas is very much one ofregionally-supplied and regionally-priced markets. Butthe world-wide development of LNG is beginning to linkthese markets up, as explained by Mahmoud Abu-Saadof Qatar Petroleum.Technical advancesThe bedrock of the industry has always been itstechnological innovation, always a strong focus of WPCdiscussions. Drilling techniques have advanced farfrom what it was at the time of the 1st WPC in Londonin 1933, the year in which Hughes engineers inventedthe tri-cone drill bit, greatly speeding up drilling. But thetechnology about where to put a drill and the informationthat can be gleaned from drilling has changed beyond allrecognition with the development of seismic imaging andof down-hole electronic sensors encased in drill bits. Itwas Humble Oil, a subsidiary of today’s Exxon Mobil thatin 1963 invented and tested out 3-dimension seismicimaging, and Sara Ortwein of ExxonMobil explainshow subsequent development has revolutionisedexploration. Schlumberger, the oil service company, hasbeen at the forefront of computerising the interpretationof well drilling, and Paal Kibsgaard of Schlumbergersets out what has been achieved in the past 10 yearsand what to expect for the next 10 years. For his part,Jeff Miller of Halliburton focuses on the technology thathas made unconventional oil and gas the most excitingdevelopment in today’s world.Offshore drilling technology is considerably youngerthan the WPC. It was the early 1990s before companiessuch as Petrobras off the shore of Brazil and Shell inthe Gulf of Mexico successfully established platformsin water more than 2,000 feet deep. Since then, inthese areas and also off west Africa, oil explorershave gone into ever deeper waters. However, the 2010explosion of BP’s Macondo well in the Gulf of Mexico,leading to the biggest oil leak ever, has provided acautionary lesson about the inherent risks of tappinginto high-pressure hydrocarbons at water depthsthat immensely complicate control of spillages. Thisserious accident, which killed 11 people, has led to arevamp of safety procedures in the Gulf of Mexico, inthe way that the 1988 Piper Alpha disaster, which killed167 people, caused safety procedures in the NorthSea to be overhauled. The relative risk and reward ofdrilling for oil and gas in deepwater is examined byChristophe de Margerie of Total. He has cautionedthat extra hazards of remoteness and extreme coldwould make it so difficult to deal with an oil spillage inthe Arctic as not to be worth the risk. By contrast, gasleaks present no comparable pollution problem, exceptthrough methane adding to greenhouse gases in theatmosphere. To increase the productivity of offshorefields, BP, as Jackie Mutschler of BP explains, hasdeveloped the simple but ingenious solution of usingseawater with reduced salt levels to free oil moleculesfrom surrounding rock or clay.Improved technology means that most of the big fieldshave probably been found: East Texas in 1931, theGhawar complex of fields in 1948-52 in Saudia Arabia,the Groningen gas field in the Netherlands and China’sDaqing oil field in in 1959; Alaska’s Prudhoe Bay in 1968and the 1971 of the world’s biggest gas field straddingthe Gulf between Qatar and Iran. But Chris Schenk ofthe US Geological Survey tells us in this publicationhow much more undiscovered conventional oil and gasthe world can expect to uncover.SustainabilityThe degree to which the petroleum industry isresponsible for, and responding to, the climate changechallenge is examined by Hege Marie Norheim ofStatoil. The petroleum industry’s effort to make moresparing and intelligent use of water is described byBrian Sullivan of IPIECA. The WPC’s own contributionto social responsibility and sustainability is set out byUlrike von Lonski.Managing the industryThe industry needs money and people to sustain itself– the new financial challenges facing it are analysedby John Martin of Standard Chartered Bank, while thetask of recruiting and training new generations is setout by Antoine Rostand of Schlumberger BusinessSolutions. But the industry also has to show itselfflexible and resilient when confronted with exceptionalemergencies. Junichi Hatano secretary general ofWPC’s Japanese national committee explains how hiscountry’s petroleum successfully rose to the energycrisis caused by the Fukushima earthquake. •World Petroleum Council 80th Anniversary Edition 23

IntroductionWPC Timeline 1933-20131930East Texas oil field discovered1933:1st CongressLondon1933Invention of the tri-cone drill bit1938Mexico nationalises its oil industry1943Venezuela tax leading to 50/50 profit split1947First offshore drilling out of sight of land1948Discovery of Ghawar, world’s biggest oil field1955:4th CongressRome1963:6th CongressFrankfurt Am Main1971:8th CongressMoscow1937:2nd CongressParis1951:3rd CongressThe Hague1959:5th CongressNew York1967:7th CongressMexico City1956Invasion blocks oil transport through Suez canal1959First cargo of LNG carried by Methane Pioneer1960Formation of OPEC1963Invention of 3-D seismic surveying1968Oil discovered on Alaska’s North Slope1971Discovery of world’s largest gas field in the Gulf24Addressing Global Energy Challenges

Introduction2008Record oil price of US$147 a barrel2003US-led invasion of Iraq2001Al-Qaeda attacks on New York and Washington1998Oil price drops to US$10 a barrel1992Earth Summit in Rio highlights climate change1991US-led coalition expels Iraq from Kuwait1990Iraq invades Kuwait1986Oil price collapse19801987:Iran-Iraq war starts12th CongressHouston2000:16th CongressCalgary2011:20th CongressDoha1979:10th CongressBucharest1994:14th CongressStavanger2005:18th CongressJohannesburg1975:9th CongressTokyo1983:11tt CongressLondon1979Iranian Islamic revolution1974Creation of International Energy Agency1973Arab-Israeli war and Arab oil boycott of US1991:13th CongressBuenos Aires1997:15th CongressBeijing2002:17th CongressRio de Janeiro2008:19th CongressMadridWorld Petroleum Council 80th Anniversary Edition 25

ASTANAASTANAA TREASUREON THE NEWA TREASURESILK ROADON A treAsure THE NEWSILK on the ROAD newsilk roadASTANA 2017HOST CANDIDATE22ND WORLD ASTANA PETROLEUM 2017 CONGRESSHOST CANDIDATE

LD PETROLEUM CONGRESS 2017ber,ASTANA WPC 2017HOST CANDIDATEre with you this honorable moment in the history of Central Asia submitting a bidOlympicsTHEof theWORLDOil and GasPETROLEUMIndustry, the 22ndCONGRESSWorld Petroleum2017Congress in theof Kazakhstan, Astana in 2017.Dear Council Member,Dear Council Member,We would like to share with you this honorable moment in the history of Central Asia submitting a bidproposal to host the Olympics of the Oil and Gas Industry, the 22nd World Petroleum Congress in thecapital of theKazakhstanRepublic of Kazakhstan,is amongAstanatheintop2017.ten largest countries in the world in terms of its land sizeKazakhstan and is among the hydrocarbons the top ten largest reserves. countries International in the world in integration terms of its of land the size national and the energy sector andhydrocarbons commercial reserves. International explorations integration of the of world-renowned the national energy oilfields sector have and led commercial Kazakhstan to becomeexplorations of the world-renowned oilfields have led Kazakhstan to become a “global player” in thesupply of the a energy “global resources player” to the in world the supply markets. of the energy resources to the world markets.Astana is a dynamic city striving for the future with its modern architecture combining the traditions of theeastern and western cultures. Our young and peaceful capital has quickly become a political, cultural andeconomic center over the last two decades.On behalf of the National Committee of the Republic of Kazakhstan, I would like to invite you to ourbeautiful country to share a unique and unforgettable experience with all of us.We look forward to welcoming you to Kazakhstan and Astana.Congress Yours in Sincerely, 2017.Timur KulibayevTHE WORLD PETROLEUM CONGRESS 2017g the top ten largest countries in the world in terms of its land size and thees. International integration of the national energy sector and commercialorld-renowned oilfields have led Kazakhstan to become a “global player” in theesources to the world markets.ity striving for the future with its modern architecture combining the traditions of theultures. Our young and peaceful capital has quickly become a political, cultural andthe last two decades.Astana is a dynamic city striving for the future with its modern architecture combining thetraditions of the eastern and western cultures. Our young and peaceful capital has quicklybecome a political, cultural and economic centre over the last two decades.In 2017, the city will host the EXPO-2017 International Exhibition, the most prestigious events inost the EXPO-2017 the world. A new city is International being planned a 125 Exhibition, hectare land near one the Astana of the International most Airport prestigious for this events inis being plannedspecial globalongathering.a 125Thehectarestate-of-the-artlandconferencenearandtheexhibitionAstanafacilitiesInternationalwill be surrounded byAirport for thishotels, shopping malls, social buildings and auxillary structures. We are honored to propose to host theng. The 22nd state-of-the-art World Petroleum Congress conference in this new city and right after exhibition the closing of facilities the EXPO-2017 will International be surrounded byExhibition, in October 2017. With its main theme – Future Energy – the Exhibition would add an additionals, social buildings input to discussions and within auxillary the World Petroleum structures. Congress attracting We are extra honored interest from the to international propose to host thecommunity.Congress in this new city right after the closing of the EXPO-2017 International2017. WithEnclosedits mainplease kindlythemefind our–bidFutureproposal brochureEnergyinviting–youthetoExhibitionvote for Astana aswouldthe host foraddthean additional22nd World Petroleum Congress in 2017.ithin the World Petroleum Congress attracting extra interest from the internationalIn 2017, the city will host the EXPO-2017 International Exhibition, one of the most prestigiousevents in the world. A new city is being planned on a 125 hectare land near the AstanaInternational Airport for this special global gathering. The state-of-the-art conferenceand exhibition facilities will be surrounded by hotels, shopping malls, social buildingsand auxiliary structures. We are honoured to propose to host the 22nd World PetroleumCongress in this new city right after the closing of the EXPO-2017 International Exhibition,in October 2017. With its main theme – Future Energy – the Exhibition would give fresh aimpetus to discussions within the World Petroleum Congress attracting extra interest fromthe international community.ly find our bid proposal brochure inviting you to vote for Astana as the host for theOn behalf of the National Committee of the Republic of Kazakhstan, I would like to inviteyou to our beautiful country to share a unique and unforgettable experience with all of us.ional CommitteeChairman, National We of look theCommittee forward Republicof Kazakhstan to welcoming of Kazakhstan, you to Kazakhstan I would and Astana. like to invite you to ourare a unique World Petroleum and unforgettable Council experience with all of us.lcoming you to Kazakhstan and Astana.Yours Sincerely,Timur Kulibayev3 ommittee of KazakhstancilChairman,National Committee of KazakhstanWorld Petroleum Council

ASTANA WPC 2017HOST CANDIDATEASTANA WPC 2017HOST CANDIDATETHE WORLD PETROLEUM CONGRESS 2017Dear Council Member,From FROM the THE asian ASIAN steppesSTEPPESTO THE WORLD MARKETSTO to THE world WORLD marketsMARKETSWe would like to share with you this honorable moment in the history of Central Asia submitting a bidproposal to host the Olympics of the Oil and Gas Industry, the 22nd World Petroleum Congress in thecapital of the Republic of Kazakhstan, Astana in 2017.“Kazakhstan “ Kazakhstan has established itself as a responsible and and reliable reliable supplier supplier ofenergy resources, of energy resources, contributing contributing to the energy to the energy balance balance of the in global the world economy.”economy.Kazakhstan is among the top ten largest countries in the world in terms of its land size and thehydrocarbons reserves. International integration of the national energy sector and commercialexplorations of the world-renowned oilfields have led Kazakhstan to become a “global player” in thesupply of the energy resources to the world markets.Kazakhstan, which is the size of WesternAstana is a dynamic Kazakhstan, city striving which for the is future the with size its modern of Western architecture combining According the traditions to proven of theoil and gas deposits,eastern Europe, and western Europe, is cultures. located is located Our in young in and Central peaceful Asia capital between has quickly become Kazakhstan a political, is cultural among andthe top 15 countries holdingeconomic center Russia, over the Caspian last two Sea decades.and East of China.3% of global hydrocarbons reserves.Russia, Caspian Sea and East of China.In 2017, the city Over will host the the last EXPO-2017 two decades, International Kazakhstan Exhibition, has one of the In most Kazakhstan, prestigious events there inare 172 oil and 42 gasthe world.OverA new city is being planned on a 125 hectare land near the Astana International Airport for thismade the last considerable two decades, progress Kazakhstan towards hasthecondensate fields, more than 80 of these arespecial global gathering. The state-of-the-art conference and exhibition facilities will be surrounded byhotels, made shopping establishment considerable malls, social buildings of a progress market and auxillary economy towards structures. and the We are honored currently to propose being to developed. host theOil and gas fields in22nd World establishment Petroleum provision Congress ofof ana market attractive in this new economy climate city right for after and foreign the the closing of the Kazakhstan EXPO-2017 occupy International62% territory of the country.Exhibition, in October investment. 2017. With its main theme – Future Energy – the Exhibition would add an additionalinput toprovisiondiscussions withinof antheattractiveWorld PetroleumclimateCongressfor foreignattracting extra interest Main from the internationalcountry.oil reserves Kazakhstan (over 90%) arecommunity. investment.In the last 10 years, Kazakhstan has rankedconcentrated in 15 major fields mainly in the west ofamong the countries attracting the mostthe country.Enclosed please kindly find our bid proposal brochure inviting you to vote for Astana as the host for the22nd World In the investmentPetroleum last decade, per capitaCongress in Kazakhstan globally.2017. has becomeHalf of reserves are located in Kashagan andone of the leading countries attractingOn behalf of the In 2010, National the Committee hydrocarbon of the sector Republic accounted of Kazakhstan, for I would Tengiz mainly like oil to invite fields. in the you Karachaganak west to our of the field country.holds the majorbeautiful significant country almost to share investment 30% a unique of gross and per unforgettable domestic capita product experience globally.(GDP), with all of us.part of the total free gas reserves (about 60%) andcontributed to roughly half of GDP growth, andgas condensate (about 80%).We look forward to welcoming you to Kazakhstan and Astana.In 2010, hydrocarbon the hydrocarbon exports amounted sector accountedover 60% oftotal exports.Currently, operations in the oil and gas sector isfor almost 30% of gross domestic productcarried out under more than 250 contracts forYours Sincerely,(GDP), Kazakhstan contributed has to established around half itself of GDPas asubsoil use.Timur Kulibayev growth, responsible and hydrocarbon and reliable exports supplier amountedof energy gas condensate (about 80%).to over resources, 60% of contributing total exports.to the energy balance inA majority of the International Oil Companies (IOCs)Chairman, National the world Committee economy. of Kazakhstanand many National Oil Companies (NOCs) haveWorld Petroleum Counciloperational presence in Kazakhstan.Kazakhstan Kazakhstan's has energy established market transparent itself as and aresponsible open for foreign and reliable players. supplier Over the period of energyof 15Over contracts the last for few subsoil years the use.National Company ofresources, years, the contributing country has to the attracted energy nearly balance$ 50Kazakhstan have made significant expanison andbillion in the form of foreign direct investment,international investments in the West of Caspianin the world economy.most of which (80%) came in the sector ofand East of Europe.hydrocarbons extraction and processing.3 Kazakhstan’s energy market is transparentIn terms of its wide geography and diversifiedKazakhstan.and open Kazakhstan for foreign will be players. one of the Over ten biggest the pastoilelements the Oil and Gas Industry of Kazakhstanproducers in the world and also the largestoffers a range of technical and scientific excursions15 years, the country has attracted nearlyenergy resource neighboring the world’sto visitors.$50 biggest billion economy of foreign (China) direct by 2020. investment,most of which (80%) in the hydrocarbonsextraction and processing sector.Evaluated by proven oil and gas deposits,Kazakhstan is among the top 15 countriesholding 3% of global hydrocarbons reserves.In Kazakhstan, there are 172 oil and 42 gascondensate fields, more than 80 of these arecurrently being developed. Oil and gas fieldsin Kazakhstan occupy 62% territory of theThe main oil reserves in Kazakhstan (over90%) are concentrated in 15 major fieldsHalf of the reserves are located in theKashagan and Tengiz oil fields. TheKarachaganak field holds the major part ofthe total free gas reserves (about 60%) andCurrently, operations in the oil and gassector are carried out under more than 250A majority of the International Oil Companies(IOCs) and many National Oil Companies(NOCs) have operational presence inIn the past few years the National Companyof Kazakhstan has expanded significantlywith international investments in the West ofCaspian and East of Europe.Kazakhstan will be one of the ten largestoil producers in the world and the largestenergy resource located next door to theworld’s biggest economy (China) by 2020.In terms of its wide geography and diversified4 characteristics, the Oil and Gas Industry ofKazakhstan offers a range of technical andscientific excursions to visitors.

ASTANA WPC 2017HOST CANDIDATETHE WORLD PETROLEUM CONGRESS 2017Why is Astana a BetterDear Council Member,CHOICE for youR vote?We would like to share with you this honorable moment in the history of Central Asia submitting a bidproposal to host the Olympics of the Oil and Gas Industry, the 22nd World Petroleum Congress in thecapital of the Republic of Kazakhstan, Astana in 2017.Kazakhstan is among the top ten largest countries in the world in terms of its land size and thehydrocarbons reserves. International integration of the national energy sector and commercialexplorations of the world-renowned oilfields have led Kazakhstan to become a “global player” in thesupply of the energy resources to the world markets....Astana will host theAstana is a dynamic city striving for the future with its modern architecture combining the traditions of theeastern and western cultures. Our young and peaceful capital has quickly become a political, cultural andeconomic EXPO-2017 center over the Internationallast two decades. than 5 million visitors fromExhibition, one of theIn 2017, the city will host the EXPO-2017 International Exhibition, one of the most prestigious events inthe world. most A prestigious new city is being events planned on a 125 hectare EXPO-2017 land near the InternationalAstana International Airport for thisspecial global gathering. The state-of-the-art conference and exhibition facilities will be surrounded byin the world, with theExhibition in three monthshotels, shopping malls, social buildings and auxillary structures. We are honored to propose to host the22nd theme: World Petroleum “Future Congress Energy” in this new city right after the closing of the EXPO-2017 InternationalExhibition, in October 2017. With its main theme – Future Energy – the Exhibition would add an additionalinput to discussions within the World Petroleum Congress attracting extra interest from the internationalcommunity....the proposed datesfor the World PetroleumCongress 2017 are straightafter the closing of theEXPO-2017 InternationalExhibition, in the periodaround October 2017Enclosed please kindly find our bid proposal brochure inviting you to vote for Astana as the host for the22nd World Petroleum Congress in 2017.On behalf of the National Committee of the Republic of Kazakhstan, I would like to invite you to ourbeautiful country to share a unique and unforgettable experience with all of us.We look forward to welcoming you to Kazakhstan and Astana.Yours Sincerely,Timur KulibayevBECAUSE......it is expected that moredifferent countries will visit...the exhibition standsfor the World PetroleumCongress would alsobe available throughoutthe EXPO-2017International Exhibition...the proposed venuefor the World PetroleumCongress is underdevelopment on a 125hectare site near theAstana International Airport...Astana InternationalAirport is only minutesby car (5km) from theEXPO-city and thecity centre is only 10minutes by car (7km)Chairman, National Committee of KazakhstanWorld Petroleum Council...in addition to theconference and exhibitionfacilities, there will behotels, shopping malls,cafes and restaurantsinside the new EXPO-city...Astana has hostedsignificant internationalpolitical, economicand and inter-religiousevents, associated withPeace, Harmony andGlobal Understanding...it is an historiccoincidence that an EXPOwith the theme of FUTUREENERGY would coincidewith the 3 Olympics of theOil and Gas Industry...Astana is a safe, beautifuland walkable city offeringa variety of cuisines fromdifferent parts of the worldand choices of culturalactivities at day and night...there will be visits tohigh-technology andscientific infrastructuresites in West Kazakhstanand Caspian Sea Offshore(Kashagan, Tengiz, etc.)...there will be an excursionto Baikonur Space Stationin the West of Kazakhstanas part of the socialprogramme during theWorld Petroleum Congress

ASTANA WPC 2017HOST CANDIDATEASTANA WPC 2017HOST CANDIDATETHE WORLD PETROLEUM CONGRESS 2017Dear Council Member,KAZENERGY MEMBERSWe would like to share with you this honorable moment in the history of Central Asia submitting a bidproposal to host the Olympics of the Oil and Gas Industry, the 22nd World Petroleum Congress in thecapital of the Republic of Kazakhstan, Astana in 2017.Kazakhstan is among the top ten largest countries in the world in terms of its land size and thehydrocarbons reserves. International integration of the national energy sector and commercialexplorations of the world-renowned oilfields have led Kazakhstan to become a “global player” in thesupply of the energy resources to the world markets.Astana is a dynamic city striving for the future with its modern architecture combining the traditions of theeastern and western cultures. Our young and peaceful capital has quickly become a political, cultural andeconomic center over the last two decades.Oil & Gas in Kazakhstan In 2017, the city will host the EXPO-2017 International Exhibition, one of the most prestigious events inthe world. A new city is being planned on a 125 hectare land near the Astana International Airport for thisspecial global gathering. The state-of-the-art conference and exhibition facilities will be surrounded byhotels, shopping malls, social buildings and auxillary structures. We are honored to propose to host the22nd World Petroleum Congress in this new city right after the closing of the EXPO-2017 InternationalExhibition, in October 2017. With its main theme – Future Energy – the Exhibition would add an additionalinput to discussions within the World Petroleum Congress attracting extra interest from the internationalcommunity.KAZENERGY members others Oil&Gas Produc=on Construc=on Other Enclosed please kindly find our bid proposal brochure inviting you to vote for Astana as the host for theArtist’s 22nd World impression Petroleum of the Congress design in for 2017. EXPO-city in KazakhstanOn behalf of the National Committee of the Republic of Kazakhstan, I would like to invite you to ourbeautiful country to share a unique and unforgettable experience with all of us.We look forward to welcoming you to Kazakhstan and Astana.KazEnergy MembersInvestment Yours Sincerely,Timur KulibayevExploration Transportation Energy Service companiesChairman, National Committee of KazakhstanWorld Petroleum Council3 Refinery

ASTANA WPC 2017ASTANA WPC 2017HOST CANDIDATEHOST CANDIDATETHE WORLD PETROLEUM CONGRESS 2017WPC 2017DIDATEcil Member,Dear Council Member,We would like to share with you this honorable moment in the history of Central Asia submitting a bidproposal to host the Olympics of the Oil and Gas Industry, the 22nd World Petroleum Congress in thecapital of the Republic of Kazakhstan, Astana in 2017.Kazakhstan is among the top ten largest countries in the world in terms of its land size and thehydrocarbons reserves. International integration of the national energy sector and commercialexplorations of the world-renowned oilfields have led Kazakhstan to become a “global player” in thesupply of the energy resources to the world markets.Astana is a dynamic city striving for the future with its modern architecture combining the traditions of theeastern and western cultures. Our young and peaceful capital has quickly become a political, cultural andeconomic center over the last two decades.In 2017, the city will host the EXPO-2017 International Exhibition, one of the most prestigious events inthe world. A new city is being planned on a 125 hectare land near the Astana International Airport for thise to share with special you this global honorable gathering. moment The state-of-the-art in the history conference of Central and Asia exhibition submitting facilities a bid will be surrounded byost the Olympics hotels, of shopping the Oil and malls, Gas social Industry, buildings the and 22nd auxillary World structures. Petroleum We Congress are honored in the to propose to host theRepublic of Kazakhstan, 22nd World Astana Petroleum in 2017. Congress in this new city right after the closing of the EXPO-2017 InternationalExhibition, in October 2017. With its main theme – Future Energy – the Exhibition would add an additionalinput to discussions within the World Petroleum Congress attracting extra interest from the internationalis among the top ten largest countries in the world in terms of its land size and thecommunity.s reserves. International integration of the national energy sector and commercialof the world-renowned Enclosed please oilfields kindly have find led our Kazakhstan bid proposal to brochure become inviting a “global you to player” vote for in Astana the as the host for theenergy resources 22nd to World the world Petroleum markets.The vibrant capital city Congress of Kazakhstan, in 2017. Astanaynamic city striving On behalf for the of future the National with its Committee modern architecture of the Republic combining of Kazakhstan, the traditions I would of like the to invite you to ourwestern cultures. beautiful Our young country and to share peaceful a unique capital and has unforgettable quickly become experience a political, with all cultural of us. andnter over the last two decades.We look forward to welcoming you to Kazakhstan and Astana.city will host the EXPO-2017 International Exhibition, one of the most prestigious events inew city is being planned on a 125 hectare land near the Astana International Airport for thisYours Sincerely,l gathering. The state-of-the-art conference and exhibition facilities will be surrounded bying malls, social buildings and auxillary structures. We are honored to propose to host theTimur KulibayevPetroleum Congress in this new city right after the closing of the EXPO-2017 Timur Kulibayev InternationalOctober 2017. Chairman, With its main National theme Committee – Future of Energy Kazakhstan – the Exhibition would add an additionalChairman of the National Committeessions within the World World Petroleum Petroleum Council Congress attracting extra interest from the internationalFor For additional information please contact:TheTheNationalNationalCommitteeCommitteeofofthetheRepublicRepublicofofKazakhstanKazakhstan forforWorldWorldPetroleumPetroleumCouncilCouncilJambulat Sarsenovase kindly find our bid proposal brochure Vice-Chairman inviting of you of the to the vote National for Astana Committee, as the host Bid for Team the Leader (j@kazenergy.com)etroleum Congress in 2017.RamazanRamazan Zhampiissovthe National Committee of the Republic of Kazakhstan, I would like to invite you to ourNational Committee Member, Bid Team Member (ramazan@kazenergy.com)3 ntry to share a unique and unforgettable National experience Committee with all Member, of us. Bid Team Member (ramazan@kazenergy.com)ard to welcoming you to Kazakhstan and Astana.ely,evORLD PETROLEUM CONGRESS 2017ational Committee of Kazakhstanum CouncilArdic DurduAdvisor to the National Committee,ArdicBidDurduTeam Member (ardic@kazenergy.com)Advisor to the National Committee, Bid Team Member (ardic@kazenergy.com)KAZENERGY Association Phone: +7 (717) 297 93 98Block B-15, 22 Kabanbai Batyr Str. Fax: +7 (717) 297 93 91Astana (010000), Republic of KazakhstanE-mail: reception@kazenergy.comKAZENERGY Association Phone: +7 (717) 297 93983 Block B-15, 22 Kabanbai Batyr Str. Fax: +7 (717) 297 9391

Geo-politics and CooperationUncertainty creates concernover security of oil demandBy Abdalla Salem El-BadriSecretary General, OPECEnergy has been central to much of humanity’sprogress over the centuries. It has positivelyimpacted the lives of billions. And it will be justas important to our future economic and socialprogress. It is easy to understand why.Firstly, the world’s population is expected to reachmore than 8.6 billion by 2035, an increase of over 1.5billion from today’s level. To put this into perspective,the world will add close to the combined population ofIndia and the United States in just over 20 years.Secondly, although many uncertainties remain andmany challenges need to be overcome to get the globaleconomy back onto a sustainable growth path, the globaleconomy will rebound in the medium and longer term.And thirdly, with around three billion people livingon less than US$2.50 a day 1.3 billion people havingno access to electricity and some 2.6 billion relying onbiomass for their basic needs, there is huge potentialfor socio-economic development.It is clear that world energy demand is set to grow.In OPEC’s most recent World Oil Outlook (WOO), energydemand in the Reference Case increases by 54 percent. Fossil fuels, currently accounting for 87 per centof this, will still make up 82 per cent of the global totalby 2035 (Figure 1). For most of the projection period,oil will remain the energy type with the largest share.However, towards the end of the projection period,coal use in the Reference Case reaches similar levelsto oil, with oil’s share having fallen from 35 per centin 2010 to 27 per cent by 2035. Natural gas use willrise at faster rates than either coal or oil, both inpercentage terms and quantity, with its share risingfrom 23 to 26 per cent.In terms of non-fossil fuels, renewable energy growsfast. But it starts from a low base and its share will bestill only 3.5 per cent by 2035. Hydropower increases alittle, to nearly 3 per cent by 2035. And nuclear powerwill see a slight decline, with its prospects affected bythe ongoing effects of Fukushima. It has a 6 per centshare in 2035.In OPEC’s WOO, demand for oil is expected to increaseby over 20 million barrels a day (mb/d) over the period2010-2035, reaching around 107 mb/d by 2035. Thisis driven mainly by developing Asia, which is home to80 per cent of the oil demand growth over this period.In contrast, the OECD region actually witnesses a fall.There are some who continue to ask whether wecan meet this demand growth. There is no doubt thatwe can. Resources are clearly sufficient. Improvedtechnology and enhanced recovery have over the yearsincreased the resource base to levels well above pastexpectations. Recent estimates from the US GeologicalSurvey of ultimately recoverable resources are over3.8 trillion barrels. To put this into some context,cumulative oil production to date has been less thana third of this. And today we are seeing new resourcesand supplies from a variety of sources, such as shaleoil, oil sands and deep offshore.In terms of supply, total non-OPEC liquids supplyincreases by more than 10 mb/d over the period 2010to 2035. Supply growth from the Caspian, Russia,Brazil and US shale oil, as well as steady increases inbiofuels and oil sands, are far stronger than declineselsewhere. From OPEC’s perspective, its overall liquidsproduction also increases by over 10 mb/d between2010 and 2035.These developments mean that OPEC’s crude supplyneeds to rise, but at a modest rate: by 2020, it would bealmost 31 mb/d, and by 2035, it would need to be 35 mb/d.The share of OPEC crude in the global liquids supply thusremains similar to today, at around 32 per cent.To meet future demand expectations, OPEC membercountries continue to invest to maintain and expandsupply capacities. The latest list of upstream projectsshows OPEC member countries undertaking orplanning about 116 projects during the 2012–2016period. This corresponds to estimated investments ofabout US$270 billion.Given current assumptions and projections in ourReference Case, as well as natural decline rates inexisting fields, it is estimated that total OPEC liquidscapacity will rise by 5 mb/d over the period 2012–2016.Thus, OPEC’s spare capacity is set to stay at healthylevels. In fact, the WOO’s latest figures see OPEC crudeoil spare capacity exceeding 5 mb/d as early as 2013-14.OPEC and its Member Countries continually strive tomake sure the market is well supplied and that thereare comfortable levels of spare capacity. Moreover, it isimportant that all stakeholders work to ensure marketstability, so as to ensure that the necessary investmentsare made, that investors receive a fair return on capitaland that consumers have an efficient, economic andregular supply of petroleum.However, the future is rarely a simple continuation32Addressing Global Energy Challenges

