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 World Petroleum Council Guide to Energy

Fuel for Life — Contents

The big picture 1.1 Youth: crafting the future of the industry 4 1.2 The cutting edge 5 1.3 Think globally 12 Transportation 2.1 The car of the future 20 Supply and markets 3.1 Oil prices: not too high, not too low 28 3.2 Natural gas prices and the link to oil 32 3.3 Peak oil: not yet 36 3.4 OPEC, the IEA and prices 38 A sustainable future 4.1 Copenhagen: what to expect 40 4.2 Cutting emissions: the big challenge 43 4.3 Water — a precious resource 47 Technology: pushing boundaries 5.1 Biggest games console in the world 49

5.2 Offshore marvels 53 Office Science Project Goes courtesy image Nasa 5.3 Deep thinking 64 5.4 Producing clever 68 5.5 Go with the flow — or cause the flow yourself 74 5.6 Invasion of the algae-heads 79 Understanding oil and gas 6.1 Exploration and production: explained 82 6.2 Refining and petrochemicals: explained 87 6.3 Carbon capture: explained 94 6.4 Climate change: explained 102 6.5 Natural gas: explained 104 6.6 Cap-and-trade: explained 111 6.7 Biofuels: explained 114 6.8 Grow your own (oil, that is) 118

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1.1 — The big picture

with industry leaders to discuss the question Youth: crafting of “Does the industry need an image make- over?” They are leading the way in conjunc- the future of tion with other organisations and companies to address those issues, which are crucial to the next generation. the industry Our 1st WPC Youth Forum was held in China in October 2004, with over 500 he number of young people joining the young delegates focusing on “Youth and Tindustry or graduating in related areas Innovation – the Future of the Petroleum has been steadily decreasing. Therefore, Industry”. It played an important role in im- the petroleum industry is now on the edge plementing WPC’s strategy to attract more of a demographic cliff, with an ageing young people to WPC activities and the pe- workforce retiring shortly, and not enough troleum industry. young people finding the industry attrac- We have now prepared the 2nd WPC tive enough to join. Youth Forum, which is taking place in Paris This growing skills gap may impede the from the 18-20 November 2009. Under the industry’s very ability to operate, especially theme of “Energise Your Future” our young with respect to major exploration and pro- people have put together an innovative ap- duction projects. This challenge is particu- proach to the challenges and opportunities larly significant in the context of the world’s facing the oil and gas industry in the future. rapidly growing demands for energy and We need to move forward to engage young calls for greater adherence to responsible people in our industry and I call on everyone social and environmental practices. in the petroleum sector to give their full sup- port to this endeavour and to mobilise their students and young professionals in order Young people are the ones who to energise all our future! V will inherit the petroleum industry, and should be involved in crafting its future

In response to this challenge, the World Petroleum Council formed its youth pol- icy, creating a Youth Committee in 2006, to bring a higher profile to the issue and form an alliance with young people them- selves in order to find possible solutions to our challenges. We feel that it is important that young people are at the forefront of re- solving this issue as they are the ones who will inherit this industry, and should be in- volved in crafting its future. The Youth Committee prepared a pro- gramme of activities for young people at the 19th World Petroleum Congress in Madrid Dr Randy Gossen, President of the last year, including a special round table World Petroleum Council

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and so on). But it’s also about creativity, lat- The cutting edge eral thinking, ideas. A decade ago, explorers in Brazil’s off- Energy provides heat, light, shore went through a few lean years. Too power and mobility. We, our few successful wells were being drilled. economies and our way of life And the discoveries that were made were depend on it mostly too small to make development commercially feasible, given the high costs ythagoras, Galileo, Newton, Darwin, of operating in Brazil’s deep Atlantic waters PPasteur and Koch, Marie Curie, Einstein, and of producing the viscous, low-qual- and Crick and Watson had at least one thing ity crude that was generally being found. in common: they weren’t constrained by or- Brazil was a disappointment and some thodox thinking. companies started to write it off. You might argue that the idea of the lone But the doubts didn’t last. Since 2007, scientific genius, whose leap of imagina- Petrobras and other companies have made tion redefines the way we see the world, a series of world-class discoveries that have is a function of the way we teach history: turned Brazil into one of the world’s most it’s easier to tell stories about people and dramatise single moments than to appre- We thought we were running out ciate all the minute events and processes of oil, when actually we were that led up to a great discovery. running out of ideas It’s probably a bit of both. From a platform of scientific knowledge accumulated over centuries, a few people with the capacity coveted exploration plays. In the words of to see the world differently have catalysed a former exploration and production chief of progress with moments of brilliant insight. state-controlled oil company Petrobras: “We Successful oil exploration is about tech- thought we were running out of oil, when ac- nology, data and science (and politics, geo- tually we were running out of ideas.” politics, economics and environmental law It’s easy to take the oil industry’s technol- ogy and infrastructure for granted. What we generally see is a fluid being pumped into the tank of our car — so the costs and technol- ogy involved in oil production are generally under-appreciated. We don’t see the vast distribution network — the pipelines, ships, lorries and trains that deliver oil to consum- ers worldwide at a rate of 150,000 litres a second. Or the platforms — staggering feats of engineering (see p53) — that produce oil from under the sea. Or the sophisticated technology that is needed to identify oil and gas deposits in the first place and bring the hydrocarbons safely and reliably to the sur- face. Given all that, it seems amazing that oil Waves? Wind? Currents? Icebergs? costs less by volume than, say, lemonade. No problem, says 1.2 million tonne If all that’s generally taken for granted, so Hibernia platform is what oil does for us. But oil is the common

5 – www.energy-future.com 1.2 — The big picture Courtesy of Baker Hughes Incorporated Hughes Baker of Courtesy

Can’t do … … Can do denominator in much of what we do: some- identified by seismic studies — and specu- where along the line, it’s been involved in late about whether they might contain oil. the production of the book you’re reading to Once wells have been drilled — ver- the computer at home to the car in the drive- tically or horizontally — and steered re- way to the asphalt that coats the road out- motely into carefully targeted spots deep side. As well as gasoline, diesel and jet fuel, inside the Earth, rock samples can be re- the oil industry is responsible for many of trieved for analysis. And sensors can be the products that define modern life — from placed down the hole to gather more in- heating and electricity generation, to the formation, using a wide range of measure- plastics that go into products ranging from ments — electrical resistivity, radiation, ul- medical equipment to children’s toys. trasound and others. Fibre-optic cables Without people finding and producing oil, transmit the data to the surface where su- life as we know it wouldn’t exist. per-computers can analyse them, provid- Oil exploration starts with three questions: ing answers to the second question — how is there oil and gas? How much? And is it much oil and gas is down there? economically producible? Think about how robust that downhole hardware needs to be. The closer you get A picture of the subsurface to the centre of the earth, the hotter it gets Energy companies start to answer the first and the less like a lab; 5,000 metres under- question by building a picture of the subsur- ground, temperatures can easily hit 250°C face. Seismic data enable geophysicists to and pressures 1,800 bar. Try putting your visualise what’s kilometres below the sur- laptop in the oven. face, layer by layer. Sophisticated compu- The answer to the third question — what’s ter-modelling software and phenomenal economically producible? — is largely a fac- computing power — we’re talking 200 ter- tor of technology, which is why energy com- aflops and 2,000 terabytes of data storage panies invest so heavily in research and de- — can process that information into detailed velopment. Twenty years ago, working in 3-D images. Geologists, with their under- water depths of 3,000 metres and drilling to standing of how the world was formed, can total depths of 10,000 metres were unthink- help determine the significance of structures able. Today they’re a reality.

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In another 20 years, those limits will have Fossil fuels — deposits of oil, natural gas been stretched yet further. And technology and coal formed over millions of years in the will branch into new areas: perhaps na- earth’s crust from organic matter — may nobots will be able to go into the reservoir retain their 80% share of the energy mix and say what’s down there. Or engineered over the next two decades, estimates the bacteria will change the properties of, say, International Energy Agency (IEA), a multi- sticky oil — stuff that at the moment is in- government think tank. Even with the intro- credibly tricky to retrieve — to make it flow duction of ambitious green policies, fossil fu- better. Or sustainable biofuels will be made els would still account for 67% of primary en- from fast-growing algae. ergy demand in 2030, according to the IEA. There are plenty of other ideas for energy Oil will remain predominant “even under the supply in the future. Some are established, most optimistic of assumptions about the de- such as nuclear. Some are starting to make velopment of alternative technology”, it says. inroads in the market, such as wind. Some are commercially unproved, such as hydro- Despite its hefty reliance on gen fuel cells. And some are technologically technology, oil’s not jut a science speculative. But whatever the energy future endeavour holds, nothing can yet replace oil and gas at scale — and won’t be able to for decades. That means greater innovation and in- Energy: a growing business genuity will be needed at oil companies — not just to find enough oil to meet incremen- Notwithstanding the temporary dip in energy tal demand, but also to find enough oil to demand caused by the recession of 2008 replace lost volumes as existing fields dry and 2009, consumption could be nearly half out. Even if oil demand were to remain flat as big again as it is today by 2030, says the to 2030, four Saudi Arabias will be needed International Energy Agency (IEA), a multi- by 2030 just to offset the effect of oil field de- government think tank. Why? Because the population’s growing cline, the IEA says. That’s a big challenge. rapidly. And we all want energy: if you’re at But despite its hefty reliance on technol- university, perhaps you’ve just passed your ogy, oil’s not jut a science endeavour. It’s driving test. But do you know someone who’s a business that depends on understand- planning to stop driving to give you space on ing and adapting to numerous other forces the roads? No. You’ll probably buy a home — politics, geopolitics, economics, environ- soon too — for which you’ll need light, power mental considerations, legal questions. Just and heat. No-one else will switch off his or looking at a map instantly gives you a feel her refrigerator, radiators, air-conditioning or for the political implications of, say, building television to make room for yours. a natural gas pipeline to Europe from the So as the population grows and econ- Middle East or Central Asia (see p106). omies grow, energy use will grow too. In Then there’s the question of sustainability: fact, energy is inextricably linked to eco- consumers want cheap energy — and espe- nomic growth: the biggest oil consumer in cially cheap oil, which helps to set the prices the world, the US, is also the world’s big- gest economy. The countries with the small- of all other commodities. But the same peo- est per capita oil consumption are typically ple want their energy to be clean. the poorest. We might have taken our en- That’s a contradiction politicians must ergy for granted in the past. But no one can grapple with. Renewables can provide clean afford to do so now. V power and there is no doubt that their con- tribution to energy supply is valuable and

7 – www.energy-future.com 1.2 — The big picture will continue to grow. US President Barack Like the technical solutions, the policy Obama wants to launch a green revolution ones depend on creative thinking. The sim- and to introduce sweeping legislation to plest, cheapest and most effective way of tackle greenhouse-gas emissions. He calls reducing the environmental impact of en- his plan “America’s new energy economy” ergy use is to become more efficient in the and says it will create millions of new jobs way we use it — in buildings and cars (see — and help lift the US and the rest of the p20), for example. But numerous laws, in- world out of their economic difficulties. It’s centives and regulations are needed to certainly ambitious. make better habits take root. But bringing renewables into mainstream Another priority is decarbonising the energy supply at the scale required to serve power sector, capturing and storing CO2 large populations is a difficult job and will produced in electricity generation (see p94). take time. Biofuels, for instance, are a com- But that costs money: who will pay for it? pelling idea, but there are strong arguments There are plenty of other ideas, including to suggest they don’t always make a positive cap-and-trade schemes (see p111). But the contribution to the environment (see p114). right degree of government intervention and Meanwhile, as in Washington, most other financial support is necessary to get these governments also want to fight climate fledgling ideas off the ground. change too. In December, diplomats from Things are changing, and fast. The 200 countries will meet in the Danish capi- world’s most dynamic industry is used to tal, Copenhagen, to try to thrash out a fiend- that. But the challenges ahead are greater ishly complex global agreement on climate- than ever before: it makes 2010 and the change abatement. A great deal is riding on next few years crucial for the energy sector. its success (see p40). And the world. V

Courtesy Markel Redondo, Greenpeace

Bringing renewables into mainstream energy supply at the scale required to serve large populations is a difficult job and will take time

8 – www.world-petroleum.org Profile — Yasmine Wattebled

Name: Yasmine Wattebled In 2005, I became a production engineer on a platform offshore Congo. That was a Company: Total fantastic experience; you’re living with 160 Present job: Petroleum installations people, in a close-knit community, 80 kilo- engineer metres from the coast, shuttling to and from Age: 32 the mainland by helicopter. We saw dol- phins, whales … it’s the only time I’ve had a Nationality: French sea view in my office and bedroom! Degree: Engineering diploma, The job was on a rotational basis: four Ecole Centrale de Lyon; Master’s weeks on and four weeks off. Having every other month off gave me an incredible sense in environmental fluid mechanics, of freedom — like having a second life. I’d Stanford University go home to Paris or go travelling. The operational side was really exciting too: you learn so much on site. I was tasked with developing ways of optimising the pro- duction process to boost oil and gas output and my process-engineering placement was invaluable experience. I was able to reduce greenhouse-gas emissions from the platform by one-third, which was very satisfying. Given my first job and the nature of my degree, good environ- ment stewardship is important to me. If you I joined Total’s graduate-training pro- want to have an impact on the environment gramme in 2003, after spending my first — by minimising gas flaring or improving the year after university working for an environ- quality of produced water, for example — mental consulting firm in San Francisco, on you can really make a difference working for a water-supply project. an energy company. Total’s programme consists of three two- In 2007, I was put in charge of a project year assignments in different disciplines — to build a new camp — houses, restaurants, giving you a firm base for career develop- offices and recreation facilities — to accom- ment and choice. I started as a process engi- modate 260 people working at an onshore neer, based in Paris, assisting in the design of gas plant. I’m handling the contractual and the topside facilities of petroleum platforms — commercial negotiations — liaising with sup- everything that sits on the deck. That includes pliers and contractors and managing engi- the oil and gas treatment units. Hydrocarbons neering. It’s a completely different challenge. must be treated immediately after production You’ve got to get what you want done, which so they can be safely transported and so that isn’t always easy. I’m Paris-based, but travel they meet commercial standards. We’d de- to Nigeria frequently. sign equipment then evaluate the costs to see It’s amazing how many disciplines the pe- whether the solution we’d come up with was troleum industry covers. There’s the tech- economically viable. nical side — safety, process, mechanical, It was tough a first; I had little prior knowl- electrical engineering and so on. But you edge of the petroleum industry and had to can go in plenty of other directions — project learn quickly. But my department was dy- management or economics, for instance. namic and senior staff helped me acquire the You never get bored. You’re always learning. technology, skills and knowledge I needed. And you’re at the heart of geopolitics, work- I felt a real sense of belonging — one of the ing in an international and culturally varied things I most appreciate about Total. environment. It’s invigorating. V

9 – www.energy-future.com Industry facts Industry facts 1.3 — The big picture

in allowing you to adjust your work-life bal- Think globally ance as your priorities change. If, for exam- ple, you have children, you could have the What are employers looking for option of switching from an operations to an and what can a career in energy office role. In a big energy company, you can offer? How the Energy Industry move laterally, or sometimes even up, into Works (HEIW) talks to recruitment drastically different functions, and learn and experts at BP, Chevron, take on new careers without the penalties — Schlumberger and Tenaris such as a setback in salary, for instance — that you could incur in switching industries. I’ve always loved the opportunity the in- BP Emma Hardaker-Jones dustry presents to live and work around the (E H-J), head of graduate and world, getting to know and work with people MBA resourcing. from different cultures, solving common prob- lems. It changes how you see the world. Chevron Eve Sprunt (ES), uni- LJ It is an intellectually and profession- versity partnership and recruit- ally stimulating environment. Energy is one ment manager, Chevron. of the main drivers behind the world’s eco- nomic and political development. And many Schlumberger Oilfield jobs in the sector involve designing and de- Services Lana Jezrawi (LJ), ploying state-of-the art technology to meet recruiting, training and develop- the world’s increasing energy demands in ment manager. a safe and environmentally friendly manner.

Tenaris Gabriela López (GL), HEIW What are you looking for in recruitment and development applicants? director. E H-J It’s true that we’re looking for tech- nical excellence, a strong intellect and ana- lytical skills, but the things that make a big HEIW Why should young people consider difference to us are flexibility and mobility. a career in the energy business? Can candidates cope with the fast-paced E H-J I would really struggle to think of change in our activities? Do they have pas- another career that gives people access to sion and drive — for their technical subject such a wide and exciting range of opportu- and the broader business? Are they pas- nities. And the issues involved in energy are sionate about learning, new technologies so varied — political, environmental — that and their personal development? it has an impact on everyone’s life. ES It’s critical thinking — to be able to ES One of the amazing things about the think for yourself: breakthroughs in energies petroleum industry is how many different ca- of the future will come from someone com- reers there are and how people can come in ing up with a new technical concept, a new with similar credentials and end up taking up business model. very different career paths. With the indus- Communication and interpersonal skills try in great flux and firms looking at different are also essential. You have to be able to forms of energy — such as biofuels, geother- work in teams with different skill sets that mal, wind and solar — it’s particularly hard to are typically multi-national, multi-cultural and predict which way young people will head. multi-technical. If a geologist has to talk to The industry’s scope is a great advantage an engineer, that’s a communication barrier.

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Throw on top of that the fact that they may Also, more things that would classically not share the same first language and the have been referred to as refining are hap- problem has become more complicated. pening in the field — heavy oil is being up- LJ We look for the best candidates in graded closer to the field to improve the eco- schools, both men and women, who strike a nomics. It’s similar with natural gas: how you good balance of technical competence and transport it is an integral part of the develop- open-minded personality. Because our jobs ment question, so that requires commercial are unique in terms of geography, lifestyle skills as well as the chemical-engineering and career progression, it is critical to iden- understanding of how the gas will behave tify people who are willing and suitable to under different temperatures and pressures. join our team. This all means a range of disciplines are GL We are looking for candidates who applicable to the multitude of career paths. have proved academic excellence and a Most of the engineering and sciences we strong level of English. They should be in- can use — IT, physicists, mathematicians, in- terested in developing a career in a global strumentation experts, electrical engineers. company and the geographic mobility that And even those with biology degrees, given often comes along with it. the environmental work we have to do. You might not have thought it, but we even need HEIW What degrees are you looking for? doctors and healthcare professionals — you E H-J We have 17 different disciplines can have a considerable medical establish- and some have a clear requirement for a ment within an oil company. specific qualification, such as chemical en- One profile that is particularly sought after gineering. But students could come from a is the engineer with strong computer skills. range of numerate backgrounds — includ- They have a critical role to play in the ad- ing mathematics, physics and broader engi- vancement of the intelligent oil field. neering disciplines. We also hire people into LJ Typically, the bulk of recruitment is other areas, such as trading, where people engineering and science graduates. Some could come from any discipline. If they use people think we only hire engineers, but we our website’s degree matcher, potential re- do also hire from the sciences, such as earth cruits might be quite surprised about the science, physics and mathematics. breadth of applicable degrees and career GL We are looking for mechanical, indus- options available. trial, electrical and material engineers. ES It’s a very long list. Chevron hires across all the disciplines — petroleum engineers, ge- HEIW What advice would you give candi- ologists, IT experts, MBAs, mechanical engi- dates preparing for interview? neers, chemical engineers, civil engineers, E H-J The thing we see candidates per- HR experts, environmental specialists, law- form least well at is in their ability to apply yers, communications specialists. technical knowledge in a work environment. The divisions between traditional roles We see candidates who are clearly bright are becoming more blurred. Many different and have excelled academically. It is im- kinds of engineers can and do work in petro- portant to spend some time reviewing what leum engineering. Many drillers, for exam- they’ve learned from their degree and how ple, are mechanical engineers; chemical en- that translates into real life. Most people will gineers work as reservoir engineers — be- have some experience to build on from re- cause, in essence, the job involves work- search projects or internships. ing with fluids moving through materials, We often interview people who are mon- whether in the subsurface or above ground. osyllabic and don’t give us sufficient infor-

