The development of unconventional resources, China’s increasing importance on the global energy map, and turning E&P challenges into opportunities were among the topics discussed at the International Petroleum Technology Conference (IPTC) held 26–28 March in Beijing.
The first IPTC held in China officially opened with welcome addresses from the conference’s Executive Committee Cochairmen Zhou Jiping of China National Petroleum Corp. (CNPC) and Mark Albers of ExxonMobil, and from IPTC Chairman of the Board Mahmoud Abdulbaqi.
Zhou, who is president of CNPC and vice chairman and president of PetroChina, underscored the growing importance of both IPTC and China on the global energy stage. “IPTC has already become a highly influential conference in the oil and gas industry,” despite its relatively short history, he said. Of particular importance is IPTC’s collaboration across states, types of companies, and industry associations, offering a multidisciplinary approach to industry issues and challenges, he said. IPTC is organized by the American Association of Petroleum Geologists (AAPG), European Association of Geoscientists and Engineers (EAGE), Society of Exploration Geophysicists (SEG), and SPE.
Albers, senior vice president at ExxonMobil, noted that “it is only fitting that IPTC take place in China” given the country’s rise to prominence on a global scale. More than 3,500 delegates from 65 countries attended the conference. More than 2,000 technical paper abstracts were received, the most in the history of the conference, which alternates between sites in Asia Pacific and the Middle East.
CEOs Examine Future Needs
When it comes to the future of the oil and gas business, all roads seem to lead to China. The country that is home to 1.6 billion people is a driver of global demand and is determined to be a partner in the worldwide search for the oil and gas and the new technology needed to continue expanding supplies, according to five chief executive officers who spoke at the CEO Plenary on the opening day of the conference.
At a time when oil demand from the US and other developed countries is declining, China is rushing toward becoming the world’s largest oil importer.
“China’s growth in oil demand is offsetting the decline in demand” from the US and Europe, said Khalid Al-Falih, CEO and president of Saudi Aramco. “It does provide our industry with a level of confidence for continuing large investments in projects to increase production.”
The many projects needed to meet future global demand will depend on partnerships that have the financial heft and technical expertise to execute complex projects, the panelists said.
“In the industry’s current environment, it is impossible for any company to go it alone,” said Peter Coleman, CEO of Woodside Energy. He credited his company’s partnership with Shell for allowing it to grow into one of the biggest independents in the world. Woodside is now working with CNPC to increase LNG processing capacity, which will add to the supply available for export to China.
Success in the upstream business in the future will require enormous financial investment. The International Energy Agency estimates that future upstream costs will reach USD 37 trillion by 2035, said Albers, the panel moderator.
The panelists are optimistic that the industry will be up to the challenges of meeting the world’s growing demand. “It is the golden age for the oil and gas industry,” said Zhou, who added that when his company recruits promising students, it emphasizes the wealth of opportunities in the industry.
New Projects
Several panelists spoke of some of the projects that will help the energy industry satisfy future demand.
Shell is building an enormous hull in Korea that will carry a plant to liquefy natural gas for export from the west coast of Australia. The Prelude project could be just that to an era of floating processing plants that allow for profitable production from fields thought too small or too far from shore for development, said Peter Voser, CEO of Shell.
Shell is also working to build the next generation of automated drilling equipment and is working with CNPC to develop its enormous potential in unconventional reserves, which is far from proven. Some solutions tried in North America may be viable in China, but that is uncertain. “Simple duplication of North America’s successful experience in shale gas development will not work in China,” Zhou said.
On shore, the combination of fracturing and horizontal drilling that delivered the shale boom in North America is likely to spread to a wide range of low-quality reservoirs. Saudi Aramco is moving forward in its evaluation of unconventional opportunities, said Al-Falih. As unconventional development moves into arid regions of the world, the word “hydraulic” may no longer be married to fracturing. “I told the R&D group to come back with the waterless fracture,” Voser said.
Saudi Aramco is also looking at projects that involve carbon dioxide sequestration, and will be conducting a field test later this year to see if it can permanently dispose of CO2 produced in a gas processing plant that otherwise would be vented.
If it works, and Al-Falih said he is confident it will, the company will be seeking to add the output from other exhaust streams. While the injections are expected to improve output, he said Saudi Arabia is still a ways away from needing that level of enhanced recovery to meet demand.
China’s appetite for oil is moving it to expand offshore into the South China Sea using its own drilling rigs, and it is looking around the world for supplies to ensure that it can meet domestic consumption.
The future will require development of ultra-strong, long-lasting hardware needed to work with extremely high-pressure, high-temperature, low-permeability rocks, said Martin Craighead, president and CEO of Baker Hughes.