Geo-politics and Cooperationof the past. Many uncertaintiesare associated with oil demandprojections, which can be viewed inscenarios from this year’s WOO. Twoof the scenarios look at plausibleeconomic growth alternatives tothe Reference Case, one lower andone higher. And the third scenarioexamines the possible impact of aliquids supply surge, other than thatfrom OPEC crude.These scenarios highlightimportant implications for therange of required OPEC oil andinvestments, emphasising theuncertainties that lie behind theReference Case projections. By 2035,expectations for OPEC crude in thesescenarios are as low 25–26 mb/dand as high as 43 mb/d (Figure 2).This underscores that there aregenuine concerns over security ofdemand. And in addition, of concernto producing countries are thepolicies of a number of consumingcountries, particularly those thatlook to discriminate against oil.Obviously, every country has thesovereign right to set its own policies,but it is essential that these providea clear picture as to their impact onfuture oil consumption levels andoverall energy supply and demandpatterns. They need to be feasibleand sustainable.In the downstream, the WOO 2012estimates that more than 7 mb/dof new crude distillation capacitywill be added to the global refiningsystem in the period up to 2016.Driven by growing demand, thehighest portion of this new capacityis expected to materialise in Asia,mainly in China and India, accounting for more than40 per cent of additional capacity.However, at the same time ongoing refinery closures,primarily in OECD regions, will offset part of the capacitymboe/dmb/dFigure 1: World supply of energy by fuel type400350300250200150100500444240383634323028262422Nuclear/Hydro/Biomass/Other renewablesGasCoalOil1960HEG (Higher economic growth)Reference CaseLEG (Lower economic growth)LSS (Liquid supply surge)Increaseof 54 per cent2020Figure 2: OPEC crude oil supply in three scenarios203020002005 2010 2015 2020 2025 2030 2035increases from new projects. At the global level, closureshave already reached 4 mb/d and are heading to the 5mb/d mark, affecting not only small and simple plants,but large and complex refineries as well.World Petroleum Council 80th Anniversary Edition 33

Geo-politics and CooperationNevertheless, over the medium term, the net effectof new projects and refinery shutdowns, comparedwith required crude runs, will be a growing capacitysurplus – unless more closures take place than thosecurrently being announced. Despite some marginalimprovements in refinery utilisation rates expectedthis year and next, the cumulative capacity overhang inthe sector is set to increase by almost 1 mb/d by 2016.This reinforces the expectation that the downstreamindustry is facing a period of continued weak marginsand relatively low utilisation rates.In the years ahead, it is also important to recognisethat there are other specific challenges for theindustry’s stakeholders, as well as for world leaders.This includes the ongoing climate changenegotiations. OPEC recognises the importance of beingpart of these negotiations to develop solutions thatsafeguard the legitimate interests of all parties, withthe most recent UN Climate Conference taking place inan OPEC Member Country, Qatar.It is essential that these multilateral negotiationsreach an agreement that is comprehensive, balanced,fair and equitable. Here, it is important to rememberthat it is vital that every single one of us in the worldhas access to modern energy services. Energy povertyneeds the urgent and critical attention of world leaders.Another ongoing challenge relates to excessivemarket volatility and the continuing trend towards oilbecoming a heavily traded financial asset. Speculativeinvestment flows can distort the price of crude. However,the challenge is not about eliminating speculationaltogether. The issue is excessive speculation andextreme volatility. This is what needs to be tackled.And in a business as labour-intensive as the oilindustry, it is essential that there are the right humanresources in place to allow the industry to grow. Thismeans concerted efforts to restore this essentialcapacity, by facilitating education and training in energydisciplines, and making the industry an attractivecareer choice.What will underpin our future, in terms of both thechallenges and opportunities, are partnerships andcooperation – among producers and consumers, IOCsand NOCs, in fact, between all stakeholders.With this in mind, it is important to look for sharedsolutions, where and when appropriate; to have acooperative environment that is conducive to reachingconstructive end results; and to have input from eachand every stakeholder. Cooperative exchanges andconstructive actions can achieve great things. The sharedobjective must be a stable and sustainable energy futurein an increasingly interdependent world.•OPEC oil ministers attend the 163rd OPEC meeting in Vienna, Austria in May 201334Addressing Global Energy Challenges

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Geo-politics and CooperationSafeguardingoil securityBy Maria van der HoevenExecutive Director, International Energy AgencyEnergy security has been the primary missionof the International Energy Agency since itsfounding in 1974 following a major oil crisis.Indeed, the Agency was created to provide aframework in which IEA countries could defend theirinterests as key oil consumers. While that mission hassince diversified across the fuel spectrum, oil remainsthe dominant energy source globally, and oil supplysecurity remains a core responsibility of the IEA. Andyet over almost 40 years, how we define and addressthat responsibility has developed considerably. Takinga wider view of energy and oil security is particularlyimportant given the significant shifts that we are nowseeing in the oil market – in terms of rapidly growingemerging market demand, but also in terms of newsupply patterns all along the value chain.Energy security refers to the ability of a given countryto obtain uninterrupted availability of its main energysources at an affordable price. In the short term, energysecurity is the ability of a given energy system to reactpromptly to sudden changes in supply and demand,maintaining the availability, affordability, accessibilityand quality of energy. Long-term energy security islinked mainly to making timely investments to ensurethat the future supply of affordable energy will supporteconomic development and environmental goals.Traditionally, the IEA has put a strong emphasison mitigating the risks and effects of energysupply disruptions, particularly within oil markets.Coordinating the use of emergency oil stocks in theevent of disruption is a well-known tool, but only one.Analysis to boost transparency in global oil markets,active participation in the Producer-ConsumerDialogue with OPEC and other major producers, andefforts to improve statistical openness, timelinessand accuracy through the Joint Organisations DataInitiative (JODI) all help to reduce the risk of disruption.At the same time, the IEA’s tool-kit to respond to acutedisruptions goes beyond emergency oil stocks, toinclude demand restraint and fuel-switching measures.Another important characteristic emphasised by theIEA is resilience – the ability of energy systems tomitigate or withstand disruptions, including in the oilmarket. Regular emergency response reviews of IEAmember countries report on systemic strengths andvulnerabilities of national energy security policies,procedures and infrastructure, and the IEA’s Model ofShort-Term Energy Security (MOSES) measures bothrisk and resilience factors for comparison acrosscountries and across fuels.Yet while the traditional focus on supply disruptionsremains important, major changes in the global energyeconomy since 1974 have required our conceptionsof oil security (and energy security more broadly) toadapt. When the IEA was created, the oil market wasbased on long-term contracts and a stable relationshipbetween suppliers and refiners. That has changedwith the globalisation of oil markets, the importanceof the spot market, and the development of high-speedinformation flows. Concerns about supply securityof other fuels like gas and electricity, and also theinterplay between fuel markets, has broadened thefocus of energy security. And indeed we are definingenergy security to include long-term concerns, likecreating the conditions for sufficient investment andpromoting energy access to boost living standards andeconomic development. We also recognise the linkagebetween sustainability and energy security – they aretwo sides of the same coin. Not only do low-carbontechnologies help reduce import dependence anddiversify the fuel mix, but recent IEA discussions havehighlighted the adverse impact of climate change onenergy infrastructures. All of this helps to change thenature of the energy security debate.Perhaps the most significant change is a shift inthe global energy map, and specifically the global oilmap. Where OECD countries accounted for more thanthree-quarters of oil consumption in 1974, they willsoon account for less than half. The economic rise ofemerging markets like China and India have signalleda global economic rebalancing, including withinenergy markets. IEA analysis shows growing non-OECD demand, particularly in China, to continue overtime. Meanwhile oil demand in Europe and the US isstagnating or falling.That reality is the driver behind IEA efforts toengage with key partner countries in many areas, butparticularly with regard to oil security. For severalyears, we have supported countries like China, India,ASEAN countries, and others in their efforts to improveemergency response measures and in some cases tobuild their own emergency oil stocks. That has includedtechnical support, those countries’ participation inregular IEA emergency response exercises (EREs),36Addressing Global Energy Challenges

Geo-politics and Cooperationand unique tailored EREs in Thailand and India. Goingforward, the IEA is working to develop a framework forcooperation with countries outside the IEA in the eventof a disruption.But the shift of the oil map does not just mean therise of Asian demand, particularly looking forward. Ourforecast of the oil market reveals a medium-term futuremarked by uncertainty, uneven supply and demandchanges, and the potential for technological gamechangers.That kind of volatility means a very differentoil security environment, and one that requires bothbroad engagement and nimble response.Despite volatility on both the supply and demandside, we have seen continued market tightness andconsistently high prices thanks to contradictoryforces at play. The economic recovery is stagnating.OECD countries suffer from persistent debt concerns,notably in the eurozone, and there are signs that evenChina is slowing. On the supply side, continued politicalupheaval in the Middle East and North Africa disruptedcrude exports from several countries. Also, unplannedmaintenance and technical disruptions at mature fieldsreached record highs last year, rekindling concernsabout decline rates in aging plays. These risks are notgoing away, and contribute to a new “reality of risk” inthe oil market.At the same time, there is also good news on theproduction side. Despite events in the Middle East, theregion has also seen success stories. Saudi productionhas surged to 30-year highs, and Iraq is also breakingproduction records. A special IEA report released inOctober 2012 highlighted Iraq’s potential as a gamechanger going forward. Production is also surpassingexpectations in North America, where high prices andnew technologies have unlocked light, tight resourcesthat were long thought to be impossible to tapeconomically. Our 2012 World Energy Outlook predictedthat the US could become the largest oil produceraround 2017 largely thanks to light, tight oil.Combined with increased efficiency, we expect thisoverall picture to yield to markets that are less tightover the medium term. While that is generally goodfor supply security, and helps to lessen the impactof disruptions, it is no reason for complacency. In theUS, for example, any talk about prospects for energyindependence leaving room for disengagement fromglobal markets or certain regions must be laid barefor the fallacy that it is. First of all, we project the US tocontinue to import more than a quarter of its oil by 2035.The oil market is global, and no matter its provenance,oil price and availability are still intricately tied withevents and availability elsewhere – emphasising theneed for cooperative oil security policy. And whilesupply may be growing globally, both supply andThe Bryan Mound facility in Texas, is one of four sites that make up the USA’s Strategic Petroleum Reserve (SPR)World Petroleum Council 80th Anniversary Edition 37

Geo-politics and Cooperationdemand growth are exceptionally uneven, with effectsthroughout the market.Most of the new supply is expected from the Americas,and most of the new demand from Asia, the Middle East,and the former Soviet Union. These twin changes haveclear consequences for the midstream and downstreamsectors, those often-overlooked but critical links in thesupply chain. International crude trade volumes areforecast to dip, while product trade is expected to growin both volume and scope amidst resurgent refiningcapacity expansion in Asia and the Middle East – andreducing capacity in the OECD. Those changing tradeand product import patterns affect disruption risks, andalso the paradigm for emergency oil stock-holding whenit comes to crude/product balances.Given these new realities – increased uncertainty,volatility, and technological change – we recognise thatinternational oil security governance and emergencyresponse procedures need to react in a timely anddecisive manner. We regularly review the assessmentprocedures for IEA collective action in response to asubstantial physical supply disruption. The importantelement in defining “substantial” is to analyse thepotential economic impact against the backdropof the current market. That is why there is no “onesize-fits-all”response, nor is there a specific sizeof disruption above which we act. It is also why thechanging geographical dynamics of the oil market areso important to understand, as well as seasonal supplyand demand fluctuations, refinery demand patterns,crude and product quality breakdowns, spare capacityfigures, and timely commercial stock data.For example, while the IEA used emergency stocksin 2005 in response to the US disruptions caused byhurricane Katrina against a backdrop of tight markets,it did not act at the end of 2008 when hurricanesGustav and Ike had a similar effect against a backdropof looser markets and a deteriorating global economicsituation. When the IEA last released stocks in 2011 asa result of the crisis in Libya, the size of the disruptionwas comparatively small and the response was notimmediate. That was because production remainedshut-in as markets began to tighten seasonally thanksto rising demand in the summer. No two disruptions,and no two IEA actions, are ever the same.The IEA’s responsibility to safeguard oil supplysecurity has been evolving alongside major changesin the global oil economy – particularly a major andongoing redrawing of the global oil map. As thisevolution continues, so changes the nature of ourmission. A broader concept of energy and even oilsecurity means focusing on resilience and long-termchallenges, as well as response. When that response isnecessary, it must be quick and decisive. And critically,safeguarding oil security requires global cooperationmore than ever before. •Oil tankers cruise out of the Strait of Hormuz off the shores of Tibat in Oman38Addressing Global Energy Challenges

Geo-politics and CooperationPursuing the pathpioneered by the WPCBy Aldo Flores-QuirogaSecretary General, International Energy Forum (IEF)International energy cooperation has evolvedconsiderably since the establishment of the WorldPetroleum Council (WPC). Eighty years ago energydiplomacy was, to a significant degree, lessabout cooperation and more about control: securingenergy resources within and outside a country’sborders, imposing commercial practices, dictating thedistribution of revenues, or exerting pressure to shiftpolicies in one direction or another. Back then, the WPCwas one of the very few forums offering a constructivedialogue as a way to promote the healthy developmentof the global oil and gas sector. Nowadays the natureof international energy relations, while not completelyforeign to elements of control, is much more aboutcooperation and constructive diplomacy. In this regard,the dialogue the WPC pioneered for the oil industry hasproven to be a valuable precursor of contemporaryenergy cooperation.An institutional infrastructure at the bilateral,regional, and multilateral levels today facilitates energycooperation in most areas, through a diverse array ofinitiatives. Producers of oil and gas have arrangementsto promote their interests, just as consumers havetheirs. Regional organisations work to promoteenergy integration by identifying specific energyopportunities that can only be seized by countries inthe same geographical space. Organisations devotedto identifying opportunities and challenges for specificenergy sources and technologies, from oil to gas tonuclear to renewable energies create knowledge whileencouraging the adoption of best practices for the use ofthese energies. Global industry associations showcasetechnology as they facilitate the matching of buyers andsellers in the marketplace. International oil companiescooperate or partner with national oil companies andservice providers to find and develop oil reserves inplaces that not long ago were considered out of anyreasonable reach.It could not be otherwise. Not only are attempts toenhance energy security through the control of otherpeople’s resources anathema to the sovereign rightsof nations, and as such the source of much destructiveconflict, but the cost and complexity of energy projects,together with constantly expanding energy flows, hasincreased – making it necessary for countries andcompanies to join forces more frequently. Put simply,when it comes to energy security, control has becomemore costly relative to cooperation. This is especiallyclear when one observes that easy to access oil andgas reserves have become more the exception thanthe norm. Oil exploration and production have marchedfrom land to sea, from shallow to deep waters, fromvertical wells to multidirectional ones, and from rockswith high permeability to rocks that must be fracturedto release their bounty. All of this undoubtedly speaksto the triumph of technology, but it illustrates theimportance that joint scientific research, technologicalexchanges, training, information exchange, or simplypartnering to solve complex problems now have forenergy security.The mechanisms used today to cooperate on energyissues range from the structured and legally-binding(in principle) to the informal and voluntary. Examplesof the first type include the negotiation of treaties, thesetting of production quotas, or the release of strategicreserves. Instances of the latter type are typical of theoccasional consultation and exchange of information,not necessarily within the framework of a formal treaty.In between these two extremes lie initiatives to conductjoint research, improve national and internationalenergy regulation, increase transparency, and facilitatedialogue – among a broader set of possible actions.The activities of the International Energy Forum (IEF)lie in the middle section of these extremes, wherepolicy coordination is not the primary focus, nor isresearch a main activity, but instead where high-leveldialogue at the cutting-edge of energy developmentsis instrumental to develop insights that help promoteglobal energy security. Born as the Producer-Consumerdialogue at the height of the 1990-1991 Gulf War, whenuncertainty about oil supplies and prices brought tomind vivid memories of the oil shock of 1979, the IEF hasbecome perhaps the largest and most representativegathering of energy ministers in the world.In a break with the practice of open confrontationwhen predictability in oil markets went awry, andwhen uncertainty was the source of much fingerpointing– as it can still be today at times – the IEFhas provided a bridge for producers and consumersto meet each other in the middle, even to cross to theother side, to better understand the aspirations andconcerns behind the actions of their counterparts.In doing so, the IEF has filled a void by providingan open, inclusive, flexible and neutral platform for40Addressing Global Energy Challenges

Geo-politics and Cooperationenergy ministers and experts to exchange their viewson a considerable array of topics.The IEF opens opportunities for in-depth, focused, andon-going conversation among the world´s key energydecision-makers, increasing their understanding ofenergy developments while helping them to identifyshared concerns and opportunities for mutual gain.It generates knowledge that can only be obtainedthrough dialogue. And by promoting transparency, ithelps these actors assess market fundamentals andfoster trust, an essential building block for cooperationand well-functioning markets.Key issues that are part and parcel of today’s energylandscape, and are certainly at the core of oil marketdevelopments that matter to the members of the WPC,are also at the centre of the ministerial dialogue underthe framework of the IEF:1. The short-term global oil supply-demand balanceand its implications for spare capacity – as well as thelevel and stability of oil prices.2. The long-term outlook for energy demand andsupply, together with its implications for investmentrequirements, taking into account the level andstructure of each.3. The process of oil price formation, especially as itrelates to the greater interaction between physical andfinancial markets, and the alternative pricing methodsused for gas transactions in different regions.4. The nexus between climate change and fossil fuelconsumption, and the notion of addressing it with acombination of policies to promote energy efficiencyand the deployment of renewable energies.5. The management of environmental risks withadequate and globally compatible policies, in the wakeof the Macondo and Fukushima accidents.6. The potential impact of increased production fromunconventional hydro-carbon resources – such as shalegas, tight oil, and deep-water oil – on the dynamics ofglobal energy markets.7. The relationship among IOCs, NOCs, and servicecompanies, as efficient oil and gas production isincreasingly dependent on the quality and intensityof the symbiotic interaction of these three essentialplayers.8. The human resource gap facing the energy sectorworldwide.9.The capacity of national governments and powercompanies to meet the electrical energy needs of theirpopulations in many parts of the world.Ministers participate in the producer-consumerdialogue because they recognise that these issuescannot be successfully addressed without internationalenergy cooperation. The many links, synergies, andspillovers that result from daily market interactions– whether on the supply or demand side – translatedirectly into the realm of international affairs. Nationalenergy developments and policies have internationalconsequences, while global energy developmentsshape the design of domestic energy policies.The producer-consumer dialogue has engendereda number of significant outcomes of which threedeserve special mention. One is the sustainability ofthe dialogue itself – in times of both market stabilityand instability – with the participation of 89 membercountries in all their diversity.A second outcome is the creation of the JointOrganisations Data Initiative (JODI) as an on-goingcommitment of APEC, Eurostat, IEA, IEF, OLADE, OPEC,and the UN Statistics Division, to provide monthly dataon oil market fundamentals. Thanks to this initiative,figures that only 10 years ago were hard to come by,such as oil production, consumption and stock levelsfrom emerging markets outside the OECD or OPEC, arenow available for free online. JODI provides a stablebase of official monthly data with which to analysemarket fundamentals, compare and complement datafrom other sources, explore trends, and estimate theglobal energy balance.A third outcome is the tripartite collaboration ofthe IEA, IEF, and OPEC to better understand howenergy outlooks are generated and what makes themdifferent or similar. Today the experts of the IEA andOPEC meet on a regular basis with experts from otherorganisations, firms or consultancies, helping to clearup uncertainties inherent in the analysis of energydevelopments.I want to congratulate the World Petroleum Councilfor its first 80 years of undisputed successes. The WPCdeserves recognition for being one of the pioneers inthe facilitation of dialogue in the petroleum sector. Assuch, it created new spaces for creative thinking aboutenergy, which no doubt have influenced the course ofinternational energy cooperation. May its next 80 yearsbe just as successful!•World Petroleum Council 80th Anniversary Edition 41

22nd WPC Candidate CityHouston: Expanding thehorizons of energy innovationBy Don HrapChairman, WPC 2017 Houston Bid Committeeand President, Lower 48 and Latin America, ConocoPhillipsThe energy landscape in the United Statescontinues to evolve. Of all the available energysources, shale is the one that has revolutionisednot only the energy industry in the US, but worldoil and natural gas markets as well.According to the May 27, 2013 article in the WallStreet Journal, “this marks a historic and largelyunexpected reversal. US crude production has risen toa 21-year high. In 2010, OPEC forecast US and Canadianoil production of 2014 at 11.8 million barrels a day. Justtwo years later, that forecast has risen to 14.5 millionbarrels a day.”Estimates of the amount of natural gas from shaleand other tight geologic formations continue to grow.In 2000, shale gas provided only 1 per cent of USnatural gas production. By 2010, it was more than 20per cent and the US government’s Energy InformationAdministration predicts that by 2040, 50 per cent of theUnited States’ natural gas production will come fromshale gas.Due largely to innovations like directional andhorizontal drilling, microseismic imaging, andtechnological advances in hydraulic fracturing, shaleHouston’s Hermann Park and METRORail systemfields have become both more accessible and economic.In fact, the International Energy Agency projects thatthe United States and Canada are set to produce about21 per cent more oil by 2018 than they will in 2013.Houston is at the centre of the North Americanenergy revolution. From major oil companies to smallindependents to oil field suppliers like Baker Hughes,Schlumberger, and Halliburton, Houston is wherecutting-edge technology and highly experiencedpersonnel use their talent and creativity to findsolutions to the challenge of meeting the world’s evergrowingenergy needs.The energy produced in North America from the shalerevolution has the potential to transform other industriesand have far-reaching effects all over the world.For example, Pennsylvania refineries and shipbuildersare mobilising to tap into the shale boom.Railroads and chemical industries are beingtransformed and strengthened as they take advantageof business opportunities stemming from the risingflow and the lower cost of oil and natural gas.Economists expect a re-emergence in manufacturing,including in sectors that have long been in decline dueto cheaper imports such as steel and plastic.Worldwide deposits of shale gas are now believedto exist in the China, Argentina, Algeria, Canada, US,Mexico, Australia, South Africa, Russia, Poland, Franceand Libya among others. To what extent these resourcesare accessed and developed will greatly depend onindividual governments working to create systems thatwill enable regulatory and fiscal structures, as well asallow open market access and free market pricing.According to Oilprice.com, “despite variousconundrums faced across the globe, the consensus isfor shale gas to overcome its challenges to have a muchlarger influence on global energy in coming decades.”As the shale revolution continues to affect world oilmarkets, Houston will remain the prominent centre ofdevelopment for the industry. If the World PetroleumCongress (WPC) were to come to Houston in 2017,attendees from all around the world would benefit fromhaving access to a strong programme and technicaltours created in conjunction with leaders fromAmerica’s oil and gas sector. This would provide WPCattendees with the latest knowledge about technology,infrastructure and other topics that could help theadvancement of the industry in their own countries.4222nd WPC Candidate City Sponsored Profile

Sponsored ProfileBut Houston’s energy leadership role is not limitedto oil and natural gas. The city is also at the centre ofemerging renewable energy sources such as wind andsolar, with many renewable energy companies locatedin Houston.Almost every major wind company in the UnitedStates has a significant presence in Houston. Thesecompanies account for well over half of the windturbines installed across the nation. In fact, Texas leadsthe nation in wind energy and is moving along in solar.Houston is also committed to the future of the industry.The proposed legacy project for WPC 2017 wouldestablish the Houston Centre for the Global EnergyWorkforce at the University of Houston-Downtown. Thisproject would feature international student exchangesand a biennial International Student Congress in aneffort to bring together students, scientists, engineers,and industry leaders to advance the development of21st Century energy resources.Houston, with its wealth of expertise in everythingfrom infrastructure to oil rigs, pipelines to refineries,LNG facilities to shale technologies, is well-positionedto remain one of the major energy centres of the world– sharing knowledge, exchanging ideas, exploringopportunities, and expanding the horizons of energyinnovation.centres in the country – and has earned a LEED SilverCertification recognising its efforts to implementpractical and measurable green building design,construction, operations and maintenance solutions.Houston’s space heritage is a major drawThe Marriott Marquis Houston, due for completion in 2016The New HoustonYet Houston’s appeal is broader than energy. TheNew York Times ranked Houston number seven inthe list of “Cities to Visit in 2013,” the only US city inthe top 10, citing the city’s award-winning, culturallydiverse culinary and art scenes. Houston is home toprofessional performing arts groups, a 19-museumdistrict and more than 8,000 restaurants with culinarychoices from around the world.Houston’s diversity makes the city unique inthe United States. It is the only city with no ethnicmajority, a widely diverse spread of populations fromEurope, Asia and Latin America co-existing amicablyin a community where more than 100 languages areregularly spoken.Houston’s bid to host the 22nd World PetroleumCongress in 2017 includes a world-class conventionand hotel package. Located in Downtown, the GeorgeR. Brown Convention Centre (GRB) at 1.8 million grosssquare feet, ranks among the 10 largest convention22nd WPC Candidate City Sponsored Profile 43

22nd WPC Candidate CityThe hotel package will include the 1,200-roomHilton Americas-Houston Hotel connected by skywalkto the GRB at the south end and a new 1,000-roomMarriott Marquis to be connected on the north sideof the convention centre. Construction of the MarriottMarquis will begin in 2014 and is scheduled to becompleted by mid-2016.In total there are more than 70,000 hotel roomsavailable in Houston. 6,000 of those rooms will belocated within walking distance of the conventioncentre, with many other hotels accessible via the city’sMETRORail mass transit system.A testament to people-friendly urban planning,the 12 acre Discovery Green park is located in frontof the GRB. The park offers a variety of restaurants,entertainment options and scheduled events. Stepsaway, the GreenStreet complex is home to the Houseof Blues, Lucky Strike Lanes and an attractive arrayof dining, shopping and nightlife options. Three sportsvenues are also located within walking distance ofthe GRB: the Toyota Centre arena, home of the NBAHouston Rockets; Minute Maid Park, home of the MLBHouston Astros, and BBVA Compass Stadium, home ofthe MLS Houston Dynamo.Connecting Houston with most major capitalsof the world, George Bush Intercontinental Airport(IAH) provides non-stop service to 68 internationaldestinations in addition to 122 destinations in theUnited States. The Federal Inspection Facility (FIS) atIAH now offers the fastest entry into the United Statesand attendees to the 2017 WPC will have a dedicatedline upon arrival.Last year, Southwest Airlines received approvalfrom Houston City Council to build a US$100 millioninternational facility at the William P. Hobby Airport.This means that, pending Federal approval, the Cityof Houston is on course to have two internationalairports by 2015. The construction at Hobby Airportwill include five new gates and a customs facility,equipped to handle international flights to Mexico andthe Caribbean.Dynamic, welcoming, energetic, and alive withdiversity, the new Houston is proud to represent theUnited States in its bid for the 2017 WPC. •Special thanks to the Greater Houston Convention and Visitors Bureau(GHCVB) for their support with the content of this article.Discovery Green with the George R. Brown Convention Centre in the background4422nd WPC Candidate City Sponsored Profile