13 – www.energy-future.com 1.3 — The big picture mation about themselves. It’s important to HEIW What other advice would you give think about how to demonstrate the value of young people considering a career in the learning and experiences, but I expect that energy industry? fewer than half our candidates have read ES In times of intense competition for peo- the hints and tips section on a website dedi- ple, there tends to be the illusion that the cated to the application process. company will be responsible for plotting out Also, students can sometimes be reticent the individual’s career. But no-one can really about activities that aren’t related to work or do that for you: a company can lay out a ca- university. We are keen to hear about those reer plan, but it can’t predict the future or how activities, because they can often demon- someone’s personal interests will develop. strate whether candidates have the per- The person who cares most about your sonal qualities we are looking for. career is you and you should never abdicate Candidates should also be using the in- responsibility for defining it. terview to find out about us — asking the right questions shows that they have done their research. LJ Do your homework on the company that is interviewing you. At the interview, be hon- est and be yourself. Interviews are a two-way process, designed to assess from both sides the suitability of the candidate for the job. GL To get the most from your interview, you should read the information available about our company and its training and de- velopment programmes on our website: © BP plc www.tenaris.com. The person who cares most about your career is you HEIW What career paths are available? LJ The options are endless, really. For ex- LJ If you like to embrace change, think ample, in Schlumberger, if you are looking globally, understand best-in-class technol- for a technical career in operations, you can ogy and be part of a hard working team, start as a field engineer, or in a petrotechni- then there is no need to think twice! cal role. Starting in the research, engineer- GL The energy industry is going through ing, manufacturing and sustaining group is a period of unprecedented change. Global also an option. You will spend the first few companies are forced to move beyond the years learning about the technologies and traditional areas of operations to explore and services in your technical discipline, after develop new reserves located in remote re- which your career can take off in a wide va- gions and in difficult environments. Tenaris riety of directions. Another starting point can is working to be a partner to these compa- be through personnel, finance, legal or sup- nies, developing new products and serv- ply chain management. You can also move ices for complex projects. Someone look- across all of the jobs mentioned earlier. ing to work with us or in any company linked GL We have open positions in a variety to the energy industry must have a drive for of areas, but the majority of our demand is creativity and possess innovative problem- focused on industrial operations, as well as solving skills. He or she must also be proac- the technical sales, maintenance, supply tive in the search for knowledge, learning chain and engineering departments. about the latest trends in the market. V

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2.1 — Transportation

It’s also important because, despite all The car of the the excitement surrounding electrical and hydrogen vehicles, gasoline and diesel will future be needed for a long time. Even if it were a realistic prospect, getting rid of the internal The car of the future could combustion engine wouldn’t necessarily be run on batteries, hydrogen a desirable one. Electric cars, for example, fuels cells or biofuels. But, for might not produce emissions when they’re operating, but if their batteries are charged decades, it will be difficult for with electricity generated in a coal-fired anything to replace gasoline power station, then it could mean more, not and diesel at scale less, carbon dioxide (CO2) in the air. The internal combustion engine has a lot magine driving once around the planet on going for it. With petroleum products such as I13 litres of fuel. Yes, that’s right: 13 litres, gasoline and diesel you get more bang for 40,000 kilometres — and a cost of just over your buck: no other fuel source comes close $9 (at US prices in mid-2009). to matching their energy density (see p117). If the roads existed (and there were The need for liquid fuels produced from bridges over the seas — admittedly all fossil fuels is especially great in heavy en- rather hypothetical), it could be done: in gines, because petroleum’s juicy energy con- 2004, a combustion-engine entry in Shell’s tent is better equipped to deal with high work- Eco-marathon — an annual competition loads than alternatives. that challenges students to design, build Then there are the many complexities in- and test vehicles that go further on less fuel volved in shifting to a completely new con- — achieved a projected 3,140 kilometres on cept in automotive power: the internal com- the equivalent of a single litre of fuel. bustion engine has been around for 100 Compare that with the fuel economy of years and we’re used to it. And we’re used cars in general use: even Toyota’s Prius, to providing the fuels and operating the in- the most economical car rated by the US Environmental Protection Agency’s © Shell International fueleconomy.gov website, would travel just 20 kilometres on a litre of gasoline. Of course, the futuristic cars of the Eco- marathon, with their bodywork streamlined to minimise drag, aren’t practical; they couldn’t carry shopping or passengers, they’re too slow and they don’t have the conveniences and safety features of a modern car. But they show that, through design and innovation, significant efficiencies can be achieved in fuel consumption — saving pre- cious resources and cutting back on car- bon. That’s important because transporta- tion accounts for around 15% of the world’s greenhouse-gas emissions, according to the World Resources Institute, an environ- mental think tank. Pack light: the Shell Eco-marathon

20 – www.world-petroleum.org 2.1 — Transportation

For decades, it will be difficult for anything — batteries, hydrogen fuel cells or biofuels — to replace gasoline and diesel at scale in the transport sector frastructure — ships, lorries, pipelines and Then there’s the repair system to think filling stations — on which it relies. Although about, says Julius Pretterebner, a car-indus- being accustomed to one way of doing things try analyst at IHS Cera, a consultancy. With is, in itself, a weak argument against explor- all of its many and intricate moving parts, ing alternatives, it would certainly be difficult the internal combustion engine needs a and costly to move to a completely new sys- large maintenance network. That’s one area tem — and it would take a long time. in which the electric car wins hands down, he adds: apart from the driveline, it doesn’t The problems with petroleum have much in the way of moving parts. That But petroleum has its drawbacks too: means considerably less wear and tear, less stricter laws governing the output of CO2 maintenance and no need for a complex and other greenhouse gases are today’s support industry. cars’ biggest problem. As the cost of emit- Fuel standards in liquid fuels — for oil ting carbon rises, alternatives to the internal products and biofuels — create problems combustion engine will become increasingly for car manufacturers too. Because they attractive economically — unless, perhaps, vary from region to region and, often, from energy companies discover a cheap way country to country, it’s impossible to produce of producing very large volumes of renew- a one-size-fits-all engine. That puts costs able biofuels that can be used harmlessly up. Adapting an electric vehicle to a differ- in the engines in use today. Companies be- ent market is simple: all you need is a plug hind the nascent algae revolution think that adaptor and, possibly, a transformer. might happen one day, but it’s an uncertain There’s also the question of efficiency. prospect (see p78). The internal combustion engine is typically

21 – www.energy-future.com 2.1 — Transportation only about 20-30% efficient. Lower perhaps: quantities of air and fuel entering the cylin- according to fueleconomy.gov, only about ders and enabling fuel savings when power 15% of the energy from the fuel in the tank is needs are low. used to move the car or run useful accesso- Hybrid cars — bi-fuelled vehicles that ries, such as air conditioning. The rest of the can switch at different speeds between a energy is lost to engine and driveline ineffi- gasoline-burning internal-combustion en- ciencies, and idling. And drivers rarely get gine and an electric motor powered by a re- the best out of their cars: an internal com- chargeable battery — can achieve signifi- bustion engine optimised to 200 horsepower cant efficiency improvements over cars with won’t work at its best crawling through heavy standard engines. The electric motor — re- traffic, so, in the city, efficiency slumps — it’s charged with kinetic energy that is normally the inverse of trying to heat a room with a lost to braking, with a system called regener- hairdryer. Emissions performance also de- ative braking — means the gasoline engine teriorates at lower work rates. isn’t needed when the car has stopped or But poor efficiency ratings at least mean when it’s travelling at low speeds. The gaso- there’s room for improvement. line engine, meanwhile, is there for higher What can be done to make existing cars speeds and to overcome the limited driving more efficient? Various technology devel- range of an all-electric vehicle. opments will help cut down on fuel use. Cylinder deactivation, for example, shuts Doing the obvious stuff down some cylinders when less power is There are plenty of straightforward ef- required. Modern engines can also be de- ficiency measures too, such as reducing signed to alter valve timing — varying the the size and weight of vehicles. Today’s VW Golf, for example, is almost twice as heavy as the first Golfs, built in the 1970s. That’s partly because of the addition, over the years, of safety features, such as the protective metal bars in the doors of mod- ern cars. It’s also partly down to a perceived need for more room: the smallest cars in BMW’s range today — the 1 Series — are similar in size to the BMW 2002; but in the 1970s, the 2002 was considered a roomy, desirable family vehicle. The weight increase is also the result of the proliferation of electronic gadgets and modern conveniences. In some areas that trend will continue: there won’t be any com- promise on safety, for instance. Indeed, car- makers are continuing to add safety fea- tures; electronic stability control, a compu- terised technology that improves a vehi- cle’s handling by detecting and preventing skids, is among the latest innovations. But what about the non-vital stuff? Air condition- Have you seen how low my carbon ing systems, for example, are heavy: could emissions are? people do without them?

22 – www.world-petroleum.org Industry facts

The 2007 Ford Fiesta emits less than 2% of the nitrogen dioxide, hydrocarbons and carbon monoxide produced by its 1976 predecessor, according to the UK’s Society of Motor Manufacturers and Traders (SMMT). It would take the following numbers of 2007 1.25 gasoline-engined Ford Fiestas to generate the same level of tailpipe emissions as one similarly sized 1976 Fiesta model, calculates SMMT: Nitrogen dioxide — 76 cars Carbon monoxide — 71 cars Hydrocarbons — 51 cars

Average UK new-car CO2 emissions Passenger cars’ emissions in the UK grammes per kilometre million tonnes thousand tonnes 200 4.0 15 3.5 Nitrogen oxides Carbon monoxide 12 150 3.0 Particulates (RH scale) 2.5 9 100 2.0 1.5 6 50 1.0 3 0.5 0 0.0 0 1997 2007 2008 1997 2006

Source — SMMT Source — UK Department for Transport

23 – www.energy-future.com 2.1 — Transportation

Smaller, greener, cooler mising safety: Formula One cars are made Taste in cars could become more modest from carbon-fibre composites and similar ul- too. Four-by-four cars, pick-up trucks and tra-lightweight materials, but drivers often sports-utility vehicles (SUVs) are status sym- walk away from high-speed crashes thanks bols for many people. But, perhaps, as the to sophisticated crash inserts. world tries to turn itself green, smaller, more It’s not as if lightweight cars are new, ei- economical vehicles will become cooler: ther, points out Pretterebner. East Germany’s emissions levels might become more of a much-maligned Trabant might not have talking-point than horsepower. Car-pooling looked cool and would have looked a lot less and car clubs could become more popu- cool after a collision, but its designers — ad- lar, reducing the number of vehicles on the mittedly focused on cost savings rather than roads. Indeed, there’s scope for cutting the fuel efficiency and safety — were arguably sheer number of cars: the US has more pas- on the right lines with materials: much of the senger vehicles than licensed drivers. bodywork was plastic. There are plenty of signs that tastes are Rethinking the way cars are designed changing. The crisis that threatened the sur- could radically improve efficiency — ena- vival of the US car industry in 2008 and 2009 bling the world to continue to benefit from is, to a large extent, down to US manufac- the power and versatility of the internal turers’ failure to keep pace with Asian firms, combustion engine at a reasonable envi- which have focused on fuel-efficient cars, ronmental cost. And, in the very long term, innovations being made today can be used Rethinking the way cars are in other forms of transport. Lighter materi- designed could radically improve als will also be of benefit to the electric car efficiency: innovative use of industry: less weight = less work = longer materials would make cars lighter battery range. such as hybrids. Sales of SUVs and other gasoline-guzzlers have been waning in the The electric car: US and the number of small, more fuel-effi- cient models is on the rise. In India, the pop- pros and cons ularity of Tata’s Nano mini-car indicates the trend towards smaller, lighter — and cheaper f India’s Tata — or another manufacturer — vehicles is occurring elsewhere too. Iin the high-growth, electronics-savvy Asian Innovative use of materials — aluminium, market — were to start mass marketing an thin-walled steels, plastics and composites electric version of its cheap and popular — would also make cars lighter. Toyota’s Nano mini-car, it could begin to give the elec- 1/X concept car, a natural gas/electric hy- tric car industry and the technology behind it brid that uses plug-in technology, weighs the economies of scale it needs to flourish. just 420 kilogrammes, but has as much in- Batteries are one of the main problems. terior room as the Prius, which has a kerb They’re heavy — 800 kilogrammes for the weight of 1,300 kilogrammes. The 1/X’s average car, according to Vanessa Guyll, a frame is mainly carbon-fibre reinforced plas- technical specialist at the UK’s Automobile tic — strong, but light. Association — and their range is, in most Smaller, lighter cars will lead to reduced cases, underwhelming. There aren’t enough fuel use — and lower carbon emissions. recharging points and most electricity grids And this should be possible without compro- would need significant investment before

24 – www.world-petroleum.org 2.1 — Transportation

You wouldn’t go to work in this ... … but you might in this: Tesla’s Roadster they’d be able to cope with millions of driv- There are other reasons for the Tesla ers plugging in their vehicles at the same Roadster’s high price tag — and they’re time. And unless the electricity comes from more encouraging for the electric-vehi- a low-carbon source, such as solar panels, cle industry. With acceleration from 0 to wind turbines or biogas, then it won’t mean 60 miles per hour in 3.7 seconds and a top mobility without emissions. speed of 125 miles an hour, it is a high- Lithium-ion batteries, which are smaller performance vehicle — a rival to gasoline and have a greater energy density than the cars. It has a US Environmental Protection nickel-metal-hydride batteries used in hybrid Agency efficiency rating equivalent to 135 cars such as the Toyota Prius, have the po- miles per US gallon, making it almost three times as efficient as a hybrid vehicle. And Unless the electricity to charge one full charge should last something like vehicle batteries comes from a 350 kilometres. low-carbon source, then electric One disadvantage is that, from dead, cars won’t mean mobility without it takes about three and a half hours to charge the battery — not as quick as emissions pumping 50 litres of gasoline into a tank. Tesla says it’s rarely likely to take that long tential to improve range. However, it won’t because the battery will seldom run down necessarily be a smooth journey. Lithium completely before its overnight recharge. ion batteries can explode if they overheat: While that may be the case for everyday not a comforting thought as you’re belt- urban use, the car would certainly not be ing down the freeway. They’re also expen- as practical for long journeys or to places sive, costing four to five times more than the without access to electricity. nickel-metal-hydride variety, and gradually The Tesla has another advantage: it looks degrade with use. like a car you might want to drive. Electrically Tesla, a US electric-car manufacturer, powered milk floats may have been on the says it’s getting round the overheating prob- road for decades — since 1920s in the UK lem with a special cooling system for the — but you wouldn’t want to go to work in 6,831 lithium-ion cells under the hood of its one, unless you were a milkman (even then $100,000 Roadster. you might not — editor). V

25 – www.energy-future.com 2.1 — Transportation

Also, there are almost no refuelling sites — Hydrogen power: so they would need to be built, which would be expensive. Nonetheless, despite the bar- pros and cons riers to successful commercial development, the technology works and there are several s an electricity-generation system, the fuel-cell pilot programmes under way. Japan’s Agreat advantage of a hydrogen fuel cell Honda, for example, began leasing a limited is that its waste product is water, so in the- number of its FCX Clarity hydrogen fuel cell ory it’s zero carbon. But things aren’t that cars last year and sees hydrogen as one of straightforward. Hydrogen doesn’t occur the long-term alternatives to gasoline. V naturally in great quantities so it has to be manufactured. Energy used in the manu- facturing process could generate emissions and if it’s reformed from a fossil fuel, then Biofuels: that would add to the carbon footprint. There are other drawbacks. Fuel cells pros and cons aren’t yet robust enough to tolerate the rough treatment they’d get in a car. They’re ne of the big advantages of biofu- heavier than batteries and more complex — Oels is that they can be used in exist- so more can go wrong with them and they’re ing car engines, so increased use of biofu- more expensive to buy and maintain. els wouldn’t require the renewal of the car Hydrogen, meanwhile, is a volatile gas, fleet. Distribution networks wouldn’t have making storage and transportation tricky. One to change radically either: they are already possible way around the problem is to fill the handling large volumes of biofuels. tank with natural gas and reform it on board Ethanol is in widespread use around — safer than carrying round a tank of com- the world as an alternative to gasoline. It’s pressed hydrogen. But an on-board reformer been especially successful in Brazil, where is a complex piece of kit — like driving around all gasoline contains a 25% ethanol blend. with a refinery in the back of your car — which In addition, the widespread use of flex-fuel adds to the up-front and running costs. cars, which can run on any mixture of eth-

Biofuels: big business in Brazil

26 – www.world-petroleum.org 2.1 — Transportation anol and gasoline, means ethanol accounts hectare of land, but only 40,000 km if eth- for more than half of the automobile fuel anol is produced from the same area. That market in the country. gas could either be used to power internal But Brazil, the world’s second-biggest eth- combustion engines or as a low-carbon sys- anol manufacturer, has the right climate and tem for producing electricity that could then enough land to grow large amounts of sugar be used to power electric car fleets. V cane. Few other countries share those nat- ural advantages. The US is the world’s big- gest ethanol producer, but the feedstock it uses is maize (called corn in the US), which Natural gas: is a much less efficient biofuel crop than sugar cane — eight-times less efficient, ac- pros and cons cording to Brazilian oil company Petrobras. ompressed natural gas (CNG) is a The downside Cgood fuel for cars in cities because Ethanol also lacks gasoline’s energy con- natural-gas vehicles are silent and cause tent, falling about 30% short. Biodiesel com- less pollution than cars that run on oil prod- pares more favourably to conventional refin- ucts. According to the US’ Environmental ery diesel in terms of energy content, but it’s Protection Agency, compared with traditional a living fuel — store it under the wrong con- vehicles, those operating on CNG have re- ditions and it will go rancid. That adds an- ductions in carbon monoxide emissions of other layer of complication — and cost. 90-97% and reductions in CO2 emissions of There are other problems. Fuels contain- 25%. There are also significant reductions in ing a high proportion of ethanol or biodie- emissions of nitrogen oxides and virtually no sel tend to cause starting problems in cold particulate emissions. weather. And ethanol is corrosive, making it But there are drawbacks: most car engines difficult to transport. Perhaps most serious aren’t optimised for gas use. Refuelling net- of all, land used for growing crops for fuels works haven’t been developed on a wide is land that can’t be used for growing crops enough scale to make natural gas vehicles for food; so biofuels cultivation presents a practical for most people. And the need to threat to food production and may cause in- sacrifice valuable trunk space to accommo- flation in food prices. date the gas tank also rules out this type of There’s hope that second-generation bi- car for many private users. ofuels, such as those produced from algae The shortage of refuelling points means (see p78), or biomass (see p118), will signifi- natural gas is generally suited to city- cantly mitigate these problems by harnessing bound vehicles — taxis and buses — which crops that grow on land that wouldn’t be suit- can refuel at a central point at the end of able for food crops and by converting non- the day. There are almost 10 million natu- edible parts of plants into energy. ral gas vehicles worldwide — almost half of Another promising biofuel is biogas — typ- them in South America. The International ically gas produced by the biological break- Association for Natural Gas Vehicles down of organic matter in the absence of ox- projects that this will increase to 50 million ygen. Maize, for example, yields more en- vehicles, by 2020. ergy per unit of area if it is treated to pro- Environmental performance improve- duce methane, as opposed to ethanol; ac- ments can also be achieved compared with cording to IHS Cera, a car can drive 60,000 traditional refinery fuels by using liquid fuels kilometres on biogas produced from one produced from natural gas. V

27 – www.energy-future.com 3.1 — Supply and markets

Alberta. You have to shift two tonnes of sand Oil prices: just to produce one barrel of oil. And the company gets just $70 in exchange? That not too high, seems like a bargain for the buyer — espe- cially when it costs about that much for the producer to extract a barrel of crude from not too low the tar sands in the first place.

So oil’s cheap again, right? Q So if the companies have to spend so Q What do you mean by “cheap”? much to get the oil in the first place, why A don’t they just raise the price of oil? A Well the short answer is that they sell oil Q Well, I’ve read everywhere that there in a market place and don’t set the price — was a crash in oil prices last year. So it’s buyers do by competing with other buyers. affordable again now, right? But it’s more complex than that. A What do you mean by “affordable”? Think of it this way: the developed world’s economy is an oil economy. We rely on oil Q I’m supposed to be asking the ques- for almost everything we buy, sell, make or tions here. eat. The richer we get, the more oil we con- A I’m not trying to be cryptic. But the first sume — and vice versa. But — and it’s an thing you need to know about the oil mar- important but — because we rely so heavily ket is that categories like “cheap” and “af- on a steady stream of oil (about 84.5 million fordable” are relative. If I tell you it’ll cost $2 barrels a day in 2008), the global economy to drive you and three friends seven miles down the road, that sounds pretty cheap, right? That’s about what it costs at the mo- ment, based on where oil prices are. But if I tell you that a barrel of oil this sum- mer cost about 25% more than its historical average price, it seems expensive, right? But then what if I tell you oil prices towards the end of 2009 have been changing hands for less than half the price they did last sum- mer? Cheap. See what I mean?

