THE POTENTIAL OF SHALE GAS DEVELOPMENT IN SOUTH AFRICA SHELL S PERSPECTIVE

Transcription

1 THE POTENTIAL OF SHALE GAS DEVELOPMENT IN SOUTH AFRICA SHELL S PERSPECTIVE Jan Willem Eggink General Manager - Shell South Africa Upstream B.V. CAUTIONARY NOTE The companies in which Royal Dutch Shell plc directly and indirectly owns investments are separate entities. In this presentation Shell, Shell group and Royal Dutch Shell are sometimes used for convenience where references are made to Royal Dutch Shell plc and its subsidiaries in general. Likewise, the words we, us and our are also used to refer to subsidiaries in general or to those who work for them. These expressions are also used where no useful purpose is served by identifying the particular company or companies. The term Shell interest is used for convenience to indicate the direct and/or indirect (for example, through our 24% shareholding in Woodside Petroleum Ltd.) ownership interest held by Shell in a venture, partnership or company, after exclusion of all third-party interest. This presentation contains forward-looking statements concerning the financial condition, results of operations and businesses of Royal Dutch Shell. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning the potential exposure of Royal Dutch Shell to market risks and statements expressing management s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, seek, target, risks, goals, should and similar terms and phrases. There are a number of factors that could affect the future operations of Royal Dutch Shell and could cause those results to differ materially from those expressed in the forward-looking statements included in this presentation, including (without limitation): (a) price fluctuations in crude oil and natural gas; (b) changes in demand for the Shell s products; (c) currency fluctuations; (d) drilling and production results; (e) reserve estimates; (f) loss of market share and industry competition; (g) environmental and physical risks; (h) risks associated with the identification of suitable potential acquisition properties and targets, and successful negotiation and completion of such transactions; (i) the risk of doing business in developing countries and countries subject to international sanctions; (j) legislative, fiscal and regulatory developments including potential litigation and regulatory measures as a result of climate changes; (k) economic and financial market conditions in various countries and regions; (l) political risks, including the risks of expropriation and renegotiation of the terms of contracts with governmental entities, delays or advancements in the approval of projects and delays in the reimbursement for shared costs; and (m) changes in trading conditions. All forward-looking statements contained in this presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers should not place undue reliance on forward-looking statements. Additional factors that may affect future results are contained in Royal Dutch Shell s 20-F for the year ended 31 December, 2011 (available at and ). These factors also should be considered by the reader. Each forward-looking statement speaks only as of the date of this presentation, 19 October Neither Royal Dutch Shell nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this presentation. The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as resources and oil in place, that SEC's guidelines strictly prohibit us from including in filings with the SEC. U.S. Investors are urged to consider closely the disclosure in our Form 20-F, File No , available on the SEC website You can also obtain these forms from the SEC by calling SEC

2 ENERGY LANDSCAPE * Shell estimates SOURCE: SHELL ANALYSIS 3 DRAMATIC IMPACT OF US TIGHT GAS REVOLUTION bcm Imports 600 Shale gas 400 Tight Tight gas 200 CBM Alaska Conventional Offshore Conventional Associated gas Source: EIA Annual Energy Outlook 2011 Early release Copyright of Shell South Africa Upstream B.V. 4 2

3 SOUTH AFRICA ENERGY OPTIONS South Africa is a net importer of energy Short to medium term options are coal, gas or import Nuclear will take 15 years to build and has its own challenges If proven commercial, shale gas may be a game-changer to South Africa Gas can complement growing and intermittent renewable energy sources Coal < Gas >> Solar & Wind >> Nuclear? Biofuels > 15 yrs + REALITY : SOUTH AFRICA NEEDS FULL RANGE OF ENERGY SOURCES 5 KEY POINTS FROM THE NPC DRAFT REPORT NOV 2011 SOURCES OF ELECTRICITY SOUTH AFRICANS WITH ACCESS TO ELECTRICITY 90% 10% % 80% SOURCES OF ELECTRICITY OTHER COAL % SOUTH AFRICA WILL NEED AN ADDITIONAL 40GW NEW CAPACITY BY 2030 ACCESS TO ELECTRICITY DO NOT HAVE 95% 24TCF = 20GW CCGT HAVE 20GW OF RENEWABLES 6 3