Total inRussia,the Partnerof ChoiceTotal, one of the world’s largest oil andgas companies, has been present inRussia since the early 90’s. Over thelast 20 years, Total has demonstratedthe ability to work successfullywith major Russian companies,building relationships based ontransparency and trust. Total sharesits specific technological expertiseand management experience on bigprojects while prioritizing workplacesafety, health of employees, protectionof the environment and support forsocial and economic development oflocal communities.www.total.com© Marc Roussel / Total - Photo: Kharyaga Field - Total Operator

Geo-politics and CooperationShell and CNPCventure forth togetherBy Andrew BrownUpstream International Director, Royal Dutch ShellShell has always been a company built oninternational relationships and technology,bringing energy to the world. As times havechanged, so has the company, evolving andadapting. Today, relationships with state-ownednational oil companies (NOCs) are at the heart ofthe international energy industry. They are drivingprogress, and unlocking resources.However, these partnerships between internationaloil companies (IOCs) like Shell and the NOCs arethemselves changing. The NOCs have become morecapable, developing their own operational skills andexpertise. But at the same time, the challenges offinding and extracting energy have increased. Theworld is turning to resources that are harder to reach,such as tight gas, or resources in frontier areas, suchas deep water or extreme climates like the Arctic.Partnerships between IOCs and NOCs are thereforedeveloping to meet future challenges, and in ways thatwill affect the industry for decades to come. Insteadof purely transactional relationships, on individualprojects in an NOC’s home country, we are seeing true,strategic partnerships. NOCs and IOCs are workingtogether, in home countries and ones foreign to bothpartners. They are increasingly developing technologyand expertise together, and addressing economicchallenges facing not just companies, but countries.Our partnership with CNPC, one of China’s NOCs,and PetroChina, its listed arm, provides a remarkableexample of such a partnership. The strategic nature ofthis collaboration is most evident in our joint venturesoutside of China; in Australia, Qatar and Canada. Butit can also be seen in our other areas of co-operation,such as our new mobile well-drilling joint venture. It is apartnership that reflects broader trends in the industryand the world, and one that we expect to continue toevolve, benefiting both partners for decades to come.Our partnershipThe partnership has its origins in China’s risingdomestic energy demand, and can be traced back toMay 2005, when a production sharing contract wassigned for the Changbei gas field on the arid edgesof the Maowusu desert in northern China, in Shaanxiprovince. It holds tight gas trapped in dense rock, andthe Chinese wanted to draw on Shell’s expertise.Commercial production began at Changbei inMarch 2007, two years ahead of schedule, withShell managing and operating the project, and CNPCbringing valuable local knowledge and experience.In July 2012, we extended the agreement to furtherincrease production. Today, Changbei is held up byCNPC as an example of exploration and productionsuccess to learn from. Its operational, health, safetyand environmental track records are outstanding, andwe are also working together to develop natural gasresources in Sichuan province. Our co-operation inChina has been a great achievement, driven forwardby both companies’ expertise, but also the country’sgrowing use of energy.According to the International Energy Agency, China’sprimary energy demand could grow by up to 70 percent between 2010 and 2030 as a result of rising livingstandards and a growing population. In particular, weexpect to see sharp increases in natural gas demandin China. The country sees gas as a way to reducedependence on coal. According to Chinese energyplans, natural gas consumption will increase from 4.4per cent of total energy consumption in 2010 to 8 percent in 2015.Growing recognition of this rising demand led to a stepchangein the relationship in August 2009. Meetings ledby Shell’s newly-appointed chief executive, Peter Voser,and Jiang Jiemin, the chairman of CNPC, establishedmutual interests and understanding about the future.Both leaders recognised the energy challenge, andthe role that Shell and CNPC could play as strategicpartners. They could work across the value chain,internationally and in China, in areas ranging fromexploration to liquefied natural gas (LNG), to refiningand marketing, with relationships and expertise acrossthe world.The talks in 2009 led in time to the establishment offour clear strategic priorities, which have underpinnedour ongoing cooperation. One is developingunconventional gas in China, and products derived fromit, to meet rising demand with cleaner fuels. Anotheris cooperation on research, development and technology.A third is helping Chinese enterprises grow overseasby, for example, using Chinese suppliers around theworld. And a fourth is international cooperation withChinese partners to bring energy back to China.Progress has been swift. In March 2010, ourcompanies announced a joint bid to buy Arrow Energy46Addressing Global Energy Challenges

Geo-politics and Cooperationin Australia, which extracts gas trapped in coal seams,then processes and sells it in Queensland, Australia.It supplies 20 per cent of the state’s gas demand toindustrial customers and local power stations, oneof which Arrow owns and operates. The acquisitionwas completed in August 2010 for A$3.5bn, with eachbidder taking a 50 per cent stake.Together, we have continued to invest in Arrow,and drive it forward. It now benefits from CNPC’s andShell’s financial, commercial and technical expertise.For example, today there are about 80 secondees fromthe parent companies working within it, alongsidealmost 1,200 local staff.While Arrow continues to supply gas and power toQueensland, its other objective is a project to turncoal seam gas into liquefied natural gas, which canbe transported by ship. The capacity of a potentialplant could be 8 million tonnes a year of LNG, tobe split between Shell and CNPC, for use and saleinternationally. The two parent companies arecurrently in the front end engineering design process,and will look at taking the final investment decisionwhen appropriate.The challenges facing Arrow are not just technical.Coal seam gas deposits are typically spread acrossa large area, and Arrow’s leases cover some 54,000square kilometres. They overlap with a wide range oflocal townships, prime agricultural land and coal miningoperations. Arrow has worked together with a variety ofexternal stakeholders to address concerns and promoteco-existence, and continues to do so, drawing on bothShell’s and CNPC’s expertise in this field.Our companies have also jointly developed projectsin other countries. In May 2010, they agreed to explorefor and produce gas onshore and offshore in Qatar,which holds the world’s third-largest reserves. Ipersonally played a role, working for Shell at the timeas Executive Vice President for our activities in Qatar.The deal involved state-owned Qatar Petroleum,and the three parties are planning to create a majorrefinery and petrochemicals plant in Taizhou, inChina’s coastal Zhejiang province.Shell and CNPC have also been investing together inCanada. We initially agreed to co-operate in Canada in2010. And in February 2012, PetroChina bought a 20per cent stake in our Groundbirch shale gas project inThe Shell-CNPC partnership has its origins in the development of the Changbei gas field in northern ChinaWorld Petroleum Council 80th Anniversary Edition 47

Geo-politics and CooperationBritish Columbia. It will further extend our experienceof working together to extract tight gas, and extendboth companies’ expertise.Such overseas ventures are not the only developmentsthat reflect and deepen our partnership, however.Cooperation on innovation, research and development,and the sourcing of business services have also playedan important role in the relationship. We have workedtogether to grow the scope of the partnership.For example, our work with CNPC has led us to increaseour use of Chinese suppliers of goods and services.In 2011, we spent more than $1.5bn with Chinesesuppliers, about half of which was spent exportingChinese goods and services to our internationaloperations outside China. This has not only helpedChinese industry to play a more international role, butalso increased competition between our suppliers.A shared passion for innovation has furtherstrengthened our relationship. In June 2011, weannounced a global alliance agreement, emphasisingour intention to invest and work across the worldtogether. But we also announced a more specificagreement at the same time, for a joint venture sincenamed Sirius Well Manufacturing Services. It is aninternational well-manufacturing services company,in which Shell and CNPC each have a 50 per cent stake.Sirius will address the need for large numbers ofwells to be drilled in rapid succession to extract tight,coal seam and shale gas around the world. In suchoperations, ultra-low-cost drilling and mobility areessential. The company will use advanced techniquessuch as automated drilling and optimisation processesthat Shell has helped pioneer in its North American andEuropean operations.One product will be mobile, automated drilling rigs,which will be used by the Arrow venture in Australia,and potentially elsewhere. Mounted on trucks, theywill operate in teams from a central hub, which willuse computers to control and guide them, and holdsupplies such as drilling fluid and pipes. Wells will bedrilled in a standardised and repeatable manner.Sirius brings together Shell’s automation technologyand manufacturing approach to operations, withCNPC’s expertise in manufacturing and managing largerig fleets. Together, we believe the venture has greatpotential in Australia, North America, Asia, especiallyChina, and elsewhere, unlocking tight gas resourceswith unsurpassed efficiency. It is an exciting venture,as Shell and CNPC look to the future.Learning from successIt is worth reflecting on some of the attributes that havemade the partnership successful, and the lessons wecan all learn. Most obviously, the economic interestsof the NOC’s controlling nation have to be reflected ina partnership for it to have a truly strategic role. In thecase of our relationship with CNPC, it is straightforwardto see the role of rising Chinese energy demand, andespecially gas demand.Another lesson is that it is essential for strategicpartners to have similar, long-term outlooks. In the caseof Shell and CNPC, we both build and manage very largescaleprojects with lifecycles spanning decades. CNPC’sleaders are clearly thinking how to meet the country’srising energy demand beyond short-term priorities.Partnerships must be built on the respectivestrengths of IOCs and NOCs. Shell’s position as anintegrated IOC, with expertise ranging from extractionall the way through to shipping and refining, make ita particularly valuable partner. For example, Chinahas been increasing its imports of LNG, and Shell isthe largest LNG shipping operator in the world. Todayour company supplies more LNG to China than anyother IOC, and we have signed long-term deals withPetroChina to ship LNG to China from both Qatar andthe Gorgon project off the coast of Western Australia.Both partners must also grow together, and cooperationon research and development, innovationand broader economic development can play a valuablerole. We have already seen the way that Shell and CNPChave developed together. Shell expects us both tocontinue to do so, with the Sirius well-drilling venture,for example. Our four guiding strategic principles helpus focus on progress.Personal chemistry is, of course, vital. This is to someextent about personalities, but also about working toensure that a partnership is well-managed. Seniorexecutives from Shell and CNPC meet regularly, meaningthere is a constant focus on the way the relationship isfunctioning. At the heart of such close working is alsorespect. At Shell, we have a very high regard for CNPCand its capabilities, and continually strive to ensure thatit sees us in a similar light. With this in mind we both lookforward to future opportunities.•48Addressing Global Energy Challenges

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Geo-politics and CooperationThe NOCs’ dilemma: Short-termconstraints, long-term goalsBy Milton Costa FilhoExecutive Secretary, Brazilian Petroleum, Gas and Biofuels InstituteFuture historians will have a hard timetrying to understand and explain what themanagement of global energy was like inthe beginning of the 21st century. Our worldwill probably appear to them as if it were living atransitional energy period, mainly driven by climatechange concerns combined with steady demand. Thecurrent technological landscape and the growth inrenewable energy production may be interpreted assigns of the beginning of a more diverse and lowcarbonenergy mix.Present estimates seem to point to quite a differentreality. According to the International Energy Agency’s2012 World Energy Outlook, in 2035 more than threequarters of the world primary energy demand willrely on fossil fuels. By then, in fact, global oil demandis expected to have increased by almost 15 per cent,to reach 99.7 million b/d (up from 87.4 mb/d in 2011)and natural gas projected demand will have reached 5trillion cubic metres (up from 3.3 tcm in 2011).Considering energy consumption patterns and thelarge scale use of fossil fuels in power, transport,heating, and many other petrochemicals and refiningproducts – quite apart from the huge infrastructurerequired to produce and distribute them – the expectedtransition may take a long time. No doubt the world willgo deep into oil and gas for some decades to come.The current fast-growing energy demand is ofpressing concern. The pace of consumption is dictatedmainly by the economic development of emergingcountries, their rising living standards and urbanpopulation growth. By 2035 there will be around 1.5billion more people to be fed on our planet. Not tomention the unsolved energy poverty. Unacceptableas it may sound in the 21st century, 1.3 billion peopledo not have access to electricity. Paying this socialdebt within the frame of the projected growth wouldmean having around 2.8 billion more consumers ofenergy, an extra 40 per cent of our present population.The good news is that the world is very far fromrunning out of oil and gas. According to the IEA, thereserve-to-production ratio based on 2011 levels ofproduction indicates 241 years for natural gas and189 years for oil recoverable resources. Optimists mayargue that these vast reserves coupled to the currentpace of technology development that is expected toincrease all different forms of energy supply, and thecontribution of more rational and efficient use, shouldsuffice to meet future demand.Nevertheless, in an increasingly interconnected,interdependent, fast-growing world, the fallaciousnotion of national energy autonomy grows surprisinglystronger by the day. Whereas the legitimate aimfor a security scenario of sustainable, reliable andaffordable energy remains unaccomplished. Thereare few long-term energy efforts and no global energyorder to coordinate collaborative work. The overallresult is that the world is moving towards a growingsystemic inefficiency that will prove very costly tocoming generations.In the short term the situation is just as complex. Theworld has not yet recovered from the 2008/09 globaleconomic downturn and is facing new situations thatcan take it to further uncertainties and pessimism.The context of tight commodity markets contributesto stubbornly high oil prices that were responsiblefor the transfer of more than US$1 trillion per yearto OPEC during the last two years alone, a shift withhigh social and economic impact and a considerableburden on importing countries.This sensation of permanent uncertainty obligesleaders, people and institutions to pay attentionto what is going to happen the next day, in a formof defensive survival behaviour that hinders longtermthinking and vision in the formulation ofenergy policies.What are the implications for the oil industry’s mainactors, namely, the national oil companies or NOCs?Are they prepared for such a challenging present andfuture? Are the oil companies investing the requiredamount to provide the energy the world needs?According to the IEA, investments in oil and gas sectorscombined will need to total some US$19 trillion, outof all the US$37 trillion of investment needed in theworld´s energy supply infrastructure between 2012-2035. To ensure universal access to modern energyservices by 2030, a further US$1 trillion is required.Oil and gas are not just the main sources of energy.They also generate the biggest business in theworld. They are the most valued traded products,the largest items in the balance of payments andexchanges between countries, their most importantrevenue and a major factor in geopolitics and socioeconomicdevelopment.50Addressing Global Energy Challenges

Geo-politics and CooperationOil and gas companies are among the most influentialinstitutions in the world. Their revenues and theirscope of influence outstrip those of many nationalgovernments. Of the 100 largest economic entities inthe world, about half are oil and gas businesses andnot nation-states. Compare the ranking of countries’GDP, published in December 2012 by the World Bank,with the ranking elaborated by PFC Energy in itsWorld´s 50 Largest Listed Energy Firms, published inJanuary 2013, and the results are astonishing. Thecombined market capitalisation of those companieswas US$3.5 trillion, a wealth equivalent to that ofthe 5th biggest country´s GDP. The biggest energycompany would rank number 28 if it were a country.It is no wonder the energy sector is mainly run byso-called “big oil“: powerful companies that are on theleading edge of technological and managerial skills,human resources capability and financial strength, allrequired to develop large, risky and complex energyprojects. Therefore, many governments decide tocontrol the business directly, through their ownnational oil companies.According to a 2013 Petroleum Intelligence Weeklyspecial report, 30 out of the world’s 50 top oilcompanies are state-owned: 20 fully, 7 majority and3 partially controlled. NOCs are growing in influencebecause of their dominant resource position – holdingabove 85 per cent of the oil and gas world reserves –and because of their political and financial strength,and of the recent technological and managerialdevelopment of the capabilities required for large andcomplex projects, both at home and abroad.Widely diverse though they are, all NOCs are usedby their governments to achieve many differentobjectives. Apart from the usual activities developedby an oil company, NOCs serve as regulators, sourcefor cash, guarantee of security of supply, providers ofskilled workers and technology, social developers, justto mention some political objectives. Consequently, itis very difficult to compare NOCs on their performanceas mere oil companies. In fact, NOCs emerge asplayers with a very important role to play. Backed bytheir governments, NOCs have the legitimacy to fulfilnations’ social-economic development aspirations,while pursuing the technical activities indispensablefor increasing energy supply.In times of economic downturn, even the powerful,rich NOCs are in trouble when required to helpgovernments in their urgent political priorities, whichmay conflict with other key functions, such as theefficient and sustainable exploitation of oil and gasresources. Ironically, while oil companies are heavilyinfluenced by the social-economic context that canimpose short-sighted behaviour, they have to dealwith predominantly long term energy projects.Here lies the NOCs’ most serious dilemma. Asowners of more than 85 per cent of the world’s oil andgas reserves, clearly the main sources of energy theworld must count upon for the next few decades, theyare accountable to provide the affordable, sustainableand reliable energy the world requires. Will they beable to accomplish this, bound as they are by shorttermpolitical priorities? Certainly not. Unless a sound,global energy policy is developed.Leaders with a new mindsetCollaborative governance is the only way out. A newglobal energy architecture where all countries arecommitted to change is an urgent need: a concertedaction towards developing a sustainable energy mix;implementing rational and efficient use of energy;negotiating a global subsidies strategy; working onthe deployment of new technologies; arranging termsfor the access to reserves; mitigating effects on theenvironment and alleviating energy poverty.The world needs leaders with a new mindsetto support the idea of a common global energycommunity to replace the current narrow, nationalinterests. In the long run, the creation of internationalorganisations with proper mechanisms to implementa global energy policy will result in a more predictableand sustainable energy supply and price.Putting together the remarkable advances intechnology and the drive of a new generation ofresponsible leaders will certainly give no roomfor failure.A worthy example of a collaborative initiative thatgathers the most important actors in the oil andgas industry is The World Petroleum Council thatcelebrates its 80th anniversary in 2013. Their actionin a global context with a critical thinking togetherto address the most important global energychallenges is a clear contribution to build a better,sustainable world.•World Petroleum Council 80th Anniversary Edition 51

Geo-politics and CooperationGlobal energyconsumption moves eastInterview with Zhou JipingPresident, China National Petroleum Corporation (CNPC)What is your view on the trend of global energydevelopment in the future?In the coming 20 years, the development of globalenergy will enter into a period of accelerated transition.Profound adjustments will take place in the pattern ofenergy production and consumption. First, it is expectedthat oil and gas will maintain the dominant positionin the world energy structure. Emerging productiongrowth of shale gas, light tight oil and oil sands isgradually pushing the replacement of resourcestowards unconventional fields. Resources willbecome more complicated to develop, as their qualitydeteriorates – so much will depend on technologicalinnovation and breakthroughs. Second, the acceleratedprocess of industrialisation and modernisation indeveloping countries, and their ever-growing energyuse are pulling the global energy consumptioneastward. The US is speeding up the development ofindigenous energy resources and reducing imports.The clearer trend towards energy independence willcontinue to induce major changes in oil markets andtrading, adding to the risk of market fluctuations.Third, global climate change is bringing on earlier theera of carbon emission restrictions. In the face of thedual pressure of supply security and environmentalPetroChina’s Daqing oilfield in northeast China’s Heilongjiang provinceprotection, alternative energy and renewable energyare given focused attention. Natural gas is placed ina strategic position in energy development. Countries’competition over rights of emission and developmentis becoming fiercer, and the global pattern of energyinterests is readjusting accordingly. It is clear that arevolution reshaping the global energy map in terms ofproduction and consumption is well underway, bringingabout unprecedented opportunities and challenges forthe oil and gas industry.What new challenges have the profound changes inthe global energy picture raised for the developmentof the world’s oil industry?The global oil industry today has to address the commonchallenge – that is, to satisfy the ever increasing needfor clean energy and to solve the problem of ever morecomplicated exploitation of energy resources. Thecurrent international financial crisis and geopoliticalturbulence increase the uncertainties in oil and gasdevelopment. For the sake of domestic economicgrowth, and for political and social stability, countrieshave set higher expectations on the oil industry in termsof social responsibilities. Consequently, the industryhas to address multiple needs with the concept ofsustainable development, and tospeed up technological innovationand industrial restructuring, andstrengthen win-win cooperation forvital development.What is your view of China’s energysecurity situation, and how doesCNPC secure its oil and gas supply?As the largest emerging economy inthe world, China has become a majorenergy producing and consumingcountry. In 2012, China’s energyproduction totalled 3.2 billion tons ofstandard coal, satisfying 90 per centof its own demand. However, coalaccounts for 70 per cent of China’senergy consumption mix, inducingsevere problems for resourcesdevelopment and for environmentalprotection. The essential problemof China’s energy system52Addressing Global Energy Challenges

Geo-politics and Cooperationrestructuring is still how to reduce the percentageof coal in the energy consumption mix. The keyfactor in energy security is still the security ofoil and gas supply. An accelerated development ofnatural gas has been chosen as the strategy to increaseclean energy supply and the protect the environment.China’s petroleum industry still enjoys huge potentialfor development.CNPC, China’s biggest oil and gas producer andsupplier, is also one of the world’s largest oil and gascompanies. In the face of the dual challenges of satisfyingenergy demand and protecting the environment, CNPCis speeding up its strategic development of naturalgas to build an environmentally friendly enterprise forgreen development. Meanwhile, the company continuesto stabilise crude production, increase refining capacity,and enhance product quality. It is our target thatnatural gas production will take up 50 per cent of thetotal corporate oil and gas output by 2015, and 60 percent by 2020. We are unswervingly strengthening ourinternational cooperation as our overseas businesshas formed a rather complete industry chain coveringexploration and production, refining and petrochemicals,pipeline transportation and storage, as well asmarketing and trading. We have basically establishedfive overseas oil and gascooperation zones and threeinternational operationcentres. Our overseas oil andgas operating productionexceeded 100 million tonsin 2012, most of which wasmarketed to other countries,contributing a lot to theglobal oil and gas supply.Following the principle ofmutual benefit and winwincooperation, we focuson the long-term strategicobjectives of host countries,including economic andinfrastructure development,the utilisation of localsupply chains as well asenvironmental protectionfor better implementationof our corporate socialresponsibility, contributing to the sustainabledevelopment of local economies.How will the WPC play its role in pushing energytransformation and industry change in the new era?It has been 80 years since the establishment of the WorldPetroleum Council. It has witnessed the vicissitudes ofthe global oil industry, and made prominent contributionsto petroleum technology advancement and internationalcooperation. Looking ahead, technological innovationis the driving force of sustainable development of theglobal petroleum industry, while mutually beneficialcooperation is the right path to tackle challenges. TheWPC aims to promote cooperation through exchange,and to promote development through cooperation. In thenew era, the WPC, as the platform for exchange, can playan even bigger role through exploring new cooperationmodels. The WPC will continue to guide technologicalinnovation, popularise the application of advancedtechnologies and promote understanding and trustamong countries for win-win cooperation. We believethat the WPC will definitely accomplish a lot in promotingindustry cooperation and pushing forward sustainabledevelopment of the petroleum industry, making evergreatercontributions to energy for all mankind. •Construction works at a PetroChina oil well in Lunnan, XinjiangWorld Petroleum Council 80th Anniversary Edition 53

Regional DevelopmentsOil trade at a tipping pointBy John MitchellAssociate Fellow, Energy, Environment and Resources, Chatham HouseMuch publicity has been given to the recent growthof oil and liquid fuel production in the UnitedStates. The expansion of ”unconventional” oiland natural gas liquids is the result of aggressiveexploitation of oil and gas from shale, and “tight” oil, by acombination of horizontal drilling and hydraulic fracturing.The figures are buoyed by the inclusion of biofuels.Consumption has also declined, due partly to the recessionand partly to the combined effects of higher prices andmuch stricter fuel efficiency standards for automobiles.US net imports fell from 60 per cent of consumption in2005 to 47 per cent in 2011. The US Energy IntelligenceAgency projects a rapid increase in production over thenext 10 years, with oil imports falling to around 35 per centof projected liquid fuel consumption.The US turnaround is not replicated elsewhere. In theAtlantic region as a whole (the Americas, Europe andAfrica) oil production has declined by about 2 millionbarrels a day since 2005, but so has consumption, leavinga gap in 2011 of around 13 million barrels a day to be metby imports – mainly from Russia. Meanwhile, in the Asia-Pacific region, production has remained roughly steady,while consumption has increased by about 4 mbd since2005. Both trends are expected to continue.The future structure of international oil trade thereforelooks very different from the past. In the early 1990s theMiddle East was the centre of the international trade inoil, with roughly half its oil exports going west. By 2011imports of around 5 million barrels a day from the MiddleEast to the Atlantic region were more or less balanced byexports – mainly from West Africa – to the Asia-Pacific.The change is illustrated in Figure 1, opposite. The blocksshow the export surpluses expected from exportingregions, the solid line shows the import demand from theAsia-Pacific region.Import demand from the Asia-Pacific region isprojected to exceed the export capacity of the Middle East.Importers from the Asia-Pacific will increasingly turn,as they are already doing, to supplies from the Atlanticregion: notably West Africa and South America.Ideas of oil security are upset by these changes. Theenergy security rhetoric and policies of the UnitedStates and Europe have for decades depended on fear ofinstability in the Middle East. Middle East oil exports weredisrupted in the oil shocks of 1973 caused by the Arab oilboycott, in 1979 by the Iranian revolution, and in 1980-81 by the Iraq-Iran war. These led to consumers queuingat the pumps and explosions of price which, althoughtemporary, damaged the economies of oil importingcountries. The evidence of instability is not over: therewere the “tanker wars” of the mid-1980s, the Iraq invasionof Kuwait in 1990, followed by the first Gulf war, the USledinvasion of Iraq in 2008, and now the Syrian civil warand the Iranian nuclear programme and the reactions ofUnited States and others to this perceived threat, Whathas changed is the physical dependence of the US andEurope on Middle East oil supplies.The tip-over of Middle East exports to the east relieveswestern oil importers of the threat of physical disruptionsof supply. The concept of dependency on “countrieswhich do not necessarily have US interests at heart” isno longer a front-line political issue for the US. It does notrelieve the US (or Europe) of the threat of price increaseswhich could economically be very damaging. However,price increases do not have the same emotive politics asphysical disruptions.For Asian oil importers the physical security outlook canonly get worse. They have always been dependent on theMiddle East for their oil supplies but the US and Europeshared that dependence. Now the Asian importers will bearalmost the whole impact of any short-term interruption ofsupply. They are bound to respond in the same way as theydid in 1973 and 1979: by bidding for available suppliesfrom outside the Middle East and by paying prices whichreflect the pain of the most affected country and company.These “shock prices” will come back to the global marketand to those importers who reflect global market pricesin their domestic markets – including the US and Europe.What can be done about this? There are three mainpossibilities: holding strategic inventories of oil, providingsome military protection against disruptions, and reducingdependence on imports in normal times.The International Energy Agency of the OECD operatesan emergency response system which requires membercountries to hold strategic stocks of oil equivalent to 90days of imports and to cooperate in the event of a supplyemergency – so that one member cannot “free-ride” onthe release of inventories by others. During the early yearsof the IEA emergency sharing system (the 1980s) Asiancountries outside the OECD could expect IEA responses,which would be taken in the interests of IEA membersbut which would increase supplies to the global marketand therefore to Asian countries. Now, and in future, adisruption of Middle East supplies to Asian markets wouldWorld Petroleum Council 80th Anniversary Edition 55