Q Er … I think so. A There are other reasons to think oil prices Courtesy Schlumberger are cheap. In autumn 2009, they were hov- ering around $65-72 a barrel. But consider everything you have to do to extract one bar- rel of the stuff. In west Africa, the big oilfields sit thousands of metres beneath the seabed. And the water’s deep. It costs billions of dol- lars to develop a big oil project there. Or look at Canada, where the world’s sec- ond-largest oil reserves are trapped in bil- It costs billions of dollars to develop a lions of cubic metres of sand in northern big oil project

28 – www.world-petroleum.org 3.1 — Supply and markets can suffer if crude prices rise as they did Q And then it crashed. last summer. It’s basic supply-and-demand A Yes. The credit crunch happened and all stuff: when the commodity gets too expen- of a sudden everyone started feeling a whole sive, people stop buying it. So oil compa- lot poorer. The idea that the world would nies, or producers, have to tread a fine line. keep growing richer and needing more oil They spend hundreds of billions of dollars disappeared. A lot of the speculators were up front, so if demand for their product falls, from banks, so when those banks’ mortgage so do their profits. It’s in their interest to keep departments got into trouble, lots of them the oil flowing at affordable prices. sold their paper contracts in the commodi- ties markets to cover losses elsewhere. Q So when oil prices hit their record of more than $147/b last year, people OPEC oil production, 2008-09 stopped using oil? A Again, not so simple. Demand for oil can million barrels a day $ a barrel 32 150 fall — as it has for the past two years — but North Sea Brent oil price (RH scale) only so far. 31 But the oil market does react very quickly 120 to changes in demand. Last year’s bumper 30 prices persuaded people to be more efficient 90 29 — everything from pumping up the tyres on 60 the car to make it go further on a litre of 28 gasoline, to selling the SUV and buying a 27 30 bike — and prices fell quickly in response. Aug Oct Dec Feb Apr Jun Aug

Q What have speculators got to do with Source — International Energy Agency price rises? A Okay, hold steady, because it gets even more complex now. People don’t just trade Prices started to recover towards the middle barrels of crude oil. They trade bits of paper of 2009 after the most powerful group of sup- that promise delivery of barrels of crude oil pliers — those belonging to the Organization at a given time. So some clever investors of the Petroleum Exporting Countries, or looked at the oil market in recent years and OPEC — decided that to help lift prices they decided that it was a one-way bet. China would take supply away from the market. The and India were surging and gobbling up feeling that the world economy was coming spare oil, the economies of the West were out of recession helped too. ticking along nicely, and many oil produc- But with so much volatility in the last two ers were struggling to keep up. It looked like years, investors are nervous. The big ques- oil prices would rise indefinitely. So these tion now is: “What oil price will keep future investors started buying paper contracts, supplies coming, but won’t bankrupt the holding them for a time while the oil price world economy again?” continued rising, and then selling them for a profit. You had two upward forces on the Q And what’s the answer? market: one connected to the “fundamen- A If I’m pushed, probably somewhere tals” of weak supply versus strong demand; around $65 a barrel. But no-one can put a and one relating to investors buying paper figure on it, really. The best thing would just contracts and pushing the prices up even be a stable oil price that allowed consumers further. It got pretty crazy. and producers to plan ahead. V

29 – www.energy-future.com 3.1 — Supply and markets

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30 – www.world-petroleum.org 3.1 — Supply and markets

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31 – www.energy-future.com 3.2 — Supply and markets

also usually traded under long-term con- Natural gas prices tracts — for, say, supply over 20-25 years. These contracts are also based on the and the link to oil price of oil. LNG prices have also been fall- ing lately. Everyone talks about oil prices — Qbut what about natural gas? Isn’t Q That’s the “yes” part answered. What that important? about the “no”? It sure is. Our economy depends on A The gas sector is segmented along regional Aoil. But for a variety of reasons — eco- lines in a way the global oil market isn’t. So in nomic as well as environmental — devel- the US, the world’s biggest gas market, the oped countries, especially in Europe, have discovery of vast new domestic supplies (see been shifting to natural gas as their pre- p55) is putting pressure on local gas prices. It ferred fuel for generating electricity. So when happened at the same time as the oil price fell the price of natural gas rises, so does the last year, but for a different reason. power bill. For some households and many Then there’s the LNG spot market. businesses, that’s one of the biggest single About 15% of LNG supply is not contracted drains on their budget. through long-term arrangements, but gets traded cargo-by-cargo, according to the Q But are oil and gas prices connected? dynamics of supply and demand. When They’re both hydrocarbons… South Korea and Japan, the two biggest A Yes and no. LNG users in the world, need more LNG, When oil prices rise, natural gas prices their buying can push up prices. However, tend to follow. For one thing, when oil prices they’ve also been hit by the global eco- rise, the cost of producing oil also rises. And nomic recession and demand for gas in because a lot of our natural gas comes from both countries is way down. the same place — as “associated gas” that LNG will probably stay cheap for a while, sits next to the oil in a field — the cost of pro- too, because countries such as Australia, ducing the gas rises, too. Nigeria and Qatar have been developing new LNG-export projects. Soon, there could Countries that built the necessary be a glut of LNG on the world market, espe- infrastructure will have a steady cially as the US no longer looks like the big stream of affordable gas market for LNG that many expected it to be. Q So if prices for piped gas get too ex- Furthermore, in many parts of the world, pensive, everyone can just import LNG historical reasons mean that natural gas instead? supply contracts are negotiated based on A Only if they build special terminals to re- the oil price. So, for example, in Europe, the ceive the stuff. In fact, the natural gas busi- continent’s largest gas supplier, Russia’s ness could really be called an infrastruc- Gazprom, was charging customers about ture business. Pipelines, terminals, lique- $450 per 1,000 cubic metres of gas last faction plants — there’s the essence. year. In mid-2009, new deals were being There’s no shortage of gas on the horizon, struck at just over $200. but once consumption starts to rise quickly Then there’s liquefied natural gas (LNG). again it’s the countries that built the neces- Like the gas Gazprom sells through its sary infrastructure that will have a steady pipelines to European customers, LNG is stream of affordable gas. V

32 – www.world-petroleum.org Industry facts

Let’s rock: Groningen field hits 50

1959 Discovery of the Groningen field 1959 Fidel Castro sworn in as Cuba’s — Europe’s largest gas field. Initial leader. Hovercraft launched reserves estimates are for 60 billion 1963 Rolling Stones start their cubic metres of gas. Over time, that recording career, having formed the figure is revised up to 2.8 trillion cubic previous year. metres 1963 First gas delivered from Groningen field to the Dutch market. The Netherlands becomes a natural gas country 1976 Peak production reached. Groningen produces 84 billion cubic metres of natural gas over the year

1976 Steve Jobs and Steve Wozniak form Apple Computer Company 1997 Cloning of the first mammal — Dolly the sheep

1997 Agreement signed for €2 billion modernisation of Groningen’s production system to combat steadily declining pressure. The programme, involving the 2009 Mick Jagger, 66, still in business. installation of compressors in 296 Can he keep going for another 50 wells to suck the gas to the surface, years? is completed in 2009 2009 The Groningen field reaches its 50th anniversary, with output in 2008 amounting to 41 billion cubic metres. Around 60% of the field’s gas reserves have now been produced, resulting in a 50% drop in reservoir pressure. But the operator, the Netherlands’ Nam, expects the field to continue to produce for another 50 years

33 – www.energy-future.com 3.2 — Supply and markets

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34 – www.world-petroleum.org 3.2 — Supply and markets

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35 – www.energy-future.com 3.3 — Supply and markets

But those two forces aren’t immovable in Peak oil: not yet the way geology can be. And yet, geologically, we’re a long way from the end of oil. Including here’s plenty geologists still don’t know unconventional oil, such as the reserves in Tabout oil and how it was formed, but they Canada’s oil sands, we have 3.7 trillion bar- tend to agree on one thing. Oil is finite. If rels left, says Cambridge Energy Research we keep sucking it out of the ground, one Associates, a consultancy. And that figure is day it will run out. And, boy, are we ever likely to grow as recovery techniques improve. hungry for oil. Last year, the world used At present, only about 35% of the oil in an oil- about 84.5 million barrels a day of it. That’s field is recoverable; but improving that ratio to 150,000 litres a second. 50% would add 1.2 trillion barrels to reserves Last year, while oil prices soared, some- — more than has been produced so far. thing else started flowing: a seemingly end- Peak oilers dispute those numbers and less stream of claims that the world had say producers distort the facts. Maybe. But reached “peak oil”. peak oil has a patchy record of its own. The “peak” has been repeatedly — and wrongly Oil can’t last forever — predicted, and it hasn’t happened yet. As a concept, the peak-oil claim has that It doesn’t pay to mock the predictions of kernel of truth — the oil can’t last forever. the end, though, because unless things But in reality, the term masks a host of other change, one day they’ll come true. To pre- claims. The most alarming is that because we vent the apocalypse, the energy industry are so reliant on oil, and because we haven’t needs to keep finding new reserves, improve yet found something to replace it, the peak the recovery rate from existing ones and de- will bring economic depression, wars, famine velop alternatives. Consumers, meanwhile, and other features of apocalypse. In that con- should be thankful for what they’ve got, use text, it’s a belief that has much in common it sparingly and embrace new technologies. with other Malthusian worries, such as the With some luck, we’ll never run out of oil — fear that the world’s population is growing too because we’ll never need to exhaust it. V quickly for food production to keep up. There are more refined versions of peak- International © Shell oil theory. The most convincing argues that while we might not have used over half of our oil and, therefore, reached a “geological peak”, we will never be able to extract much more than we do now. At the same time, nat- ural depletion means we need each year to replace about 6% of our oil reserves just to stand still. It’s not just cranks who hold these claims: the boss of France’s Total doubts that global oil output will ever reach 100 million barrels a day. That’s more than enough for now, but might not be enough in the future. That’s a far more plausible — and equally worrying — prediction. In recent years, pol- itics and economics have hindered many Including unconventional oil, such as companies’ access to countries where oil is the reserves in Canada’s oil sands, we known to be plentiful. have 3.7 trillion barrels left

36 – www.world-petroleum.org

3.4 — Supply and markets

OPEC, the IEA and prices oil supplies to countries supporting Israel — the US and western Europe. Oil prices quad- rude oil is the world’s most actively rupled. Since then, the group has generally Ctraded commodity. Much of the money been able to act as a swing producer, varying changes hands in the busy futures markets output according to the market’s need for oil of London, New York and Singapore. And or its own view of where prices should be — the oil price is not just relevant to oil: it dic- largely thanks to the extremely large capac- tates the cost of other forms of energy, in- ity of one country, Saudi Arabia, which alone cluding natural gas, and the cost of produc- is theoretically capable of supplying around ing many other materials, such as steel. 12% of world oil demand. Only where global Oil prices are referenced against bench- growth has slowed rapidly, such as between mark crudes (see box), trading at a premium 1998 and 2001, has the OPEC proved unsuc- or a discount to them, depending on their cessful in manipulating oil prices. quality: those that yield a greater volume of high-value products — such as gasoline — The consumer response are more expensive than those that produce OPEC’s view of what prices should be usu- greater quantities of lower-value products, ally clashes with the view of the International such as fuel oil. Brent is used to price around Energy Agency (IEA), set up in 1974 by de- two-thirds of the world’s internationally traded veloped consumer countries in response to crude oil — even though produced volumes the oil crisis. Its purpose was to co-ordinate of North Sea Brent crude are now very small. the consumer response to oil-supply emer- The Organization of the Petroleum Exporting gencies and to counter OPEC’s growing Countries (OPEC) — a group of producing power. The IEA´s most important act was to countries that includes many of the world’s tell member countries to store three months’ biggest oil-supplying nations — also has its worth of oil, in case of a supply stoppage. own reference price, the OPEC basket. The IEA still tries to influence the geopoli- tics of oil to the advantage of its members — What is OPEC? countries in the Organisation for Economic OPEC is a prime force in influencing global Co-operation and Development — by, for ex- oil prices: when it cuts output, there is less ample, urging producers to sell more oil or in- oil available to the world and prices gener- vest more in developing their reserves to en- ally rise; when it boosts supply, prices gener- sure steady flows of oil in the future. And it of- ally fall. OPEC, headquartered in Vienna and ten disagrees with OPEC: where OPEC gen- now made up of 12 member countries, was erally wants to get more for its oil, the IEA gen- formed in 1960 by Saudi Arabia, Iran, Iraq, erally wants energy to be more affordable. V Kuwait and Venezuela, which remain mem- bers. The other seven, joining the group at Benchmark crudes various stages, are: Qatar, Libya, the UAE, Nigeria, Algeria, Ecuador and Angola. The main benchmark crude oils are: Brent, a combination of crude oil from 15 North Sea It wasn’t until the early 1970s that OPEC be- fields, with an associated futures contract came a global powerhouse. Until then, the oil traded at London’s ICE Futures exchange; market was dominated by seven large firms, and West Texas Intermediate (WTI), pro- known as the Seven Sisters, which produced duced in the US, with an associated futures more than 90% of Middle East oil. But the contract trading on the New York Mercantile outbreak of war between Israel and the Arab Exchange. In the Mideast Gulf, Dubai crude is used as a benchmark to price sales of states in 1973 resulted in a big shift in the bal- other regional crudes to Asia. V ance of power. OPEC’s Arab members halted

38 – www.world-petroleum.org Industry facts

Who gets what from a litre of oil? Newspapers often blame oil producers if the price of gasoline is perceived to be too high. But a large component of the final cost of pump products is taxation levied by the government of the country where the oil is being consumed. This is the principal reason why gasoline prices vary substantially from country to country. According to the Organization of the Petroleum Exporting Countries (OPEC), the amount of money the UK government receives from taxing oil products is around 1.6 times the amount OPEC members get from the sale of their crude oil. Between 2003 and 2007, says OPEC, the G7 nations (Canada, France, Germany, Italy, Japan, the UK and the US) made $2,585 billion from oil taxation — slightly more than the $2,539 billion OPEC generated from oil sales in the same period. But, argues OPEC, the producers’ net take is substantially lower than that of the consuming economies: whereas the G7’s tax revenue is “pure profit”, the producers had to meet the cost of finding, producing and transporting their oil from their $2,539 billion.

The true cost of gasoline $ a litre

US Crude oil fob* price Industry profit margin

Canada Tax

Japan

Italy

France

Germany

UK

0.0 0.25 0.50 0.75 1.00 1.25 1.50 1.75

Source — Opec (based on 2007 data). *fob = free on board

39 – www.energy-future.com 4.1 — A sustainable future

the process of ratifying the treaties. Many Copenhagen: countries took years to ratify Kyoto; some, such as the US, didn’t even get that far. what to expect In retrospect, the Kyoto agreement looks like a failure, leaving the world perilously close to the point of no return. David MacKay, an hat will 2009 have brought us? When expert on measures to fight climate change Whistorians look back they might say at Cambridge University, UK, says that if seri- it was the year when some of the giants ous reductions in our emissions aren’t made of American industry went under. Or they in the next two or three years the battle will might reflect on political events in Iran. Few switch to “adaptation” — coping with a hotter of them will forget to mention President climate, not preventing it. Barack Obama. But they might also point to something Global greenhouse-gas emissions that happened in December 2009. At least, gigatonnes of CO2 equivalent that’s what anyone who wants to stop glo- 30 bal warming will hope. Because that’s Developing when the world’s governments will gather in 25 countries Copenhagen to argue over — and, just pos- Developed countries sibly, agree on — a new treaty to fight the 20 emissions that are heating up our planet. There’s a lot at stake, because despite 15 the rhetoric of recent years, emissions keep rising — by around 3% a year. And unless 10 that trend is reversed, say climatologists, cli- 2000 2005 2010 2015 2020 2025 2030 mate change could soon be unstoppable. Source — US Environmental Protection Agency

Poor track record The track record of these kinds of agree- We’re in that predicament, critics of Kyoto ments isn’t good. Everyone’s familiar say, because the protocol didn’t demand now with the Kyoto Protocol, an agree- enough and countries didn’t deliver what ment signed in Japan in 1997 that laid the they pledged. Schemes for reducing car- ground for the United Nations Framework bon pollution that Kyoto envisaged, such Convention on Climate Change. At Kyoto, as emissions-trading markets, have hardly diplomats from almost 200 countries developed; and where they have, such as agreed to a series of limits on how much in the EU, their effectiveness has been wa- greenhouse gas their nations would be al- tered down by special interests. So coming lowed to emit. Bizarrely, some countries, to an agreement in Copenhagen that actu- such as Australia, were allowed to increase ally does something is crucial. emissions; others, such as those of the EU, Twelve years on from Kyoto, the wor- committed to an 8% reduction against the ries about climate change are now wide- amount they’d been emitting in 1990. spread, thanks to campaigning by individ- But Kyoto expires in 2012. A new agree- uals such as former US vice-president Al ment is necessary, and quickly, because turn- Gore. Climatic events such as Europe’s blis- ing treaties into practice soaks up time like tering hot summer of 2003, which killed tens nothing else. If they agree in Copenhagen, of thousands, and 2005’s devastating hurri- signatory-countries will go home and begin canes in the US have also focused minds.

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Yet despite the media’s fascination with cli- West. Furthermore, Westerners have had mate change, despite the campaigning by ce- 200 years abusing the environment to get lebrities, despite the prevalence of green think- rich. If we hadn’t pumped all that carbon into ing, the global recession has taken steam out the atmosphere in the first place the world of the movement. Governments feel restor- wouldn’t be at the tipping point. ing economic growth is a more pressing prior- There are counter arguments to this. The ity, and green projects that could abate global West also grew rich through slavery — and warming look like pricey luxuries. no one thinks the developing world should That lukewarm approach to the climate is- follow that course. But the dispute is, none- sue has been evident from the way the main theless, almost intractable. If Copenhagen parties who will be expected to agree terms in manages some kind of compromise, it will Copenhagen — the big economies such as be a triumph over deep-seated biases. the US, EU and China — have gone about But there is hope, and it comes in the form preparations for the meeting. Normally, multi- of the US’ new president. Obama has prom- governmental treaty meetings come after ised to revolutionise the country’s stance on months of work by busy “sherpas”, the diplo- climate change It’s probably one reason he mats who specialise in horse-trading across was surprisingly awarded the Noble Peace conference tables. The idea is to have an Prize in 2009. Where the George W Bush agreement in place, so when senior officials administration objected to Kyoto, Obama jet in they just have to hammer out the last promises leadership in Copenhagen. few fine details. This time around things have He’s also a self-proclaimed multi-later- been low-key. Indeed, half way through 2009, alist. Many other leaders, under pressure Germany’s environment minister, Sigmar at home, want to bask in his international Gabriel, said the meeting could be a “disas- popularity. And several Kyoto laggards, ter”. The preparatory meetings had failed to such as Canada, are well within the or- bring any “movement” towards Copenhagen. bit of US influence. Western governments have also been chastened, not to say hum- Mega sticking point bled, by their recent economic failures. All There’s one mega sticking point. Who is re- of these factors might make for more lis- sponsible for emissions and who should pay tening — and less arguing — by the devel- to fix the problem? Take the case of China. oped and developing world. Building a new coal-fired power station every China, for one, is now promising action. In week, China has been the bugbear of envi- September 2009, president Hu Jintao prom- ronmentalists in the West. The country has ised China would reduce its emissions by a now overtaken the US as the world’s biggest “notable margin” in the next decade. carbon emitter. If we can’t stop China’s emis- So, be hopeful for an agreement in sions, what’s the point of doing anything our- Copenhagen that makes 2009 the year the selves? Why should we take a financial hit world fought back. But don’t expect mira- and let China off? That, in a nutshell, was one cles. Compromise is the name of the game argument opponents of Kyoto in the US used in international treaty-making, especially to derail their ratification of the treaty. when the stakes are as high as they will be But hang on. China has prioritised eco- in December. Don’t be surprised if the diplo- nomic growth over the environment, true. mats fudge in Denmark and bigger decisions But when you break down its emissions in are postponed until 2010. We might have per capita terms — how much each Chinese to wait while bluffs are called and horses person emits — the figure is just a fraction traded. It could take months and probably of the average per capita emissions in the will. But will the climate wait for us? V

