“Opportunities and Challenges in a Volatile Environment”

Dr. Matthias Bichsel

Opening
Your excellencies, distinguished guests, ladies and gentlemen, good morning!

I’m very excited to be back in China, and honoured to join this plenary session.

The last 18 months have been difficult and uncertain for industry and government
alike. I am very impressed by how effectively China’s Government has boosted
economic recovery. But such recovery is not universal – some countries in Southern
Europe in particular are going through testing times at the moment. There is still
some way to go before the global economy is stabilised.

Meanwhile, the global energy challenge is unrelenting. My remarks this morning will
briefly summarise Shell’s perspective on the challenge, and look at four crucial,
interrelated ingredients for addressing effectively the opportunities available.

Global energy challenge

The global energy challenge is a combination of several factors, which my fellow
panellists have already mentioned.

First, the world will need 40% more energy in 2030 than it did in 2007 (Note 1). Experience
shows that it takes about 30 years for a new energy technology to reach 1% share of
the mix(Note 2). So, although wind, solar and other renewable sources are growing fast, we
will still depend on fossil fuels to supply over 75% of the increase.(Note 3)

This will call for significant increase in investment: US$26 trillion to 2030, or an
average of US$1.1 trillion each year(Note 4).

We will see tremendous pull on resources – goods, services, and contractors. At the
same time, in the US and Europe, we will also see a lot of experience retiring.
Challenging times indeed.

And the hydrocarbons we need to pursue to meet demand will be more difficult and
more expensive to find and produce.

Meanwhile, the global CO2 emissions challenge remains as pressing as it was
before the economic downturn.

Shell well-positioned to respond
Shell is well-positioned globally to respond to the energy challenge. We operate in
more than 90 countries, with about 100,000 employees. We produce 2% of the
world’s oil and 3% of the world’s gas, within a broad portfolio of sources:
conventional and unconventional oil and gas, as well as renewable sources.(Note 5)

Even through the economic crisis, we have continued to invest. This year our net
investment level is around US$27-28 billion. We do this to help keep the world
supplied with energy. On every continent, we are involved with our partners in some
of the world’s biggest integrated projects, across the whole value chain. Projects
such as Sakhalin II in Russia, the Athabasca Oil Sands in Canada, Perdido in the
Gulf of Mexico and BC-10 in Brazil; the Shell Eastern Petrochemicals Complex in
Singapore and Pearl GTL and the Qatargas 4 LNG project in the Middle East.

Here in China, Shell is one of the largest multinational companies. Shell China
employs about 14,000 people, 98% of whom are Chinese nationals. All three of our
global businesses – Upstream, Downstream, and Projects and Technology – have an
active presence here. And we’re proud of the recognition we have received as a
responsible energy business – for instance, winning the Company of Best HR
Management in China, and the Greener China Business Award.

Four key ingredients
We recognise that, more than ever before, the key to unlocking those opportunities
lies in constantly adding extra value, through four interrelated ingredients:
a. Leading technologies;
b. Project delivery excellence;
c. Two-way technology and knowledge transfer;
d. And strong, enduring partnerships.

Areas of opportunity
The opportunities available to international oil companies are those that are
technologically challenging, expensive, and often in remote and hostile
environments: such as ultradeepwater, the Arctic, heavy oil, enhanced oil recovery
(EOR), tight gas and coalbed methane, and liquefied natural gas (LNG).

To succeed, an IOC must excel in the delivery of these four ingredients.

Let me give you some examples of how we in Shell tackle this.

Leading technologies
First, to illustrate the importance of leading technologies.

Shell has a long history in tight gas – from the North Sea, to Oman, to North America.
What we’re working with gets ever tighter, and requires continual technology
development. Two things are essential. The first is increasing recovery per well –
which means you constantly need better technology to find the sweetspots; fracking
and completing wells properly is also crucial.

The second element is driving costs out, through faster drilling – which calls for a
combination of better technology, innovative drilling techniques, and structured
learning curves.

LNG is another arena where Shell’s long history and continued investment have
given us a leadership position – in terms of technologies such as dual mixed
refrigerant and floating LNG; we also lead in market share, and have interests in
around a quarter of all the world’s LNG carriers. We’re the largest IOC LNG supplier
to China.

I would also like to mention our coal gasification technology, a vital route to cleaner
power generation. We have invested in this since the 1970s. Today Shell is the
largest IOC supplier of such technology in China.