Regional Developmentsnot be a supply emergency for the UnitedStates and Europe. Their intervention isnot certain. For the IEA oil importers in theAsian region (Japan, Korea, Australia andNew Zealand), there would undoubtedly bea supply emergency and if they drew downtheir stocks the shortage in the Asian regionwould be made easier, to the benefit of allimporters. Stocks held by IEA members inthe region are probably less than 50 daysof cover of the region’s imports from theMiddle East. This will fall as imports intothe IEA countries are expected to remainstatic while those to the rest of the regionwill grow rapidly. China, a non-IEA member,is also building strategic stocks which mayeventually provide similar import cover,but their willingness to use the stocks willdepend on how they judge their interest atthe time. China would share of the interestsof the IEA members in limiting free riding byother Asian countries. The IEA is understoodto be offering China and India some form ofassociate membership of the IEA, but thiswould not involve the same protection or commitments asfull members.The IEA would therefore not necessarily be a reliablesource of help for Asian importers in the event of adisruption of Middle East oil supplies. Is there anypossibility of an Asian self-help approach to or security?If all Asian importers of any size maintained substantialstrategic stocks, there would at least be more oil availableto use in the event of a disruption. It would be even betterif the problem of “free riding” were reduced by someprior commitment to consult and if possible co-ordinatethe use of stocks. There is no institutional framework forsuch commitments and associate membership of the IEAwould not provide it. An intergovernmental agreementin the region would be necessary. This would requirecollaboration between countries on energy, but the keycountries in Asia are in dispute over territorial waters,territorial sovereignty, and legacies of past wars.Military protection against disruption of supplies fromthe Middle East depends on the US 5th and 7th fleets andthe US military bases in Bahrain and Qatar. These maynot necessarily prevent disruption from events withinan exporting country. The US has many reasons forMBDFigure 1: Global oil balances 1985-203050454035302520151050Sources: BP Statistical Review 2012; US Energy Intelligence Agency 2012 Outlook; “currentpolicies scenario” of the IEA 2011 World Energy Outlook. Latest projections change thefurther years but do not alter the main picture. The figures have been adjusted to excludeinter-regional trade “locked in” by pipelines like those from Central Asia to China.1985 1990 1995 2000 2005 2010 2015 2020 2025 2030North Africa net surplusS. & C. America net surplusRussia net surplusWest Africa net surplusCentral Asia net surplusMiddle-East net surplusAsia-Pacific net deficitssupporting stability in the Middle East, but protection ofoil exports to China is probably not high on the list. Giventhe cost of the US military shield one can expect at thevery least the US will demand some contribution from theAsian beneficiaries. This could take the form of money, orcommitment to a regional oil security arrangement suchas described above. The problem for the Asian states isthat some are reluctant to depend on the US, but there areno alternatives available.Finally, Asian oil importing countries, like all oilimporters, can try to reduce their permanent demandfor oil. Lower long-term demand will not mitigate supplydisruptions, but would mitigate the economic costs ofthe price shocks which the disruptions cause becausethe increase in the countries’ bills for importing oilwould be lower.The shift to the east in the international oil trade is alsoa shift in the risks which oil importers face. For the US andEurope, risks are reduced; for Asian importers they areincreased. Oil security will slip down the US and Europeanagendas. Asian importing countries will have to do morefor themselves when the next disruption occurs. Whatthey do will affect the whole market.•56Addressing Global Energy Challenges

Regional DevelopmentsAmerica’s private sectorenergy revolutionBy J. Robinson WestChief Executive Officer, PFC EnergyThe picture for energy in America has beentransformed in the last decade, creatinga remarkable change in the US energynarrative. Though discussions of peak oil andfalling hydrocarbon production were de rigueur atthe beginning of the last decade, high oil prices (byhistorical standards) combined with new technologiesto radically shift the North American energy landscape– “resetting” oil production and growth to levels notseen since the period after the Second World War. Aswe entered the millennium in 2000, US oil productionseemed in terminal decline, having fallen by a thirdfrom its 1970s peak. The country needed importsto feed 60 per cent of its 20 million barrels a day(mb/d), and growing, oil habit. In the lower 48 states(excluding Alaska and Hawaii), onshore resources hadreached advanced maturity, with cumulative depletionof 75 per cent. Yet this story is not one of governmentintervention or big oil saving the day: it is one of marketforces, entrepreneurship and hard work comingtogether to create a profound change in US energy inparticular and the economy as a whole. PFC Energysees wide-ranging implications to this “AmericanEnergy Reset,” with effects much more complex thanjust higher production and the potential for “energyindependence.” Actual and expected future productiongrowth holds substantial risks and uncertainties forcompanies, policymakers and consumers.Origins and implicationsThe story begins with natural gas in the 1990s, whenGeorge Mitchell, one of many stubborn wildcatters whohave written the history of the oil and gas industry,worked doggedly on what many viewed as a quixoticscheme to produce large resources of shale gas(natural gas trapped within fine-grained sedimentaryrocks) that had long been known to exist, but alwaysseemed beyond the horizon of commercial viability.It was Mitchell and other smaller companies (notthe government or the large oil companies) that, bytrial and error and a concentrated focus at first inthe Barnett Shale near Fort Worth, Texas, were ableto combine horizontal drilling (originally pioneeredoffshore and perfected in the nearby Austin Chalkplay), hydraulic fracturing and other techniques toforce gas from shale and other tight formations. By2001, Mitchell Energy and Development Company haddrilled 400 wells and built over 2 trillion cubic feet ofreserves, and was considered to have the best growthand inventory story among independent explorationand production companies. Larger oil and gas playersbegan to recognise the potential: Devon purchased thecompany that year in a US$3.5 billion deal that includeda 32 per cent premium over the stock’s market price.The shale gas revolution has since left the UnitedStates both independent and secure in terms of naturalgas. Due to its very nature as a gas, the fuel is harderto transport, thus limiting the potential for a globallyconnected market. Although US gas producers lookto make the switch to producing higher-priced oil, gasproduction remains at record highs, reaching 65 billioncubic feet a day (bcf/d) in 2012 from around an average52 bcf/d as recently as 2007 – 25 per cent growth. Thisis an amazing turnabout from earlier in the decade,when the US began building a number of gas importterminals, expecting insufficient future supply.The confluence of opportunity and technologicalinnovation has had just as profound an impact on oilproduction. US oil production stopped declining andbegan growing at rates the country had not seen indecades. As many of the most recent plays have beencentred inland, infrastructure that was put in place todeliver oil to these towns and cities has been reversed.As short-term infrastructure capacity has beenlimited, this has created tremendous price differentialsbetween, for instance, oil produced in North Dakota’sBakken shale and the coast: in the last year, crudeproduced in the Bakken has traded at up to a US$20 perbarrel discount to the price of West Texas Intermediate(WTI) – a major difference for a fungible commodity.This has spurred an infrastructure building campaignto develop the country’s ability to both bring crude tomajor demand centres and export refined products tothe global market. Placing this in the context of risingglobal demand – expected to continue placing stresson supply – will mean a higher price of oil everywherearound the world.Broader benefitsAs the narrative develops, it is increasingly apparentthat there are multiple winners from lower naturalgas prices. Residential and commercial users haveseen tremendously low prices for gas in heating andelectricity and domestic industrial users have been58Addressing Global Energy Challenges

Regional DevelopmentsFigure 1: Sources and uses of cash2003-20052009-2011400400350350300300US$ billions250200US$ billions250200150150100Upstream cash flowUpstream CAPEX10050500NorthAmericaAsia (inc.RCA)EuropeAfricaLatinAmerica0NorthAmericaAsia (inc.RCA)EuropeAfricaLatinAmericagranted a new competitive advantage – Germany’sBASF, for example, has cited low energy prices as areason for expanding operations in the US. Further, asgas becomes a more competitive fuel in comparison tocoal, power producers have scrapped new coal-firedplants in favour of combined-cycle gas turbines – moreeffective plants with less pollution (not to mention theside effect of reduced carbon output).As global oil prices rise, the US is enjoying theupside of domestic production and witnessingincreased domestic economic activity rather thanexporting capital, which should have the side effectof strengthening the dollar. This is the first time sincethe 1960s that the rising price of crude has provided abenefit to our country – an important break with pastexperiences. Still, while the United States has largelybecome independent and secure in terms of naturalgas, the global nature of oil markets means that the“energy independence” – bandied about by bothpresidential candidates in the recent US elections –remains a misnomer as it pertains to oil.The changing dynamics of oil and natural gas pricesthat spurred the reset have made North America atarget for investment instead of just a source ofrevenue. From 2008 to 2010, IOCs made more thanUS$50 bn (net) investment in the region, compared tothe period from 2003 to 2005, when these companiestook the free cash flow from North America andinvested internationally. Thus the Mitchell-Devon dealwas the first of its kind, but proved to be a harbingerof things to come. In fact, Devon has subsequentlyfound so much opportunity for growth and inventoryin its North American homeland that it has withdrawncompletely from international exploration andproduction; in 2011, the company completed the saleof its portfolio in one of the world’s hottest oil andgas regions, Brazil, to BP. Although the unconventionalplays had begun with small companies like Mitchell,and been continued by exploration and productionindependents like Devon, most of the big internationalnames have joined the trend in recent years, mostconspicuously ExxonMobil in 2010 with its US$41bnacquisition of XTO. The clear message from thischanging narrative is that markets worked.Global pictureThe American energy reset continues to haveimplications around the globe. In addition to thebasic effects of investment pouring into the UnitedStates, the effects of a disconnected American gasmarket and growth in oil production, companiesthe world over are studying the technology used inWorld Petroleum Council 80th Anniversary Edition 59

Regional DevelopmentsFigure 2 : Number of unconventional wells drilled, by country>1000>100

Regional DevelopmentsAnother opportunity forIOCs in Russia’s oil industryBy Dr James HendersonResearch Fellow, Oxford Institute for Energy StudiesThe history of the Russian oil industry has beena volatile one, with peaks and troughs in bothinvestment and output marking the shift in theindustry through various regions of the country’smassive geography. The overall trend has been a movefrom south to north, and Russia is now entering an erain which the Arctic region is set to play a major role inthe country’s long-term oil output. However, it is usefulto consider the historical context of this move into thetechnically challenging waters of the High North inorder to understand the role that domestic and foreigncompanies may play in this new era.The first recorded mention of oil in the Russianempire came in the 13th century, when on his journeysto the East Marco Polo noted the presence near Bakuin Azerbaijan of a liquid substance that was “good toburn.” However, this liquid was only dug from pits invery small quantities for the next 600 years until inthe 1870s two foreign family enterprises, headed bythe Nobels and the Rothschilds, helped to introducemore modern drilling, production and transportationmethods that caused a dramatic shift in both Russianoutput and the dynamics of the global oil industry.Russia had been a significant importer of oil, inparticular from the US, but by the end of the 19thcentury was producing almost 250,000 barrels a day(b/d) of its own crude, and was looking to markets inEurope and Asia for export sales. The formation of theShell Oil Company was based upon providing transportfor these exports, and by 1911 Shell had also boughtup a significant share of Russian production and waschallenging Standard Oil for global oil market share.However, the growing unrest in Russia towards theend of the Tsarist era and the impact of the 1917revolution saw oil production stagnate and exportsdecline to only 9 per cent of the global total by 1920,from a high of 31 per cent only ten years earlier.Despite some continuing involvement in the Russianoil industry under Lenin’s “New Economic Plan” inthe early 1920s foreign companies were graduallyexcluded from the country, and by 1930 the Soviet oilindustry was an entirely domestic affair.However, after a temporary hiatus the departure ofthe foreigners did not halt the progress of the domesticoil sector, which was set to embark on a major eraof growth through the Soviet era. By adapting andenhancing the techniques already introduced byforeign oil companies, Soviet engineers managed topush the country’s oil output to 660,000 b/d by 1939,entirely from the original areas in the Caucasus. Then,as decline set in after 1945 and the end of the GreatPatriotic War, they discovered a vast new oil-richprovince in the Volga Urals region of European Russia,which was exploited with such great skill and successover the following 20 years that by 1965 total Sovietoil output had reached nearly 5 million b/d. Then, asnatural decline set in and the drilling of new wellsbegan to have less and less impact the Soviet industrymade another transformational move, advancingfurther north once more to the harsher environmentof West Siberia. The tale of the development of thisnew region is one of dramatic initial success, followedby a first production crisis as well performancebegan to decline, then a further surge in output asthe Soviet leadership ploughed billions of roublesinto new drilling, followed by another output crisis asinvestment funds began to run out towards the end ofthe Soviet era. During this period Soviet oil productionhad reached a high 12.5 million b/d, of which 90 percent had come from Russia itself, but the seeds of theultimate collapse of the industry had been sowed in thecontinued use of relatively basic production techniquesthat relied on vast amounts of drilling and extensive useof water-flooding. As soon as the money to continuethese activities ran out oil production went into sharpdecline, and the first five years of the post-Soviet eraare marked by a fall in Russian oil output from around11 million b/d to around 6 million b/d (see Figure 1).This production crisis prompted the new Russianpresident Boris Yeltsin to seek foreign assistance inthe recovery of the country’s oil industry, and thisinitially took the form of numerous joint venturesin the heartland of West Siberia as well as majorinvestments offshore the country’s eastern borders atSakhalin Island. The return of foreign investors broughttechnology and management experience from theglobal oil industry and applied it to a Russian sectorthat had been deprived of exposure to internationalmarkets for 70 years, and the results were initiallyimpressive as production first stabilised and thenbegan to tick upwards again by the end of the 1990s.However, the newly privatised Russian companies andtheir entrepreneur owners soon began to realise thatthe new techniques that were arriving with foreign62Addressing Global Energy Challenges

Regional Developmentscompanies did not necessarilyrequire foreign ownership ofRussian assets, and as a resultcompanies such as Yukos andSibneft began to operate intandem with foreign servicecompanies rather than sharingtheir assets with IOCs. The oneexception to this rule was TNK,who formed a joint company(TNK-BP) with BP in 2003, butthe fact that this gave BP aunique position in the Russianoil industry for the best part of adecade demonstrates just howlittle other foreign investmentthere was after 2000.Indeed the main theme ofthe 2000s has been not foreigninvestment but the re-assertionof state control over the industry,as Gazprom and in particularRosneft have absorbedlarge numbers of assets andcompanies, including mostrecently Rosneft’s acquisitionof TNK-BP. However, thisincreased state involvementin the oil sector has come at atime when the industry itself isgoing through another period ofsignificant change. The Sovieteraoil assets in EuropeanRussia and West Siberia arenow in decline, as the recoverytechniques used so profitablyover the past 20 years arenow becoming less effective.This means that if Russia’s oilproduction is to be maintainedat or above the current 10.5million b/d, then new regionsmust once again be developed,10,0008,0005,0004,0002,000with another move north, into the Arctic, set to be oneof the vital new investment arenas. However, Russia’soffshore resources have been reserved for thecountry’s state companies, with Rosneft in particularOil production (kbpd)Billions barrels of oil equivalent (boe)Figure 1: Russian oil production since 198512,000019851965Source: Energy Intelligence Group19871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009Figure 2: The resource base of Russia’s Arctic regions400350300250200150100500Russia proved reservesSource: BP Statistical Review of World Energy 2012, USGS Arctic SurveyGasOilEstimated Arctic resource20102011applying for and winning many of the most attractivelicences, and as a result this one company has becomea magnet for foreign investors as they seek to bringtheir experience in northern offshore waters to Russia.World Petroleum Council 80th Anniversary Edition 63

Regional DevelopmentsRosneft has been happy to welcome companies whocan offer a combination of technical expertise andfinancing to its Arctic projects, and ExxonMobil, Statoiland Eni have all signed very similar agreementswith Russia’s national oil company. Ownership of thelicences has remained with Rosneft, with the jointventures formed on a two-thirds/one-third basisaround a Joint Operating Company (JOC) that has aservice agreement with the licence owner. The foreignpartners will cover 100 per cent of the initial explorationcosts, and will ultimately receive their return fromthe share of project cash flows that is paid to theJOC, assuming that oil is found. The international oilcompanies should also be able to book reserves andproduction from any new field developments, althoughthis has yet to be finally confirmed by their auditors.The importance of this new shift in Russian oilstrategy, and the need to incentivise both domestic andforeign oil company investment, is emphasised by theintroduction of a new offshore tax regime which for thefirst time will offer a profit-based scheme. Dependingupon the exact nature and difficulty of the fieldsdeveloped, the owners will be guaranteed a rate ofreturn in the range of 16-23 per cent thanks to a flexibleroyalty and the removal of export taxes, and to date thishas been enough to encourage foreign companies tomake initial exploration commitments with Rosneft. Asa result, it would appear that the Russian Arctic, with itsresource base estimated at around 250 billion barrelsof oil equivalent, could become the foundation of a newera in global oil industry development over the nexttwo decades, potentially transforming the outlook forRussian oil production.However, the history of the Russian and Soviet oilindustries suggests that caution is needed, especiallyfor any foreign investors. It is clear that foreignownership of “strategic” oil resources will not bewelcomed, leaving international oil companies in aservice role rather than as direct investors. They willbring new technology and global offshore experience,which is undoubtedly lacking in the Russian oil sectorat present, but once these skills have been absorbedthe experience of foreign oil companies over the past150 years in Russia suggests that turbulence may reemerge.No doubt the IOCs currently in partnershipswith Rosneft and Gazprom are aware of this threat,and perhaps this time around the Russians too maysee the long-term benefit of interaction with the globaloil industry, but finding the balance between Russia’sdomestic and geo-political goals and the investmentparameters of international oil companies could be aconsiderable challenge over the long term. •Rosneft has been happy to welcome companies who can offer technical expertise and financing to its Arctic projectsPhoto courtesy of Rosneft64Addressing Global Energy Challenges

Regional DevelopmentsFlagship of theworld’s LNG fleetBy Mahmoud Abu-SaadStrategic Planning Directorate, Qatar PetroleumQatar is a relative newcomer to the global gasmarket. Its initial appearance dates back lessthan two decades, but the country is now thelargest producer of LNG – a position we haveheld since 2006, with annual production capacityoutstripping the next largest producer by more thantwo-and-a-half times.The jewel of the gas industry in Qatar is the North Fieldgas structure, which was discovered off the coast ofQatar in 1971 by Shell, while prospecting for oil. Althoughenormous natural gas reserves were discovered –currently estimated at 866 trillion cubic feet (tcf), placingQatar third in the world after Russia and Iran – gaswas not perceived at that time as a valuable resourcein an oil-based economy. Furthermore, lack of interestfrom international oil companies to engage in capitalintensiveLNG projects further delayed the monetisationof the North Field by almost 20 years.At that time, neither internal nor external conditionswere conducive to the development of large scale exportorientedgas projects, either as LNG or via pipeline toneighbouring countries. Regional tensions played animportant role in delaying the development of the NorthField, with the breakout of the Iran-Iraq war in the early1980s turning the Gulf waters into a war zone, dispellingany hope for LNG projects. Internally, LNG experienceand access to large amounts of finance would requireforeign partnership to proceed on any gas exportdevelopment plans, something Qatar could not secureat that time, especially when Shell exited Qatar, furtherdelaying North Field utilisation ambitions. Furthermore,local demands for gas were at that time satisfied by theassociated gas from Qatar’s oil production.Gas was becoming more of a global commodity asLNG unlocked the potential of what was previouslylimited to regional pipeline trade, by providing aneffective supply alternative for gas sellers locatedfar from their consumers’ markets. In the late 1980s,demand projections emerging from East Asia suggestednew opportunities for LNG supply from Qatar. Japaneseelectric and gas companies were the main buyers ofLNG in the world and the first to express interest inQatari LNG. Japanese companies offered long-termcontracts for purchases whilst their government offeredfavourable financing via loans and export credits, helpingto bankroll several new LNG gas supply projects.In 1984, a joint venture agreement was signed betweenQatar and several international partners, laying downplans for the establishment of the first LNG developmentof the North Field (Qatargas). However, it was not until1997 that Qatar’s first LNG shipment reached the shoresof Japan. The project faced a number of internal andexternal challenges, delaying any tangible benefits.Qatar realised that owning massive gas reserves wasnot enough to strike a deal with clients seeking secure andreliable supplies, hence the government embarked uponthe construction of appropriate export infrastructurefacilities in order to reassure clients. Meanwhile, Qatarpartnered up with international oil companies who hadaccess to risk capital, diversified technical expertise andworldwide marketing ties. The strenuous efforts madeto overcome the technical, infrastructural, logistical,marketing and funding hurdles finally paid off, openingup the opportunity for Qatar to emerge as a reliable,competitive and long-term supplier of LNG.The geopolitical instability in the region encouragedQatar to give more attention to domestic gas developmentprojects and the first large scale gas utilisation projectwas commenced in 1991. Dubbed North Field Alpha, theproject aimed at supplying downstream expanding gasdemand from the fertilisers, steel, petrochemicals, andpower and desalination sectors.Consecutively Qatar began constructing a large gashub at Ras Laffan to host all LNG projects, offeringinfrastructure, facilities and services, with the aim ofproviding industries and other stakeholders with anefficient and competitive business environment. Theindustrial city’s facilities include one of the largestspecialised hydrocarbons-exporting ports and LNGberths in the world. Ras Laffan became a world-classexporting point, providing a significant stimulus toQatargas and subsequently to the RasGas projects. RasLaffan was completed in 1996.Backed by strong technical and financial resources,as well as possessing a world-class gas hub, Qataremerged as the new competitive global LNG supplier,opening a new era for Qatar where its energy exportportfolio starts to shift to natural gas and to move awayfrom heavy dependence on oil. Its global strategy wasbuilt on three pillars: development and ownership ofa fully integrated LNG supply chain to capture value,leveraging technology and economies of scale to reducecost, and building a reputation as a reliable and flexiblesupplier to break into new markets.World Petroleum Council 80th Anniversary Edition 67

Regional DevelopmentsAs the enormity of the North Field was becoming moreapparent – its vast size extends over an area of 6,000km 2 ,making it the single largest non-associated gas field inthe world – it became clear that the field could not bedeveloped by a single operator. In 1993, the second LNGcompany, Rasgas, was established to produce LNG andrelated products. The development strategy was basedon phased development where areas are allocated toindividual projects which can supply sufficient gas forexport throughout the project lifecycle.With its unique LNG model, Qatar was able to ensurereliable and flexible cost-effective supplies to itscustomers around the world. Our integrated LNG modelincludes prudent management of the gas reserves andupstream facilities, development of gas liquefactionfacilities, ownership and operation of the LNG fleet,co-investment in regasification terminals and flexiblemarketing agreements.At the offshore facilities, we applied advancedtechnology and optimised investment by maximisingproduction from wellhead platforms and minimisingthe amount of equipment and associated operationaland maintenance staff needed to manage the facilities.Our optimisation schemes include installation of largebore wells to maximise production on each platformand moving the dehydration facilities onshore next tothe treating and liquefaction facilities.Qatar achieved a fundamental milestone for the LNGindustry by scaling up liquefaction trains to a recordnew level using Air Products’ proprietary APX processtechnology. Currently 6 out of our 14 LNG trains havethe capacity of producing 7.8 million tons per annum,making them the world’s largest LNG trains ever to beWith 54 vessels, Qatar has the largest LNG fleet in the worldbuilt. The use of this technology reduced unit costs toa level unmatched by other producers, giving Qatar acompetitive edge in global markets.Another determinant factor in our LNG value chainwas transportation carriers. The cost of shipping,particularly to faraway customers, has a significantimpact on project economics, a challenge Qatar wasable to overcome by increasing the size of LNG vessels.The new generation of LNG tankers, Qflex and QMax,capable of delivering 216,000 and 266,000 cubic metresof LNG respectively, reduced the capital costs as fewerships were needed, consequently trimming operatingcosts. With a huge fleet consisting of 54 vessels, Qatar’sNakilat is firmly established as the largest LNG shippingcompany in the world. The breakthrough in ship sizetechnology, coupled with low-speed diesel engines andon-board re-liquefaction plants that virtually eliminatecargo loss through LNG boil-off, enabled us to provideour customers with safe and reliable LNG transport.Our production and transport capabilities werecomplemented by a dynamic marketing strategy. Thecustomised sales and purchase agreements that fitcustomers’ needs and our rigorous delivery schedulesquickly earned us a reputation for reliability. In addition,Qatar’s willingness to respond to long-term buyers’unexpected needs brought additional customer loyalty.Another vital element of our LNG operations is to takean active role in constructing LNG receiving terminals.Currently, Qatar co-owns three receiving terminals,Milford Haven in the UK, Adriatic in Italy and Golden Passin the US, and leases terminal capacity on a long-termbasis, as is the case with Belgium.As a result of this strategy, Qatar has actually becomethe flagship in the internationalLNG industry. We are now by farthe largest supplier of LNG inthe world with 77 million tonnesof annual capacity. Our LNGsupplies are reaching marketsin Asia, Europe, North America,South America and Africa. Witha huge fleet of tankers, wecan efficiently transport LNGsupplies to these markets andcan dynamically divert cargoesfrom one market to another asand when needed. •68Addressing Global Energy Challenges

10 years committed to Colombia,as 10 the years technical committed authority to responsible Colombia,foras thepromotingtechnicalthe optimalauthorityandresponsiblesustainabledevelopment for promoting of the the optimal country’s and hydrocarbons. sustainabledevelopment of the country’s hydrocarbons.The ANH enables optimum use of resources and contributesto the development of the country,The ANHrespectingenablesandoptimumharmonizinguse of resourcesthe environmental,and contributestosocial,the developmentand economicof theinterests.country,respecting and harmonizing the environmental,social, and economic interests.Agencia Nacional de HidrocarburosAvenida Calle 26 No. 59-65 Piso 2, Bogotá D.C., ColombiaAgencia Nacional deTeléphono: (571) 593 17 17 |HidrocarburosFax: (571) 593 17 18 | National Hotline 018000 953 000 | e-mail: info@anh.gov.coAvenida Calle 26 No. 59-65 Piso 2, Bogotá D.C., Colombiawww.anh.gov.coTeléphono: (571) 593 17 17 | Fax: (571) 593 17 18 | National Hotline 018000 953 000 | e-mail: info@anh.gov.cowww.anh.gov.coanhFPad.indd 1anhFPad.indd 15/10/13 4:21 PM5/10/13 4:21 PM

Technical Developments50 years of 3D Seismic,and more to comeBy Sara N. OrtweinPresident, ExxonMobil Upstream Research CompanyPhoto courtesy of WesternGecoAs members of the World Petroleum Congresscelebrate the organisation’s 80th anniversary,we at ExxonMobil join you in also marking the50th anniversary of 3D seismic technology.3D seismic was invented by Humble Oil, a predecessorof ExxonMobil, and underpins so many subsurfacedecisions in our industry that it is worth reflecting onits origin and significant progress.Prior to the 1970s, the 2D seismic reflectionmethod was the industry’s tool of choice exploringfor hydrocarbons. However, this approach has wellunderstood limitations in its ability to resolve complexstructures in the subsurface.The invention of 3D seismic dates back to February1963, when Whit Mounce of Humble Oil proposeda method to conduct a seismic survey that wouldprovide a 3D image of the subsurface. Recognisingthe relatively massive dataset that would be collected,the Humble Oil team also partnered with GeophysicalServices Inc. (GSI) to develop and build the firstdigital recording system in 1964. GSI’s subsidiary onthe project, Texas Instruments, has since grown tobecome a leading global semiconductor design andmanufacturing company.The initial 3D field test was conducted in 1964 andThe world’s first marine seismic vesselthe first production 3D seismic survey was shot in1967 over the Friendswood field located just southof Houston. Today the Friendswood location remainsExxonMobil Upstream Research Company’s primaryproving ground for seismic acquisition technology.Exxon (another predecessor of ExxonMobil)continued to improve the technology and afterconducting twenty 3D surveys the company made thefirst public presentation of results at the 1970 annualmeeting of the Society of Exploration Geophysics.Shortly after the meeting, Amoco, Chevron, Mobil (alsoa predecessor of ExxonMobil), Phillips, Texaco andUnocal formed an alliance with GSI to pursue this newtechnology, too. The technology race was on.The first 15 yearsEarly 3D acquisition systems were adapted fromexisting 2D technology, but the late 1960s and 70s werea time of rapid technology development. 3D surveyswere initially limited to the land environment. Weightdrops and dynamite were the early seismic sourceof choice, although alternative land sources wereemerging, such as the “vibroseis” (a truck mountedvibrating source) invented by Conoco.Similarly, the first marine air-gun source, inventedby Bolt Technology,became available in1964. The low numberof recording channels(24-28) required anenormous amount ofrepeated source effortto cover an area; asa result, survey sizeswere on the order offour square miles orless. In 1975, TexasInstruments introducedthe DFS V system,which was capable ofrecording 120 channels.It was a hugely popularsystem and remainedthe leading technologyfor several years.A critical requirementfor understanding a70Addressing Global Energy Challenges