42 – www.world-petroleum.org 4.2 — A sustainable future

dressing climate-change risks. These include Cutting emissions: taking actions now to reduce emissions, pro- viding new, more powerful energy options the big challenge and gaining a clearer understanding to better guide society’s response,” IPIECA says. ossil fuels are going to provide a signifi- But what does this mean in practice? Fcant part of our energy needs for decades To stem carbon emissions, companies to come. We need to use green energy, but can reduce the emissions they produce in replacing oil, gas and coal overnight with re- the first place; stop the CO2 and other green- newable or nuclear power would be both im- house-gases (GHGs) they do produce from practical and very expensive. That means en- entering the atmosphere; or help reduce ergy companies need to make their industry emissions from other sources. Oil and gas as sustainable as possible by exploring all av- firms are active in all these areas. enues to cut carbon dioxide (CO2) emissions. Their expertise has been important in for- Going underground mulating a global response to climate change The technology that has perhaps gener- at forums such as the UN-sponsored con- ated the most headlines in the fight against ference, held in Copenhagen in December global warming is carbon capture and stor-

2009. Some of the industry’s views are chan- age (CCS), which enables CO2 to be cap- nelled through the International Petroleum tured at source — at an oil and gas process- Industry Environmental Conservation ing facility or power station for example — Association (IPIECA), a body with observer and then buried out of harm’s way in de- status at UN talks, which provides a con- pleted oil and gas reservoirs, or other un- duit for the latest initiatives coming from its derground chambers, such as aquifers. This members in the oil and gas industry. is an enticing prospect, because if that can “The oil and gas industry realises major be made to work, then fossil fuel will be a lot challenges and opportunities lie ahead in ad- less damaging to the atmosphere over the remainder of this century (see p94). Although it is a costly technology, which has yet to be adopted on a widespread basis, the signs from pioneering projects around the world are encouraging. Proponents say there is no reason the technology cannot be scaled up for wider use. The coal industry is being targeted initially for CCS use, because coal burning results in more carbon emissions than the combus- tion of oil or gas. But oil and gas companies are not sitting on their hands, as they know their industry also needs to act. Some of the pioneering work was led by the IEA Greenhouse Gas Programme in the early 1990s. Within this programme the first carbon-storage monitoring exercise Energy firms must make the industry as was set up in the North Sea with Norway’s sustainable as possible by exploring StatoilHydro and its partners. StatoilHydro all avenues to cut CO2 emissions has managed to keep the CO2 content of

43 – www.energy-future.com 4.2 — A sustainable future Photo courtesy: Dag Myrestrand/StatoilHydro Dag courtesy: Photo

Norway’s Sleipner West project has been capturing and storing around 1 million tonnes a year of CO2 since 1996 the gas produced from its Sleipner West tially, it comes into its own when CCS is ap- gas field to below the 2.5% level needed to plied, as it is much easier and cheaper to meet local environmental requirements. The strip CO2 from syngas than from power-plant

CO2 is removed by passing the gas through flue gases. According to Shell, a pioneer in solutions of chemicals commonly known as gasification, that could make syngas nearly amines — a process also used in oil refin- 10% cheaper than coal, if CCS is used in eries and petrochemicals plants — and is both cases. Shell is working to make the then buried in an aquifer over 800 metres technology more attractive in places such below the seabed. By the end of 2008, the as China, where coal is fuelling much of the project, which started in 1996, had stored country’s rapid economic growth. almost 11 million tonnes of CO2, which has been carefully monitored so that the industry Flares go out of fashion has a better understanding of how the gas Less high-profile than CCS, but equally im- spreads underground when new projects portant in emissions cutting are efforts to re- are developed. duce the use of flaring at oil and gas fields — Oil companies are even helping the coal the practice of burning unwanted gas. When industry to cut CO2 emissions. Synthetic the world was a less environmentally aware gas, or syngas, can be created from the place, flaring or venting seemed a convenient heavy residues created in oil refining, which way to get rid of an unwanted by-product. Now can then be used to produce power, or in it looks like a waste of a valuable commodity other industrial processes. But this can also and a way of pumping methane — a danger- be done with coal in a way that makes the ous GHG — directly into the atmosphere. business of stripping CO2 out at the power The industry is now coming up with so- plant easier and cheaper than it would be if lutions to this problem. For example, when the coal were burned directly. Marathon Oil became operator of the Alba While coal gasification adds around 10% field off the coast of Equatorial Guinea in to the cost of coal-fired power stations ini- west Africa in 2002, the focus of production

44 – www.world-petroleum.org Industry facts

Energy demand is set to grow — fast

The world’s population has doubled in the past 50 years to 6.7 billion and it’s expected to reach 9 billion or more by 2050 — a lot more people wanting heat, light and mobility. That’s not all: in China and India alone, more than 500 million people will move from a rural to an urban way of life in the next two decades. The world has no experience of industrialisation on this scale. When Europe industrialised, it involved 50-100 million people moving from a rural to an urban way of life. It was 150-200 million people in the case of the US. And in Europe and the US, the changes took place over several decades.

45 – www.energy-future.com 4.2 — A sustainable future was on gas condensates, so-called wet gas, Those investments have, in part, been while natural gas, or dry gas, was flared off. motivated by government regulations requir- The US company overhauled the project, in- ing biofuels to occupy a minimum share of stalling processing facilities, compressors the fuel mix. Yet despite their environmental and the pipelines required to send gas that promise, biofuels have proved controversial: previously would have been flared back off- doubts have been raised about their environ- shore for reinjection into the reservoir. The mental and economic sustainability. When process cut flared gas volumes by more the energy required to cultivate, harvest and than 90% after it became fully operational transport the crops, and then process them in 2005. It also helped maximise the amount into fuels, is taken into account, there might of gas available for Marathon’s Equatorial not always a carbon saving compared with Guinea liquefied natural gas project, the first fossil fuels. Also, because the crops often stage of which was completed in 2007. occupy land that might otherwise be used The by-products of hydrocarbons process- for food crops, there is a risk that cultivat- ing are also being used through the develop- ing crops to make biofuels could lead to food ment of cogeneration facilities linked to refiner- shortages and food-price inflation. ies and petrochemicals plants. Cogeneration Technology — being developed mainly by entails producing power and heat simultane- energy companies — could provide the an- ously. The excess heat captured from refin- swer. The industry is researching the devel- ing or power-generation processes can be opment of biofuels that could theoretically used as a substitute for carbon-intensive ac- be carbon neutral, cultivated from land un- tivities, by converting it into steam for use by suitable for food crops and from inedible industry or by using it directly to heat nearby parts of plants (see p78 and p114). Success houses or business premises. could revolutionise the transport industry. ExxonMobil has taken a lead in this area, The climate challenge is one to be taken building more than 1.5 gigawatts of cogenera- up by all industries and individuals around tion capacity in five countries between 2004 the world. But expect to see the oil and gas and 2009. One of the latest of its cogenera- industry playing a lynchpin role. V tion plants came on stream at its refinery in Antwerp, Belgium, in early 2009. By supply- ing heat and steam for industrial processes, in addition to generating 125 megawatts of power, the plant will reduce Belgium’s car- bon emissions by around 200,000 tonnes a year, or the equivalent of taking 90,000 cars off the road, the company says.

Going green And then, of course, there is direct invest- ment in renewable energy. Many of the big oil companies have diversified their busi- nesses to include renewables. Players such as BP have substantial interests in the solar and wind industries, while most oil compa- ExxonMobil’s cogeneration plant at its nies have invested heavily in biofuels, which Antwerp refinery will reduce Belgium’s can replace or be mixed with gasoline to re- carbon emissions by the equivalent of duce carbon emissions from transport. taking 90,000 cars off the road

46 – www.world-petroleum.org 4.3 — A sustainable future

that marine environments are not damaged. Water — a precious Through IPIECA, the global oil and gas in- dustry association for environmental and resource social issues, the major oil and gas compa- nies have developed a series of good-prac- educing carbon emissions will help to tice guidelines based on operating responsi- Rstem rising global temperatures, but that bly and building capacity. may not be the most immediate major en- “The oil industry sees itself as having a vironmental challenge the world faces. A dual role in water-resource management: to growing global population, increasing per reduce the impact of our operations and to capita consumption and the effects of cli- contribute to the communities where we op- mate change are combining to put a huge erate,” IPIECA says. strain on the world’s water resources. This is of more than just a passing con- The oil industry has a dual role in cern for the hydrocarbons industry, as oil water-resource management: to companies use more water than oil in their reduce the impact of operations operations and they operate in some of and to contribute to the the driest regions of the world, such as the communities where it operates Middle East. Fresh water is a vital com- ponent across the supply chain, from pro- duction and manufacturing to steam and This means implementing measures to power supply, while seawater is used in manage water use carefully to meet not cooling systems and to stabilise pressure just the needs of the oil business, but also in oil reservoirs. the surrounding environment and the com- This means oil firms shoulder a lot of re- munity. It also means firms need to invest sponsibility for ensuring scarce water re- time, effort and money in new ways of mak- sources are not wasted, over-exploited, and ing water use more efficient and to improve Photo courtesy: Øyvind Hagen/StatoilHydro Øyvind courtesy: Photo

The Hassi Mouinas project, Algeria. Oil companies use more water than oil in their operations and they operate in some of the driest regions of the world

47 – www.energy-future.com 4.3 — A sustainable future access to fresh water and sanitation for those living near their facilities. Recycling is an obvious way oil firms can help to conserve water. Where possible, re- claimed wastewater or low-grade natural water is used in industrial processes. That means more fresh water is available for the local community and for agriculture. Water used in oil-related facilities can also be recy- cled, for use as irrigation water, for example. Meanwhile, oil companies are committed to ensuring water discharged from their fa- cilities is properly monitored and treated, and that it is carefully stored to avoid wast- age or contamination.

Giant strides The results of this approach are visible in the way all the big oil companies work today. The exploration and production di- vision of France’s Total, for example, im- Chevron’s Pascagoula refinery. plemented a plan to reduce the oil and Around a quarter of total water usage gas content of discharged water by 66% in at the company’s refineries is now 2002. Most of its operations had reduced supplied by reclaimed wastewater the level to 30 parts per million (ppm) in 2008. The division has a target of 10 ppm In order to press ahead with the project, for water discharged onshore in 2010. Chevron and its partners have had to draw Four of the eight refineries operated by up a meticulous environmental plan and en- Chevron worldwide have technology in- sure that the plant will not compromise the stalled that enables them to use treated efflu- island’s scarce fresh water supplies. This is ent from the local area to help meet their wa- to be achieved by installing: a reverse osmo- ter needs. Chevron says around a quarter of sis system, to desalinate seawater into fresh total water usage at its refineries is now sup- water; and recycling facilities and by taking plied by reclaimed wastewater, adding up to measures to minimise water use overall. some 45,000 cubic meters a day of municipal Of course, more can always be done to im- effluent. More measures are on the way. prove the industry’s use of water resources. The US’ supermajor also faces a difficult Nowhere is research more important than in and unique water-conservation challenge the Middle East, where big oil and gas de- off the coast of Western Australia, where it is posits exist in an environment of scarce wa- developing the Gorgon liquefied natural gas ter supplies. In Qatar, which has huge hy- (LNG) processing and export facility — one drocarbons reserves, ConocoPhillips’ Global of the world’s biggest — on Barrow Island. Water Sustainability Centre opened in 2009. This is a highly fragile landscape, which is This provides a base to investigate new home to rare animals and has barely enough methods of treating and reusing by-product water to cater for its own ecosytem, let alone water from oil production and refining opera- an LNG plant likely to need 1,500 to 2,000 tions, and further develop industrial and mu- cubic metres of water a day. nicipal water sustainability. V

48 – www.world-petroleum.org 5.1 — Technology: pushing boundaries

It’s like bouncing a ball: the quality of the Biggest games surface dictates the quality of the bounce. Only, of course, it’s more complicated than console in the bouncing a ball. Obtaining a clear signal in the first place is extremely difficult. Background noise se- world verely degrades the quality of the signal; Seismic and other geophysical imaging techniques are the Seismic is an exciting field embracing only way of assessing what the geology, physics, mathematics, reservoir might contain without electrical engineering and computer drilling into it. As such they are an technologies. It is a thoroughly invaluable part of the exploration satisfactory career — Roberto and production process Fainstein, Schlumberger geophysicist

eismic imaging has done for oil what Smedical imaging has done for the health the seismic echo may constitute as little as industry. Twenty years ago, doctors had to 10% of the total energy picked up by the rely on exploratory surgery as a diagnos- sensors. “The rest is noise,” says Robin tic tool. Now, scans often make risky phys- Walker, a geophysicist in Schlumberger’s ical intervention unnecessary. It’s the same WesternGeco unit. The art of seismic, he in oil; without seismic, explorers would have adds, involves teasing out reflected seis- to perform a great deal of expensive explor- mic energy from unwanted background atory surgery in the form of dry or non-opti- noise. “It occupies some of the best mathe- mal wells in order to strike it lucky. matical brains in the world.”

Picture of the subsurface Seismic is an imaging technique that allows geophysicists to form a detailed picture of what the layers of rock are like — and, there- fore, to choose the optimal location for a well. It works by causing explosions or mechani- cal vibrations on the earth’s surface — usually generated by a vibrating pad under a truck, on land, or by specially equipped boats. Sound waves go into the ground and are reflected off layer after layer of subterranean rock. Microphones on the surface measure Eni courtesy Photo the rebounding signal. Computers then an- alyse the data to build a sophisticated pic- ture of the subsurface. The images allow ex- ploration companies accurately and cost-ef- fectively to evaluate a promising target for its oil and gas yielding potential, explains CGGVeritas, which provides data process- Computers analyse the data to build a ing and imaging services to the oil industry. sophisticated picture of the subsurface

49 – www.energy-future.com 5.1 — Technology: pushing boundaries

Offshore, seismic benefits from the fact that Focusing seismic images presents fur- sound travels well through water. But some ther difficulties: whereas a modern camera onshore environments, such as the deserts of on autofocus mode fixes on a single point the oil-rich Middle East, are problematic. The in the distance, geophysicists must analyse sand deadens the signal before it has gone an image with infinite depth of focus — eve- very far under the ground. And the undulation rything from drilling risks on the seabed to of a desert dune means microphones laid out the deep structure beneath the reservoir. on the surface to capture the rebounding sig- That task can be made even more onerous nal won’t all be at the same height — a snag when, for example, there is a large salt layer when millisecond timing is involved. below the seabed to penetrate. This refracts The offshore environment has its own the signal, like light through a prism. One challenges: special vessels have had to be geophysicist likens it to “looking through a designed to be capable of towing several shattered window pane”. lines of microphones — called streamers. A modern 3-D seismic vessel might tow as Mammoth computing power many as 20 eight-kilometre-long stream- And modern seismic surveys — known as ers, with the outer two as much as a kil- three-dimensional (3-D) seismic — generate ometre apart — not a job for any old ship. terabytes of data, which calls for huge com- “Keeping this technology up to date re- puting power. It’s no surprise that the first use quires dedicated teams of engineers that of a Cray supercomputer was in the seismic are always working on the very edge of industry and the seismic industry is the sin- technology,” says Walker. gle biggest user of computer power today. © CGGVeritas

Seismic imaging: It’s like bouncing a ball, but much more complicated

50 – www.world-petroleum.org Profile — Arsen Shnashev

Name: Arsen Shnashev all while the drilling is taking place. The data are transmitted to the surface in real time. Company: Schlumberger After three years in the field, I moved to an Present job: Maintenance manager office in Port Harcourt, Nigeria, working as an for drilling and measurement onshore-support engineer. That involves sit- operations ting in a state-of-the-art communications cen- tre, monitoring data that are being beamed Age: 29 in from various wells across the region and Nationality: Kazakhstani sharing the expertise I’d acquired as a field Degree: Bachelors in Industrial engineer with more junior staff. From there I moved to the technical side of Engineering, Middle East Technical the maintenance department. Downhole tools University, Ankara, Turkey are put through extremely testing conditions — very high temperatures and pressures, for example. Reliability is a priority, making main- tenance a core part of our activity — as vital as developing new technologies. After a stint in Schlumberger’s main- tenance centre in Aberdeen, I moved to Turkmenistan, Central Asia. We receive tools that have been used in the field, up- grading, repairing or maintaining them as necessary. It’s a challenging job: you have to be up-to-date with the latest technology and with the many different product-qual- While I was at university I did internships ity standards in force across the world. Our in the construction and tobacco industries, tools must comply with all of them. And the before taking a placement at a company that task will get tougher because the downhole built oil and gas production facilities. Energy conditions that oil companies are facing are caught my imagination: it meant working in- generally becoming more onerous. ternationally, being exposed to different cul- An important part of the managerial side tures and languages, always having some- of my job is examining the processes we thing new to learn and working with and de- use and applying lean manufacturing prin- veloping new and exciting technologies. ciples to make the workshop more efficient After graduating in 2002, I joined an — and to provide the best service quality by oil company in Kazakhstan, working as a ensuring our equipment is reliable. mechanical-reliability engineer at a gas- There’s an important communications el- processing plant that stripped out hydrogen ement to the job too: I work closely with sulphide from gas produced at one of the Schlumberger’s engineering and product country’s biggest oil projects. centres across the world, because we work A year later, I joined Schlumberger and im- globally and any changes in engineering mediately experienced the benefits of its in- practices must be implemented everywhere. ternational reach. I was assigned to Nigeria, There’s never a dull moment: there’s a working as a measurements engineer in off- different problem to tackle every day. But shore projects. I worked with logging and there’s great support from other parts of the measurements-while-drilling tools. These are company and a lot of experience and knowl- sophisticated electronic devices that evaluate edge to draw on. To do this job, you need en- the physical properties of a well — such as ergy and stamina: but if you want to see the resistivity and porosity – and take pressure, world and work with latest technologies in temperature and wellbore trajectory readings, the oil industry it’s a good place to be. V

51 – www.energy-future.com 5.1 — Technology: pushing boundaries

Interpretation, the final step, is a science Alternatively, geophysicists can take ad- and an art. A seismic picture is actually of in- vantage of the steady stream of electro- terfaces — between, for example, two layers magnetic radiation from the sun that propa- of rock or between the seabed and the water. gates into the earth. Differences in interfaces cause a reflection in the way light reflects off a surface; seismic, The changing of the tides therefore, provides information about the dif- Explorers are also starting to make use of ference between rock layers, but no informa- natural seismic noise from inside the earth tion about the rocks between. “It’s like get- to see the distribution of oil and gas and how ting a bank statement that says you have they move. And reservoir engineers moni- $400 more than last week, but doesn’t tell tor the pressures of oil and gas and water, you how much you have in total — it’s all which regularly change minutely with the very relative,” says Walker. Geophysicists rise and fall of the tide and onshore with the take the data and try to assemble a picture rise and fall of the moon — another source of the likely physical characteristics of rocks of guidance for the future. V and fluids that could have produced the seis- mic record they are analysing. Geophysics enters a new dimension It may soon be possible to see through hitherto impenetrable Time-lapse 3-D seismic (sometimes called 4-D seismic) could lead to a significant substances, such as basalt, a rise in the world’s recoverable reserves; volcanic rock today, much less than half of the oil in a typical oil field is produced. The technique is utilised to monitor the This is where computers have made such production and depletion of an oil field over a big difference. Says Walker: “When I started time and involves running more than one in this industry about 25 years ago, we used 3-D survey on the same spot, but with an to print off 2-D data [a less data-intense form interval of a year or more. Data compari- of seismic] on paper and interpreters had col- sons — made by subtracting one data set oured crayons and spent their day drawing on from the other — can show areas of the the various interfaces and trying to work out field that have been depleted over time and what the geology was.” Now computers can highlight areas where in-fill drilling would be manipulate 3-D images in seconds, enabling useful to tap pockets of bypassed oil. geophysicists to visualise the reservoir. “It’s Typically 30-40% of the oil in a field like being paid to play with some of the big- is produced and 60-70% is left in the gest games consoles in the world.” ground. However, an estimate by an- Improvements in recent years in the qual- alysts at Cambridge Energy Research ity of seismic imaging have been so spec- Associates suggests 4-D seismic could re- sult in a leap in overall recovery factors of tacular that it may soon be possible to see 8% worldwide. That implies producible re- through hitherto impenetrable substances, serves could rise by a colossal 20%. such as basalt, a volcanic rock. In addition to 3-D surveys, much less Other imaging techniques are emerging data-intense two-dimensional surveys con- to complement seismic. These include elec- tinue to be shot, especially in highly spec- tromagnetics. Specially generated electrical ulative areas in order to assess whether currents can help identify specific rocks and it is worth stumping up the investment fluids by measuring the resistivity character- needed for a 3-D survey. V istics of subsurface rocks.