Project delivery excellence
Now to our second ingredient: project delivery excellence.

This is crucial, for example, in deepwater and ultradeepwater where the challenges
and costs are so extreme.

The BC-10 project offshore Brazil, in waters nearly 2 kilometres deep, is a good
example. This project – which features some heavy oil fields, and also some fields
with high gas content – started production last July, on time and on budget, despite a
difficult field geology. This was really remarkable: not only did we face the normal
project engineering challenges, but also – in order to make the project happen – we
needed to introduce several novel technologies such as deepwater subsea oil and
gas separation and subsea pumping, and lazy wave steel risers.

At the end of March this year, Perdido – the world’s deepest water production and
drilling platform at over 2,400 metres water depth – began production. This
development contains novel technology, but I would like to highlight its outstanding
safety record. Throughout the project, we did not incur a single lost time injury.
Good safety management is a sign of good overall management.

We are also proud of our track record here in China. Examples include the Changbei
gas development in Shaanxi – together with our partner Petrochina, we delivered the
production target 2 years ahead of schedule; and the US$4.3 billion Nanhai
Petrochemical complex in the Guangdong Province where we partner with CNOOC.

Transferring capabilities

The benefits of our third ingredient, transfer of knowledge and technology, can play
out through joint ventures, through licensing activities, and in local business
development.

Petroleum Development Oman is an excellent example of a joint venture with
government, going back to the 1950s. In Japan, Shell is a joint shareholder with
Saudi Aramco in the major Showa Shell refining and marketing company.

I just mentioned the Changbei project. An integral part of our work there was to
transfer our tight gas technology and our Drilling The Limit technique to Petrochina.

We are also working with PetroChina to develop two bocks in Sichuan province: the
Fushun shale gas field, and the Junqui tight gas field.

As an example of licensing, there are now 19 licences for our Clean Coal technology
here in China. An integral part of our licensing effort is to work with the companies,
transferring practices and procedures and jointly finding ways to continue to enhance
the technology.

We are in the process of setting up a joint venture with Petrochina to develop a large
coalbed methane-to-LNG project in Queensland, Australia. An integral part will be
the transfer of our CBM expertise, including what we call well manufacturing, but also
our LNG capabilities. In return the intent is to benefit from the Chinese market
through access to cost competitive goods and services. A true win-win.

Working within and with Shell also means having access to technical networks of
experts who deliver a fast response, because a new problem in one project or
operation is likely to have already been encountered somewhere in Shell’s global
operations. For instance, our record-beating drilling and completions performance in
Qatar’s North Field, where we slashed the time usually required to drill wells in the
North Field by over a third, saving over $46 million in drilling rig costs; this was made
possible by leveraging our experience from elsewhere.

Strong partnerships
Underpinning all the success stories I’ve alluded to is our fourth ingredient: strong
partnerships, with state and private organisations.

Sakhalin II is a prime example of partnership for excellent project delivery –
combining Gazprom’s expertise in pipelines, Shell’s offshore and technological
expertise, and Mitsui and Mitsubishi’s knowledge of LNG markets.(Note 6)

I’ve alluded to many more examples of partnership already. Here in China, Shell
works in partnership with all the national oil companies, including CNPC, Sinopec,
CNOOC and Yanchang.

Over the years, our experience shows that the most successful partnerships are
long, enduring ones that create value for all those involved.

Additional value comes from leveraging partnerships overseas. With PetroChina, we
recently made a bid to acquire Arrow Energy, which I just mentioned. On the BC-10
project in Brazil, we’re working with the Indian national oil company ONGC.

Close
The global energy challenge certainly presents opportunities for IOCs. I believe the
four ingredients I have highlighted – leading technologies, excellent project delivery,
capability transfer, and strong partnerships – are essential to successfully addressing
the challenge in ways that add value for all the stakeholders.

Shell looks forward to continuing to apply these ingredients with our partners in
China.

Note 1: Source: World Energy Outlook 2009, IEA, p 73
Note 2: Source: Peter Voser speech, Zurich, 26 November 2009
Note 3: Source: World Energy Outlook 2009, IEA, p 74
Note 4: Source: World Energy Outlook 2009, IEA, p 73
Note 5: Source: www.shell.com
Note 6: Source: www.shell.com/home/content/media/news_and_media_releases/archive/2009/sakhalin_20052009.html