Technical Developmentsseismic recording is the ability to reposition the recordedseismic energy to its true subsurface origin (reflectionpoint) – a process which is called migration or “imaging.”Remarkably, the mathematics of the problem werefirst described by the British physicist Robert Hooke in1687. However, prior to the emergence of computers,seismologists were only able locate reflection pointsusing pencils to trace semicircle templates on paperrecords. In the mid-1960s, ExxonMobil developed amethod to reposition data in three dimensions, usinganalogue processing technology to produce time slicesthrough the seismic image. The data were recorded tofilm and projected onto a screen, where paper tracingsof the data could be made and interpreted.In 1964, IBM introduced its 360 series of digitalcomputers, which launched the era of modern seismicdata processing. As computational power increased,our ability to implement seismic migration theoryalso increased. However, to this day, our knowledge ofseismic wavefield propagation remains ahead of ourability to utilise the full complexity of the recorded datato create subsurface images.The revolution of the 1980s and 1990sIn the late 1980s channel counts increased toseveral thousand activesensors, and in themarine environment thetransition was made fromvessels carrying a singlestreamer three kilometresin length to vessels towingmany streamers of eightkilometres and longer.At the beginning of thisperiod many of the majoroil companies ownedand operated their ownseismic vessels. As theseismic industry maturedand the number of serviceproviders increased, fielddata acquisition by themajors evolved to awardingseismic contracts viacompetitive bidding. Laterin the period, purpose-builtA 1970s era seismic vessel3D vessels such as Petroleum Geo-Services (PGS)“Ramform” class became the flagship vessels for theglobal fleet. The first Ramform was launched in 1995and had the capability to deploy 10 streamers, allowingit to cover a record-breaking one kilometre-wideswath. A few years later PGS broke their own recordby launching vessels with 16 streamers.The motivation for more streamers was simpleeconomics – the more area covered by a single shipin one pass the more cost effective the techniquebecame. 3D surveys grew from a few hundred squarekilometres to tens of thousands of square kilometres.In data processing centres, major oil companies andseismic contractors eagerly purchased the latest in along line of mainframe supercomputers developed byIBM, Cray, Thinking Machines and Sun in order to applyincreasingly sophisticated mathematics in the pursuitof more completely processed data.An interesting phenomenon was the “commoditisation”of 3D seismic processing. Up until the mid-1980s thecomputational requirements and complexity of thesoftware algorithms restricted seismic processingto large vendors and major oil companies. However,a former Chevron geophysicist named Rutt Bridgeschanged that with the development of the ProMAXPhoto courtesy of WesternGecoWorld Petroleum Council 80th Anniversary Edition 71

Technical Developmentsseismic processing system. Originally developed andmarketed by Advance Geophysical in 1987 for fieldquality assurance monitoring, the system maturedrapidly and by the early 1990s included the capabilityto perform 3D processing. The software could run onmultiple computing platforms and allowed companiesto link their own proprietary code into the system.In the early 1980s, Mobil geophysicist Royce Nelsonwas convinced that it was possible to build a computerthat would allow for interpretation of 3D data on aworkstation. Nelson ultimately left the company andpartnered to form Landmark Graphics Company. The firstLandmark workstation was introduced in 1984 and veryquickly transformed the entire interpretation workflow,making paper and pencil obsolete for 3D interpretation.Landmark Graphics went on to become a Fortune 100company and was bought by Halliburton in 1996.With the large growth in vendor technologies,research at international oil companies in the 1990stended to focus on seismic processing solutions,interpretation workflows, data analysis, operationalquality assurance, safety and environment. Oneexample was the development of 3D seismic-basedreservoir monitoring techniques known as TimeLapse, or 4D seismic. This was also a period ofenormous growth in collaboration with universitiessuch as Stanford, Colorado School of Mines and DelphUniversity of Technology, resulting in many of theunderlying algorithms utilised in industry today.Recent developments and future trendsSince 2000 the pace of advances in 3D technologyhas not slowed. Channel counts on large land surveys,particularly in the Middle East, have expanded to over100,000 active sensors. There are research projects inprogress to reach one million active sensors. Multipleseismic sources are being utilised simultaneously.Wireless systems enable surveys to be acquired overdifficult terrain or in urban settings where cable-basedsystems would be problematic. A significant enablerhas been the replacement of conventional mechanicalgeophone sensors with micro-electro-mechanicalsystems (MEMS) sensors. These solid-state devices areoperationally more robust, have higher sensitivity andlower weight, and provide the ability to measure wavesarriving from different directions.In the marine environment, many new systemshave been developed for “on bottom” use, either withconventional cable or optical fibre, or autonomous nodesdeployed by remotely operated vehicles in water depthsof 3,000 metres. Although originally designed to “infill”streamer 3D surveys around oil field infrastructure,“on bottom” sensors are becoming the tool of choice incertain settings for entire surveys due to better signalquality compared to towed marine streamers and theability to include MEMS sensor technology.3D seismic vessels with up to 24 streamers are nowunder construction and emerging streamer solutionsinclude both conventional hydrophone sensors andgeophone or MEMS-based technologies. In addition,other special purpose vessels, such as the distinctiveULSTEIN X-BOW class, are designed for quieteroperations, greater fuel efficiency and arctic operationsinvolving sea ice. Survey designs are becoming morecomplicated, requiring multiple vessels to image thesubsurface from several directions.As marine seismic use has grown, the industry hasproactively addressed environmental concerns byadopting new procedures such as soft starts on air-gunsources, marine mammal observers on board vesselsand collaborative efforts to develop alternative seismicsource technologies. Another improvement has beenthe transition from kerosene-filled seismic streamers tosolid and gel-filled streamers to reduce the risk of leaks.Since 2000, the interpretation of seismic datahas benefited from the maturation of the seismicinterpretation workstation and the inclusion of highendvisualisation centres. Evolution of acquisition andprocessing technology has resulted in a tremendousimprovement in the resolution and reliability of thedata. Interpretation has moved from the qualitative toquantitative prediction of rock properties and changesin the rocks and fluids within the reservoir.On the processing side, much of the seismic signalpainstakingly acquired in the field today is removed as“noise” due to limitations of current imaging algorithmsand computing capability to handle the complexityin a practical timeframe. However, a new generationof supercomputers is enabling seismic processingresearchers to develop and apply algorithms that morecompletely account for the physics of seismic wavepropagation, reducing the need to remove valuableseismic data.Today, industry is in the early days of implementing72Addressing Global Energy Challenges

Technical Developmentsa technology called full wavefieldinversion, or FWI. The concept ofFWI has been known for severaldecades, but up to now, limitationsin both software technology andcomputer processing power haveprevented practical implementationof what is considered one of thegrand challenges of geophysics.ExxonMobil researchers havedeveloped new software algorithmsthat harness more of the informationavailable within the complexity ofthe full wavefield. ExxonMobil’spatented simultaneous sourceinversion methodology allowsseismic recordings from thousandsof individual sources to be processedthousands of times faster thanalternative industry methods. Toenable practical implementationof this new simultaneous sourceinversion technology, ExxonMobilinstalled a high-performance,petascale supercomputer systemcontaining hundreds of thousandsof processors and capable ofprocessing a full wavefield seismicdataset in days or weeks, insteadof years.Reflecting on the growth of 3Dseismic technology since those earlydays, it is humbling to consider thesignificant creativity and innovationthat occurred during developmentof the 3D seismic method. However,realising the full potential of the 3Dseismic method is still in its relativeyouth. From the birth of 3D in 1963,to FWI and beyond, ExxonMobilis committed to the developmentof high-impact technology in theseismic arena. Our success incontinuing the development of thistechnology will require the sameinnovative spirit that characterisedthe first 50 years.•Mobil Search: The last heritage ExxonMobil company-owned 3D seismic vesselRamform Titan: PGS purpose-built 3D seismic boat, capable of carrying 24 streamersUlstein design Explorer class vesselPhoto courtesy of PGSPhoto courtesy of WesternGecoWorld Petroleum Council 80th Anniversary Edition 73

Technical DevelopmentsA decade of upstreamtechnology innovationBy Paal KibsgaardChief Executive Officer, SchlumbergerFor the upstream exploration and production(E&P) industry, the story of the last decade hasbeen one of remarkable resilience, extraordinaryinnovation, and, despite setbacks, significantgains in safety and environmental conformance. Aftersuffering a brief drop during the 2009 global financialcrisis, the demand for oil and gas has continued toramp up annually, with oil prices rising rapidly. Theresult today is that the industry is thriving, with oil andgas continuing to furnish 60 per cent of all the world’senergy needs.During the past decade, technological innovation hasmade a strong contribution to the upstream E&P industry.Three key drivers have been pushing the technologyenvelope during this time and continue to do so. The firstdriver is that easy oil has been largely exploited, and whatremains is more difficult to extract. Hard-to-extract oil isfound in increasingly hostile environments such as deepoffshore and the Arctic. At the same time, geology isgrowing more complex, with discoveries in increasinglyfragmented and elusive reservoir structures such aspresalt, and in previously untapped basins, in particularunconventional shale liquids.The second driver is gas, where two revolutions– unconventional gas and LNG – are turning anincreasingly global gas market on its head. Thethird is efficiency. Exploiting oil and gas resourcesis increasingly sophisticated and expensive, andefficiency gains are important to maintaining marginsfor both operators and service companies.Advances in seismic acquisitionLet’s start at the beginning with exploration. Harderto-reachoil requires ever-more precise subsurfaceimaging; and seismic acquisition, the tool of choice,has seen correspondingly significant advances duringthe last decade. In the marine environment, theprevious deployment of multiple streamers in linearshootingconfigurations has evolved to overlappingcoil-shooting patterns. This technique provides muchricherazimuthal data essential for improving thesubsurface image.Recently, another step change in image resolutioncame from recording wavefronts in the three spatialaxes rather than the single hydrostatic pressuremeasured previously. Through an extensive researchand engineering programme, Schlumberger developeda new category of seismic imaging that not only includesthe acquisition technology but also the algorithms andworkflows needed to manage such an unprecedentedlarge amount of data. This improvement in imaging isas profound as was the move from X-rays to 3D scansin the world of medicine.Accompanying acquisition and imaging advanceshas been a move to single-sensor recording ratherthan the traditional group recording. Single-sensorrecording dramatically improves the subsurface imageprocessed from raw data, providing superior verticalresolution and opening the door for a more-detailedgeologic interpretation. In addition, it more accuratelyrenders the inversion of the seismic image, a techniquefor estimating all-important rock properties in theseismic cube that help determine the likelihood of ahydrocarbon discovery.Drilling aheadLike seismic acquisition and imaging, drilling has seenmore than its fair share of technology innovations in thelast 10 years. There is continual pressure on drilling tobe more efficient; two key challenges are increasingoffshore day rates and the common requirement todrill a field from a single location. Efficiency is alsorequired onshore, particularly for the systematicinfill drilling of brownfields. One key to efficiency is tounderstand and simulate the behaviour of the entirecombination of the drillstring, bottomhole assemblyand bit to ensure stability, maximise penetration andprogressively improve drilling performance from onewell to the next. Meanwhile, each component hasevolved, especially bits. Polycrystalline diamond (PDC)bits, previously used only for hard rock, have developedto the point that they now account for more than 60 percent of bit use in rocks of all types.Initiated in the 1980s, horizontal drilling continues toevolve dramatically, with records being broken everymonth. It is now not uncommon to drill a well thatextends 12 kilometres or longer to reach offshore assetsfrom a land base or from a single offshore platform.Additionally, the concept of maximum reservoir contactcalls for multiple horizontal drains to be developedfrom a unique mother wellbore. The design, trajectorymanagement and completion of these modern wellswould have been unimaginable 10 years ago.The enabling technology comprises sensor74Addressing Global Energy Challenges

Technical Developmentspackages placed close to the bit that communicate tothe surface in real time through the mud column anda mechanism downhole to steer the drilling in anydesired direction. Virtually every traditional loggingmeasurement has been packaged into the drillstring’sbottomhole assembly, a tough engineering feat giventhe harsh drilling environment. The sensors cannow see deeply above and below the current welltrajectory, so corrective steering can be invoked ingood time to avoid leaving a pay sand, for example.The steering was originally performed usingconventional downhole motors with a stationarydrillstring assembly, but the latest-generation motorsnow enable steering while continuously rotating theentire drillstring. The net effect of real-time sensingand rotary steerable system provides the equivalentprecision in targeting a reservoir as hitting a tenniscourt approximately 10 kilometres away.Sophisticated reservoir modelingHowever sophisticated the steering, the viability of eachwell ultimately depends on correctly understandingthe reservoir’s shape, size and complexity. Critical tothis understanding is reservoir characterisation, whichdepends on a huge variety of subsurface measurementscoupled with the ability to integrate them into a coherentsubsurface model. Seismic images and inversions areobviously relevant and are now being systematicallycombined with data from finer-scale well logs.First invented in the late 1920s, well logs nowmeasure multiple rock and fluids physical properties –all of which are interpreted to provide a comprehensivemodel of the producing zone. Perhaps the mostdramatic progress in logging has been in sampling thefluids produced from zones of interest. The ultimatetest for an exploration well is to flow it to surface andobserve and measure the produced fluids and gases.As a precursor, however, wireline-conveyed reservoirtesting tools can isolate and sample fluids producedby each individual zone. Early downhole testing toolshad two main limitations: sample contamination bymud filtrate that permeated the formation duringdrilling, and the requirement that sample analysisbe performed at the surface, a costly procedurethat irrevocably altered their physical and chemicalproperties. Today’s in situ testing tools solve bothof these problems, eliminating the mud filtrate andproviding an increasingly sophisticated real-timehydrocarbon-component analysis downhole.The key value of reservoir characterisation data is thecreation of a coherent reservoir model. This requirestwo essential components: skilled geoscientists andpetroleum engineers, and a software platform that canhandle multiple data forms, support a multiplicity ofprocessing and interpretation algorithms, and enableiterative interpretation workflows to reduce or quantifyuncertainties in the reservoir model. After many yearsof development, the industry now has such a platform.Reservoir simulationThe end goal of the reservoir model is to simulateproduction with a view that matches the results toactual production and to progressively improve themodel so it can be used to predict future reservoirbehaviour. We are now into the third generation of suchreservoir simulators. Today, simulators handle millionsof cells, boast a variable gridding technique to maximiseprecision near the wellbore, and incorporate thermal andgeomechanical effects. Thermal methods are requiredto handle enhanced oil recovery using steam, andgeomechanics is necessary to simulate the compactionand fracturing of a reservoir as pressures decline duringproduction. Geomechanics has fully come of age duringthe last decade; besides its reservoir application, it isa mandatory element in designing well trajectories toavoid hole collapse and lost circulation.Advanced production techniquesThe technology revolution has equally touchedproduction. Significant advances in completion designnow enable selective stimulation of producing zones,and intelligent completions permit real-time downholemechanical adjustments to optimise production. Themost publicised production technology has to do withhydraulic fracturing, a technique that enabled theunconventional gas revolution in the US. Hydraulicfracturing was already a well-established technique,and in the last few years, it has benefited from intenseresearch into each of its key components: optimisationof proppant thanks to material science, improvementin the physical and chemical properties of the fluidused to pump proppant, establishing complex pumpingregimes for optimising the proppant injection, andharnessing the discipline of geomechanics – this timeWorld Petroleum Council 80th Anniversary Edition 75

Technical Developmentsfor understanding the pressures required to breakdown the formation.Meanwhile, subsea production, which is ofincreasing importance as more and more giant fieldsare discovered offshore, brings significant challengesincluding high development costs and complexreservoir well and production dynamics. Recoveryrates from subsea developments can be less than halfof what we see in conventional topside developments.Accordingly, there has been an evolution of the subseahardware in increasingly sophisticated architectures,the development of reliable subsea multiphasepumps and the flow assurance understandingrequired to ensure a trouble-free flow to surface.The key to unlocking the recovery potential of subseadevelopments, however, will require a total subseasystem optimisation from subsurface to ocean floorand up through the riser to the topside. A fundamentalThe HiWAY* technique creates highly conductive flow channels, so hydrocarbonflow is no longer limited by proppant conductivity. A comparison of a fracturepacked with proppant (left) and HiWAY flow channels (right)* Mark of Schlumbergerstarting point in total subsea optimisation is a detailedunderstanding of the reservoir and the ability topredict well and field production over the lifetime ofthe reservoir.Meeting future challengesThis brief survey offers a mere glimpse at thetechnology revolution that has been taking place inthe upstream E&P industry during the last 10 yearsand that will need to be sustained to maintain industryproductivity and advance efficiency. However, we mustnot overlook the human element. The availability ofexpert geoscientists and engineers of all disciplinesthreatens not to keep pace with technology. Thecombination of lower recruiting in the 1980s andthe progressive retirement of our senior expertsthreatens forward progress. It is estimated that, by2015, the upstream E&P industry will be short 5,000petrotechnical experts. Addressing thisimbalance is of upmost importance anda critical factor for future technologybreakthroughs.Finally, we must embrace all new areasof science and engineering critical forensuring the continuation of technologyinnovation in our industry. To pinpoint a few,automation of the drilling process mustcontinue. Another key area is materialscience, especially nanotechnology, whichremains to be fully exploited for manyupstream areas (e.g., the developmentof new cement composites for extremetemperatures and gas regimes). Anotherarea is sensor miniaturisation, whichhas potential applications in seismicsurveying, drilling and logging.In the past, the development of thesenew ideas fell primarily on E&P companiesand service companies. Looking ahead,the E&P industry needs to fully embracetwo other key players: academia andtechnologically driven industries outsideof oil and gas. If we remain open to allmanners of ideas and advances, we canbe confident that this inspiring recordof upstream technical innovation willcontinue for many more decades. •76Addressing Global Energy Challenges

Technical DevelopmentsUnconventional tech: Raisingthe bar, lowering the costBy Jeff MillerChief Operating Officer and Executive Vice President, HalliburtonWe all know now that ‘unconventional’drilling and completion technologieshave transformed North American oiland gas markets. It could be said thatunconventional technologies are the convention inNorth America. While dramatic improvements haveoccurred, unconventional technologies continueto improve. What I see in the future is continuedimprovements, incorporating and coordinatingincreased surface efficiency, deeper subsurfaceinsight and more advanced chemistry leading tolower cost and more barrels.North American oil and gas production both havebeen on a steep upward slope, nearly 40 per cent higherthan they were in the mid 2000s. Energy efficiencyinitiatives and the economy have kept demand flat,so each new barrel reduces oil imports. There nowis serious talk about the US becoming energy selfsufficientin the foreseeable future.How did this happen? In a word, technology. Newmethods of extracting oil and gas became available,accepted and cost competitive.So, where is all of this going? As the world’seconomy and the demand for energy grow, two trendswill dominate. First is the spread of unconventionaltechnologies beyond North America. North Americais not the only place with sizeable unconventional oiland gas reserves. In fact, the US and Canada haveonly about 26 per cent of the world’s technicallyrecoverable shale gas resources. Researchers predictthat about 70 per cent of additions to the world’shydraulic horsepower would be in countries outsideNorth America. The second is the potential for NorthAmerica to become an exporter of natural gas. Thebacklog of applications to the Department of Energy(DOE) for Liquefied Natural Gas (LNG) export licensesrepresents almost 25 BCF/day of capacity (over 1/3 ofcurrent production).The RapidFrac System enables accurate fracture placement with multiple entry points per zone with no intervention78Addressing Global Energy Challenges

Technical DevelopmentsWhat forces will drive these two trends? The waythat I see it, there are two. The underpinning to eachis improvements in technology. The first is publicacceptance. In the US and Canada, that meansextending the industry’s track record in developingunconventionals in a manner that reduces theenvironmental footprint, both seen and unseen. In othercountries, the industry will need to convince regulatorsthat the US model (safe and efficient) can be replicated.Technology will answer this challenge by reducing theabove-ground operational footprint, improving wateruseefficiency and bolstering wellbore integrity.The second is cost. Unconventional productionwill grow as fast as it can be developed economicallyat competitive world market prices. Competitionmatters, and if our experience in North America tellsus anything it’s that cost pressures are relentless. Theonly answer to that challenge is to drill wells and getthem into production smarter and faster at the lowestBOE cost possible. This doesn’t necessarily meanlowest first cost. It means the best return possible onthe investment in the well. Again, that happens whenwe 1) improve surface efficiencies, 2) develop superiorsubsurface insights (i.e., understand the reservoir toextract the maximum amount of oil and gas from thereservoir), and 3) apply state of the art chemistry tosolve unique production challenges, leaving as littleimpact on the environment as possible.Surface efficiencyDemand for materials used to fracture (frac) horizontalwells in shale plays can be daunting when overlaidwith the space constraints of most well site locations.Proppant storage is a major space claim on a location.Advanced proppant storage units are oriented vertically,reducing the footprint and are solar-powered, reducingfuel consumption.Fuel consumption is another significant factor, bothfrom cost and environmental impact perspectives.Dual fuel (natural gas and diesel) engines can decreasethe cost of fuel required to power a fracturing spreadand supports the goal of minimising the environmentalfootprint of fracturing operations.For every barrel of oil or gas produced approximatelythree barrels of water are produced. Furthermore 10to 40 per cent of the fluid used in fracturing operationsflows back during the subsequent clean-up stages.The new SandCastle PS-2500 vertical silo helps addressproblems with space constraints at most well sitelocations. It offers a reduced footprint with no volumecompromise as compared to a traditional horizontalproppant storage unit and is a smarter way of storingproppant, using solar power for all power needs andeliminating the diesel engine normally requiredAt the same time, access to freshwater is becomingincreasingly difficult for operators around the world.Balancing the disposal and/or reuse of this water andaccess to fresh water in a way that is environmentallyacceptable and economically feasible remains achallenge, but clearly solvable.Subsurface insightIntegrated workflows improve economics by identifyingthe best solutions for well placement, completion, andstimulation using new modeling tools. They are designedWorld Petroleum Council 80th Anniversary Edition 79

Technical Developmentsto solve specific customer challenges through serviceand technology collaboration. Through leading-edgedata acquisition and visualisation, new tools are beingused for reservoir evaluation, field development andplanning, and asset optimisation. Because successfulstimulation depends heavily on data acquisition andquality, wellbore spacing and placement, and evaluationand drilling execution, the workflow can be used at anypoint throughout the lifecycle of an asset. The purposeis to create a detailed subsurface model that drivescontinuous improvement to full-field developmentusing shale-specific attributes, which expands uponthe standard attributes for conventional reservoirs.Knowing the fracture geometry improves economicsby increasing reservoir productivity and/or reducingcompletion costs. This includes optimising individualfracture treatments, optimising fracture length, verifyingeffective pay zone coverage, or optimising the entirefield development in terms of well spacing and welllayout. Micro-seismic fracture mapping enables realtimemonitoring of fracture height and length, fractureazimuth, fracture asymmetry and fracture growthversus time.Unconventionals present new geosteeringchallenges. Well positioning no longer consistsof staying clear of known reservoir boundaries.WellLock resin helps provide wellbore integrity, and can act as an annular barricade against water and gas leaks. One foot ofresin has been observed to resist a pressure differential of 1,000 psi80Addressing Global Energy Challenges

Technical DevelopmentsIdentifying the most desirable formation sectionrequires unconventional evaluation methods: Acousticlogs and elemental analysis help identify zones withhigh organic carbon and high brittleness index; highresolution electrical images identify naturally fracturedformations and indicate the orientation of the stressfield; emerging advanced mineralogy assessmentmethods from cuttings are used to produce a nearreal-time mineralogy log and guide the well towardsthe less clayey intervals.Optimal fracture spacing within a given well alsoplays an important role in completion success. Stagesare selected to span uniform intervals rather thanstraddling both ductile and brittle intervals.There are many new options for horizontal multistagefracture stimulation completions to provideincreased efficiency, improve well economics, andmaximise stimulation effectiveness relative totraditional “plug and perforate” methods. Integratedcompletion systems enable a variety of stimulationtreatments and can be tailored to meet the challengesof each application, including ball operated sleeves,mechanically operated sleeves, swell packers andhydraulic set open hole packers.Wellbore integrity has always been and will continueto be a key factor in ensuring the public acceptanceof unconventional technologies. Annular flow ofwater or gas behind casing and liners (sustainedcasing pressure) can be experienced anywhere in theworld. A properly designed resin system can improvewellbore stabilisation and the hydraulic annular sealby complementing the cement sheath during drillingand completion operations. A resin system also can beused to regain wellbore architecture integrity shouldremediation be required.ChemistryEach shale behaves differently, requiring customisedchemistry. Matching the best fluid chemistry to shalerocks during the completion process and during the lifeof the well can improve well economics and minimiseenvironmental impacts. Attention to water chemistryand bacteria during fracturing prevents productionchallenges, such as reservoir souring, corrosion, solidsformation (scale), and paraffin.Choice of fracturing fluids is essential and guarbasedfracturing fluid systems have historicallybeen the fluids of choice. However, guar residue cansignificantly damage the proppant pack when producedback following a fracturing treatment. State of theart fluid systems can deliver improved well cleanup,controllable viscosity and salt tolerance.Biocides and biological control technologies areformulated to sterilise water used in fracturing jobsand help maintain asset integrity due to problems, suchas microbiologically induced corrosion (MIC), biomassaccumulation, oil carryover and polymer degradation.Ultraviolet light bacteria control processes can also beemployed, enabling operators to significantly reducethe volume of biocides used to treat for aerobic andanaerobic (sulfate reducing) bacteria. In some cases,biocide addition can be reduced to zero.Scale inhibitors can be customised to prevent mineraldeposition while also removing deposits which havealready formed. From there, a specific scale controlprogram and chemical application can be developed toincrease production and reduce the cost of operationsassociated with scale cleanup, removal and disposal.Best practice is to use surfactants specificallyformulated based upon results from core-sampletesting to take into account each reservoir’s uniquecharacteristics, leading to increased hydrocarbonproduction and reduced operating costs.Hydrogen sulfide (H2S) naturally occurs and mayalready be present in formations or can be the resultof sulfate reducing bacteria. It can be carried inhydrocarbon streams, resulting in severe corrosionin pipes, tubing and pumps, iron sulfide accumulationand leaks in flow and gathering lines, creating highfailure rates. H2S scavenger applications and specialtychemicals can help reduce H2S levels and lower overallsolids.ConclusionBy their very nature, unconventional assets are atechnology-driven business. When oil and gas was‘conventional’ the key to success was winning therace to find the resource and taking the risk that itwas actually there. Now, the keys lie in applying whatwe know to the extraction of the resource at a costthat makes it profitable. Continuous improvement intechnology development, deployment and adoptionis what we require to make unconventional assetdevelopment conventional globally.•World Petroleum Council 80th Anniversary Edition 81

Technical DevelopmentsBalancing risk and reward indeepwater oil and gasBy Christophe de MargerieChairman and Chief Executive Officer, TotalThe deep offshore is a major achievement of theoil and gas industry. Most people do not realisethat it is a relatively recent development.Various attempts were made in the 1980s.Indeed Total drilled its first experimental well in 1982 at1,740 metres depth. But deepwater production startedin earnest in 2000. The corresponding deepwater oiloutput for that year amounted to 2 million barrels aday (mb/d) and since then production has increasedat a sustained pace. It is expected to reach 10mb/d in2015, a five-fold increase over 15 years.This rapid development reflects the requirementfor additional oil and gas resources to meet growingdemand, compensate for the decline of conventionalreserves and the need to ensure a geographicallymore diverse supply. The estimated potential ofdeepwater amounts to more than 10 per cent of globalconventional oil and gas resources and to a quarter ofglobal resources yet to be found.The geographical concentration of known deepoffshore resources has been a bonanza in certainregions such as the Gulf of Guinea, Brazil, Gulf of Mexico,leading to huge local developments. Remarkabletechnical progress has been made and depth recordshave been successively breached: 400 metres, 1,000Total’s Pazflor development offshore Angola, one of the world’s largestmetres and then 2,000 metres depth. The 3,000 metremark is no longer too remote a target, thanks to theexperience accumulated and improved technology.But how deep is it reasonable to go and is it possibleto envisage deep offshore developments anywhere inthe world? The Macondo accident in the Gulf of Mexicoreminds us that the zero risk does not exist and thatcrisis management is an art more than a science.Furthermore, it involved top class players operatingin an area next to the largest global concentration ofoil specialists. It forces the industry to confront thequestion of limits.Total feels particularly concerned. We have beenplaying a pioneering role in deepwater developments.Total is operating today 6 large floating units andexpects to operate 10 by 2017 and more than 500subsea wells in various areas of the world.Due to the technical complexity and cost of theprojects, deep offshore is a business reserved for asmall elite of highly qualified players. It is a high-techindustrial niche within the oil and gas industry, whichhas been able to invent radically new developmentschemes and new architectures based upon gamechangingbreakthroughs in technology.The need for radical innovation is the consequenceof the hostile natural conditionsimposed by deep offshore: a highpressure and low temperatureoperating environment, absence oflight and with no access for humanintervention. These difficultiesare frequently exacerbated bythe large distance from the coastand reservoir complexity (hightemperature, high pressure, highviscosity).Addressing these challengeshas required a diversified set oftechnological solutions formingthe core of a new industry: floatingproduction and storage units, newriser concepts, gigantic subseaarchitecture including productionand transport systems, subseagas/liquid separation units, allelectric remote distance controlsystems and so on.82Addressing Global Energy Challenges