52 – www.world-petroleum.org 5.2 — Technology: pushing boundaries

logical breakthrough that marked the begin- Offshore marvels ning of the modern offshore industry. Fast forward to 1995 and the launch of Designing and building offshore Norway’s Troll gas platform, a 0.656 mil- platforms are among the greatest lion tonne concrete structure. At 472 me- engineering challenges in the oil tres, it’s the tallest installation ever moved and gas industry — or any sector by humans — and 30 metres taller than the Empire State building. ompare the aeroplane piloted by Orville It’s not just the scale of modern oil and gas CWright in 1903 — in the first control- platforms that’s impressive, it’s what they can led, powered flight — with a Boeing 747. do. BP’s Thunder Horse facility in the Gulf of The 747 entered commercial service just 67 Mexico, the world’s largest deep-water pro- years after Wright’s historic achievement, ducing platform, pumps out about 260,000 but the differences between his aircraft and barrels of oil a day — more than Colombia a modern airliner are simply staggering. consumes. The largest floating, production, Or compare the 1946 Electronic Numerical storage and off-loading vessel, the Kizomba Integrator And Computer, the first general- A platform, offshore Angola, can store up to purpose electronic computer, with the latest 2.2 million barrels — roughly equivalent to laptop. And what would Alexander Bell have Iraq’s daily oil production (in mid-2009). made of an iPhone? The same breathtaking rate of develop- Daunting burden ment has been achieved in the offshore oil And the physical burden platforms must industry. It began more than a century ago deal with are daunting. Consider the 1.2 when a well was drilled at the end of a pier million tonne Hibernia platform: its gi- stretching about 100 metres into the Pacific gantic concrete base is designed to re- Ocean, off the Californian coast. The earli- sist the impact of drifting icebergs off the est offshore platforms consisted of wooden Newfoundland coast. In 2003, US oil major derricks mounted on barges that could oper- Chevron drilled a well in 3,051 metres of wa- ate in a metre or two of water. ter in the Gulf of Mexico. The depth of that By the mid-20th century, these rudimen- well, a record, is around six times the height tary systems had been replaced by plat- of the world’s tallest building — Taipei 101. forms supported by tubular steel members Petrobras, a Brazilian oil company, has just that extended to the seafloor. In 1947, Kerr- started producing oil from a well at an oil McGee spudded the first well from a fixed field called Tupi that involves drilling down platform beyond the sight of land, a techno- through 2,000 metres of water and a further

1903 1970

53 – www.energy-future.com 5.2 — Technology: pushing boundaries © Statoil

1947 1995

5,000 metres below the seabed — on the oil will be at high pressures and high tem- way passing through a layer of salt that, in peratures. Sometimes it will be highly acidic places, reaches 2,000 metres in thickness. and corrosive. All those considerations need And all of this is happening 250 kilometres to be taken into account when designing the away from the comforts and amenities of equipment needed on the topsides — the Rio de Janeiro’s shoreline. facilities that sit on a platform’s deck. Offshore oil isn’t just hard to detect It’s quite a list. and get at; it’s often hard to get out of the ground. Perhaps it won’t flow on its own; An enormous task temperatures at the bottom of the ocean Not surprisingly, moving an offshore plat- may be too low or the oil itself may be too form from concept to commissioning is an viscous — or both. The producer might enormous task, which can take from one need to heat up the oil in specially warmed year to several years, depending on its size pipes on the seabed until it’s runny enough and type (see box). to flow. Another solution might be to lower Platforms need to be self-sufficient: they giant electrical pumps down through the need their own power and communica- water to give the oil a boost. You don’t tions equipment, accommodation facilities need to have tried to make toast in the for workers, who spend weeks offshore at bath to appreciate the problems involved a time, docking facilities for crew and supply in designing and maintaining one of those boats, a helipad, and cranes for lifting equip- for use under 2,000 metres of water. ment and supplies onto the deck. In some Then there’s the water pressure to think cases, they must have the capacity to store about: how do you prevent the underwater huge volumes of oil until it can be trans- equipment — the tubes that carry the oil and ported to shore. They need to meet stringent gas to the surface, for example — from be- environmental and safety standards and run ing crushed under the weight of 2 kilome- for years with minimal maintenance. And tres of water. And what about strong tides they must be able to produce and process and currents, high winds and waves, snow vast volumes of hydrocarbons. and ice, and earthquakes or other unstable The Independence Hub facility in the deep- conditions on the seabed? Sometimes the water Gulf of Mexico, for example, produces

54 – www.world-petroleum.org In 1947 we designed and installed the first steel template offshore platform in the Gulf of Mexico.

Today we have 15,000 employees worldwide and operations in 14 countries.

We offer you the chance to be involved on projects from concept to commissioning.

Are you ready for the challenge? We offer stable career growth potential, excellent benefits, challenging projects, and a world class team environment.

To learn more about J. Ray McDermott, visit www.jraymcdermott.jobs J. Ray McDermott is an equal opportunity employer. 5.2 — Technology: pushing boundaries as much as 28 million cubic metres of natu- pected lifetime of the project are other im- ral gas a day from 16 wells — roughly equiv- portant parameters. And the design will also alent to the consumption of South Korea. have to take into account the possibility that The first stage in scoping out the optimal yet-to-be-discovered pockets of oil may be design for a platform is to estimate the field’s linked to the facility in future. size, what mix of oil, gas and water it will Next, bids are let and contractors selected yield, and how many wells should be drilled. — a daunting exercise in logistics, procure- Will it be used just for producing and stor- ment and management. “In an offshore facil- ing oil or drilling as well? Any platform will ity there are hundreds of thousands of sub- have many thousands of tonnes of static elements electrical generation, data sup- load, but the figure’s likely to double if a drill- port, and compressors, for instance,” says string is included. Water depths and the ex- Bill Dunnett, managing director of offshore

What type of offshore platform does sir require? Drilling barge: in very shallow, calm waters duction structures to the seafloor and are close to shore, operators sometimes install anchored to piles driven into the seabed. drilling equipment on a flat-bottom barge that The legs prevent vertical movement of the is towed from site to site by tugboats. platform, but allow enough horizontal motion Jack-up platform/rig: a jack-up rig is simi- to minimise stress from wind and waves. lar to a drilling barge, but has three or more TLPs are typically used in waters 450 to massive legs. After the rig is towed to the 2,150 metres deep. site with its legs up, the legs are lowered to Compliant towers: these drilling and pro- the seafloor and then the barge is jacked up duction platforms are connected to the sea- so that it rests above the water. When drill- floor by narrow, vertical towers that are flex- ing is completed, the legs are raised and the ible enough to absorb the impact of wind, platform is towed to the next site. waves and currents. The structures are gen- Semi-submersible platform/rig: the lower erally used in water depths ranging from 450 hull of this platform has ballast tanks that are to 900 metres. filled with water until it is partly submerged Spar platforms: the deck of this buoy-like with the topsides above the water. Then platform, which is designed for deep-water the platform is anchored to the seafloor. To and ultra-deep-water applications, sits atop move the rig, the ballast tanks are filled with a giant, hollow cylindrical hull that is tethered air, making it buoyant. Semi-submersibles to the ocean floor with taut cables and lines. are typically used for fields in waters at least Drill ships: these ships, designed specially 60-90 metres deep. for deep-water drilling operations have a Sea Star platform: smaller versions of drilling platform and derrick on their deck. TLPs, Sea Star platforms can operate in up Drill strings are extended through a moon- to 1,000 metres of water and are typically hole in the hull and down into the water. The used to develop smaller deep-water reser- vessels are either anchored or use propel- voirs that would be uneconomic to exploit lers to continually correct their drift, keeping with a larger platform. them directly above the well. Fixed platforms: the rigid legs of these per- Floating production system: these plat- manent production facilities sit directly on forms, typically submersibles or drillships, the ocean floor. Fixed platforms are used in are positioned over production equipment water depths of up to 520 metres. mounted directly on the seafloor. The pro- Tension-leg platform (TLPs): long, hollow duction is pumped to the facilities on the plat- steel legs extend from these floating pro- form through flexible pipes called risers. V

56 – www.world-petroleum.org 5.2 — Technology: pushing boundaries engineering and operations at Petrofac, an reduce the weight of the subsea equipment, oil field services company. “In addition, there from the mooring chains and the risers that are several thousand sub-contracts on a carry the oil and gas to the surface to drilling, $500 million project.” production and processing equipment. Less The oil or services company running the weight hanging from the platform = smaller project must ensure that all those thousands platform = more profitable development. of bits of kit are compatible with each other, meet the requisite quality standards and that Constructing giants they arrive on time and are — to use a bit of The platform designers’ vision starts be- industry jargon — fit for purpose. The late coming reality at fabrication yards, where arrival of equipment and materials, or a de- the structures are assembled by hundreds sign flaw, can lead to costly delays and im- of welders, fitters, crane operators, paint- pair project economics. ers and riggers. At the height of the oil boom Real estate on a platform’s deck is ex- that peaked in mid-2008, more than 80 rig- pensive, so the engineers are aiming to de- building yards — which are usually on wa- sign platforms that are as small and light as terfronts — existed around the world ena- possible, without compromising stability and bling the growth of the offshore industry. safety. That means improving layout, min- The yards are immense. The world’s iaturising equipment, removing redundant largest, a South Korean facility owned by equipment or using lightweight construc- Hyundai, covers 7.2 million square metres. tion materials. Sophisticated software pro- With huge mobile cranes that can lift as grammes have proved invaluable, enabling much as 1,500 tonnes, giant pieces of equip- engineers to create minutely detailed 3-D ment used to roll flat plate into tubular sec- computer models of a facility before a well tions and immense buildings with overhead has been drilled or a pipe ordered. cranes for working indoors in bad weather, As well as the on-board facilities — those the largest fabrication facilities are as im- that separate out the gas and liquids from pressive as the superstructures they build. the production stream, store produced oil And managing them requires broad-rang- and accommodate the crew, for example — ing engineering and technical skills — and scientists are continually looking for ways to teamwork. “For major structures,” says Ray Gilbert H. Grosvenor Collection Grosvenor H. Gilbert

1892 2009

57 – www.energy-future.com 5.2 — Technology: pushing boundaries

1946 2009

Serpas, an engineering manager at US plat- tonnes. Inadequate early planning can form contractor J Ray McDermott, “the engi- lead to costly rework, equipment availabil- neer needs to work closely with the fabrica- ity problems and schedule delays, says Kirt tor and installer, because the loading during Raymond, a general manager at J Ray. the fabrication and installation phases can Often a platform, or part of one, will control a large portion of the design.” have to be shipped a considerable dis- Not all platforms are new. Old oil tank- tance, from fabrication yard to field, add- ers are sometimes converted into floating, ing another layer of logistical complication. production, storage and offloading vessels. Thunder Horse’s 60,000 tonne hull was Or a rig that was designed for one field can constructed in South Korea. be adapted for use at another. Reusing old equipment isn’t easy: precision measuring Anything but straightforward using lasers is necessary to ensure that Installation methods vary, depending new bits of kit will fit properly, for instance. on the type of structure and its location. But it makes obvious financial sense. For Take a fixed platform, for example: once one thing, it’s usually cheaper. And, for the main structural component — the sub- another, it’s generally much quicker than structure, or jacket, arrives at its destina- building something from scratch. Speed tion, it is up-ended from a horizontal to ver- is important because reducing the time it tical position and lowered to the bottom of takes to get the oil flowing has a significant the ocean. Then it is levelled and piles are bearing on the economics. driven through the legs of the jacket into the seafloor. Next, the topsides, or deck, are Platforms on the move lifted into place and set on top of the piling. While transportation and installation usu- The pieces are connected and other opera- ally take less time than other aspects of a tions required to complete the structure are platform project, these phases are none- conducted. Finally, the drilling rig and other theless risky and costly. The original de- equipment modules are put in place. sign must take account of the tools that will If it sounds straightforward, it’s anything be needed for the installation phase — in but. The sheer size and weight of these mas- some cases, massive, ship-mounted der- sive structures add significantly to the diffi- rick cranes that must be booked years in culties involved in executing each of these advance; the world’s largest semi-submersi- steps, making platform design, construction ble crane vessel, owned by marine contrac- and installation one of the world’s most in- tor Heerema, has a lifting capacity of 14,200 credible feats of engineering. V

58 – www.world-petroleum.org Industry facts © Repsol

The hydrocarbon compound: the most versatile there is Crude oil is mainly made up of chains of carbon and hydrogen atoms called hydrocarbons. The chemical bonds that link these chains together can be broken up and linked in different ways. According to BP, the hydrocarbon compound is the most versatile on the chemical charts — able to make an estimated 2.5 million combinations. The flexibility of hydrocarbons allows refiners to turn undesirable oil products into more valuable ones. Longer, heavier molecules can be transformed into shorter, lighter ones through a process called cracking, which uses temperature or catalysts to make new combinations of carbon and hydrogen atoms — and yield greater volumes of high-value products, such as gasoline.

59 – www.energy-future.com

Industry facts 2009 president elected US Barack Obama 2008 Banking crisis triggers recession 2007 First oil FPSO from Dalia Arrival of in Angola 2006 Start of offshore installation work FPSO hull installation on Drilling starts Start of topsides 2005 re-elected US president George Bush Launch of FPSO Start of FPSO hull in South Korea 2004 topsides fabrication 2003 Invasion of Iraq 2002 2001 US president George Bush elected 2000 1999 1998 Asian financial crisis Photo © Marco Dufour Discovery of the Dalia field $ a barrel Adminisitration (oil price) Source — US Energy Information 1997 0 90 75 60 45 30 15 The price of North Sea Brent crude oil, current affairs and the Dalia development 150 135 120 105

62 – www.world-petroleum.org Industry facts

Dalia: taking the long-term view Oil companies think for the long term. They tend not to get too excited about very high oil prices or too alarmed by very low oil prices, because a certain amount of price cyclicality is a fact of life. Things tend to even out in the end and they base their plans on assumptions about the average long-term price. France’s Total discovered the Dalia field in 1997. It took over nine years to produce first oil. In 1997, oil prices were around $20 a barrel. But, within a year, they’d halved. Four years later, they started to rise and by mid-2008, just 18 months after project start-up, they reached nearly $150 a barrel. By mid-2009, they’d roughly halved from that level, having nearly fallen as far as $30 in between. Political cycles are shorter than the oil industry’s planning cycle too, which can be frustrating for oil companies, because politicians sometimes take decisions that might be expedient in the short term, but aren’t necessarily conducive to investment over the kind of horizons the oil industry contemplates. The time between the discovery of Dalia and first oil is about twice the length of a typical government term. Why did it take so long to get the oil flowing at Dalia? In all projects, but especially those offshore, or in inhospitable, remote and infrastructure- deficient locations, oil developers face considerable physical and organisational challenges. Dalia’s not easy to get to for a start: the field’s 135 kilometres off the Angolan coast. The water’s deep too – ranging from 1,200 to 1,500 metres, over an area of about 230 square kilometres. Extensive kit is needed to produce the oil and gas: the floating production, storage and offloading (FPSO) vessel being used to produce the oil is one of the largest ever built. The hull is 300 metres in length, 60 metres wide by 32 metres high. On top of it are 29,400 tonnes of deck and facilities (topsides). The vessel can store up to 2 million barrels of oil. Beneath the water, the project involved the drilling of 71 wells, including 37 producing wells. The network of tubes that transports fluids from the seafloor to the surface is more than 53 kilometres in length. Reservoir conditions are unhelpful: the oil is highly viscous and acidic. After it’s been cleaned up, water that was produced with the oil is pumped back into the reservoir through 35 kilometres of injection lines and down 31 water-injection wells. Another 13 kilometres of tubes carry natural gas that was produced with the oil back to the reservoir for reinjection. Co-ordinating this activity takes years, requires the input of numerous equipment and technology suppliers, and thousands of workers. It’s also not cheap: the investors in Dalia spent $4 billion – not the kind of sum on which you make snap decisions. But, with reserves estimated at close to 1 billion barrels and production capacity of around 240,000 barrels a day, the field is worth the investment.

63 – www.energy-future.com 5.3 — Technology: pushing boundaries

have made this one of the most inventive Deep thinking and exciting areas in the energy world. Schlumberger, the oil field services com- The energy industry is moving pany, is one of many firms assisting Brazil further offshore in its search for in its deep-water developments. Andy the next big oil and gas discovery Hendricks, vice-president of Schlumberger’s — spawning technological subsea division, defines subsea as “every- marvels along the way thing that happens between the sea floor and the surface of the ocean.” ubsea engineering — which deploys so- Methods of drilling for oil in shallow wa- Sphisticated seabed drilling and extraction ters — up to 400 metres — closely resem- devices to winkle oil out of the most inhos- ble the methods used on land, he says. pitable corners of the oceans — has devel- “Onshore, you drill down into the mud un- oped rapidly, and is set to play a growing til you get to the residue. On conventional role in energy supply. platforms offshore, you pipe through the wa- It first came to prominence in the North ter, but you’re drilling with much the same Sea in the 1980s, and has since been de- equipment.” Beyond 400 metres, however, ployed with increasing sophistication in the the picture changes. Gulf of Mexico and the seas off west Africa. “Different methods of monitoring are re- And recent discoveries in the Brazilian quired, different tools and chemical solu- Atlantic have located vast reserves of oil tions,” says Hendricks. “Wellheads and trees under 2,000 metres of water and a further no longer sit on the platform; they sit on the 5,000-7,000 below the seabed. sea floor, in an entirely different environment The job of extracting those reserves will in terms of pressure and temperature. spur further breakthroughs by the subsea “Temperatures at the sea bed are very sector – a thriving industry of large and cold. How do you get the oil flowing? The small companies engaged in marine engi- oil has been there for 40 million years; it neering, chemical engineering, robotics, re- doesn’t want to come out. Somehow, you’ve mote tracking and control, logistical plan- got to lift it to a production facility — a plat- ning and a range of other endeavours that form or a floating vessel.”