For example, a “whole new level of reliability” will be required for the electrical submersible pumps needed to operate in wells with pressures exceeding 30,000 psi, temperatures from 350 to 400° F, and that will need to last more than 10 years. Some will be installed in wells where it makes economic sense to put the pumps in during completion even though they are not immediately needed.
“Some will need to be installed under these extreme conditions and not be turned on for 5 years,” Craighead said. And when that day arrives, operators want to be sure they will perform.
Getting the Technology Mix Right
Keeping up the world’s growing appetite for fossil fuels starts with the new technology that is changing what is possible.
“We used to be asked, ‘When will we run out of oil?’” Melody Meyer, president of Chevron Asia-Pacific Exploration and Production Company, said during the Executive Plenary Session on the conference’s second day. “Now that new methods have changed the energy outlook, we are asked, ‘When we will run out of technology?’ I hope we never find out.”
Technologies need to be employed effectively, often on a huge scale, in projects that are a complex combination of ingredients. And those who manage those projects know that their work can change the quality of life for billions of people. “People are talking about how to reduce pollution,” said Bo Qiliang, the panel moderator and vice president at PetroChina. “They are thinking about natural gas as a solution. Natural gas has a bright future in China.”
That shift is expected, but the scale of the task makes it an extremely long-term proposition. By 2040, the most significant change in the global energy mix will be the increase in the use of natural gas, displacing coal, said Sara Ortwein, president of ExxonMobil Upstream Research.
Changing the energy mix toward cleaner-burning gas is a long-term fix that will test the industry’s ability to find and implement new methods. In addition, several sessions at IPTC have focused on the growth in unconventional resources and what it will take to convert China’s enormous unconventional and tight gas resources into a source of gas.
New testing and reservoir modeling methods may be needed to efficiently tap complex formations, where surface conditions put a premium on limiting the number of wells drilled and the water used to fracture them. Some areas combine rugged terrain and dense populations while others, such as the Ordos basin, are deserts where the water and roads needed for large-scale hydraulic fracturing are scarce. Jean-Francois Poupeau, executive vice president for corporate development and communication at Schlumberger, said that putting “thousands of trucks on the roads is no way to approach it.”
LNG Megaprojects
Another critical supply line in the future will be megaprojects to liquefy natural gas for shipping, such as the Gorgon and Wheatstone projects in northwest Australia. Those projects are a test of Chevron’s ability to build world-scale processing plants in a remote location. It is using modular construction to build systems elsewhere for assembly on site, limiting the work done there.
At Eni, the need to choose the best tools to solve a problem and put those tools together to work efficiently in projects have forced the company to rethink how much work can be delegated to outside companies. The company was part of a long-term trend by operators to shrink technical staff and increasingly rely on service companies. With many workers reaching retirement age, this practice has become a source of concern.
“We need to play a more active role in technology development,” said Guido Michelotti, executive vice president for research and E&P technological innovation at Eni. “We cannot merely be technology buyers.”
Eni is hiring hundreds of people, and he credits the practice of moving more technology in-house with projects that allowed it to add 1 billion bbl of reserves in the past year at a finding cost of around USD 1/bbl. Hiring hundreds of new workers and developing new technology can be costly, he said, but overcoming barriers to finding and producing oil reserves can create value in other ways.
Statoil produces oil in some of the harshest offshore conditions in the world, said Torgeir Kydland, senior vice president for Statoil. “The difficult conditions gave us no choice at all,” he said. Statoil had to find ways to overcome the elements, and that has allowed it to not only find reserves but also build up valuable expertise so that it could expand into oil basins around the globe.
The panelists expressed no doubt about the industry’s ability to deliver on staggering goals in the future. Natural gas is expected to rise 50% by 2035 and even faster in the Asia Pacific, in large part because of rising use in China.
The adoption rate for new technology in oil and gas is “frustrating,” said Poupeau of Schlumberger. Sales of products introduced by the company over the past 5 years represent about 20% of its revenue, although he said “it should be 50%.”
The Basics of Strong NOC/IOC Relationships
The basic principles needed to forge strong ties between international and national oil companies are simple and direct, “not rocket science,” Albers said during the conference’s sole Topical Luncheon keynote. He spoke on “The Partnership Imperative: The Essential Principles of Strong NOC/IOC Relationships in Meeting the Energy Challenges of the Future.”
In citing ExxonMobil’s 135-year history, Albers noted that the company first established itself in China in 1892, marketing kerosene, which found a ready market in home illumination, replacing vegetable oils.
“One of the things about IPTC,” Albers said, “is that it not only crosses many disciplines but also brings together NOCs and IOCs, together taking on the world’s energy challenges in finding and developing resources so the standard of living can be raised worldwide.”