4 KAROO SHALE GAS IN SOUTH AFRICA JOHANNESBURG BLOEMFONTEIN SASOL/STATOIL/CHESAPEAKE TCP SHELL TCP MSIX & BADIMO ERS SHELL ER APPLICATIONS QUEENSTOWN SUTHERLAND BEAUFORT WEST EAST LONDON FALCON ER APPLICATION BUNDU ER CAPE TOWN PORT ELIZABETH MOSSELBAAI PIPELINES OIL REFINED PRODUCTS GAS 7 TIGHT GAS: THREE DIFFERENT TYPES TIGHT GAS SHALE GAS COALBED METHANE Water to separator or discharge PUMP Gas to pipeline Water Coal bed Gas Occurs in tight sandstone Low porosity = Little pore space between the rock grains Low permeability = gas does not move easily through the rock Natural gas trapped in very small pores and adsorbed on organic material Ultra-low permeability ( mD) Production via induced fractures Natural gas in coal (organic material converted to methane) Permeability low Production via natural fractures ( cleats ) in coal Recovery rates low Copyright of Shell South Africa Upstream B.V. 8 4

5 UNCONVENTIONAL VS. CONVENTIONAL GAS Coal Bed Methane Tight Gas Shale Gas 9 CONCERNS AND COMMITMENTS Community concerns Land use Water Use Contamination of aquifers Noise, traffic Air quality due to emissions Shell commitments (SA) Not compete with the people of the Karoo for their water needs Nobody will go short of fresh water because of our operations Disclose fracturing fluids at each drilling location Conserve and recycle water Consult local experts 10 5

6 SURFACE CASING ISOLATING WELLBORE AND FORMATION GROUND SURFACE LEVEL Surface Wellbore Water Zone Purpose of surface casing and cement Protect ground water Provide stable wellbore Typically m Surface Cement Steel Casing Copyright of Royal Dutch Shell plc 11 OVERVIEW HORIZONTAL VERSUS VERTICAL Horizontals Improve efficiency Reduce surface footprint Copyright of Royal Dutch Shell plc 12 6

7 KEY EXPERIENCE AND TECHNOLOGIES Pad Drilling to reduce surface foot print Well Design to protect water resources Sweet Spotting Copyright of Shell South Africa Upstream B.V. 13 REHABILITATION AND COHABITATION 14 7

8 SHELL ONSHORE TIGHT/SHALE OIL & GAS OPERATING PRINCIPLES Safety & Well Integrity Shell designs, constructs and operates wells and facilities in a safe and responsible way. Footprint Shell works to reduce its operational footprint. Water Shell conducts its operations to protect groundwater and reduce water use as reasonably practicable. Community Shell engages with local communities regarding socio-economic impacts that may arise from our operations. Air Shell conducts its operations in order to protect air quality and control its fugitive emissions. 15 FACTS ABOUT HYDRAULIC FRACTURING Hydraulic fracturing no risk to groundwater Some evidence of natural gas migration into freshwater zones most likely as a result of sub-standard well completion practices by a few operators (MIT Study) Reinforces need for high operating standards & strong regulation Hydraulic Fracturing carried out in most places Shale gas developments supported in many countries around the world for over 60 years Continuous technology improvements, e.g. green completions Proven and new technology & strong regulation effective in managing risks Copyright of Shell South Africa Upstream B.V. 16 8

9 ADDRESSING WATER & PARTNERSHIPS Responsible water use and disposal Massachusetts Institute of Technology: water intensity of shale gas ranks among the lowest of all fuel sources Shell is committed to minimal use of fresh water and to re-using water to further reduce our environmental footprint BBBEE partnership opportunities Thebe Investment Corporation is Shell SA s BBBEE partner (Downstream) Shell South Africa Upstream BV has applied for exploration rights in the Karoo and was awarded ERA in Orange Basin (Upstream) Shale gas development could highlight additional opportunities Copyright of Shell South Africa Upstream B.V. 17 SOUTH AFRICA NEEDS INVESTMENT & JOBS PHASE 1 EXPLORATION PHASE Shell investment estimated at US$ 200mln+ Exploration 6-24 wells, after Environmental Impact Assessment Jobs supported tend to include trucking, steel fabrication, aggregates, heavy equipment manufacturing, retailers, hotels and restaurants PHASE 2 DEVELOPMENT SCENARIO Investment levels would increase to multiple billions of US$ Development of a local service industry would result in significant amount of jobs (multiple1000s) 18 9