Christmas trees, manifolds, umbilicals, ROVs and jumpers, and all on the sea bed

64 – www.world-petroleum.org

5.3 — Technology: pushing boundaries

Usually, subsea systems consist of an in- for the well fluids. The surface pressure con- tricate network of gadgets installed by that trol is provided by a Christmas tree, which is vessel and connecting it to the hydrocarbons installed on top of the wellhead. Named for miles below. The most important pieces of kit its crude physical resemblance to a tree, this include the wellhead, the component at the is an assembly of valves, spools and fittings, surface of an oil well that acts as the interface that helps control and regulate the flow of oil for drilling and production equipment. It pro- out of the well; provides numerous chemical vides a pressure barrier connecting the casing injection points, allowing the oil to be treated; strings that run from the source of the well to and also sensors, enabling temperature, flow- the pressure-control equipment. Traditionally, rates, and flow composition to be measured. the wellhead was located on oil platforms, but Subsea wells and trees connect through in deeper waters it sits on the seabed. flowlines (or risers) to a fixed or floating pro- Once the well has been drilled, a comple- duction platform or to a storage vessel. The tion is placed in the well to provide the conduit riser is the conduit for the oil and must be

Schlumberger says it can halve subsea maintenance costs Located miles beneath the surface of the Brazil, or the North Sea west of Shetland — oceans, and sometimes hundred of miles this expense has been almost unavoidable. from the shoreline, subsea wells are by Until now. But Schlumberger has developed their nature remote. That makes drilling and a technology that it says could enable oil planting these wells a problem. And it makes producers to halve maintenance costs. going back to repair them a nightmare. Says Hendricks: “We’ve found a commer- Maintenance is comparatively easy to per- cially viable solution — a system that uses form on equipment based onshore, or in a light vessel.” This vessel, he says, will be shallower seas, where the wellhead is usu- much smaller and cheaper to run than a drill- ally sited on the platform. Access to dry trees ing rig, and is purpose-built, deploying a sys- is easier and can be accomplished more tem that allows producers to drop special quickly, boosting the total recovery factor. tools through the top of a wellhead, using a The average onshore well needs between wire that can run 3,000 metres down to the four and five days of intervention a year, but seabed. These tools are remotely-operated because it takes longer to repair and main- and can be controlled from the vessel. tain wet-tree wells, their productivity is low- The system imitates technologies that al- ered. The recovery factor of a subsea well ready exist at wells at the level of continental averages about 20%, compared with around shelves; but Schlumberger’s device will be a 50% for dry-tree wells, says Andy Hendricks, first for deep-water wells — assuming there head of Schlumberger’s subsea division. is sufficient customer interest to justify fur- Then there’s the wasteful cost of charter- ther investment. If so, Hendricks estimates ing the kit necessary to make the repairs. This the vessel will go into production next year typically means hiring a drilling rig, which has and will be at work by 2012. all the hardware required to lower equipment With Brazil’s pre-salt offshore fields open- to the floor, and on-board personnel — maybe ing up for production in the coming years, 100 people. But that vessel is designed to Hendricks expects demand to grow. “As the perform other functions, besides repairs, such industry moves into deeper waters, we expect as drilling. “You don’t need all that equipment an increase in demand for services like this,” just to do an intervention,” says Hendricks. he says. “Between 2003 and 2008, a total of And it’s undesirable economically. Deep-water 1,900 wet trees were installed in the ocean. rigs can cost $600,000-800,000 a day. But between 2009 and 2014, we’re expecting In depths of 400 metres or more — in that figure to grow to 3,600. So there’s a big the Gulf of Mexico, for example, or offshore ramp-up of wet trees to be serviced.” V

66 – www.world-petroleum.org 5.3 — Technology: pushing boundaries strong, yet lightweight, to avoid snapping, up- of oil from mature fields in shallow waters and rooting the wellhead, or exerting too heavy a of working for several years without mainte- downward drag on the rig. Shell, for example, nance at depths of 3,000 metres. uses a so-called lazy-wave steel riser on its Schlumberger has developed a remote- deep-water projects in Brazil; this shape pro- monitoring technology capable of measuring vides buoyancy and takes some of the load objectively the relative flow contribution of off the floating structure and the set-down different operators to common pipeline net- point. Much scientific research has gone into works in areas such as the North Sea and the composite materials for risers: most consist Gulf of Mexico – and, therefore, the share of mainly of steel, but in regions where either the financial spoils owed to each producer. the oil or the seawater is especially corrosive, Sometimes, subsea solutions are primarily for example, they have rubber linings. chemical in nature. Schlumberger recently Considerations like this exemplify the unveiled Futur, an active set-cement technol- challenges facing all subsea equipment: ogy that automatically self-heals in the pres- wellheads, trees and tubes all have to be ence of hydrocarbon leaks coming through exceptionally durable, as well as sophisti- cracks in subsea wells that can occur in ex- cated, to work properly under the weight of tremes of temperature or water pressure. up to 3,000 metres of water. The kit needs to Many companies have invested in re- motely operated vehicles (ROVs). These Oil companies have teams of R&D are robotic pieces of equipment performing specialists engaged in devising tasks on the deep-sea floor that in times past clever subsea solutions (or in much shallower waters) might have been carried out by human divers. ROVs come in a range of shapes, sizes and func- be able to withstand the weather extremes tions, from simple eyeball-camera devices that nature frequently throws at it – strong to multi-purpose, multi-appendage mainte- tides, waves, and currents; and hurricanes, nance vehicles. Subsea engineers are also earthquakes and icebergs, to name a few. engaged in developing cables, tethers, bu- And it needs to meet increasingly tough en- oys and other mooring technology that will vironmental and safety requirements, and keep platforms and production vessels sta- run for years with minimal maintenance. ble in the roughest deep-water seas. Then, as Schlumberger’s Hendricks points Deep-water applications attract the head- out, there is the problem of the oil itself. It lines, but David Pridden, chief executive of might be too cold or too viscous to flow on its Subsea UK, an industry body, says subsea own, requiring the assistance of giant electri- techniques are ideal for tapping relatively cal pumps or heat-transmitting pipes that are small pools of oil and gas in mature areas lowered down to the seabed. On other occa- such as the North Sea, particularly when sions the oil will be found at high tempera- wells can be tied back to existing production tures, or in a highly acidic state, posing more and pipeline infrastructure. Nearly half the problems for a producer’s equipment, both relatively shallow UK continental shelf’s out- under the sea and on the platform. put comes through subsea wells, he says. Not surprisingly, oil firms have teams of R&D In an era when the more accessible and specialists engaged in devising clever solu- relatively easy-to-produce discoveries have tions. Norway’s FMC Technologies, a pioneer been made, and oil producers have long since of subsea technology, recently developed an started looking beyond dry land in their quest electrically driven, centrifugal gas compressor for fossil fuels, the role played by subsea tech- capable both of extracting the very last drops nologies has never been more vital. V

67 – www.energy-future.com 5.4 — Technology: pushing boundaries

It’s about teamwork Producing The effectiveness of EOR technologies depends on the effectiveness of other branches of the science of oil production clever — geological understanding and the ability There is plenty of oil left, but it’s to monitor the subsurface, for example. Part of the problem with improving not necessarily easy to produce. sweep is it’s difficult to know which bits That’s where the clever stuff of rock are being swept well and which comes in aren’t. If the injection well is in a place that doesn’t come into contact with untapped pockets of oil, it doesn’t matter how clever t’s a surprising fact that most of the oil the recovery technologies are. Iin a reservoir is usually never retrieved. Understanding the geology, so you can Eventually, it becomes too expensive to pro- predict where the oil’s going to be held up, duce and, at that point, it’s time to abandon and seeing the subsurface — through ef- the project. Perhaps the oil or gas is con- fective seismic imaging, say — will allow tained in small, separate compartments, the drilling of optimally placed infill wells obliging the operator to drill numerous — that allow your sweep to get at the maxi- mum number of juicy pockets of oil. and expensive — wells to get at the various Time-lapse 3-D seismic (sometimes called pockets of hydrocarbons. 4-D seismic) is a particularly effective tool in Occasionally, as much as 70% of the oil mapping the movement of liquids through can be pumped out. But in most cases it’s a reservoir over time, helping scientists un- much lower — perhaps just 5%. On average, derstand how a particular geological struc- the worldwide recovery factor is about 35%. ture works. The technique involves running Any technology that can step up the re- more than one 3-D survey on the same spot, covery rate and allow the operator to con- but within an interval of a year or more. Data tinue pumping oil is valuable for the com- comparisons — made by subtracting one pany producing the oil; increasing recovery data set from the other — can show areas of the field that have been depleted over time at existing fields is cheaper and less energy- and highlight areas where in-fill drilling would intensive than making and developing new be useful to tap pockets of bypassed oil. discoveries. It’s good for the government re- New surveying techniques, such as elec- ceiving taxes from the production too. tromagnetic (EM) surveys and its marine And it’s important to world energy supply. offshoot, controlled-source EM, are also According to BP, a 1% increase from its res- making waves in the field of mapping the lo- ervoirs alone would yield an extra 2 billion cation of fluids. V barrels of oil equivalent. On a worldwide ba- sis, a 5% increase in recovery would yield an additional 300-600 billion barrels of oil equivalent, the company says. That would equate to 10-20 years’ of oil supply at to- day’s consumption rate. And, with oil prices of, say, $70 a barrel, the economic value of such an uplift would be staggering. “There is a significant amount of oil out Visualisation of a 3-D seismic there in fields that we already know where survey in the Gulf of Mexicco they are,” says an enhanced oil recov- ery (EOR) specialist at US oil company

68 – www.world-petroleum.org Profile — Todd Wise

Name: Todd Wise voirs. Most of the world’s easy oil has been produced, so finding new ways of produc- Company: Chevron ing heavy oil and other unconventional hy- Present job: Petroleum engineer drocarbon resources is an important part of Age: 25 maintaining energy supply. The challenges in my present job are dif- Nationality: American ferent from those I faced in my first assign- Degree: Petroleum and natural gas ment with Chevron. I spent my first two engineering, Penn State University years as a reservoir engineer; that involves understanding what’s going on in the sub- surface and devising ways of optimising pro- duction — getting the most you can out of the ground. It’s a strategic-thinking role; you’re focused on the long term. The demands of the production side of the business are more immediate. For example, I have to coordinate multifunctional groups — welders, drillers and so on — and ensure that everything we do complies with environ- mental and safety standards. You have to think on your feet, but I relish the organisa- tional challenges the job involves. Professional variety is one of the great In college, I did three internships in the oil things Chevron has to offer. In your first five industry — two of them at Chevron. I liked years, you complete three different — and the way the company did business; its val- diverse — assignments, which gives you a ues were aligned with mine — its focus on wide base of experience on which to build safety, the environment, ethics and the way your career. My next assignment might be people are treated. Those things develop business planning or facilities management, trust and a sense of partnership. either of which would be a big departure I started full-time in 2007, working on from what I’m doing now. heavy-oil projects, using steam floods to en- You get a lot of help from the many expe- hance recovery. Heavy oil’s viscous, so it rienced people in the company. But lots of doesn’t flow well. Think of pancake syrup: young people are coming into the business it sticks to itself and anything it comes into too, seeing things with a fresh set of eyes. contact with, but if you heat it in the micro- I’m part of a group of young people working wave, it pours easily. Steam’s the most eco- together on innovative ways of doing busi- nomic and operationally reliable way of do- ness — coming up with ideas for how we ing the same thing to heavy oil. can cut our carbon footprint, for instance. I’m based in California’s San Joaquin Some jobs, you’re in the office all day Valley, managing a heavy-oil steam-flood pi- and others you’re always outside. In energy, lot venture. It’s a test-bed for new technolo- it’s both. You work in an office — crunching gies and hypotheses — a real project, with numbers, assessing the economics, speak- all the appropriate wells and data surveil- ing with management. But you also have lance and all the hardware and the water to be out where the rubber meets the road: supply you need for a steam flood, but eve- seeing wells being drilled, cables being laid, rything’s scaled down. trenches being dug and meeting the people Steam floods are typically performed in doing that work gives you a vitally important sandstone reservoirs and we’re looking at perspective on the operation. It’s a mix of ways of using them in other types of reser- strategy and practice. V

69 – www.energy-future.com 5.4 — Technology: pushing boundaries

Chevron. “And the beauty is there is no ex- might bring recovery factors up to some- ploration cost.” thing around the 35% level. So how’s it done? Underground reservoirs But the trouble with injecting water into an of oil, gas and water are naturally under con- oil well is that it’s naturally mobile, pushing siderable pressure; when they’re perforated quickly through the reservoir without neces- with a well, their contents spurt to the surface sarily displacing much oil. At first, only some — like a can of carbonated drink that has of the reinjected water will burst back out of been shaken up and opened. This phase the production wells, mixed in with whatever of production is called primary recovery and oil it has succeeded in driving to the surface. might push out 10-15% of the oil in place. But the longer the flood goes on, the higher But once that natural fizz has dissi- the water cut — the proportion of water in pated, the oil needs help to reach the sur- the mix; eventually the water-handling costs face. Pressure can be maintained by vari- outweigh the financial returns of the dimin- ous means. That might involve mechani- ishing volume of oil being produced and the cal devices such as giant electrical pumps. operator will have to admit defeat. Alternatively, injecting steam into the reser- voir can lower the viscosity of sticky oil, ena- Good chemistry bling it to flow more freely to the surface. Or maybe not, if the company is prepared But the most common method of enhanc- to invest in the next stage of EOR, in which ing oil recovery involves injecting water or chemicals can be used to squeeze out even gas into the reservoir to flush additional oil more oil — perhaps another 20%. out through the production wells (see box). Chemical EOR might involve mixing These floods — or reservoir sweeps — a surface-acting agent — a surfactant —

CO2 injection: two birds with one stone In the past, natural gas was often reinjected peratures at acceptable levels is far greater into oil fields to enhance recovery, but that’s than could be used for EOR purposes. no longer desirable because hydrocarbon Nonetheless, it’s in the industry’s obvious

gases are too valuable as energy sources economic interest to use as much CO2 as

in their own right. The big hope is that CO2 possible for EOR because, at the same time

captured from industrial processes and CO2 is being stored, a valuable commodity is power plants will be widely used to enhance being produced.

oil production, becoming permanently iso- CO2 EOR can be made more effective lated from the atmosphere in the process. with the use of chemicals by, for example, Operators in the US have been inject- mixing a surfactant into the gas that pro-

ing CO2 into oil reservoirs to boost oil recov- duces a foam when it comes into contact ery for decades — experience there sug- with water. The idea is that the foam is gen-

gests CO2 injection can boost recovery rates erated when the CO2 comes into contact

by 5-15%. In the US, natural sources of CO2 with an area that has already been swept have generally been used for EOR. But man- with a water flood. The foam blocks the path

made CO2 is widely available and the need to of the CO2, diverting it into oil-bearing ar- deal with it to mitigate the effects of climate eas of the reservoir that haven’t yet been change should provide oil companies with a flushed out with water. steady supply of the gas in the future. Given growing determination around the

In fact, the supply of manmade CO2 that world to deal with climate change and other the world will have to prevent from reaching environmental issues, expertise in this kind the atmosphere in order to keep global tem- of technology will be at a premium.” V

70 – www.world-petroleum.org 5.4 — Technology: pushing boundaries with the water being used in the flood. tor of BP’s Pushing Reservoir Limits (PRL) Surfactants act as a detergent, reducing programme. BP thinks it may have found a surface energy between water and oil and solution to this problem: a substance called making oil droplets flow more efficiently Bright Water, which is just making it out of through rock formations. the lab after about 10 years, is a polymer Alternatively, the water can be stiffened up consisting of very tightly bound molecules; with polymers, making it less mobile so that oil because they are so tightly bound, they can moves more easily in front of the water. This way, the sweep can gather a greater volume The disadvantage of polymer of oil from the rock pores. Think giant squee- floods is that because they make gee forcing oil towards the production wells. the water flow less easily, it also If the oil being produced is acidic, a cheap becomes harder to inject alkali such as sodium carbonate can be added to the surfactant/polymer mix. The alkali re- acts with acid in the oil, naturally creating ex- be injected into the reservoir — along with tra surfactants. Because the surfactants are water — with minimal resistance and are made naturally and not in a factory, the proc- able to flow unimpeded through the rock. ess is cheaper and — therefore — generates But things change when the injected greater returns for the operator. fluid comes into contact with hot parts of But the disadvantage of polymer floods is the reservoir — those that have not been that because they make the water flow less previously swept with water. The tightly easily, it also becomes harder to inject the bound ball is held together by some weak fluid, says Andrew Cockin, technology direc- cross-links and these break down as the Courtesy Alligator film/BUG/StatoilHydro

CO2 has been injected into Norway’s Sleipner field to enhance oil recovery since 1996. The gas is then permanently stored beneath the seabed

71 – www.energy-future.com Profile — Eric Pradeep

Name: Eric Pradeep ratus. In the past, measurements taken at Company: Baker Hughes the surface didn’t provide accurate informa- tion about downhole conditions. The ability Present job: Product-reliability to take measurements in the reservoir dur- engineer ing the drilling process have substantially Age: 27 improved drilling performance and reduced downtime. Nationality: Indian The design parameters are extremely Degree: BEng in electrical and testing. The product I work on — a commu- electronics engineering at University nications and power-supply tool that, among of Madras. MS in Engineering many other tasks, tells us where we are drill- Science and MS in Statistics, ing and which direction to head to reach the University of Tennessee reservoir — has 11 electronic boards. They must withstand temperatures of up to 200°C, as well as high pressures and extreme vi- brations. My job is to monitor the perform- ance of the electronic components in these boards, and predict the probable remain- ing lifetime of the tool based on how much it’s been used and on patterns from previ- ous failures. The process provides valuable information to the design and manufactur- ing teams, enabling them to produce more reliable tools. It’s rewarding, interesting and challenging. At the moment, my focus is on develop- There’s this idea that the oil industry is ing a thorough understanding of MWD tech- low-tech — and it’s a major misconcep- nology, which will give me a solid base tion. Before I joined Baker Hughes, I used to from which to branch into any other part think it was just a question of drilling down of the business. That’s a great benefit of and pumping up oil, with a bit of mechani- the energy industry: there’s plenty of ca- cal hardware. reer choice. Baker offers me that freedom I was completely wrong: the technology is to move about, but also a structure within extremely complex. It’s technically compa- which to work; you know what your role and rable to launching a rocket. If any aspiring responsibilities are. There’s also a good bal- engineer were to become familiar with the ance between experienced staff, with their technologies we’re working with, I’m con- invaluable stock of knowledge and ability to vinced they’d want to join the industry. provide guidance and training, and young I’ve been with Baker since January 2008, people, who are coming in with fresh ideas having spent my first six months after uni- about how to do things. versity doing an internship at Cisco, a net- I started off in the company’s graduate- working-solutions company. What I’m doing training programme called Lead — leader- now is the ideal job: it involves engineer- ship, excellence and development. It gave me ing and statistics, the subjects of my two a good grounding in the technology, wider in- master’s degrees. I work on measurement- dustry issues and an introduction to the busi- while-drilling (MWD) tools — electronic ness side. If I do well in my current position, measuring devices that are inserted into oil there’s the opportunity for more management and gas wells along with the drilling appa- training further down the line. V

72 – www.world-petroleum.org 5.4 — Technology: pushing boundaries temperature rises. That causes the ball to spring apart into something much bigger — something that is either too big to flow through the rock pores or gets tangled up with other exploding Bright Water chains

and forms a blockage. Courtesy BP Frontiers magazine

Stop thief! What’s good about a blockage? The reser- voir contains so-called thief zones, areas into which water preferentially rushes ahead of the rest of the flood, bypassing valuable pockets of oil before breaking out through the produc- tion wells. In the past, thief zones have gen- erally been isolated with the insertion of phys- ical barriers downhole — mechanical plugs, patches, polymer gels or cement. But none When Bright Water reaches a specific of these penetrates very deeply into the thief warmer temperature, it expands zones and the injected water can often find its tenfold, popping like popcorn way into the thief zones by other routes. Bright Water, says Cockin, has the poten- salinity water. “We’ve studied over 20 differ- tial to plug thief zones automatically. “The ent rock types and, as long as it’s a sand- fantastic thing is you don’t have to have de- stone reservoir, in every case we get more tailed knowledge of what the problem is,” incremental oil out,” says Cockin. The com- he says. “It’s like putting something in a bi- pany’s best result has been a 40% improve- cycle’s inner tube that automatically finds ment over a high-salinity flood. punctures and fixes them.” About 60% of BP’s oil production comes from water floods, and that is set to climb Low-salt diet to 80% by 2010, so anything the company BP has also been experimenting with can do to improve water flood perform- changing the salinity of the water it uses ance will have a significant impact on over- to flush oil out of the reservoir. Its LoSal all recovery. technology, it believes, may be able to add The lateral thinking doesn’t stop there. something like 1 billion barrels of proved re- Microbes, which exist naturally in reservoirs serves around the world. and are capable of surviving high tempera- Conventionally, the water used in floods is tures and pressures, have potential too. By in- saline; reservoirs are often injected with sea- jecting bugs into reservoirs and feeding them, water, because they’re offshore or close to or adding nutrients to stimulate those naturally seawater supplies. “The classical approach occurring in reservoirs, their metabolic activ- is that the salinity of the water doesn’t make ity can be manipulated to give rise to by-prod- any difference,” says Cockin. “But we’ve dis- ucts such as polymers, surfactants and gas. In covered that it does.” turn, these can help trapped oil to move more BP has run several tests that involve tak- freely. Micro-organisms can also degrade ing a rock sample from a well and recreat- the oil itself, reducing the viscosity of heav- ing reservoir conditions — temperature and ier oil so that it can flow from the rock pores. pressure — in a laboratory, before perform- Nanotechnology, meanwhile, could one day ing a water flood on the sample with low- revolutionise production. V

73 – www.energy-future.com 5.5 — Technology: pushing boundaries

both techniques improve the contact be- Go with the flow tween the well and the reservoir. Hydraulic fracturing — known as fracing — or cause the (pronounced fracking) — involves the use of powerful pumps at the surface to inject a flow yourself fluid into the reservoir, typically water with a friction-reducing chemical additive that Shale gas — natural gas held in allows it to be pumped into the formation at faster rates. That pressure fractures the rock formations with extremely rocks around the well, forcing open new low permeability — doesn’t flow well. Unless it’s given a Conventional or helping hand unconventional? here’s good news and bad news about Conventional oil and gas: crude oil and Tnatural gas held in shales deep below natural gas that is produced by a well the earth’s surface. The good news is that drilled into a geological formation in which exploration in the US is proving that many the res ervoir and fluid characteristics per- shales contain very large volumes of ex- mit the oil and natural gas to flow read- ploitable gas ily to the well bore (as defined by the US The bad news is that although shale is Department of Energy’s statistic arm, Energy Information Administration). The the earth’s most common sedimentary rock, gusher of folklore is the most productive of only a small proportion is suitable as a poten- this type of well. tial hydrocarbon source. Most muds, when Unconventional hydrocarbons: any other they’re deposited, don’t contain high levels type of crude oil and natural gas. If it’s oil, of organic source material; even when they it might be thick and viscous — and won’t do, the organic material usually gets oxi- flow on its own. The biggest deposits are: dized before it can be buried. Only in cer- Canada’s so-called oil sands, containing tain low-oxygen environments does the or- remaining established reserves of bitumen ganic material survive intact for long enough of 173 billion barrels; and Venezuela’s ex- to provide a potential hydrocarbon source. tra-heavy oil Orinoco Belt, containing ul- And even when hydrocarbons are present, timate recoverable resources of 272 bil- it hasn’t always been possible to get at them. lion barrels. That puts Venezuela’s uncon- Fine-grained shale formations are character- ventional oil resources marginally ahead of ised by low permeability, which impedes the Saudi Arabia’s conventional oil reserves, flow of gas (or liquids), making shale an inef- which are estimated at around 264 billion fective petroleum reservoir rock. barrels (although Saudi Arabia’s crude oil is much better quality and much easier and Get them moving cheaper to get out of the ground). But oil firms and oil field services com- But reserves could increase. What is re- panies have developed special production coverable depends on technology, which is improving all the time. Total resources in technologies to get them moving. The two Alberta and Venezuela, mostly unrecover- main techniques — horizontal drilling and able with today’s technology, are several hydraulic fracturing — have been around times higher. since the 1950s, but recent refinements Shale gas is unconventional because it have made their use more technically effi- requires special technology to develop it. V cient and more economic. In simple terms,

74 – www.world-petroleum.org 5.5 — Technology: pushing boundaries

passageways in the reservoir, which lets more gas or oil flow freely to a producing well. The process involves brute force, but con siderable fi- nesse too — it’s all about fracture mechanics, fluid me- chanics, solid mechan ics and porous medium flow.