Technical DevelopmentsThe industry has been able to develop all thesesolutions and to operate them safely and efficiently. I amconvinced that we have a large pool of new technologydevelopments ahead of us which will allow us furtherto improve project economics, increase recovery ratesand manage properly ageing installations. In parallel,we have been able to improve exploration techniquesand seismic imaging to minimise the number of wellsand maximise output.Environmental challenges are a key part of deepoffshore developments. Operating huge subsea andfloating infrastructure in the middle of the sea requiresminimising the impact of operations and extremeattention to the environment, including preservation ofthe natural ecosystems, adequate water managementand minimal CO2 emissions. The starting point forsustainable development of deepwater resources isto establish an inventory ahead of each project with aview to determining the baseline for all environmentalparameters and the establishment of rigorousmonitoring programs.Biodiversity in the maritime areas concerned isa sensitive issue. Total has conducted surveys inpartnership with the French oceanographic instituteIFREMER, and we were impressed to discover theabundance and diversity ofspecies inhabiting great oceandepths. We see preservation ofoceanic biodiversity as vital andtake the appropriate measuresto minimise our imprint. Withrespect to water management,careful monitoring of producedwater is required, involving waterreinjection in the reservoirs asmuch as possible. Limiting CO2emissions relies upon a mix ofsolutions. Energy efficiency in theconduct of operations is critical,as deep offshore is an energyconsuming activity. Reinjectionof associated gas into the wellsor collecting it for liquefactionpurposes has become normalindustry practice.Of course risk must beevaluated in the context ofexpected return. Total has publicly said that todaywe would not enter into oil exploration in ice-coveredwaters in the Arctic zone. I believe that a seriousoperational failure occurring in an oil development inthis area could turn into a major disaster in a contextof extreme natural conditions, limited accessibility andthe difficulty of reacting quickly and efficiently in caseof emergency.This position does not apply to Arctic gas projects,as the risk of pollution is far more limited with gas. Atpresent Total has several offshore gas projects and asolid technical background in the Arctic zone. We feelable to lead sustainable developments in this area. Itis worth doing as the gas potential is large, mainly inthe Norwegian and Russian sectors; but it requiresoperational excellence and extreme precautionshave to be taken to preserve the unique maritimepolar environment.Technology and careful procedures have providedthe necessary solutions for addressing the complexenvironmental issues associated with deep offshoreproduction. I am confident that we will be able toproperly monitor the environmental impact of newfrontier developments in this domain, as well as newopportunities emerging in various parts of the world. •Pazflor uses technological world first gas/water subsea separation systemsWorld Petroleum Council 80th Anniversary Edition 83

Technical DevelopmentsNew ways of enhancingoil recoveryBy Jackie MutschlerHead of Upstream Technology, BPThe oil and gas industry has always followedthe same fundamental cycle of exploration andproduction: finding new resources whereverthey may be in the world, exploiting them untilit is no longer economical to do so, and then going insearch of fresh resources to start all over again.But as the hunt for fresh oilfields gets tougher, itmakes more and more sense to focus on the challengeof recovering more from existing fields. The traditionalimage of the hardy frontiersmen exploring new cornersof the globe for untapped resources is slowly beingreplaced by one of scientists working in labs to figureout how to tease more oil and gas from reservoirs.The potential in this area is enormous. Today, inconventional oil reservoirs an average of only around35 per cent of the available oil is recovered. Increasingthis figure by a single percentage point would equateto an increase of around two billion barrels of oilequivalent across BP’s fields around the world.In a typical oilfield, around 10 per cent of the oil canbe retrieved by simply drilling a hole, sticking a pipeinto the reservoir and letting the natural pressure forceoil up the well to the surface. As the oil is produced, sothe pressure falls in the reservoir until it can no longersupport a column of oil to the surface. At this point, thewell stops flowing.To recover more than that 10 per cent, the pressureneeds to be maintained. In most cases, this is done byinjecting water or gas, which flows through the poresin the rock, pushing the oil ahead of it. But the oil is“sticky”, so only some of it is pushed out of the pores thewater or gas reaches and injected water will alwaysfollow the path of least resistance and spread from thatpath as little as possible. So some of the rock is missedcompletely, resulting in that global average recoveryfactor of 35 per cent.BP’s efforts to improve that number are led by itsPushing Reservoir Limits (PRL) team, one of thecompany’s technology flagship programmes, and thepractice of persuading the rock to give up more of itsresources is known as enhanced oil recovery (EOR).An oilfield’s recovery factor is calculated bymultiplying together four factors:• Pore scale displacement – how well an injectedsubstance forces oil from the gaps in the rock• Sweep – how well the injected substance spreadsfrom the point at which it is injected (how far it getsfrom the path of least resistance)• Drainage – how much of the reservoir is not in contactwith any wells (for example, because they are isolatedby natural faults in the rock)• The cut-off – how long you are able to continueproduction at the field before it becomes uneconomicaldue to physical or commercial constraintsA core sample in a scanner at BP’s research centre at Sunbury-on-Thames84Addressing Global Energy Challenges

Technical DevelopmentsBP’s EOR efforts are focused on the first two ofthese factors as they have the greatest scope forimprovement. Over the years BP’s EOR successes haveincluded injecting hydrocarbon miscible gas (methaneusually enriched with any combination of ethane,propane, carbon dioxide and butane) into the rockinstead of water and using very lean gas to vaporisethin layers of otherwise immobile oil.Fresh water thinkingOil industry wisdom says you should not inject anythingtoo ‘fresh’ into the rock or the clays within the oilbearingsandstones can swell and reduce the abilityof the oil to flow. So BP looked at the fundamentalchemistry which makes the oil molecules stick to therock surfaces in reservoirs. What was discovered wasthat by reducing the salinity – and hence the ionicconcentration of the injected water – more moleculesof oil could be released from the surface of the grainsof the sandstone rock.BP’s studies showed that some of the oil moleculesare attached to clay particles by means of a link. Thisis in the form of an atom with a double charge suchas calcium or magnesium. One charge attracts the oilmolecule and one the clay particle. The oil moleculecan be released if this double charged atom is replacedby a single charged one since it can only hold onto theclay or the oil, but not both.In high salinity water the oilmolecules are pressed downonto the clay and the singlecharge atoms cannot get in tomake the substitution, loweringthe salinity causes the oil toexpand away from the clayallowing access by the singlecharge atom and the oil to bereleased and swept toward theproduction wells.LoSal® EOR uses seawaterwith reduced salt levels, just afew thousand parts per million(ppm) or less. Seawater istypically 35,000ppm and theWorld Health Organisationrecommendation for the saltcontent of good palatableThe oil retention linkage that LoSal® EOR breaksdrinking water is less than 600ppm.LoSal EOR was developed by the PRL team followinga decade of laboratory tests at BP’s UK research centreat Sunbury-on-Thames, using sandstone samplesfrom across its global operations. Then, further testswere performed in several oilfields testing largervolumes of rock at guaranteed reservoir conditions.This culminated in a successful inter-well field trial inthe Endicott field in Alaska between 2008 and 2009.Deploying LoSal® EOROn the back of that successful trial, in September 2012,BP announced that the Clair Ridge development, westof Shetland, UK, had become the first sanctioned largescaleoffshore scheme using LoSal EOR. The US$7.2billion development at Clair Ridge includes aroundUS$120 million for desalination facilities to createthe required low salinity water. BP estimates this willenable the production of around 42 million barrels ofadditional oil compared to conventional waterflooding,making a significant contribution to the estimated 640million barrels of recoverable oil from the development.The Mad Dog Phase 2 project in the US Gulf ofMexico is the second offshore project where BP plansto deploy LoSal EOR. The facility will have a low salinitywaterflood injection capacity of more than 250,000barrels of water per day.World Petroleum Council 80th Anniversary Edition 85

Technical DevelopmentsFrom now on, BP will deploy LoSal EOR technologyin all appropriate new oil field developments and isassessing whether retrofitting some existing fieldsmight be commercially viable and technically feasible.As a result, there are at least five new and retrofitprojects under active evaluation following Clair Ridge.Improving sweep with Bright WaterThe properties of sandstone vary considerably,depending largely on the size and mix of the sandgrains it is made from. Sandstones tend to form asa sequence of vertical layers or with areal variationwithin the layers; some layers or areas may have lowpermeability and some high. Often, there are a fewlayers or areas with much higher permeability thanthe rest of the field. Fluids always follow the path ofleast resistance so when water is injected to push outthe oil, it is these more permeable regions it naturallyflows through.But the more permeable regions quickly fill withwater, which then starts to be produced up theproduction wells along with the oil. Once this happens,the water injection process becomes very inefficientor wasteful as there is so little oil left to push throughthose regions, so the water cycles through, down theDetailed studies in BP’s Sunbury laboratoriesunlocked the secrets of LoSal® EORinjection well, rushing through the water-filled zoneand up the production well. Because these zones tendto ‘steal’ a disproportionate amount of the injectedwater, they are referred to as ‘thief zones’.To combat this, BP had the idea of blocking off thesezones deep in the reservoir between the injection welland the production well. So it co-developed technologyknown as Bright Water particles: long-chain moleculesheld in a tightly bound ball – rather like a microscopicball of wool. These balls are so small that they canbe added to the injection water and pass unimpededthrough the reservoir rock. When cold seawater isinjected, it is warmed up in the thief zone by the hotter,unswept rock above and below it. This breaks some ofthe links in the Bright Water particle and the ball popsopen to around 10 times its original size.These bigger molecules struggle to get through orbecome completely stuck in the tighter gaps betweenthe sand grains and the water flow is dramaticallyreduced. The result is that the injected water is forcedto take a new path and sweep new rock, which thenincreases the oil recovery from the field.BP has demonstrated the performance of the BrightWater particle in fields in Alaska and its Argentinianjoint venture, Pan American Energy, and elsewhere.Bright Water particle treatments performed so far byBP have provided additional hydrocarbon resourcesestimated to be more than 30 million barrels abovewhat might otherwise have been recovered withouttreatment, and at an attractive EOR cost.BP has been a leader in enhanced oil recovery for a longtime and the PRL team continues to blaze a trail as theimportance of recovering more oil from existing resourcesgrows using its Designer Water® technologies. It predictsthat the world’s demand for energy will increase by 40 percent over the next 20 years and demand for oil will growby around 20 per cent. Existing fields around the worldare declining by about 4 per cent a year – that equatesto half of Saudi Arabia’s annual production. So there’s anobvious need to keep exploring new frontiers to find freshreservoirs. But it’s also absolutely vital to focus technicalexpertise on increasing yields from existing fields if theindustry is to meet the great energy challenge of thecoming decades.•LoSal and Designer Water are registered trademarks of BP plcPushing Reservoir Limits is a trademark of BP plcBright Water is a trademark of the Nalco Company86Addressing Global Energy Challenges

Technical DevelopmentsThe world’s undiscoveredconventional oil and gas resourcesBy Chris SchenkWorld Conventional Assessment Team, US Geological SurveyThe US Geological Survey periodically assessesthe potential for undiscovered, technicallyrecoverable oil and gas resources in geologicprovinces worldwide using a geology-basedassessment methodology. For the world assessmentreleased in 2012, the estimated means are 565 billionbarrels of conventional oil, 5,606 trillion cubic feetof undiscovered conventional natural gas, and 167billion barrels of natural gas liquids in priority geologicprovinces of the world. The range of resource estimatesfor each region reflects geologic uncertainty.The Energy Programme of the US Geological Survey(USGS) has as its core function the assessment ofpotential volumes of undiscovered conventional andunconventional oil and gas resources of the UnitedStates. In order to place domestic resource estimatesin a global context, the USGS assesses the potentialfor undiscovered oil and gas resources in geologicprovinces outside of the United States. In this report wesummarise geology-based estimates of conventionaloil and gas resources in provinces grouped withingeographic regions of the world . This latest assessment(2012) expands upon and refines previous USGS worldconventional oil and gas estimates (Masters andothers, 1984; 1987; 1991; 1994; 1998; US GeologicalSurvey World Energy Assessment Team, 2000), andincludes the recent assessment of conventional oil andgas resources in geologic provinces north of the ArcticCircle (US Geological Survey Circum-Arctic AppraisalTeam, 2008). Not all potential oil- and gas-bearingprovinces of the world were assessed in this currentstudy given the limits of time and human resources.Assessment MethodologyThe assessment methodology for each province beginswith a complete geologic framework description, with anemphasis on tectonic and stratigraphic evolution, as wellas structural and thermal history. Within this geologicframework we define and analyse all petroleum-systemelements, including potential source rocks (organiccontents and type, thermal maturation, generation,migration, timing based on modeling), reservoirs(depositional setting, petrophysical properties), and traps(trap formation, timing, and quality). Assessment units(AU) are defined within petroleum systems, and canbe established (containing oil and gas discoveries) orhypothetical (containing no discoveries). The definition ofhypothetical AUs allows the USGS to include the potentialfor unexplored geologic or technological concepts.Geologic models based on petroleum-system elementswere developed for each AU, and these models formedthe basis for the quantitative assessment. Geologic riskcan be applied at the AU level on the three main petroleumsystem elements: petroleum charge, rocks, and timing.The next step involves a critical evaluation ofexploration effort, results, and production history offields within each AU. Analyses of existing oil andgas field sizes and numbers coupled with explorationeffort provide one effective guide to future oil and gaspotential. Next, the geologic, exploration, and productiondata are summarised to develop distributions for sizesand numbers of potential undiscovered oil and gasaccumulations. In those AUs with few or no oil andgas discoveries as of 2009, geologic and productionanalogues were used as partial guides to estimate sizesand numbers of undiscovered oil and gas accumulationsutilising a database developed by the USGS followingthe 2000 assessment (Charpentier and others, 2008).These two distributions, one for undiscovered fieldsizes and one for numbers of fields, represent theintegration of all available geologic and production datawithin an AU. The two distributions are then sampled ina Monte Carlo simulator using 50,000 trials, resulting ina summary distribution of volumes of undiscovered oilor gas resources. Each AU is assessed separately forundiscovered oil and non-associated gas accumulations.Co-product ratios are used to calculate the volumesof associated gas (gas in oil fields) and volumes ofnatural gas liquids. This assessment is for conventionaloil and gas resources only; unconventional resourceassessments (heavy oil, tar sands, shale gas, shale oil,tight gas, coalbed gas) for priority areas of the world arebeing completed in an ongoing but separate USGS study.Conventional Resource SummaryThe USGS assessed undiscovered conventional oil andgas resources in 313 AUs by region (US GeologicalSurvey World Conventional Assessment Team, 2012).In this report the results are presented by geographicregion, which correspond to those regions used in theUSGS 2000 assessment and the Arctic assessment(table 1). For undiscovered resources, the mean totalsfor the world are: (1) 565,298 million barrels of oil(MMBO); (2) 5,605,626 billion cubic feet of gas (BCFG);88Addressing Global Energy Challenges

Technical DevelopmentsTable 1. Assessment results for mean, undiscovered, technically recoverable oil, gas, and natural gas liquids for regions of the world.[MMBO, million barrels of oil; BCFG, billion cubic feet of gas; MMBNGL, million barrels of natural gas liquids. Results shown are fully risked estimates. For gas accumulations,all liquids are included as NGL (natural gas liquids). Total undiscovered gas resources are the sum of nonassociated and associated gas. F95 represents a 95-percentchance of at least the amount tabulated; other fractiles are defined similarly. Field type: Oil—oil, associated gas, and NGL in oil fields; Gas—nonassociated gas and liquids inTable gas fields. 1: Assessment Gray shading indicates results not for applicable] mean, undiscovered, technically recoverable oil, gas, and natural gas liquids for regions of the worldRegions0. Arctic Ocean and1. Former Soviet Union2. Middle East and North Africa3. Asia and Pacific4. Europe5. North America6. South America and Caribbean7. Sub-Saharan Africa8. South AsiaTotal conventionalresourcesTotal undiscovered resourcesFieldtypeOil (MMBO) Gas (BCFG) NGL (MMBNGL)F95 F50 F5 Mean F95 F50 F5 Mean F95 F50 F5 MeanOil 15,984 45,559 177,175 66,211 54,892 178,640 606,787 237,485 2,083 6,487 19,754 8,193Gas 343,396 1,058,432 3,448,972 1,385,046 8,009 25,058 76,955 31,786Oil 43,316 101,406 212,678 111,201 49,194 124,226 308,443 144,787 1,578 4,026 10,389 4,764Gas 334,063 729,200 1,490,538 796,513 10,363 23,220 50,605 25,912Oil 20,950 43,607 87,744 47,544 52,579 117,354 253,416 130,483 1,173 2,742 6,346 3,125Gas 269,523 562,461 1,110,663 607,845 7,517 16,340 33,736 17,917Oil 4,344 8,561 19,417 9,868 6,605 16,422 50,460 21,171 245 570 1,616 710Gas 54,072 109,589 249,678 127,454 912 1,924 4,401 2,219Oil 25,500 62,618 208,032 83,386 42,498 112,675 398,902 152,847 879 2,685 11,923 4,103Gas 117,885 300,810 1,111,423 420,890 2,910 10,489 43,785 15,164Oil 44,556 108,098 261,862 125,900 99,532 246,922 637,661 295,475 2,909 7,570 20,048 9,119Gas 130,015 324,762 838,345 383,062 3,941 9,937 26,532 11,882Oil 40,777 102,961 232,090 115,333 40,553 104,711 262,898 122,188 1,237 3,394 9,237 4,089Gas 278,230 557,579 1,190,770 621,341 9,425 20,584 49,935 23,879Oil 3,323 5,575 9,339 5,855 8,404 14,648 25,087 15,419 189 337 586 356Gas 68,651 134,622 250,144 143,620 1,623 3,197 6,155 3,450565,298 5,605,626 166,668[MMBO, million barrels of oil; BCFG, billion cubic feet of gas; MMBNGL, million barrels of natural gas liquids. Results shown are fullyrisked estimates. For gas accumulations, all liquids are included as NGL (natural gas liquids). Total undiscovered gas resources arethe sum of nonassociated and associated gas. F95 represents a 95 per cent chance of at least the amount tabulated; other fractilesare defined similarly. Field type: Oil – oil, associated gas, and NGL in oil fields; Gas – non-associated gas and liquids in gas fields. Grayshading indicates not applicable]90°WARCTICCIRCLECircum-ArcticRegion5180°RegionNorthPole0Region5ARCTICCIRCLERegion190°ERegion6Region4Region7Region2Region1Region8Region3ARCTICCIRCLERegion40°Polar Projection0 1,500 3,000 MILES0 1,500 3,000 KILOMETERSEXPLANATIONAssessed regionsWorld Petroleum Council 80th Anniversary Edition 89

Technical Developmentsand (3) 166,668 million barrels (MMBNGL) of natural gasliquids. The ranges of resource estimates (between the95 and 5 fractiles) reflect the geologic uncertainty (table1). The assessment results indicate that about 75 percent of the undiscovered conventional oil of the worldis in four regions; (1) South America and Caribbean; (2)sub-Saharan Africa; (3) Middle East and North Africa,and (4) the Arctic provinces portion of North America.We estimate that significant undiscovered conventionalgas resources remain in all of the world’s regions (table1), particularly offshore.Regions 0 and 1 include geologic provinces withincountries of the Former Soviet Union and provinces ofthe Arctic (fig. 1). Of the mean undiscovered estimateof 66 billion barrels of oil (BBO) in this region, about35 percent is estimated to be in Arctic provinces. Thisregion also contains significant gas resources (meanof 1,623 trillion cubic feet of gas (TCFG)), about 58 percent of which is estimated to be in three Arctic AUs:South Kara Sea AU (mean of 622 TCFG), South BarentsBasin AU (mean of 187 TCFG), and North Barents BasinAU (mean of 127 TCFG).Region 2, the Middle East and North Africa, includesthe Zagros area of Iran, Arabian Peninsula, southernTurkey, and geologic provinces of North Africa fromEgypt to Morocco. This region is estimated to contain amean of 111 BBO, about 60 per cent (65 BBO) of whichis estimated to be in the Zagros and Mesopotamianprovinces. This region is estimated to contain aconventional gas resource mean of 941 TCFG, about60 per cent (566 TCFG) of which is estimated to be inthe Zagros Fold Belt and the offshore areas of the RedSea Basin, Levantine Basin, and Nile Delta provinces.Region 3, Asia and Pacific, includes geologic provincesof China, Vietnam, Laos, Thailand, Malaysia, Cambodia,Philippines, Brunei, Indonesia, Papua-New Guinea, EastTimor, Australia, and New Zealand. Of the total meanundiscovered oil resources of 48 BBO, about 33 percent is estimated to be in China provinces (15.7 BBO),and 10 per cent is in Australian provinces (5 BBO).Other significant mean oil resources are in offshoreBrunei (3.6 BBO), Kutei Basin (3 BBO), and South ChinaSea (2.5 BBO) provinces. About 45 per cent (335 TCFG)of the undiscovered mean gas total of 738 TCFG is inprovinces of Australia (227 TCFG) and China (108 TCFG).The rest of the gas resource is distributed across theother provinces of southeast Asia.Region 4 includes Europe and several Arctic provinces.Of the mean of 9.9 BBO of undiscovered oil, about 50 percent (5 BBO) is estimated to be in the North Sea province.Of the undiscovered mean gas resource of 149 TCFG, theArctic provinces are estimated to contain about 40 percent (58 TCFG). Significant undiscovered gas resourcesare estimated to be in the Norwegian continental margin,Provencal Basin, and Po Basin provinces.Region 5, North America exclusive of the United States,includes Mexico, Canada, and several Arctic provinces.Of the mean oil resource of 83 BBO, about 75 per cent(61 BBO) is estimated to be in Arctic provinces, and 23per cent (19 BBO) is estimated to be in Mexican Gulfprovinces. In this region about 80 percent (459 TCFG) ofthe undiscovered conventional gas is in Arctic provinces.Region 6 includes South America and the Caribbeanarea. Of the mean estimate of 126 BBO in this region,about 44 per cent (55.6 BBO) is estimated to be inoffshore sub-salt reservoirs in the Santos, Campos,and Espirito Santo Basin provinces. Other significant oilresources are estimated to be in the Guyana-SurinamBasin (12 BBO), Santos Basin (11 BBO post-salt),Falklands (5.3 BBO), and Campos Basin (3.7 BBO postsalt)provinces. Undiscovered gas resources (mean of679 TCFG) are less concentrated and are distributedamong many provinces.Region 7, sub-Saharan Africa, is estimated tocontain a mean 115 BBO, of which about 75 per centis estimated to be in coastal provinces related to theopening of the Atlantic Ocean, such as Senegal, Gulfof Guinea, West-African Coastal, and West-CentralCoastal provinces. Of the undiscovered gas resourcemean of 744 TCFG, more than half is estimated to be inprovinces offshore east Africa, including those offshoreTanzania, Mozambique, Madagascar, and Seychelles.Region 8, South Asia, includes India, Pakistan,Afghanistan, Bangladesh, Nepal, Bhutan, and Burma.Of the mean of 5.9 BBO, about 1.8 BBO is estimated tobe in the Central Burma Basin province and 1.4 BBO isin the Bombay province. Of the undiscovered mean gasresource of 159 TCFG, about 39 per cent (62 TCFG) ofthe undiscovered gas resource is in the three provincesof offshore eastern India.Although unconventional oil and gas resources,such as heavy oil, tar sands, shale gas, shale oil, tightgas, and coalbed gas, are not included in this study,unconventional resource volumes can be significant. •90Addressing Global Energy Challenges

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SustainabilityTowards alow-carbon futureBy Hege Marie NorheimVice President, Corporate Sustainability, StatoilJust as the Stone Age did not end because of lackof stones, the age of fossil fuels will not endbecause of lack of hydrocarbons. Instead, thereis another shortage that will limit the growth ofthe oil and gas industry: Lack of sufficient space forgreenhouse gas emissions in the atmosphere.The energy industry is assigned with the taskof providing enough energy for a growing worldpopulation and a growing world economy. By itself,this task is enormous. In a couple of decades theworld will have a population that is 1.8 billion largerthan today, and it will be consuming some 100million barrels of oil per day (mb/d) and some 5,000billion cubic metres (bcm) of natural gas per year,according to the International Energy Agency’s latestWorld Energy Outlook.In securing these supplies the oil and gas industrynot only has to add to existing capacity, but alsoreplace every barrel of oil and cubic metre of gasthat is being consumed in the meantime. This willput the industry to the test, given that reserves areharder and more expensive to produce, and that moreof new resources are found in areas that are hostileand environmentally vulnerable. To ensure that globaldemand for energy is met is therefore a huge taskcompared with any other industry.However, the challenge is even bigger than this.Because we also need to manage the followingdilemma: to supply sufficient amounts of energy, andat the same time reduce greenhouse gas emissionsfrom fossil fuels in a significant way. We need to doboth. The good news is that we have some ideas asto what it would take. The bad news is that it will takea lot, not least by way of international cooperationand decision-making. And so far, progress has beendangerously slow.It is a matter of pure physics and chemistry thatthe combustion of oil and gas releases CO2 that findsits way into the atmosphere, where it will reside asa long-lived greenhouse gas. Science has providedevidence that we are rapidly approaching levelsof concentration of such gases in the atmosphereto trigger an average temperature increase of twodegrees Celsius. In fact, unless we move decisivelyaway from business as usual, we will be confrontingeven higher temperature increases – with even moredamaging results.The road away from highly destructive climatechange consists of multiple step changes. One is tocurb demand by improving energy efficiency. By itself,this will help a lot. Energy efficiency is by far the mostpotent measure against climate change. A second isto replace carbon emitting fuels with non-emittingrenewable energy, such as wind and solar. Even here,the potential is big. In most scenarios renewableenergy will continue to grow in a significant way,driven by public support, cost improvements andmaturing technology.However, even with huge advances in both theseareas, we will still have fossil fuels covering thebulk of global energy consumption for decadesahead. In order to minimise emissions from thisconsumption two additional things need to happen:First, a major switch away from emission-intensivecoal to emission-light natural gas – in particular in thepower and industry sectors. And secondly, wide scaledeployment of new technology for carbon capture andstorage (CCS).Without all of this it is very difficult to see how theworld can cover its energy needs and stay within thelimits of its carbon budget at the same time. And this,of course, only adds to the extremely complicatedchallenges the energy industry would be facedwith anyway.When the Intergovernmental Panel on ClimateChange (IPCC) was formed back in 1988 and beganto publish their assessment reports on the scienceof climate change, the oil and gas industry was areluctant observer. For many years the industry didlittle more than question the science and advisegovernments not to act. When the Kyoto Protocol wasadopted in 1997 Statoil was among a group of veryfew companies that embraced the agreement andthe philosophy on which it was based: cost efficiency,flexibility and the use of marked based mechanismsto curb emissions.Today the situation is widely different. The scientificbasis for climate change is no longer questioned, andpractically all serious energy industry players haveimplemented some sort of climate change strategyas part of their businesses. Companies have realisedthat carbon efficiency is more and more going to bean integral part of their competitiveness. In manycases this has translated into large industrial effortsWorld Petroleum Council 80th Anniversary Edition 93