10 SOCIO-ECONOMIC BENEFITS: LOCAL Fair compensation for landowners: rent, loss of crops, etc... Job opportunities for local communities Access roads, infrastructure Potentially early connection to gas grid Training and development People Supplier Development Enterprise Development Corporate Social Investment 19 LICENSE APPLICATION AREAS CONSIDERATION FOR SKA CORE SITE AND SALT Shell supports the Square Kilometre Array (SKA) telescope project and will comply with applicable legislation. Sutherland Shell supports The Southern African Large Telescope (SALT) project and will comply with applicable legislation

11 CONSULTATION EFFORTS & PLANNING POLLING STUDY ECONOMIC STUDY GROUNDWATER STUDY SURFACE WATER STUDY ENVIRONMENTAL STUDY PROGRESS 21 KAROO IPSOS POLLING KEY OUTCOMES 14% Aware of Search for Natural Gas in the Karoo 73% Favour of Determining the Presence of Natural Gas in the Karoo Favour of Gas Extraction if there is Natural Gas in the Karoo 83% Great Deal of/some Trust in Oil & Natural Gas Companies MORE INFORMATION 54% How Gas Exploration Will Benefit Economic Development & Create Jobs 41% Environmental Impact Of Hydraulic Fracturing 39% Gas Exploration Will Benefit The Supply & Access To Electricity 35% How Clean Burning Natural Gas Is 22 11

12 ECONOMETRIX ECONOMIC STUDY 20 tcf 50 tcf Potential Life of Resource (years) 25 years 25 years Potential Annual Economic Impact (ZAR bn) ZAR 80bn ZAR 200bn Potential Contribution to GDP (%) 3.3 % 9.6 % Potential Contribution to GDP (ZAR bn) ZAR 35bn ZAR 90bn Potential Permanent Employment 300, ,000 Source: Econometrix Copyright of March Shell South 2012 Africa based Upstream on B.V. constant KAROO GROUNDWATER ATLAS KEY OUTCOMES The Atlas identifies groundwater attributes of the Karoo aquifers. Specialist team made up of top geohydrologists in South Africa with more than 250 years of combined Karoo specific experience. The Atlas combines data from many different sources into a single database to improve Shell s understanding of groundwater in the Karoo. Shell will make all groundwater data freely available for research. Key metrics include depth to water level; groundwater quality, presence of dolerite intrusions and aquifer yield. Indications that deep brackish water may be available and useable Includes consideration zones around dykes and boreholes. Conclusion that the shallow (<300 m) aquifers are understood but further work required to understand deeper horizons. Atlas Stage 2 planned to further improve understanding of groundwater

13 GAS MONETISATION OPTIONS Natural Gas (CH4) extraction and processing Power Generation National Power Grid Pipeline transportation & Local Gas Grids CNG (Compressed Natural Gas) LNG (Liquified Natural Gas) Distributed Power Generation Transport Fuel LNG Export Domestic, Commercial & Industrial Domestic & Commercial Industrial Cooking Heating Cooling Pulp & Paper Textile Glass Steel Plastic Paint Cars Buses & Trucks Trains Boats/Barges Global Gas Markets Transport Fuel Lubricant Base Oils Ultra clean diesel Kerosene (Jet Fuel) GTL (Fischer-Tropsch Process) Chemical Industry Transport Fuel Naphtha Gas Synthesis Methanol Synthesis Chemical Industry DME (LPG substitute) Cooking Heating Power generation Transport Fuel Fertilizer (Urea) Ammonia Synthesis 25 SUMMARY South Africa needs energy and needs to reduce its CO2 footprint. Shale gas may be a game-changer to current energy deficit and may reduce CO 2 burden. Potential to alleviate poverty, provide significant opportunities for jobs, development of new industries and increased foreign direct investment Econometrix Report : 3-10% GDP increase and k jobs in two conservative gas volume scenarios. There are challenges, but these can be mitigated through best industry standards and strong and transparent regulations. Access to water is the key challenge, not hydraulic fracturing or possible spills. Sufficient brackish water may be available at depth. The overall footprint of subsequent shale gas developments in Karoo will be very limited

14 LOCATION MAP ORANGE BASIN & SHELL BLOCK Kudu DSDP