Suitable rock First, you need to check the mineral ogy of the shale formation is suitable. If it’s too clay-rich, it won’t fracture when fraced, says Ken Chew, a geolo gist who works for the energy division of IHS, an industry consultancy. It needs to have a sufficiently high silica (quartz) con tent to make it brittle. Then, says Robert Kleinberg, an expert on unconven- tional resources at one of Schlumberger’s research cen- tres, you need to know in what direction the rock is likely to fracture. There would be little point in drilling a well par- allel to fractures needed to transport gas to the borehole; the well needs to be drilled roughly at right angles to ex- pected fracture planes. To predict the direction of the frac- ture, the operator lowers sonic logging tools down a well to measure the speed of sound around the wellbore, says Kleinberg. This informa tion indicates the orientation of the reservoir’s mini mum mechanical stress. As they open up, the fractures are care fully moni- tored — using micro-seismic sen sors placed down sev- eral wells — to en sure that what was predicted would happen did happen. The sensors pick up acoustic emis- sions from the fracturing process, al lowing the drilling company to determine how the fracture is propagat ing — much like the epicentre of an earthquake would be identified. That information can then be presented in 3-D, showing the zones that haven’t yet been reached. The trouble is that as soon as you stop pumping, the cracks that the fluid has opened close shut. So the fluid

75 – www.energy-future.com 5.5 — Technology: pushing boundaries contains sand — or some other so-called stages — typically 500 foot sections — in proppant — that gets into the cracks and order to concentrate pumping power. The keeps them propped open after the pump- result is a significant improvement in res- ing stops. ervoir contact. Counter-intuitively, despite the monu- Going horizontal mental amount of hardware and manpower But before you frac, you drill. Imagine what needed for injecting the fracing fluid (see happens when a vertical well penetrates a photo) and the technology required for hori- layer of rock steeped in oil or gas that is 10 zontal drilling, shale gas production remains metres from top to bottom: 10 metres after cost effective in several basins in the US, entering the top of the thin horizontal hydro- even at low prices. That balancing act — de- carbons-bearing layer — or payzone — the veloping cutting-edge technology at an af- drillbit would grind its way out of the bottom fordable cost — is something that the oil and into the next formation down, only coming gas industry has been perfecting since the into contact with 10 metres’ worth of produc- tive rock. Once it had drained the oil or gas Photo courtesy Schlumberger in its immediate vicinity, hydrocarbons from elsewhere would migrate towards the well — but far too slowly to be of practical use, especially in a low-permeability rock. Horizontal drilling can significantly boost the amount of gas or oil that can be recov- ered with a single well. Steer the drill-bit side- ways as soon as it hits the target layer and continue drilling laterally instead of down- wards and productivity is multiplied, be- cause the well can stay in the formation for The hardware needed for injecting the much greater distances — theoretically for fracing fluid is monumental as far as you can drill. Downhole instruments called measurement-while-drilling (MWD) modern exploration and production (E&P) tools, placed on the drill-bit, transmit sen- business began in the mid-19th century. sor readings to the surface, allowing the op- Indeed, so successful have E&P compa- erator to determine the required trajectory. nies been in achieving this balance in their The oil industry has plenty of experience drive to develop the US’ shale-gas resources of horizontal drilling in conventional oil and over the last five years that they have trans- gas operations: in 2008, Danish company formed the country’s — and the world’s — Mærsk Oil drilled a well in Qatar with a 10.9 gas supply outlook for decades. kilometre horizontal section — a world re- cord. The limit continues to be pushed: BP, US’ unconventional approach for example, expects to beat that soon, Five years ago, US energy firms were with horizontal wells of up to 14 kilometres fretting about how they were going to im- at Alaska’s Liberty field and is considering port enough gas to meet the country’s rap- a 16 kilometre horizontal well at its Wytch idly rising needs; suppliers set about build- Farm project in the south of England. ing regasification terminals so that they In US shale-gas developments, horizon- would be able to import enough liquefied tal wells are reaching lengths of up to 1.5 natural gas (LNG) to avoid shortages — kilometres. The well bores are fractured in and head off price spikes.

76 – www.world-petroleum.org 5.5 — Technology: pushing boundaries

But there’s since been a big shift in mar- ket fundamentals, partly because the reces- sion has temporarily softened gas demand, but also because of spectacular exploration success in the country’s extensive shale- gas deposits. Enterprising E&P companies — helped by favourable tax rates and these advanced drilling and fracturing techniques — have transformed the long-term possibili- ties for the US’ energy mix. Shale-gas development is still in its rela- tively early stages, so estimates of the coun- try’s potential vary. But mostly the numbers are big: its shale-gas basins may contain up to 22 trillion cubic metres of gas, says the Gas Technology Institute, a not-for-profit US research and development organisation for the gas industry. A report funded by the American Clean Skies Foundation (ACSF) In 2008, Mærsk Oil drilled a world- estimates that recoverable natural gas sup- record horizontal well at the Al plies in the US amount to 64 trillion cubic Shaheen field in Qatar metres, including shale-gas resources — which would be equivalent to 118 years of Clash of the supercontinents supply at today’s consumption rate. Production potential is promising too. The Many sediments are pushed lower by the US Natural Gas Supply Association, which slow accumulation of overburden. Over estimates that gas from shale plays supplied millions of years, the gradual increases in pressure and temperature that occur as a 10-12% of US gas demand in 2008, says the result cook organic material into hydrocar- resource’s contribution could double in the bons — oil and gas. next 10 years, providing a quarter of US sup- But this isn’t what happened during the ply. For now, the US’ most productive basin is formation of the most important gas-shale the Barnett Shale, near Dallas, Texas, which reservoirs. “The real story is much more accounts for about 70% of North American dramatic,” says Schlumberger’s Robert shale-gas output. Between 2000 and 2007, Kleinberg. In the Barnett shale, for ex- 4,200 horizontal wells were drilled there. ample, sediments were deposited in the Mississippian age, when Texas was un- Big prospects der water. During the Pennsylvanian and Other big prospects include Oklahoma’s Permian, Gondawana, a supercontinent, Woodford Shale; Arkansas’ Fayetteville collided with another, Laurussia, pushing Shale; the Marcellus Shale, which stretches these sediments down more than 4,250 from West Virginia, up through Pennsylvania metres in about 50 million years. “This is when gas was generated,” says Kleinberg. and into western New York; and Louisiana’s Subsequently, the overlying mountain range Haynesville Shale, which Ziff Energy, a con- eroded during the Triassic and Jurassic, sultancy in Canada, says will become the and the depth of the Barnett sediments be- largest of the unconventional plays. low ground level decreased to about 2,600 But the rate of development depends on metres, where they remain today. V the price companies think they will be able

77 – www.energy-future.com 5.5 — Technology: pushing boundaries to secure for the gas. For now, drilling activ- ity has slowed down, because of the sharp Coal-seam gas: another drop in gas prices since mid-2008, threaten- unconventional story ing the economics of some developments. Unconventional gas comes from differ- Yet, despite the temporary lull in drilling, ent types of geology. One of the most North America’s shale-gas resources are highly developed segments of the busi- of great strategic value: they are an indig- ness is coal-seam gas (CSG — also enous source of production, lessening reli- known as coal-bed methane or coal-bed ance on imports. And when recovering de- gas). Natural gas adsorbed onto the sur- mand pushes prices high enough, explora- face of coal seams, CSG is extracted from tion activity will accelerate — keeping a cap coal seams too deep or too thin to have on the cost of imports. been mined. There are numerous CSG develop- Gas from coal seams ments in North America and Australia. Shales aren’t the only source of uncon- Indeed, such is their prospective value ventional gas. The US is also a world leader that competition for control of Australia’s in exploiting gas held in seams of coal (see CSG deposits has become intense; sev- box). Indeed, the coal-seam gas industry is eral ventures have recently been set up the most developed of the unconventional with the aim of liquefying gas produced from these deposits for export to buyers in gas businesses. But shales have greater Asia and South America. potential: the volume of gas that can be pro- duced by each well tends to be large, which Difficult to tap is important because the economic value of CSG is the least prospective source of the gas is more likely to justify the expense unconventional gas, however — largely of investing in pipelines. because the seams in which the gas is Whereas a coal-seam gas well would typi- contained are so thin. That not only means cally produce something in the order of 6,000 that they contain less gas, but also that it cubic metres a day of gas, some horizon- is technically more difficult to keep the well tal wells in the Marcellus Shale have been in the right part of the formation. It’s a lot coming on stream at 184,000 cubic metres harder to drill a horizontal well through a a day and in the Haynesville Shale at almost formation that’s 1 metre thick than through 480,000 cubic metres a day, says Chew. one that’s 10 metres thick — go a few cen- There’s also considerable reserves up- timetres too high and the drillbit could side in the shale-gas sector, in which ulti- break out of the coal seam. Finding it again mate recovery rates are generally low. You could be difficult. might expect to recover 60-70% of the gas Another problem is that initial flow rates in place in a conventional well, but in gas- from coal beds tend to be low. As a re- shale reservoirs the figure might typically be sult, operators struggle to achieve suffi- 10-20%. “You’re leaving a lot of gas in place, cient production to pay for pipelines to take which nobody likes to do,” says Kleinberg. the gas to market. The deposits are also And while the US may be driving devel- at shallow depths, so the gas is under less pressure. That means expensive compres- opment at the moment, there is plenty of sion equipment is necessary to get the gas potential elsewhere. The enterprising tech- flowing properly. CSG is better suited to ar- niques being developed in North America eas where gas pipeline infrastructure al- are likely to be replicated around the world ready exists or to being converted to elec- — possibly significantly increasing the gas tricity at the point of production. V resources that are available worldwide. V

78 – www.world-petroleum.org 5.6 — Technology: pushing boundaries

several times a day and produce at least 15 Invasion of the times more oil per hectare than alternatives such as rape, palm, soya or jatropha, says algae-heads Shell, which is working on various advanced biofuels schemes, including algae. It’s green and unglamorous, but Byrne and Company, a US renewable-en- it could become … green and ergy firm, says the average yearly yield per glamorous acre can produce almost 5,000 US gallons of biodiesel, compared with 70 US gallons eeding just sunlight, water and carbon per acre in the case of soybeans and 420 Ndioxide (CO2), algae — pond scum, US gallons of ethanol per acre from maize if you prefer — have the potential to con- (known as corn in the US). vert solar energy into fuel for cars, homes, Byrne and Company says the sunny US planes and power generators, as well state of Arizona alone has the potential to as chemical feedstocks for plastics and produce up to 40-60 billion gallons of liquid pharmaceuticals. fuels a year — a large chunk of the 200 bil- Algae are the holy grail of the world’s lion US gallons of gasoline and diesel the US fuel-supply problems, say algae-heads: consumes every 12 months. There are plenty they grow very rapidly, they’re rich in veg- of cattle in Arizona too: dung and wastewater etable oil and they don’t need fertile land from the livestock industry is a handy source or fresh water — so large-scale cultivation of fertilizer and water for the algae business. won’t necessarily have a negative impact That’s another big plus — algae don’t on food and water supply. need clean water. Aquaflow Bionomics, for Algae — of which there are more than example, produces biodiesel from wild mi- 100,000 strains — can double their mass cro-algae sourced from sewage ponds in

Algae, the holy grail of the world’s fuel-supply problems: green and ugly, but fast growing and rich in vegetable oil

79 – www.energy-future.com 5.6 — Technology: pushing boundaries

New Zealand’s South Island. It has also pro- chains to convert the algal oil into gasoline duced samples of a synthetic jet fuel. and jet fuel. The leftovers of the treated al- Algae can clean up the air too, sucking up gae can even be used in other products, in- waste CO2 directly from industrial facilities, cluding animal feed. such as power plants or cement factories. Until now, algae have mostly been grown That has two benefits: not only do algae re- for the pharmaceuticals industry, in relatively move CO2 from the atmosphere, but the con- small quantities and at relatively high costs. centrated stream of CO2 should have the ef- For the fuels business, cultivation must be fect of turbocharging the algae production. inexpensive and production quantities must And although algal fuels release carbon be high if the industry has any chance of of- when combusted, the process has the po- fering an alternative to petroleum-based fu- tential to be carbon neutral because algae els and supplying a significant proportion of

— like other biofuels crops — take CO2 out the world’s fuel. of the atmosphere when they’re growing. The cheapest cultivation system involves Only algae do it more efficiently than other open ponds, which are easy to build. The plants, says Tom Byrne, head of Byrne and trouble with that is that algae are exposed Company and a board member of Seattle- to the atmosphere. Temperature changes, based Algal Biomass Organization, an in- dustry body representing algal biofuels firms. Although algal fuels release Byrne says algae are six times more efficient carbon when combusted, the than most land-based plants are at absorb- process has the potential to be ing CO2 and converting it into plant mass. carbon neutral because algae

take CO2 out of the atmosphere The science bit So, what does the process involve? The when they’re growing idea’s simple enough: algae produce veg- etable oil naturally — as a way of storing evaporative losses, diffusion of CO2, preda- chemical energy. And that oil can be ex- tors and competing algae strains can cause tracted and utilised. problems. In addition, light use is relatively in- Algae are placed in water, given the right efficient and large areas of land are needed. nutrients and then exposed to sunlight. Greater control over the local environment

Photosynthesis converts CO2 into sugar, — at a significant step-up in cost — can be which is then metabolised into lipids — oil. exerted by using photobioreactors (biore- The water is then removed in as energy-ef- actors incorporating a light source, usually ficient a way as possible — important be- something like enclosed plastic tubes). cause the energy expended in the produc- Valcent, a US company, operates what it tion process has to be taken into account claims is the world’s first commercial-scale when evaluating the net energy value of bioreactor pilot project, in El Paso, Texas; any biofuel or its carbon footprint. it uses a vertical-growing system, cultivat- Extraction methods include physically ing algae in pockets built into tall, hanging squeezing out the oil, applying compressed plastic sheets. By making much better use

CO2 to vaporize the lipids, which can then of theoretically limitless vertical space than be recondensed, or using solvents and even in conventional agriculture, Valcent is able sonic waves. A catalyst then removes oxy- to reduce the physical footprint of its farm- gen from the oil and replaces it with hydro- ing operation — a principle that should al- gen molecules, making a hydrocarbon fuel. low food or fuel supplies to be grown in large Refiners can change the length of carbon volumes closer to urban centres. That prom-

80 – www.world-petroleum.org 5.6 — Technology: pushing boundaries © Shell International © Shell

Grow, my pretties, grow ises better economics and a lower carbon Given all the promise, there is — inevita- footprint. The closed system allows it to con- bly — a degree of hype surrounding algal trol the temperature and chemical composi- biofuels. The reality is that they haven’t yet tion of the algae solution; enhanced control, moved into the commercial age and a con- says Valcent, means maximum oil output. siderable amount of research and devel- HR BioPetroleum and Shell, working to- opment is needed to make them competi- gether on a test project in Hawaii (where tive with petroleum fuels at the kind of scale better to locate a research project?), have that would be required to make a meaning- taken a hybrid approach that incorporates ful dent in CO2 emissions. open ponds and photobioreactors. They Nonetheless, research and commercial- plan to cultivate algae in enclosed photobi- isation efforts are advancing rapidly. And so oreactors, before moving them to frequently too are demonstrations and practical applica- harvested open ponds, allowing them to tions. Numerous start-ups, big energy firms grow at scale without leaving them exposed and other areas of industry are taking an in- to contamination risks for too long. terest. In 2008, for instance, Virgin Atlantic be- San Francisco-based a, which is collab- came the first airline to operate a commercial orating with US oil major Chevron, takes a aircraft using a biofuels blend, flying a Boeing completely different approach: rather than 747 from London to Amsterdam on a mixture using photosynthesis, it keeps its algae in of 20% biofuel and 80% regular jet fuel. the dark, feeding them sugars, which they As the technology gets out of the hands convert into oils. Its biodiesel meets US of laboratories and universities and into the fuel standards and, in 2008, it produced hands of entrepreneurs, the industry will start what it claims is the world’s first microbial- to gather the commercial momentum that derived jet fuel. might, one day, see it fulfil its promise. V

81 – www.energy-future.com 6.1 — Understanding oil and gas

Risk is inherent in all stages of the oil Exploration and and gas E&P process. Operations often take place in remote locations and physi- production: cally harsh environments, with little or no infrastructure. After discovery, oil must be brought to the surface, transported, refined explained and delivered to the end user — safely, prof- Outside the military, oil is the itably and without spillages. And the financial stakes are very high: most technology-dependent the bill for an offshore wildcat well — where industry there is the well planners have little knowledge of the subsurface geology — can easily run to magine planning the evacuation of a city $100 million. In 2007, Brazilian oil company I— on a moonless night, from a helicopter. Petrobras drilled one off the Brazilian coast You have a basic idea of the road layout, an that cost $240 million. understanding of how towns are generally So how do you go from surveying dunes planned and the odd scrap of local informa- in a desert or waves on the ocean to the tion. But just a few lampposts are switched point of being prepared to spend $240 mil- on and you are working in darkness. lion finding out what lies beneath it? The Producing oil or gas from a reservoir is short answer is: science and technology. very similar: a well is like a lamppost — il- luminating its immediate surroundings, but nothing more. Seismic information provides a sketchy street plan and maybe some snapshot indications of how conditions are changing with time. Knowledge of geology and science give enough rules of thumb to make reasonable assumptions about what might be down there.