Sustainabilityto support the much needed transformation of ourenergy systems.Take, for instance, the huge leaps that natural gashas taken during the last decade alone. Admittedly, itis difficult to argue that the shale gas revolution in theUS has been driven by concerns for climate change.But at the same time increased competitiveness ofnatural gas in the US has undeniably contributed tocurbing greenhouse gas emissions. And with improvedavailability natural gas is now better positioned thanever to play its role in the big supply shift that is needed.The climate challenge already drives energytechnology. This is perhaps most evident in the areaof renewable energy, where remarkable progress hasbeen made only during the last few years. Considerthe competitiveness of solar energy. The IEA expectssolar energy, by 2035, to be 26 times the level of 2010,and many believe that this is a modest assumption.In more and more places solar photovoltaics is costcompetitive without public support.The same is true for onshore wind power, wheregrowth is also impressive. Here, the next bigtechnological leap is to take the windmills to thedeep offshore, allowing for even bigger turbines andlowered cost per kilowatt produced. For its part, Statoilis strongly engaged in offshore wind, both as a runningbusiness and as an area for technology development.We firmly believe that the future of offshore wind liesin large-scale floating installations, and we take activepart in that development by utilising our offshore skillbase from oil and gas.Climate change drives technologyEven in the oil and gas part of the energy businessclimate change has driven technology for years. InStatoil we started to capture and store CO2 from theSleipner gas field back in 1996, and later on we appliedthe same technology on the Snøhvit gas field in theHigh North. CCS is moving forward, with large-scaleprojects such as the Quest project in Canada and theGorgon project in Australia, but we need to see evenmore projects in order to drive costs down and maturetechnology further. Statoil is a partner in the world’slargest test facility for CCS at Mongstad in Norway.Here, new approaches will be scientifically evaluatedin “real” scale, helping to firm up a technology that ismuch needed in the fight against climate change.Industry is key to deliver solutions to a moresustainable energy future. However, industry cannotsolve the problems alone. There is need for a properinternational framework to make sure that theenergy transformation is successful. Most importantis putting a price on emissions and creating a levelplaying field so that the market can be fully engagedin providing necessary changes. In our view the EUEmission Trading System is a good policy framework,though in need of improvement. Fortunately, we nowsee more market based policies being implementedthroughout the world.Only when emissions have a real cost will we seetechnology, efficiency and supply changes pick upsufficient speed. Such costs must be imposed viapolitical decision-making. While it is fair to say thatthe oil and gas industry has taken on the challenge ofclimate change with hesitation, I believe it is equallyfair to say that today politics is lagging behind industry.For years now the oil and gas industry has beenready and awaiting a new agreement to follow up theKyoto Protocol. We have been asking for a transparentand fair agreement that will make it possible tounleash the full creative powers of the market. Ifwe were allowed to compete on equal terms thenwhat we have already seen in terms of technologydevelopment would be thoroughly amplified.The road to a low-carbon future does not ruleout oil and gas, and not even coal, at least not forseveral decades. The IEA has given us a glimpse intoa possible energy future where damaging emissionsare brought down and where international cooperationto combat climate change is firmly established. Insuch a world the consumption of oil in 2035 would besome 80mb/d, 10 per cent less than current levels.The consumption of natural gas, however, increasesto almost 4,000bcm, 20 per cent more than currentlevels. In addition, we should have strong growth inrenewable energy and wide spread use of CCS in thepower and industry sectors.To make such a future possible, the energy industryneeds to add capacity the equivalent of more thanfour times Saudi Arabia for oil, and fifteen timesNorway for gas, in addition to providing massivegrowth in renewable energy. There should be plentyof work for industry and politicians alike. Let’sget going.•94Energy Solutions For All

SustainabilityManaging waterresponsiblyBy Brian SullivanExecutive Director, IPIECAFresh water is a socio-economic, environmentaland key business issue for the oil and gasindustry with multiple uses in upstream anddownstream oil and gas operations. To produceenergy, the industry requires access to reliable sourcesof water, including fresh water and other types suchas recycled waste-water. Water is essential for energyproduction, and equally energy is essential for waterextraction, movement and treatment. The predictedrise in demand for energy means that a focus on waterwill become even more important in the decadesahead for the energy industry. Balancing the energywaternexus – the relationship between the amount ofwater used to generateenergy and the amountof energy required tosupply and disposeof water – will be animportant challenge toaddress for all sourcesof energy. Therefore,IPIECA, the global oil andgas industry associationfor environmental andsocial issues, is focussingon the responsiblemanagement of water inoil and gas operations asa key part of its work onsustainability. For freshwater is already a scarceresource in many partsof the world, and issuesaround supply have beengaining prominence inrecent years.IPIECA, the oil and gas industry’s principal channel ofcommunication with United Nations organisations, is notalone in highlighting the importance of water for energy.The 2012 UN Conference on Sustainable Development(also known as Rio+20) recognised that water is at thecore of the sustainable development agenda and linkedto a number of global challenges. At the conference theneed for water to be integrated in sustainable developmentwas emphasised, as was the need for measures to reducewater pollution, increase water quality, and improvewaste water treatment and efficiency.The oil and gas industry andsustainable developmentIPIECA, the acronym for the International PetroleumIndustry Environmental Conservation Association,was established in 1974 in response to the formationof the United Nations Environment Programme(UNEP). Thirty-nine years later, IPIECA remainsthe oil and gas industry’s principal channel ofcommunication with the United Nations. Over thedecades, the organisation’s remit has expanded.Covering both the upstream and downstream sectorsof the industry, IPIECA is devoted to improvementsin environmental and social performance from theearliest phases of exploration to the end-use of the oiland gas that our members produce. Its membershipis broad, covering companies responsible for overhalf of the world’s oil output.Moreover, the UN World Water Development Reportwill be publishing a new edition in 2014, with the theme“Water and Energy”, which will also be the theme ofWorld Water Day 2014. The decision to focus on Waterand Energy was based on recommendations of theAdvisory Group on UN Water Publications, and buildson the findings of a global survey conducted during2011/2012.For its part, the International Energy Agency (IEA)decided, in the 2012 edition of its World EnergyOutlook, to put the spotlight on the ways in whichenergy production depends on water, and how energyindustries are vulnerable to physical constraintson water availabilityand regulations thatmight limit access toit. The IEA estimatesthat global waterwithdrawals for energyproduction in 2010were approximately 583billion cubic metres,or 15 per cent of theworld’s total water use.Water has multipleuses in upstreamand downstream oiland gas operations,and companies arecontinually striving to usethis key resource moreefficiently, by findingnew ways to recycle thewater it uses. Whereverpracticable the industryuses reclaimed wastewateror lower grade water in industrial processes –leaving more fresh water for drinking, sanitation andagricultural use. Additionally the industry is improvingwater management through the application of newtechnologies, investing in more efficient productionmethods, encouraging cross industry partnershipsand developing and sharing best water managementpractices through IPIECA.IPIECA is working to improve understanding of howand why water is an important resource along theoil and gas supply chain. Efforts to date have been96Addressing Global Energy Challenges

Sustainabilityfocused on effective water risk assessment with thedevelopment of best practice water assessment tools.ToolsThe oil and gas industry is building tools to increaseunderstanding of water risks. In 2011 IPIECA launcheda customised oil and gas version of the World BusinessCouncil for Sustainable Development (WBCSD) GlobalWater Tool. This helps companies to map their wateruse and assess potential risks to their overall globalportfolio of sites, considering each part of the valuechain. The tool allows for risk screening of water issuesat sites by understanding the company’s water needsin relation to local circumstances, including wateravailability, quality, stress, access to improved watersources and sanitation, allowing users to considerquestions such as:• How many of your refinery sites are in extremelywater-scarce areas, and therefore at greatest risk?How will that look in the future?• What percentage of your production volume iscurrently in a water-scarce area? And in 2025 and2050?• How many of your sites are in countries that lackaccess to improved water and sanitation?IPIECA also collaborated with the GlobalEnvironmental Management Initiative (GEMI) toproduce the GEMI Local Water Tool for Oil and Gas.The tool helps companies to assess external impacts,business risks and opportunities, and manage waterrelatedissues at specific sites. When used togetherwith the IPIECA Global Water Tool for Oil and Gas, userscan screen for potential risks and then investigate riskson sites. Assessment of the local context helps developthe most appropriate solution for all water users. Theoil and gas industry is not the primary user of waterand its relative consumption is low. However, water isessential for oil and gas companies. Therefore, efficientand effective water management by all water users isnecessary and in the industry’s interests.vulnerability of the energy sector to constraints inwater availability will increase, and recommends thatbetter technology will need to be utilised, and energyand water policies will need to be better integrated toovercome these constraints.The oil and gas industry is committed to reducingwater demand and impacts on freshwater in areas ofwater stress. The industry continues to learn from itsown experience, and through partnerships, in orderto improve fresh water management and reduce itsimpacts. Building more partnerships, such as thosealready established between IPIECA and WBCSD, andIPIECA and GEMI, will enable cross-sector learning.Participation in collaborative industry initiatives willshare and promote good practices across sectors ineffective water resource management.Successful partnerships enable organisations tolearn from each other and work in new and innovativeways, such as through open sharing of information anddata. Meeting old challenges in new ways requires aconsiderable investment of time, some changes inbehaviour and a willingness to take risks. Ultimately,this innovation and new thinking can help to reduceindustry impacts and bring further benefits to thecommunities and countries in which oil and gascompanies operate.•The industry is improving its water managementOvercoming future constraintsIn its 2012 report, the IEA predicts that future waterconstraints can be overcome, but argues that waterwill remain (and likely increase in importance) as akey consideration when assessing the feasibility ofenergy projects. The report further predicts that theWorld Petroleum Council 80th Anniversary Edition 97

SustainabilityHow the oil and gas industryaddresses social responsibilityBy Ulrike von LonskiDirector of Communications, World Petroleum CouncilAlthough everyone in the oil and gas industrymay implement sustainability in differentways, many use similar fundamentalvalues and principles based around its coremeaning of linking economic, environmental and socialconsiderations into all aspects of decision-making. Thekey premise is that sustainability means deliveringlong-term value to shareholders, while providing socialand economic benefits and managing the industry’senvironmental footprint. It has been shown repeatedlythat companies which follow sustainable businesspractices outperform those with narrower priorities.Sustainability and corporate social responsibilitycan almost be viewed as synonymous in that theyboth address the three pillars of economic viability,environmental soundness and social responsibility –the so-called “triple bottom line”.Renato Bertani, President of the World PetroleumCouncil, describes it as follows: “Social Responsibilitymust be, more than ever before, an intrinsic part of thebusiness model of any company that seeks long-termgrowth and profitability. This is particularly applicablein the energy sector, which impacts stakeholders atall levels, from small communities where operationsare conducted to social and economic developmentacross continents.”In our era of globalisation enhanced communicationand transportation has made the world a smaller place.As a result, markets and issues are no longer confinedwithin socio-political borders. People are connectedto issues far from home and locally-focused issuescan rapidly escalate to the national and internationallevel. The roles of government and business haveshifted. Governments are now more focused on publicpolicy development and enforcement, while providingbusiness the opportunity to supplement prescribedlaws and regulations with voluntary initiatives. Alongwith this, there is growing pressure for business tobe more responsible and accountable not only to itsshareholders but to a broader range of stakeholdersincluding its workforce, supply chain, communities,NGOs, governments and the general public.In the business sector, creating value drives decisionmaking and legitimately so. But what does ‘value’ reallymean? Nowadays it means much more than traditionalmeasures such as asset value, retained earnings ornet income per share. A report by Cap Gemini Ernst& Young found that institutional investors seriouslyconsider non-financial factors in their decisionmaking.A minimum of 35-40 per cent of their portfolioallocation decisions are based on factors such asbrand, reputation, and employee relations – assetsnot captured by normal accounting methods. Boardmembers and management face new challenges tomeet these emerging issues and expanding stakeholderexpectations.Social ResponsibilityIn many areas where the oil and gas industry operates,risk is not confined to the geology or financial risk. Theapplication of sound CSR principles becomes criticalto business success. Companies are challenged notjust to behave ethically, but to contribute to economicdevelopment and in doing so, improve the quality oflife for their employees, for local communities and forsociety at large. CSR helps to link business decisionmakingto ethical values, legal compliance and respectfor people, communities and the environment inaddition to providing enhanced shareholder value.By delivering social, environmental and economicbenefits, we achieve sustainable development.There are five key elements to Social Responsibility:• Good business practices• Strong employee relations• Healthy partner/supplier and customer relations• Responsible health, safety and environmentalstrategies• Community involvementMost of these are obvious.Good business practices consist of ethical behaviour,transparency, avoiding human rights abuses, goodgovernance and anti-corruption. In order to get a sociallicense to operate, businesses have to actively engagewith the community in which they operate. Communityinvolvement is much more than financial philanthropy.It is based on two key principles: that communities havea legitimate right to participate in decision-making forissues that affect their lives and that communitiesdeserve a fair share of the benefits derived from theindustry’s activities. In order to evaluate their impactsand determine their risk management strategies,mostcompanies use in-depth Environmental and SocialImpact Assessments. Measuring their performanceand sharing them with their stakeholders through98Addressing Global Energy Challenges

Sustainabilitya regular Sustainability Report creates the basis fortrust from the community. In a step further this canbe verified through external assurance provided by anindependent auditor and/or a multi-stakeholder group.This facilitates good relationships and partnershipsand leads to an improved reputation.WPC InitiativesThe World Petroleum Council has long involved thediscussion of sustainability, social responsibility andcommunity engagement in its Congresses. Startingwith the programme itself, where the issues getaddressed in a wide range of formats, including byindustry leaders in the Plenaries and at the SpecialSession on Social Responsibility. Industry experts,stakeholders and NGOs jointly discuss the roles andresponsibilities of the oil and gas sector and look atpractical ways of addressing the challenges.Over the last twenty years a dedicated SocialResponsibility (SR) Programme has been added to theWorld Petroleum Congress, exploring such themesas Human Rights, Promoting Human Developmentthrough Innovative Social Responsibility Programmesand Community Partnerships.A key part is the Social Responsibility ‘Global Village’ inthe WPC Exhibition area, which showcases projects fromaround the world that highlight partnerships betweenNGOs, communities and the petroleum industry inbuilding sustainable projects that promote developmentand a social license for ongoing operations.When hosting the triennial World PetroleumCongress, the intention is not only to promote theprogress of the global oil and gas industry but to leavea positive impact on the local community of the hostcountry and a long lasting legacy for its environment.The surplus of the events is designed to go towardsfunding the seeds of a country legacy project proposedby the Host in agreement with the WPC.LegacyAs a not-for-profit organisation, the WPC, a registeredcharity in the UK, also ensures that any surplusesfrom the Congresses and meetings are directed intoeducational or charitable activities in the host country,thereby leaving a legacy. The concept of leaving alegacy in the Host country started in 1994 with the 14thBefore the 2002 Congress in Rio, the WPC organised a community clean-upWorld Petroleum Council 80th Anniversary Edition 99

SustainabilityWorld Petroleum Congress in Stavanger. After the 1994WPC in Norway the surplus funds of the Congress wereput towards the creation and building of a state of theart Petroleum Museum in Stavanger.The 15th World Petroleum Congress in Beijingadopted the issue of young people as a key aspect ofits theme: “Technology and Globalisation – Leadingthe Petroleum Industry into the 21st Century”. Tosupport their education and future involvement in thepetroleum industry, the Chinese National Committeedonated all the computer and video equipment usedfor the Congress to its Petroleum University.Profits from the 16th Congress in Calgary wereused to endow a fund that gives scholarships to postsecondarystudents in several petroleum-related fields.The Canadian Government Millennium ScholarshipFoundation matched the amount dollar for dollar to createan endowment which supported over 2,000 students.The 17th World Petroleum Congress was the firstto integrate the concept of sustainability throughoutPart of the “social responsibility arena” at the Rio Congressits event, instead of relegating it to a side position.The Congress took responsibility for all the waste itgenerated. The congress and the accompanying RioOil & Gas Expo 2002 generated a total of 16 tonnes ofrecyclable waste – plastic, aluminium, paper and glass.All the proceeds of the recycling activities were passedon to a residents co-operative with 6,000 inhabitantslocated in the port area of Rio de Janeiro.But the sustainability efforts did not stop there and anarmy of 250 volunteers collected 36 tonnes of garbagein 10 days in a special community effort to clean upthe Corcovado area before the Congress, donating allproceeds to the garbage collectors, some of the poorestinhabitants of Rio. The Finlândia Public School alsoreceived a new lick of paint from the WPC volunteers.The surplus funds for the Congress of were used toset up the WPC Educational Fund in Brazil, which wasfurther increased in 2005 with tax initiatives added bythe Brazilian government.The 18th World Petroleum Congress also chose asustainability focus for the first everWPC to be held in Africa: “Shaping theEnergy Future: Partners in SustainableSolutions”. Education was made thefocus of the 18th World PetroleumCongress Legacy Trust, set up by theSouth African National Committee toprovide financial assistance to needyyoung South Africans who wish topursue a qualification in petroleumstudies.In 2008 the 19th Congress inMadrid was the first one to tacklesustainability in a holistic way andensure that all carbon emissions fromthe Congress were offset. Exhibitorsalso took note and created standsthat were wholly re-usable or biodegradable.The trend was continuedin Doha where the 20th Congress alsooffset the carbon emissions from its7,000 participants and recognisedsustainable exhibitors with an award.The legacy went towards creating amobile lab to educate children andyoung people in the region on energyusage and energy efficiencies. •100Addressing Global Energy Challenges

Angola is among the countries with the biggest economic growth worldwide. The social and economicadvances reached by Angola over the last years are both notorious and noteworthy. Thousands ofkilometres in railways and roads recovered and built, uniting the whole country; the constructionof industrial hubs in sectors as diverse as, for instance, an innovative optic fibre cables plant; theextension of the hospital network, now double the size, and the realisation of surgeries that could not beundertaken in the country before. Additionally, there has been a new awakening for the agriculture sector, withenvironmental responsibility increasingly becoming a focus; the prioritisation of education, with the creation ofnumerous public and private universities and a strong support to technical training.These are national achievements. Angola is moving ahead from within and worldwide with creativity,technology, talent and the energy of all Angolans. Sonangol has always been present in this development,taking over a central role in this transformation, as a state-owned oil company. This year, Sonangol celebrated37 years and if 2012 was qualified as a year of growth in terms of oil production in Angola, with a 4.5% growthrate and an average production of 1.7 million barrels per day, 2013 is expected to be an even better year forthe national oil industry. It is estimated that Angola will be able to start producing two million barrels of oil perday between 2013 and 2017.The company recently presented a vast prospection and research programme, valued at 8.8 million USdollars. The national goal is an annual average growth rate of 7% in oil production. This target is getting closerto being reached and Sonangol is getting ready for this “race” in the best way possible, by hiring qualified staffand following up the important projects in course. For instance, the mega project Angola LNG. In fact, 2013will also mark the first cargo of liquefied natural gas (LNG) in the country. The LNG plant located in the northof the country, in Soyo, has the potential to produce two million cubic feet of clean gas per day, which will bedistributed in the domestic and international markets. The plant will be supplied by the country’s vast reserves,estimated at over 10 trillion cubic feet of gas, available at the blocks located offshore Angola.In the balance of these 37 years, the potential of the Angolan subsalt cannot be forgotten, especially afterthe announcement of two significant findings. The possibility of the arrival of a new era in oil exploration isencouraging companies operating in the country as well as the government, since these discoveries wouldmean an increase in proven reserves. In December 2012, following one year of negotiations, Sonangol hassigned eleven production sharing contracts for the offshore Kwanza subsalt basin.The company’s bet on training Angolan staff has already come into fruition. 2013 will already be in the historyof Sonangol as the starting point of an era that we wish will be consequent and lasting. This year, the LuandaBay witnessed the promotion of a member of staff trained by Sonangol to ship’s captain. Nembamba CamiolaMiezi Vita, 36 years-old, from Namibe, took over the command of the “Loengo” oil tanker, at the service ofSonangol Shipping Angola, Sonangol’s affiliated company focused on sea oil shipping. This is a reason forpride, for the country and for our company.In 2013 and in the years to come, Sonangol will continue with the same energy that drives us to do more andbetter, every day: the energy to transform the commitment of a great company into a great future for Angola.

Managing the IndustryInnovative financing forupstream oil and gasBy John MartinManaging Director, Oil & Gas Group, Standard Chartered BankThe huge scale of investment required to meetenergy demand over the next 20 years is wellknownto the petroleum industry, with theInternational Energy Agency (IEA) estimatingthat some US$1 trillion a year will need to be investedover this period. In all segments of the petroleumindustry structural changes are now underway whichare altering its fundamental nature. What is perhapsless widely discussed is that such changes will havea significant impact on how the industry is financed infuture years.Transformational landscapeOver the past two decades the nature of the upstreamE&P business has been affected by restricted accessfor international oil companies (IOCs) to conventionalresources and the need for the development andapplication of new technology to exploit new areas.There are no easy reserves anymore and opportunitiesfor worthwhile exploration in traditional oil basins stillopen to the international players have become scarce.Companies need to replace their depleting reservesand are forced to do so either through acquisitionor through drilling in technologically or politicallychallenging ‘frontier’ areas. Both alternatives may relyon external finance but the financial risks and fundingstructures are substantially different.IOCs increasingly have to find and extract new reservesfrom more difficult locations, such as ultra deep water,utilising advanced technologies. Only a relatively smallproportion of this technology is proprietary to the IOCs,which has led to a surge of new opportunities for theoilfield services sector. Overcoming these challengesand developing new technologies is going to requireheavy capital expenditures with associated financingrequirements and service companies will play a centralrole in their development.In Brazil, recent oil discoveries in the large offshore‘pre-salt’ play of the Campos and Santos basins willlikely transform the country into one of the largestoil producers in the world. However, there areconsiderable technical, infrastructure and resourcingchallenges which need to be overcome. Given the scaleof the planned developments the financing needs aregoing to be massive, especially as numerous majordevelopments are being undertaken simultaneously byone operator (Petrobras). Project sponsors will have tocome up with creative ways to raise funding to fulfilthese developmental capital costs.Meanwhile, the shale revolution in the US is causingtectonic shifts in the industry, with the IEA predictingthe US to become the world’s largest oil producer by2020. As technology evolves, more unconventional shaleresources are becoming commercially extractable; butwith the rapid decline rates these plays require constantre-investment to maintain production. Oilfield servicescompanies have expanded in response to the increaseddemand. Liquids-rich plays have become the focus for theindustry as shale gas oversupply has been responsible forlow Henry Hub gas prices. In the short-term, low naturalgas prices will prove to be a boon to economic recovery inthe US. However, over the medium term, reduced drillingof shale gas plays (due to marginal economics), increaseddemand for gas (for example, in transport) and the exportof gas via LNG could all be contributors to a rise in thegas price. Players such as Shell, Chevron and, recently,ConocoPhillips, are now replicating these technologies inChina to explore and develop the shale potential there.New exploration plays do, however, continue to beunearthed – often by independent oil companies. Anexample is East Africa, which has become a headlinestory with a recent string of gas discoveries off the coastof Mozambique and Tanzania. Close to 100 trillion cubicfeet of gas has been discovered and possibly more is tobe booked as drilling continues. The immediate focusis to commercialise these vast discoveries, most likelythrough the development of multi-train LNG projects.These LNG projects are strategically well placed to beable to export to gas-hungry regions and, in particular,to provide diversity of supply for Asian buyers. The gasplay in the region is still in the nascent stages, withthe lack of upstream or midstream industry in thesecountries likely to impose additional costs. In additionto the need to build infrastructure and access there areincreased costs and potential risks due to inadequatesecurity and transparency. These roadblocks will needto be tackled together for the commercialisation ofEast African projects.Changing relationshipsNational oil companies (NOCs) control well in excess of70 per cent of proven oil and gas reserves in the worldand are responsible for over 60 per cent of output.Unlike the IOCs, whose major aim is to maximise102Addressing Global Energy Challenges

Managing the Industryshareholder returns, the objectives of NOCs alsoinclude the strategic agenda of their parent country,such as improving energy security. Over the past decadethere has been a significant increase in ‘international’merger and acquisition activity by NOCs as they seekto access opportunities that meet the strategic goalsof their respective governments. Chinese state-ownedenterprises (SOEs) have been dominant acquirersand are typically cash-rich or have easy access toadditional finance from Chinese financial institutions.Initially such acquisitions were focused on developingcountries, but more recently they have also targetedOECD countries, as in the Chinese National Offshore OilCorporation’s acquisition of Canada’s Nexen, placingthem in more direct competition with IOCs.For IOCs wishing to invest in countries such as Braziland Nigeria, ‘local content’ rules are a means by whichpolicymakers attempt to maximise value creation intheir local economies. Local content requirementsstipulate the inclusion of the NOC or local oil companiesand govern employment, infrastructure development,capital and operational expenditure for IOCs operatingwithin a host country. There are pluses and minuses tothis approach. The laudable aim is that in partnershipwith foreign firms it can allow indigenous companies todevelop skills and aid in technology transfer to the localindustry. However, inexperienced local companies,a lack of vital technical skills and thebureaucracy associated with local contentrules can limit the efficient development ofresources for the host government.Resource-rich NOCs can also requireongoing funding for asset investment whentheir cash flow goes to their state treasuries.International banks, local banks (for ‘localcontent’ reasons they may be included inloan syndicates typically charging higherinterest rates than international banks)and even IOC partners themselves mayprovide funding to ensure the necessaryinvestment in assets.Funding environmentIn parallel with a changing petroleumsector, the banking and finance industry isundergoing fundamental changes. A newregulatory framework is being imposedthrough the implementation of the Basel III accordin the wake of the financial crisis. There is additionaluncertainty for banks as national regulators attempt totranslate global standards into local rules. Banks willface the challenge of choosing the right strategy andoperating model in implementing the new rules andthe changes will be a good indication of the strengthsand weaknesses of financial institutions. Banks’ futurepositions will depend on how they can use their currentcapabilities and how they invest in new ones that willkeep them in a competitive position among their peers.In the tightened regulatory environment, banks willbe required to keep higher capital against loans. At thesame time, in order to keep a stable funding ratio, theirfunding will have to be better matched to the maturityof their assets. This is likely to result in higher cost offunds for banks and eventually higher borrowing costsfor oil and gas clients because banks will not benefitfrom the relatively lower costs of shorter-term deposits.The availability of long-term finance for projects willbe crucial given the huge capital requirements ofnew developments in the industry in the followingyears. However, project finance is an asset class thatwill be impacted by the new regulations of Basel III.This is because of the long tenors and associateddevelopment and operating risks which will attracthigher capital adequacy requirements than has beenAfrican Petroleum workers exploring for oil offshore LiberiaPhoto courtesy of African PetroleumWorld Petroleum Council 80th Anniversary Edition 103

Managing the Industrydemanded in the past. As borrowing from a bank willlikely be more expensive than in the past, fixed incomeinvestors are the possible new players in the financinglandscape of the petroleum industry. The bond marketcan partly fill the gap left by banks’ reduced ability tooffer project finance. Pricing is now becoming a crucialfactor in matching risks and returns for banks, and,therefore, as costs of funds from banks are rising, oilcompanies will be looking more into the bond marketwhen it comes to financing upstream projects.Financial needsThe industry comprises many different types of players(majors, IOCs, NOCs, independents) who are focused ona diverse range of geographical regions and segments.Therefore the financial needs and risk profiles of theseplayers vary widely. For oil and gas developments whichrequire financing, lenders will examine the financial,managerial and technical capabilities and strengths ofthe project sponsors, service company contractors, aswell as many other factors such as political risks andproject economics. Such factors will influence financingstructures, loan conditions, tenors and pricing.Given the changing landscape of the industry,lenders have to keep pace with and understand therisks in areas such as ultra deep water, oil shale, newtechnologies, new provinces, in order to continue toassist in the future growth of the industry.It is without a doubt that massive financing needs areexpected in the industry; but it will happen in differentways for different players. Oil majors will most likelycontinue to utilise their own equity funds and internalcash flow supplemented by tapping the internationalbond markets. However, they may raise limited recourseproject finance from international banks in those caseswhere joint venture partners are unable to meet theproject development costs from their own resources.Many of the NOCs will require various forms of debtfinance to supplement their internal financial resources.Most NOCs have experience in raising project financefrom international banks, but the cost of such debt willvary depending on the relevant country credit rating.For those countries with investment grade or nearinvestment grade ratings, the international bond marketsmay offer a competitive alternative to the internationalbank market. There is usually sufficient appetite frombond investors for attractive oil and gas assets.Smaller independent companies have frequentlyproven to be successful in discovering commerciallyviable oil and gas reserves. There have been severalrecent examples in East and West Africa. Often thecapital costs of developing such reserves are substantialcompared to the capitalisation and managerial resourcesof the companies. For smaller players, the role of privateequity providers will be important. They will need equitycapital to finance their exploration before they can tapeither private placement or public bond markets, or obtainproject financing in the form of reserve-based lendingfrom banks for their future developments. Without theright equity investors and finance providers, smallercompanies may end up as potential takeover targets asthey face the challenges of growing their reserves andproduction through project development and acquisitions.The important role of service companies in projectdevelopments will require financing on their side aswell. Their funding needs will require banks to provideworking capital, corporate performance bonds, buyeror supplier credits or bank guarantees.Looking aheadMajor structural changes are poised to transform thepetroleum industry. They will have a major impact on howoil and gas assets and companies are financed in futureyears. The scale of the industry’s required investmentswill necessitate greater diversification of funding sourcesand more innovative financing structures from a rangeof equity and debt providers. International banks willcontinue to play an important role in providing reservebasedloans, limited recourse project debt and variousother loan products. Multilateral agencies will remainimportant as both producing and consuming countriespromote energy developments. However, reflectingtougher regulatory requirements, the capacity of thebank market for long-term debt may be a challenge, andis likely to be available at a higher cost than in the past.The increasing importance of NOCs means thatIOCs will face more competition for funding newdevelopments, often in higher risk environments andthis may impact the financing costs.However, despite all the challenges and changesin the industry and the bank financing environment,by combining the various sources of funding, thefinancing needs of the oil and gas industry should bemet in the future.•104Addressing Global Energy Challenges