He said in thinking about his topic, he wondered what it is that makes some NOC/IOC partnerships average and others successful. He pared down the number of ingredients to five. “It’s not rocket science,” said Albers, “but it’s amazing how sometimes we drift away from them.”
Five Essential Principles
The first principle Albers outlined was “How do you maximize the take value proposition?” for both the NOC and the IOC. He gave some examples of projects whereby ExxonMobil contributed to the value proposition. These include a 22,000-sq-ft Energy Technology Center in Shanghai, and Russia’s Sakhalin Island project, developed in partnership with Rosneft, where world-class resources are being delivered and just recently a well with a record total measured depth of 12 450 meters was reached.
“The second principle involves balance,” said Albers. “In terms of risk, it needs to be not all one-sided.” In distributing a balance between risks and rewards, it needs to be equitable, he said—“not necessarily equal—but fair.” The reward should be comparable to the contribution made to the partnership.
The third principle Albers focused on was working on the total value proposition by looking at the partnership from a long-term point of view. “How do we ensure a balance that takes into consideration changing market conditions and commodity values?” he asked.
The fourth principle Albers cited was managing the risk/reward profile. How do investors manage risk? he asked. Determining this between the parties “is really, really important,” he said.
Albers’ fifth principle for strong NOC/IOC relationships is “ensure agreements are clear and not too complex,” he said. “The agreement facilitates the partnership and should not complicate it. The agreement enables one to yield the maximum benefit to the parties.”
Employing the Right Staff and Processes
PTT Exploration and Production has set an ambitious goal for itself: triple its reserves by 2020. Schlumberger’s workforce has grown four-fold in 15 years to 120,000 employees.
Both share a problem, common to many in exploration and production during a period of rapid expansion: how to build organizations staffed by people capable of meeting the challenges of the industry.
Both laid out the challenges and offered ideas on how to meet them during a panel discussion that covered making the most of technology, people, and business processes. Of all the challenges discussed, the human element in the equation consistently ranked near the top.
PTTEP, the national oil company of Thailand, needs to double its staff to reach its ambitious goal, said Somchai Manopinives, executive vice president for operations at PTTEP.
“Obtaining experienced technical staffers in E&P is extremely difficult,” he said, noting that earlier in the day the president of CNPC said that even with a staff of 1.6 million, his company needs to bring in more exploration professionals. The Thai company’s staff is tiny by comparison.
For oil firms, the reserves added measured by the money spent, or the workers employed per barrel of reserves added, continues to rise, said Jeff Spath, vice president industry affairs and university relations for Schlumberger.
The fact that oil is being found in increasingly difficult places makes the increased resources understandable, he said. But global oil demand rising and the supply of new engineers and geologists dwindling does not look like a formula for long-term success, he said.
The panel’s presenters offered no simple or standard path to achieve better operations or personnel management, but all five panelists came back to the need to build operations around sound business processes, which adapt to changing conditions.
ExxonMobil team members share a common core culture that promotes seamless integration of operations across the global organization, said Kim Bates, vice president Asia Pacific/Middle East for ExxonMobil Exploration. The tools used to build that culture include standards of business conduct, and systems to ensure operations integrity and to manage capital projects.
“Everyone across ExxonMobil knows the operating principles,” Bates said. This common framework allows a principles-based approach to operations and helps capture lessons learned. The company is also meeting this challenge in a tangible way, building a large campus north of Houston that will bring together employees from a wide range of disciplines to promote both formal and informal collaboration.
Close cooperation across a wide range of disciplines is required for unconventional resource development, which Bates said “requires a complete re-think” of how reservoirs are analyzed and developed.
Schlumberger is using a variety of strategies to bring in fresh ideas, gleaned from research partnerships with universities around the globe, to examining innovative companies in other industries that are skilled in technologies applicable to the oil business.
For example, it is seeking to lean on the aerospace industry’s knowledge of advanced materials and the automotive industry’s experience with automated systems. To foster these connections it has been swapping engineers with leaders in these businesses, such as Toyota, hoping that assignments outside the oil business will bring in new ideas.
The formality of a corporate structure must be adjusted to suit the nature of the operation. Roc Oil Co. is an Australian independent that relies on an entrepreneurial staff to quickly move projects with partner companies toward production. “I am an advocate for process light,” said Alan Linn, CEO of Roc Oil. “We are working with regular partners developing marginal fields. We must be extremely efficient.”
Reaching goals demands a focus on process safety. “If you are not doing this, in this day and age you will not survive,” Linn said, adding that good process safety is likely to mean higher productivity as well.