Join usWHAT YOU CAN EXPECT• 1500 – 2000 international delegates• Network with international energy experts• Share technical innovations and sustainable energy solutions• Engage industry peers on local and global energy issuesVISIT ALBERTAInformation2013 WPC Youth Forum Committeeinfo@wpcyouthforum.com+ 1 604 661 4953Please visit our website for moreinformation about the conference.2013YouthForum 2013YouthForum www.wpcyouthforum.com

Managing the IndustryNever a better time to be apetrotechnical professionalBy Antoine RostandManaging Director, Schlumberger Business ConsultingFrom the mid-1980s onwards, the industry’sslow growth and relatively low crude oil pricesled oil and gas companies to introduce strictcost control measures. This was an era whenrecruitment levels were low and interaction withuniversity campuses was limited. The workforce hadstarted to age to the extent that, by the end of 2004,more than 60 per cent of the industry’s core technicalpeople were over 40 years old. Moreover, the pace ofworkplace promotions was slower than in the past.When the industry started to boom in 2004, humanresources (HR) departments needed to reinventthemselves to deal both with the ramp-up of activityand the crew change that was reshaping the explorationand production (E&P) industry. Human resourcesdepartments within E&P companies had to learn newways of recruiting, training and promoting people, andalso how to retain them.In light of these industry HR challenges,Schlumberger Business Consulting (SBC) decided toinvestigate these issues through an annual Oil & GasHR Benchmark study. SBC focused its analysis ontrends involving petrotechnical professionals (PTPs),a workforce category at the foundation of the oil andgas business, made up of geoscientists and petroleumengineers employed by operators. Over the years, theReal US$Figure 1: Oil price evolution and recruitments of graduate PTPs12011010090807060504030Recruitment of graduate PTPsBrentSource: Wood Mackenzie; SBC O&G Benchmark 20122004 2005 2006 2007 2008 2009 2011 2012benchmark has become a reference point for E&Pexecutives seeking to understand industry trends anddevelop HR strategies. The study continues to highlightbest practices and gives insights into the changingenvironment for recruiting and retaining human talent.This article highlights the principal HR challengesexperienced by the oil and gas industry since 2004,identified and brought to light through SBC’s HRbenchmark analyses.2004-2008: Finding the manpower tocope with industry growthRising oil prices from 2004 through 2008 drove upthe industry’s activity levels, increasing demand fortechnical talent (Figure 1).Companies resorted to a mix of graduate and mid-careerhiring, putting pressure on universities while driving midcareerattrition to unprecedented levels. Consequently,compensation and benefits increased substantially.It was in this context that the SBC HR Benchmarks in2005 and 2006 sought to quantify the so-called “big crewchange.” This was the first time a study was conductedusing information from both universities and companiesto assess the supply and demand of petrotechnicalprofessionals. The analyses indicated that the numberof graduates worldwide was sufficient to meet globalindustry demand, even12,00011,00010,0009,0008,0007,0006,0005,0004,0003,000Number of graduate PTPsthough some imbalancesappeared in specificregions, such as theMiddle East and the US.Implementing SupplyChain of TalentIn parallel to the supplydemandassessment,SBC developed theSupply Chain of Talent tmconcept, which aims todesign/create/developan integrated approachtowards HR practices.It involves forecastingmanpower requirementsbased on expectedoil and gas indicatorssuch as production,106Addressing Global Energy Challenges

Managing the Industrywhile forging the rightrecruitment strategy, competencydevelopment approaches andcareer management plans.The comprehensive methodtaken by SBC’s Supply Chain ofTalent has been proven to havea more favourable impact thana piecemeal approach where,for example, recruitment doesnot support production growthambitions; or where trainingpolicies do not address requiredlong-term strategic capabilities ortechnological advances.YearsFigure 2: Time to Autonomy for PTP16141210864Time to AutonomyAverage conservative companiesNOCsAverage innovative companiesMaximumMajors IndependentsAverageMinimum4 yearsUnderstandingTime to AutonomyDue to the high recruiting levelsduring this period, it was pertinentfor companies to understand howlong it took an engineer to becometechnically proficient underminimal supervision. Time to Autonomy TM describesthe time needed to develop an entry-level geoscientistor petroleum engineer to the point where he or shecan take “non-standard original decisions” in the field.This concept also implies a better understanding of thepace at which these professionals should be promoted.It has a direct and measurable impact on a company’sability to deliver projects, as will be explained furtherin the article when we talk about economies of scalerelated to petrotechnical professionals. Accordingly,companies have acknowledged Time to Autonomy to bean important benchmark in determining the success ofcompetency development.Accelerating autonomy is principally achieved byintroducing well-structured training, which is independentof company size, maturity or geography (Figure 2). Thebenchmark studies revealed that both international oilcompanies (IOCs) and national oil companies (NOCs) caneither develop people quickly or slowly.2008-2009: The crisis in the wake ofgrowth tensionsFollowing a favourable period for the oil and gasindustry, the global recession in 2008 led to more20Abilityto...Source: SBC O&G HR Benchmark 2012...execute assignedtask...select betweenseveral standardisedtasks...make non-standard,original technicaldecisions...make personneldecisions(recruitment,transfer...)volatile and lower oil prices. During this period, theHR Benchmark revealed that NOCs and IOCs were notreacting to the crisis in the same way. Privately ownedcompanies reduced their recruitment targets by 30 percent between 2008 and 2010, whereas state-ownedcompanies reduced theirs by only 10 per cent overthe same period. This was a dismal period for mostmajors and independents, but less so for the NOCs.Most companies were reluctant to expand their humanresources and manage new talent until they saw arecovery ahead.2010-2012: Recovery in the midst ofgenerational changeIn 2010, the oil and gas industry started to emergefrom economic recession, exhibiting strong growth(Figure 1). Exploration and production companies werenow faced with a high number of vacancies amidstthe generational shift from baby boomers to youngpetrotechnical professionals. Looking at the estimatedvacancies for 2016, we see a deficit of 15,300, or about19 per cent of experienced petrotechnical professionals.Such a shortage prompted SBC to take a deeper lookinto the productivity of technical talent.World Petroleum Council 80th Anniversary Edition 107

Managing the IndustryMatching technical resources with growth...This productivity challenge was at the forefront of the2011 and 2012 SBC Oil & Gas HR Benchmark analyses.These particular benchmark studies explored thenotion of PTP Intensity, which is the ratio between thenumber of petrotechnical professionals and the numberof barrels of operated production. The analyses revealeda solid correlation between operated production andNumber of PTPsNumber of PTPsFigure 3: PTP Intensity – Total number of PTPs vs operated production6,0005,0004,0003,0002,0001,0000R = 0.90 1,0002,0003,0004,0005,0006,000Operated production kboe/dFigure 4: Per age bracket on a global basisChallengesLow GrowthHigh growth1• Attract• Bring to autonomy• Define attractive careersAge of PTPsSuccession planning1 2• Transfer knowledge• Drive to leadership• RetainGeneration Y Generation X Baby Boomersthe number of petrotechnical professionals. Producingmore barrels means more technical staff needed to behired. The statistics showed that economies of scaledo not exist in the oil and gas business with technicalprofessionals. To double production, an upstreamcompany needs at least to double its technical staff.In this sense, the oil and gas industry acts more likea professional services industry, such as healthcare,where an increase in patientsNote: For confidentiality reason, company datahas been replace by illustrative data pointsSource: SBC O&G HR Benchmark 2012220112016Source: SBC O&G HRBenchmark 2012requires an equivalentincrease in physicians. Anotherimportant insight that surfacedwas that faster-growingcompanies (high growth) tendto have a higher PTP Intensitythan those with slower growth(low growth).The PTP Intensity concepthas important implications forthe industry. By proving theclose relationship betweenoperated production andtechnical staff, the SBC HRBenchmark has sent a clearmessage to the industry –that is, companies need tomaintain recruitment levels ofpetrotechnical professionalsto secure stable hydrocarbonproduction growth.…and anticipating thechallenges from thegenerational reshuffleThe issue of growing oil andgas production becomes morecomplicated with the ongoinggenerational change, whichis affecting the industry’sworkforce demographics.Companies need to anticipateand prepare for the upcomingchallenges, which the mostrecent SBC HR Benchmarks haveaddressed thoroughly. More than25 per cent of petrotechnicalprofessionals now working for108Addressing Global Energy Challenges

Managing the IndustryE&P companies are over50 years of age, anda significant majoritywill retire by 2016. Asshown in Figure 4, typicalmajors or independentswould have moved from150,000a demographic profiledominated by babyboomers, where seniorityprevailed, to one in which100,000young petrotechnicalprofessionals become themajority by 2016.Some of the crucial50,000areas that companieswill need to address dueExperienced PTPsto challenges caused bythe generational shift are0industry attractiveness,knowledge transfer,as well as succession planning and leadershipdevelopment.The first challenge comes from the differencebetween the new generation and its predecessor. Fornewcomers, career prospects, industry image, andlifestyle considerations are as important as monetarycompensation and benefit packages. Companies that aimto attract younger-generation professionals will have acompetitive advantage over their peers if they can createa more comprehensive employee value proposition.Secondly, since the number of experiencedpetrotechnical professionals will decrease in absolutenumbers until 2016, the industry will need to producemore oil and gas with less experienced technicaltalent, while pushing for the successful transfer ofknowledge from experienced technical professionalsto the younger generation.The next challenge will arise from the impact thatthe generational shift has on leadership managementand succession planning. First, companies must helpyounger employees to reach top positions traditionallyreserved for older higher-seniority executives. Second,it is crucial that companies prepare detailed successionplans in good time, especially in view of the generationalchange. Companies need to anticipate the consequencesof quicker internal promotions within an organisation, orFigure 5: Number of PTPs on a global basis 2011-2025Number of PTPsUnexperienced PTPs2016: lowest number of experienced PTPs2022: level of experienced PTPs of 2011Notes:• China excluded. Oilfield services excluded.• From 2017, projections are based on: flat recruitment targets of 10,000graduates from 2017 to 2019; flat recruitment targets of 8,000 graduatesfrom 2020 to 2025• Experienced PTPs defined as older than 35 years oldSource: SBC O&G HR Benchmark 20122011 201520202025the risk of failing to integrate experienced hires smoothlyinto the existing company culture.ConclusionThe SBC HR Benchmark has consistently soughtto provide insights, useful analysis and uniqueperspectives on how the oil and gas industry maytackle human capital challenges. Its most importantmessage is that investments in recruiting and trainingshould not be based on the latest oil-price fluctuationsbut on an organisation’s expected long-term needs.Most experienced petrotechnical professionalsactive today will have left the industry by 2020. As aresult, E&P companies face considerable challengesin terms of succession planning and the developmentof competencies. The good news is that after 2016,predicted tensions on poaching will start to ease andpressure on salaries will soften, as shown by Figure 5.From a young petrotechnical professional’sperspective, today’s oil and gas industry offers uniquepossibilities: the previous generation is leaving whileactivity is strong. Those capable of tackling the concernsfacing the sector will have a chance to play a genuinerole in collectively solving the energy challenges of the21st century.• Trademark of Schlumberger Business ConsultingWorld Petroleum Council 80th Anniversary Edition 109

30ºGas PipelineBizerteTUNISROMETazerkaVALLETTAHannibalLa Skhira AshtartÎle de JerbaGabesZarzisBouriAz ZawiyahMellitah TRIPOLIGas Processing PlantGas FieldOil and Gas FieldSPECIAL EDITION PRODUCED FOR THEGulf of Sirteaccuracy or accept any liability or responsibility for any loss or Primary damage arising Reference from decisions Sources: made on the basis of this www.theodora.commaterial. International and otherboundaries, as well as pipelines and petroleum facilities, depicted www.opec.orgon this map should not be taken as evidence of the existence www.pipelinesinternational.comof territorial rights, rights ofpassage www.oapecorg.orgor use of the same.World Gas Map 2011www.worldoil.comWorld Oil & Gas Map 2009Produced by FIRST / World Petroleum in association with the sponsor: ChevronNatural Gas ProductionData sourced from IEA Natural Gas Information 2011 © IEA 201115020092010120906030015ºE 30º 45º 60ºOil PipelineMarsa El BregaRas LanufAs SidrahDesigned and produced by Lovell Johns Limited, Oxford, United Kingdom. Bathymetry data supplied by The British Oceanographic Data Centre.SubbaDarquainRumaila BasrahAr RatawiPRIŠTINA SOFIAAl Luhays PODGORICA TubahSibaRumailaZubairSKOPJE AbadanAr RakiRatqaAbdaliJerishanTIRANËRaudhatainMutribaSabriyahKhwar AlAmayahBahrahAl BasrahOil Pipeline ClosedOil RefineryOil FieldNatural Gas Liquid PipelineTanker TerminalGTL RefineryDivided ZoneLNG Export PlantPower StationLNG Import Plant0200400600800 km0200400600 miles© 2011 FIRST / WORLD PETROLEUM. ISBN 13: 978-0-9546409-4-1.Reproduction in whole or part of this map without prior permission of the copyright holders is strictly prohibited. Gas and oil pipeline information primarily sourcedfrom OPEC, OAPEC and Pipelines International and used with permission. Geographical Map base © Lovell Johns LtdThe information contained on this map is derived and crosschecked from a number of authoritative public and private sources. Although all reasonable effortshave been made to verify information in the compilation of this map, the publishers and sponsors of this map cannot offer any guarantee or warranty as to theKra Al MaruMedinaKhashman KUWAITDharif (AL KUWAYT)RugeiAbduliyahMina Al AhmadiMinagishShubia ATHENSMina AbdullaUmmGreaterDorraGudairBurganMina Saud Hout(Al Zour)WafraRimthanKhafjiSouthFuwarisRas Al KhafjiDibdibahSafaniyahNDJAMENANatural Gas ReservesData sourced from IEA Natural Gas Information 2011 © IEA 20113000020102500020000150001000050000SyriaUAEBenghaziZuietinaSarirMars Al Harigah(Tobruk)MANAMA (AL-MANAMA)SitraAwalRas LaffanDukhanIzmirMarmaraEreglisiIzmitEregliAntalyaAlexandriaSidi KerirEl HamraIdkuNorthFieldRas AlFontasMesaieedNajwatNajemDolphinPipeline 48”To Taweelah, UAEIdd El ShargiSouth DomeNatural Gas ConsumptionData sourced from IEA Natural Gas Information 2011 © IEA 20111501209060300IsraelIraqIranLibyaQatarSyriaHalul IslandIdd El ShargiNorth Dome20092010UAEBaniasNICOSIAHomsTripoliBEIRUTSidon DAMASCUSHaifaAshkelon'AMMANZarqaAshdodDamiettaTantaMostorodEilatCAIRO SuezRas SidrAqabaAin SukhnaMersa BadranWadi FeiranRas GharibRas ShukheirSharm ElSheikhAsyut30ºEl ObeidTo Heglig &To Baleela Unity Oil fieldsANKARAKirikkaleAswanElzeitIcelCeyhanKHARTOUMTo Melut BasinOil fieldsUnyeDortyolArab GasPipeline 36”Port SudanEleazigDortyol LineYanbuRabighJeddahASMARAOmarBatmanT'BILISIYEREVANBazarganOrumiyehMosulRas IsaTabilizKirkukBaijiKermanshahHadithaBAGHDADDaurahBAKUSangaehal(Baku)AstaraQazvinArakEsfahanTurkmenbasyNekaNajafSamawahRumaila BasrahKhaur Al AmayaShirazKUWAIT MINA SAUDKhargsee KuwaitRasInsetAlKhafjiSouthJubailParsKhursaniyahHululJu’aymahLavanRas TanuraDasMANAMA Sitra RAS LAFFENBAHRAINSirriShedgumDOHAJebel AliMESASEEDABURIYADHsee Qatar InsetDHABIZirku RuwassHabshanToTrans Caspian PipelineTEHRANMaribSAN'A'As ShihrBir AliBalhafAden45ºCrude Oil ProductionData sourced from IEA Natural Gas Information 2011 © IEA 2011500000200920104000003000002000001000000IsraelIraqIranLibyaQatarSyriaUAE300250200150100500SalalahSuqutra ̧ASGABATKhangiran SarakhsZahedanBandar-e Abbas IranshahrFetehJaskFujairahSoharMina Al FahalMUSCATQalhatTibalSiah RawlOil ReservesData sourced from OPEC/OAPEC © 20112010IsraelIraqIranJaz ratMas¸rahPak-Iran PipelineTASHKENTDUSHANBE60ºOil ConsumptionData sourced from IEA Natural Gas Information 2011 © IEA 201112000020082009100000800006000040000200000UAE30º23º30’15ºNOfficial Publishing,Cartographic Services andMobile Application Developmentfor the Energy IndustryANDORRALA VELLAMenorcaMallorcaIslas BalearesLOMÉACCRAF R A N C ES W I T Z E R L A N D R O M A N I AIbizaPORTO-NOVOCorsicaTo Hassir’melGas FieldTrans-Mediterranean PipelineSardinia32”Pipeline16”PipelineWestWestLibya GasLibya OilTo NorthernItalyTo Gela,SicilyGreen Stream 32”SicilyLJUBLJANAZAGREBBELGRADE BUCHARESTTo Baumgarten,AustriaToThessaloniriCreteBosporusRhodesBLACKSEANabucco Gas PipelineM E D I T E R R A N E A N S E ATo VarnaSouth Va ley Gas PipelinePipeline 28”(To Port Sudan)Arab GasPipeline 36”Sea ofAzovBlue Stream PipelinePDOC Pipeline 32”(To Port Sudan)To Dzhubga,RussiaMedstreamTipline 42”Baku-Tbilisi-Ceyham (BTC) Pipeline 42”R e d S e aHaifa PipelineTrans-Arabian Pipeline (Tapline)South Caucasus PipelineIraq-Saudi Arabia Oil Pipeline (IPSA)NIAMEYS A U D IA R A B I AB U R K I N AOUAGADOUGOUOil production in total by region and byOil reserves in total by region andDJIBOUTIMIDDLE EAST OIL AND GASGas production in total by region and bycountryby countrycountryF A S ORESOURCES MAP 2011 DJIBOUTIN I G E R I AABUJAADDIS ABABAG H A N AE T H I O P I AC E N T R A LC A MA -F R I C A N R E P U B L I CS O M A L I ABANGUIYAOUNDÉBiokoMALABOB E N I NT O G OProduction Billion CU/MA L G ER I AVATICANCITYTUNISIAProposed/UnderConstruction Gas PipelineSLI T A L YOMALTAC RToHadithahI R AN I G E RSyriaSudanSaudi ArabiaQatarOmanLibyaLebanonKuwaitJordanIsraelIraqIranEgyptBahrainUAETurkeyTunisiaYemenOIraq Strategic PipelineQIraq-Saudi Arabia Oil Pipeline (IPSA)S A U D IA R A B I ATo YanbuMONT.KOS.MACEDONIA(F.Y.R.O.M)To TehranI R A NALBANIAK U W A I TGREECEEast-West NGL PipelineIraq Strategic PipelineL I B Y A S A U D IA R A B I AE G Y P TReserves Billion CU/MProposed/UnderConstruction Oil PipelineSaudi ArabiaQatarOmanLibyaLebanonKuwaitJordanIsraelIraqIranEgyptBahrainSudanTurkeyTunisiaYemenShaybah - AbqaiqPipelineBAHRAINProduction Billion CU/MQ A T A RDOHA(AD DAWHAH) ,EgyptBahrainLebanonKuwaitJordanOmanSudanSaudi ArabiaTurkeyTunisiaYemenS U D A NC A S P I A NS E AAbadanAl BasrahKazakhstanThe GulfY E M E NShaybahKTI Pipeline-Abqaiq PipelineNeka - Jask PipelineADCOP 48”ToRussiaSouthern O man Gas Line(Socotra)AralSeaCentral Asia-Center PipelineGulf of Oman48”Central Asia-China Gas PipelineTo ChinaTAPI PipelineARABIANSEATo IndiaTo MultanGas reserves in total by region andby countryLakshadweep(Laccadive Islands)BISHKEKT U R K E Y A NCYPRUSLEBANONISRAELS Y R I AJORDANERITREAG E O RGIAARMENIAI R A Q000 metric tonsEgyptBahrainAZERBAIJANLebanonKuwaitJordanKUWAITOmanSudanSaudi ArabiaI R A NTurkeyTunisiaYemenQATARBillion BarrelsT U R KUNITED ARABEMIRATESEgyptBahrainO MM EANN I SYemenUAETurkeyTunisiaSyriaSudanSaudi ArabiaQatarOmanLibyaLebanonKuwaitJordanU Z B E K I S T A NT A N000 metric tonsAFGHANISTANPAKISTANTurkeyTunisiaSyriaSudanSaudi ArabiaQatarOmanLibyaLebanonKuwaitJordanIsraelIraqIranEgyptBahrainYemenM A L D I V E S

Managing the IndustryHow Japan’s oil industryresponded to FukushimaBy Junichi HatanoSecretary General of Japan’s National WPC CommitteeThe Great East Japan Earthquake and thesubsequent tsunami that occurred on 11March 2011 caused tremendous damage to theJapanese economy, including the oil industry.This paper discusses the responses of the Japanesepetroleum industry to the disaster and seeks to clarifysome of the future challenges facing the industry.Immediately following the earthquake and thetsunami, six of the nine refineries located in northeasternand eastern Japan were obliged to suspendtheir operations and two refineries caught fire. Therefining capacity of the six refineries was 1.4 millionBPSD (barrels per stream day, the standard measureof refinery throughput), equivalent to 30 per cent ofthe total capacity in Japan. Three of them resumedoperations within two weeks, but the other three,seriously damaged, remained out of operation foraround one year with the refining capacity of the idlefacilities corresponding to 600,000 BPSD. In addition,most oil terminals on the Pacific coast had difficultiesin shipping oil products due to damage caused by theearthquake and tsunami. Furthermore, about 150tanker trucks were destroyed by the tsunami andoperations were stopped in 40 per cent of the petrolstations in three north-eastern prefectures. Froman energy perspective, the electricity and city gasinfrastructure was seriously damaged. So petroleum,as a portable and storable energy, was in strongdemand from various quarters.Under these circumstances, the smooth supplyof petroleum products was significantly restricted,causing long queues at petrol stations in disasterregions and metropolitan areas. There were also fuelshortages in several types of oil products: diesel oiland heavy fuel oil for emergency power supplies inhospitals and power plants, kerosene as heating fuelsin evacuation centres, and gasoline and diesel oil asfuels for emergency vehicles. The restricted supplysituation was exacerbated by damage to the transportinfrastructure, including roads and ports.Energy of ‘last resort’In order to provide petroleum products to quakestrickenregions, oil was distributed by tankertrucks from other areas. However, transport overlong distances was more difficult than expectedfor several reasons: drivers were not familiar withthe routes and some roads were blocked due toearthquake damage.Oil terminals, mainly located at ports, were alsoaffected by the disaster. Distributors agreed to shareuse of less-damaged terminals, which helped theprovision of gasoline, kerosene and diesel oil to petrolstations in the quake-hit areas just after the disaster.This marked the first time in the history of theJapanese petroleum industry that oil terminal ownersshared with other distributors. To cover shortfalls of oilproducts in quake-hit areas, refineries in the westernpart of Japan operated at almost full-capacity and eachcompany suspended export of oil products, while alsoimmediately commencing imports.In spite of these efforts, some cities in northeasternJapan had no operational petrol stations within a 10-km radius. In such locations, temporary stations wereestablished with hand-turned or pedal-driven pumpsin cooperation with the Self-Defense Forces (SDF) andlocal municipalities.Immediately following the earthquake, the PetroleumAssociation of Japan (PAJ), a petroleum industryumbrella organisation, set up a disaster headquarters,operating 24 hours a day, which requested each memberoil company to secure oil products for the disaster-hitregions, while also dealing with emergency assistancebased on requests from the prime minister’s officeand the Ministry of Economy, Trade and Industry(METI). As an example, the PAJ handled about 1,400requests for oil products in March 2011: fuel foremergency vehicles (ambulances, fire engines, policecars, military vehicles), fuel for emergency powergeneration in hospitals, power plants, and heating fuelsfor evacuation centres and schools. Moreover, the PAJarranged provision of approximately 7,000 drums offuel to the military, as well as donating 2,000 drumsof fuel to three disaster-hit prefectures (Iwate, Miyagi,and Fukushima).In the Great East Japan Earthquake, petroleumfulfilled its capability as a “self-sustaining anddistributable energy” that excels in convenience,portability, and stock potential as soon as services ofelectricity and city gas, energies dependent on supplynetworks, were suspended. Petroleum played the roleof the “last resort” energy that protects the safety andcomfort of our national life, so that its importance asenergy has been re-acknowledged.World Petroleum Council 80th Anniversary Edition 111

Managing the IndustryMeasures against future emergenciesBased on our experience in the earthquake asmentioned above, the Japanese oil industry has setto work on the maintenance and strengthening ofpetroleum supply chains in order to ensure stablesupplies of oil products to final consumers, particularlyin the event of an emergency.First, oil companies have commenced thestrengthening of emergency responses. In oildistribution bases, such as refineries, oil terminals andpetrol stations, various measures have been adopted.For example, a satellite phone has been installed inmany of the local premises because cellular phonecommunication was severely disrupted. In many suchfacilities, countermeasures are focused on protectionagainst tsunami, such as water-resistance measuresfor electric facilities, and waterproof barriers/doors toprotect power-generating equipment for emergencyuse. There are also cases where shipping facilitiesfor tanker trucks were moved to higher ground withinthe premises. In addition, anti-seismic reinforcementwork and installation of independent power generatorshave been implemented. Regarding the means oftransporting oil products, the usefulness of drums wasre-evaluated for its convenience especially for dieseloil and kerosene and, therefore, some oil terminalshave newly established drum filling systems.Second, with regard to petrol stations, their functionas disaster prevention centres had already attractedattention following the great earthquake in Kobe in 1995,as there were few incidents such as fires breaking orbuildings collapsing. However, this time petrol stationson the coast were seriously damaged by the tsunamiand suffered from blackouts. Therefore, measuresfor continued operation are being undertaken, inparticular, installation of power supplies for emergencyuse and deployment of manually-operated pumps.In addition, efforts concerning their functioning asdisaster prevention bases are also being made fromthe viewpoint of contributing to society, such as bymaintaining stocks of emergency goods and provisionof evacuation sites.Many oil distributors faced problems communicatingwith their shipping bases and in gathering information.Based on this experience, the means of communicationare being strengthened by developing a structure inwhich information from each oil company is centralisedby the PAJ in the event of an emergency. Regardinginformation about petrol stations in operation, whichwas specifically demanded by consumers shortly afterthe earthquake, appropriate methods of gathering anddisseminating information are being examined.As far as the government is concerned, Japan hasrevised the law to hold government-stockpiled oilproducts, including gasoline and kerosene, in additionto the normal stocking of crude oil. With regards tolocal municipalities, the PAJ has begun to conclude amemorandum with some prefectures that specifiesthe items to be considered in preparation for disasters,such as a selection of priority destinations for oilproducts (the police, hospitals, and public facilities) andthe necessary information to ensure efficient provision,including the required type of oil, tank capacities andaccess to disaster prevention centres.Lessons learnedUp to now, most security of supply measures havefocused on the upstream side: obtaining energyresources, improving the energy self-sufficiency rateand stockpiling of crude oil. Following the earthquakeand the tsunami, however, we have recognised thatit is extremely important to ensure stable provisionthrough to final domestic consumers, especially in thecase of a large-scale disaster.In conclusion, Japan must further raise its capabilitiesto utilise petroleum in responding to an emergency.To ensure that petroleum can play its part as the fuelof last resort, we have to maintain and reinforce thesupply chain for oil products, including enhancement ofthe shipping framework (tanker trucks, oil tank trains,vessels, etc) in preparation for an emergency. A furtherchallenge for maintaining and strengthening the supplychain is how to ensure stable demand for petroleum.Specifically, utilisation of oil should be further promotedin heating, hot water supply, and transportation.The earthquake and the tsunami that occurred inMarch 2011 have reminded the Japanese people of thepossibility of major earthquakes around Tokyo or in theneighbouring Pacific Ocean, which may occur at anytime. Based on the lessons we have learned from thisdisaster, it is imperative for the Japanese petroleumindustry to secure stable distribution of oil products tofinal consumers through maintaining and enhancingits supply chains.•112Addressing Global Energy Challenges