Working in the dark But reservoir engineers — whose job it is to come up with a plan to squeeze as much as possible out of every cubic metre of rock — are basically working in the dark. They must make multi-million-dollar decisions on the basis of incredibly small amounts of hard information. It’s an empirical process: once a well is drilled, they must listen to how the res- ervoir responds and adapt to events as quickly and creatively as possible. You make a theory, act on it and test it. Then you get the results, interpret them and in- tervene to optimise your plan. But there is a degree of risk and uncertainty that you Producing oil or gas from a reservoir is have to live with all the time. like working in darkness

82 – www.world-petroleum.org Profile — Jillian DuQuesnay

Name: Jillian DuQuesnay sign-side of the job properly. I came into the Pemex project about half way through, but Company: J. Ray McDermott still had the opportunity to see the loadout or Present job: Naval architect installation of 10 different structures that Age: 26 J. Ray was contracted to install. My next big assignment was for a produc- Nationality: American tion platform offshore Trinidad and Tobago Degree: Ocean engineering, Texas in 530 feet of water off the northwest coast A&M University of Trinidad. It’s the largest facility ever built or installed in the country’s waters. I was in- volved in each phase of the project, from preliminary design work to installation. We won an internal company excel- lence award for this project, which was very satisfying. The job involved a great deal of creative thinking. For example, the platform’s sub- structure is fixed to the seabed using a se- ries of giant piles that are driven into the legs and then about 370 feet into the subsur- face. These protect the installation from huge waves and adverse weather conditions. I was tasked with figuring out a way of transporting those enormous pieces of J. Ray McDermott is a leading worldwide equipment to the site and designing a sys- engineering and construction company whose tem for getting people into the right positions services include the design, procurement, to un-tether them and oversee the installation fabrication, transportation, installation, hook- process. It might not seem like an obvious up and commissioning of offshore fixed plat- challenge, but it’s essential to get that kind of forms, floating facilities, pipelines, and subsea thing right without compromising safety. infrastructure, umbilicals, risers, and flowlines. My career could go in various directions. I joined J. Ray’s engineering group straight J. Ray’s an international company with offices out of college in 2005 and immediately found all over the world, so I could work abroad. I myself involved in offshore project work – might do another course of study, although helping install a series of platforms for the one of the great advantages of working in this Mexican national oil company, Pemex. business is that you can get to a good level I am based in Houston, but during my first of seniority and responsibility without neces- year of employment I worked in Mexico for sarily taking a Master’s degree or a PhD. The one week of every month. That was a really company does actively support employees exciting introduction to the energy business who take continued education. and gave me hands-on experience that has Eventually, I could see myself becom- proved invaluable ever since. ing a supervisor within my department, be- Field experience is an important part of fore moving on to management. But at the working for J. Ray. It makes you a much bet- moment I’m focused on technical-analysis ter engineer, because it provides you with work, and I’m really enjoying it. insights into the practical side of the job. I love my job; I work hard, but I go home Without a proper understanding of the con- each day not ever thinking I should do some- structability and physical challenges involved thing else. It’s challenging and every day is in construction, transportation and installa- different. Not many people keep learning at tion, you’re going to struggle to do the de- the same rate after leaving college. V

83 – www.energy-future.com 6.1 — Understanding oil and gas

True, the first step in the exploration proc- Geophysicists start to identify suitable ess is political and commercial, not techni- rocks by measuring their gravitational and cal. Development permits must be secured. magnetic properties. Soft, sedimentary And companies must carefully weigh up ge- rocks, such as limestone, which are capable ological potential, political risk and the in- of holding hydrocarbons, are less dense than vestment terms on offer before embarking heavy, igneous rocks. Aeroplanes measure on an expensive exploration campaign. the earth’s gravitational pull; small differ- However, once those hurdles have been ences caused by variations in the density cleared, the scientists move in. Technology of the underlying rocks provide vital clues cannot change geology, but it can — and about the geology. Variations in the earth’s has — improved the chances of finding oil magnetic field can provide useful data too. and gas and, equally importantly, finding The less magnetic the better — sedimentary ways of producing it profitably. rocks are virtually non-magnetic. When oil exploration began in the US This sort of evidence is enough for the pe- 150 years ago, drilling was mostly done troleum industry’s earth scientists — geolo- around visible oil seeps at the earth’s sur- gists, geophysicists, geochemists and pal- face. Now E&P operations are common in aeontologists — to begin to build a picture waters far offshore in depths of over 2,000 of what the subsurface is likely to hold. But it’s nowhere near enough to bet $100 million Oil and gas accumulate within on. The next step is seismic — where explo- porous rock formations in the ration starts to get really serious (see p49). earth’s crust over millions of years. A layer of impermeable rock on Seismic shocks Seismic identifies the best point at which top stops them from escaping to drill, but the evidence at this stage remains circumstantial. “When you do a seismic sur- metres and technology continues to push vey, you have no idea whether the rock you’ve the boundaries of what can be commer- mapped contains oil or not,” says a field engi- cially produced. In that century and half, neer. “Drilling is the only way of getting hard millions of wells have been drilled and ex- proof that hydrocarbons are present.” ploration techniques have been gradually Lengths of drillpipe, tipped with the drill refined, reducing the risk of drilling a dry bit, are lowered into the hole from the drill- well — the explorer’s nightmare — to as ing rig — or derrick — and new sections of low as one in three or four. drillpipe are added as the hole becomes The kit has got better too. In the mid-19th deeper, telescoping down in ever decreas- century, wells were drilled by hammering steel ing sizes. When the total depth of a well can pipe into the rock. Now, a rotary drilling bit — amount to many kilometres, that requires a revolving steel bit at the bottom of a string of precision engineering. As one engineer puts pipe — grinds its way through the rock layers, it, oil exploration is “a brutally heavy industry lubricated by special drilling fluid. with amazing finesse”. But first earth scientists must identify the right rocks. An oil field is like a sponge, not Get drilling some vast underground lake of oil: oil and When drilling starts, rock fragments flushed gas accumulate within porous rock forma- out by the drilling fluid — known as mud — tions in the earth’s crust over millions of are regularly sampled and examined by geo- years. A layer of impermeable rock on top chemists for traces of oil. As the well is drilled stops the oil and gas from escaping. deeper, a more detailed picture is built up of

84 – www.world-petroleum.org 6.1 — Understanding oil and gas

The Discoverer Deep Seas drill ship. Drilling is the only way of getting hard proof that hydrocarbons are present the stratigraphic sequence outlined by seis- consist of water and either oil or gas — of- mic, through a process called well logging. ten both. The all-important question that the Derived from the word log in the sense of a exploration company needs answered is record, logging involves lowering a tool down whether the reservoir can be produced prof- the well on an electrical wire to measure the itably. There are lots of reasons why a dis- properties of the rock around the borehole. covery might not be economic even if oil and The core measurement is resistivity — gas are present. The field might consist of essentially the same as the breakthrough multiple reservoirs and faults, which is tech- innovation made by Conrad and Marcel nically more difficult — and expensive — to Schlumberger in 1927. produce. If it’s offshore, it may not be prac- The brothers Schlumberger measured tical to drill the necessary number of wells the electricity resistivity of rocks in oil wells from one platform. Perhaps the oil is too thick to determine the nature of that rock and and viscous to pump to the surface without whether it could, theoretically, hold oil. The special — and expensive — equipment. measurement of the speed of sound along the borehole wall and radioactivity logs also Heavy duty yield data on the thickness and depth of res- After drilling, steel pipe called casing is set ervoirs and their probable content. in the hole and is cemented into place (see After a discovery has been made, ap- diagram). A heavy-duty system of valves praisal wells are drilled to determine the size called a Christmas tree is positioned at the and composition of the reservoir, which will wellhead to control the flow of the oil, gas

85 – www.energy-future.com 6.1 — Understanding oil and gas and water and prevent a blow-out — high ter, when price tags of up to $100 million start pressure downhole can cause oil and gas being waved around, it will not be economic to spurt out of a well, often with dangerous to drill more than a few wells, so placement is results. The well casing is perforated at the the name of the game. In this situation, direc- right depths to make holes for the oil and tional wells, which can be steered downwards, gas to flow into the drilled shaft — or well- sideways, horizontally and even upwards, are bore — and up to the surface. often used. In the right circumstances, they The first recovery phase is called pri- can prove a much more effective way of tap- mary recovery. Underground reservoirs of ping an oil field than vertical wells. oil, gas and water are under considerable The North Sea’s Clair field, in the Atlantic, pressure and their contents flow naturally off the Shetland Islands’ west coast, was dis- once perforated. But eventually the reser- covered in 1977. But although it was esti- voir runs out of natural energy and the oil mated to contain a staggering 5 billion bar- needs a helping hand to move to the sur- rels of oil — putting it on a par with the prolific face. That’s where enhanced-recovery Forties field, a giant of the North Sea — BP techniques come into play (see p67). had to wait 27 years to start developing Clair. The problem? Clair’s oil is contained in Horizontal drilling a very fractured reservoir and in the 1970s In some places, in-fill drilling will work — there was no way of producing commercially sinking clusters of wells into the same area so from any section of the field. Indeed, many the oil does not have to migrate as far through experts predicted at the time that it would the rock to reach a wellbore. But in deep wa- never be exploited. Improvements in seis- mic mapping and the arrival of horizontal A typical oil well drilling changed that. Horizontal wells cut through a greater Oil produced length of the reservoir and can link up iso- to surface lated sections. Well for well, horizontal drill- ing is far more expensive than vertical drill- Surface ing, but in the right circumstances, productiv- casing ity gains make the extra investment worth it.

The end-game Once the field’s recoverable reserves are Cement exhausted, infrastructure must be decom- Production missioned. After years of intense explora- casing tion, a wave of decommissioning is start- Tubing ing in mature provinces such as the US and the UK North Sea. It has become impera- tive for decommissioning to be handled with the utmost sensitivity to the local environ- Oil enters through ment. Yet, once E&P teams are long gone, perforations oil fields have another use: they can serve as storehouses for the carbon that is pro- duced by fossil-fuel processes and removed Perforations through the evolving technology of carbon capture and storage. So they can be part of the future as well as part of the past. V

86 – www.world-petroleum.org 6.2 — Understanding oil and gas

The first step is heating up the crude oil — Refining and once impurities such as water and salt have been removed from it. The heat is often gen- petrochemicals: erated by burning fuel oil in a furnace. The vaporised petroleum, heated to explained about 350°C, is pumped into a fractionating tower — or atmospheric pipestill. As it rises up the tower, it cools down and its com- rude oil straight out of the ground is ponents condense back into several dis- Cpretty useless, but it becomes extremely tinct liquids, collecting in a series of trays. useful after being refined into oil products Lighter liquids, such as kerosene and naph- such as gasoline, diesel and jet fuel. tha, a product used in chemicals process- Indeed, it can be invaluable: if you ran out ing, collect near the top of the tower, while of fuel during a drive through the desert and heavier ones such as lubricants and waxes were 200 kilometres from the nearest water fall to the bottom. source, would you rather have 50 litres of water or 50 litres of gasoline? Refineries come in many different sizes and configurations, depending on the size of the local market, the types of products needed and the types of feedstocks availa- ble for processing. But they all perform the same basic tasks: distilling crude oil into its various constituent fractions; chemically re- arranging low-value configurations of hydro- carbon molecules into high-value combina- tions to produce a variety of end-products, from gasoline to Tupperware; and treating those products to meet environmental and other specifications and standards by re- moving impurities such as sulphur.

Carbon chains Crude oil can be split up into molecules of carbon and hydrogen in a variety of com- binations through the refining process. Depending on the length of the chains within them, they can be used in a variety of ways. For example, molecules used for cooking gas usually have up to four carbons, while gasoline for cars is a longer chain, of up to 12. Lubricants — motor oils, for example — are even longer, with perhaps 50 carbons. The different chain lengths in petroleum have different boiling points, so they can be Vaporised petroleum, heated to separated by heating the crude and distilling about 350°C, is pumped into a the resulting vapour (see p91). fractionating tower

87 – www.energy-future.com 6.2 — Understanding oil and gas

© Statoil/Bergs oljehamn the chemical bonds that link these chains to- gether and reconfigure them into new com- binations, yielding a host of desirable prod- ucts, such as gasoline. It’s called cracking. A catalytic cracker can handle a number of feedstocks, including heavy gasoil, treated fuel oil and residue from the lubricant treat- ment plant. Mixing the feedstock with a hot catalyst enables the cracking reaction to take place at a relatively low temperature (about 500°C). The products are then separated in a fractionating column. Another refining process, reform- ing, uses heat and pressure in the pres- ence of catalysts to convert naphtha feed- stock into higher-octane, gasoline-blending components. The finished products — with marketable octane ratings and specific engine properties — are then stored in tanks on the refinery’s premises, before being loaded onto barges, ships and trucks, or into special pipelines for transportation to market. Not surprisingly, big petrochemicals complexes are often found close to big oil deposits, or on the coast, so crude can be easily imported and products easily shipped out.

Cracking move To get more value out of their processed Finished products are stored in tanks crude, energy companies shift into the realm on the refinery’s premises before of the petrochemicals plant, which uses pe- being transported to market troleum-based feedstock — naphtha, for in- stance — to create new products, such as In addition to the various desired frac- the plastics to be found in a welter of eve- tions, the process also produces a thick, ryday products, from computers and mobile heavy residue. This can be processed fur- phones to cars and toys. ther in a vacuum-distillation unit, which uses This is achieved by converting the feed- a combination of high temperature and low stock into substances such as olefins (a pressure to make more useful products. group that includes ethylene and propyl- At this stage of the refining process, jet ene) and aromatics (the distinctive smell- fuel is pretty much ready for use in an air- ing chemicals like benzene and toluene). craft, but most of the products aren’t fin- These in turn provide the foundations for ished: they’re blendstocks or feedstocks a range of familiar materials, including pol- for other processes. A combination of fur- yester, vinyl acetate, polystyrene, poly- ther heating, pressure treatment and the urethane, detergent alcohols, synthetic use of chemical catalysts is used to break rubber and many more products.

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89 – www.energy-future.com 6.2 — Understanding oil and gas

Getting from one substance to another MEG is used to make polyester, which, as a varies in complexity. For example, convert- fibre, is found in clothes and many other tex- ing ethylene into polyethylene takes one tiles. MEG is also an important element in process, while producing nylon from ben- manufacturing antifreezes and solvents. zene takes at least seven steps. A high olefin, fluidized catalytic-cracking The dizzying oil-price inflation of recent unit under construction at the Rabigh plant years, which pushed prices to almost $150 will produce 900,000 tonnes a year of pro- a barrel in mid-2008, spawned a wave of pylene and 59,000 barrels a day of gaso- new refining and petrochemicals projects in line. The propylene will be used in the pet- the Middle East, Asia and Latin America — rochemicals derivative unit to manufac- keen to cater to booming demand for refined ture polypropylene, which is used to pro- products, especially in high-growth markets duce packaging, textiles, plastics and a lot such as China and India. of other items. The economic downturn and lower oil Without the products from petrochemicals prices have put a damper on the develop- plants such as Rabigh our world would look ment of some projects with borderline fi- very different, stripped of many of the goods nancial viability, but the world is not about we take for granted.

Without petrochemicals products Hi-tech challenges our world would look very Indeed, just churning out the stuff we al- different, stripped of many of the ready know how to make isn’t an option for goods we take for granted companies to remain competitive and prof- itable. They need to create new products and find cheaper ways to do things, which to stop using plastics, gasoline, jet fuel or is where a good research and development any of the other products produced by the department comes in. The chemical and petrochemicals sector. manufacturing processes in this part of the One of the biggest of the present crop downstream business require a huge pool of of new facilities — combining a refinery expertise — and a lot of money — to ensure and petrochemicals unit — is being built at engineers and scientists continue to make Rabigh on the Saudi Arabian coast. For $10 breakthroughs. The drive to produce more billion, Saudi Aramco and its partner, Japan’s with less, and more cheaply, provides re- Sumitomo Chemical, will expand an existing searchers with access to the sort of facilities 400,000 barrels a day refinery with a 200,000 rarely found beyond the commercial sector. barrels a day vacuum-distillation unit, a cata- Keeping costs down is vital, because the lytic cracking unit and an alkylation unit. They facilities are expensive to build, maintain are also constructing a cracking unit that will and run. Refiners and petrochemicals pro- produce up to 1.3 million tonnes a year of ducers must also contend with continual vol- ethylene to supply a petrochemicals-deriva- atility in the prices of the commodities that tive plants manufacturing polyethylene and they produce, planning in years when profits mono-ethylene glycol (MEG). are high for times when margins are low. These products will find markets across And, of course, environmental issues the world, as they are among the petrochem- are now a vital part of research in the sec- icals most widely used. Polyethylene is bet- tor, so firms have to focus on how the indus- ter known as polythene, the substance that try can meet the increasingly stringent qual- forms the basis of many consumer products, ity standards now required of oil and petro- from shopping bags to shampoo bottles. chemicals products.

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In the US, which has more refining ca- pacity than any other country, the sector Oil products: is, in the words of the US Department of Energy, “one of the most heavily regulated explained industries”. If plants don’t comply, then they can’t operate. Companies have also had to be flexible enough to adapt to gasoline leg- Motor gasoline/petrol islation that varies from state to state, re- The most common form of gasoline, this quiring many different products to be cre- is light hydrocarbon oil used in internal com- ated for sale within the US. bustion engines. It is distilled from crude oil The refining sector is also having to adapt at between 35°C and 215°C. It can include to new challenges, as feedstocks diversify additives such as oxygenates to reduce the to include oil from unconventional sources, amount of carbon monoxide created during such as oil sands and oil shale. These feed- combustion, as well as octane enhancers. It stocks require different refining techniques can also be mixed with ethanol. from those used to process conventional Octane rating: this measures the resist- crude oil. ance of fuels such as gasoline to detonation (or knocking) in an engine. The rating is de- Heavy duty rived from comparisons between a given fuel Oil sands produce a very heavy form of and a benchmark mixture of iso-octane and crude, know as bitumen, which must first heptane. Higher octane ratings are more be upgraded in special units into synthetic suitable for higher-performance engines, oil, before being refined. Oil from shale has whose greater compression ratios make the less hydrogen, and more sulphur and ni- gasoline used more likely to detonate. trogen compounds in it than conventional crude, so it needs to have hydrogen added Jet fuel and the impurities removed by extra chem- This kerosene-based fuel may be tailored ical treatment before it can be processed. from many different types of hydrocarbons to These extra steps make both shale and oil run aviation-turbine power units. It needs to sands processing an expensive proposi- satisfy a welter of strict international regula- tion compared with crude refining, but one tions and usually has a freezing point of lower that is deemed worth it, if oil demand — than -40°C to cope with cold temperatures at and the oil price — is high, as it was un- high altitude. It is similar to diesel fuel. Aircraft til recently and will be again in the not-too- operated by piston engines run on a different distant future. fuel — aviation gasoline (avgas). This has a Even when you’ve refined your oil and high octane rating and more closely resem- created your petrochemical product, that’s bles motor gasoline than diesel. not the end of the story. The industry still has to get the right products to the right custom- Distillate fuels ers and that involves massive infrastructure, This category covers a wide range of encompassing road and sea transport and products. These oils are extracted mainly gasoline stations, knowledgeable marketing from the lowest fraction of crude oil distilla- and sales personnel and many other links in tion. They include diesel oil for use in diesel the commercial chain all pulling together to engines, light heating oil and heavy gasoils, ensure that what emerges from the ground which can be used as a feedstock in pet- as useless sticky goo can oil the wheels of rochemicals plants. Diesel oil is distilled at the global economy. V around 180-380°C.

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Residual fuel oils: Sometimes known sulphur content, which can create environ- as heavy fuel oils, these are extracted from mental problems. It is obtained by cracking what is left after the distillate oils and lighter and carbonising petroleum-derived feed- hydrocarbons have been distilled in the re- stocks, vacuum bottoms (the heavier mate- finery. They include oils suitable for power- rial produced in vacuum distillation), tar and ing some types of ships, power plants and pitches using processes such as delayed heating equipment, as well as for use in var- coking and fluid coking. ious other industrial purposes. Still gas: also known as refinery gas, Asphalt and road oil this is a gas, or mixture of gases (methane, Also know as bitumen in some regions, as- ethane and ethylene, for example), pro- phalt is best known as a road-surfacing mate- duced as a by-product of upgrading heavy rial. A sticky semi-solid, it can be found in nat- petroleum fractions to more valuable, lighter urally occurring deposits, but it can also be products through distillation, cracking and derived from crude oil, by separation through other methods. It can be used as a refinery fractional distillation, usually in a vacuum. It fuel or petrochemicals feedstock. can be made harder by reacting it with oxy- Liquefied refinery gas: this is fraction- gen. Road oil is any heavy petroleum oil used ated from refinery or still gases and kept as a surface treatment on roads. liquid through compression and/or refrig- eration. These gases can include ethane, Petrochemicals feedstocks propane, butane, isobutane and their var- Any inputs — such as naphtha — de- ious derivatives. rived from petroleum and natural gas that Liquefied petroleum gas (LPG): is a can be used to produce chemicals, plas- type of refinery gas, mainly comprising pro- tics, synthetic rubber and so on in a petro- pane or butane. LPG can be used to run ve- chemicals plant. V hicles such as lorries and buses, and for do- mestic cooking and heating in remote areas © BASF that lack alternative fuel sources, or, indeed, on camping expeditions. Propane: an odourless, easily lique- fied, gaseous hydrocarbon, which is the third member of the paraffin series, along with methane and ethane. It can be sep- arated from light crude oil and natural gas in the refinery. It is available commercially in liquefied form, and is used to power a range of items, such as barbecues, weld- ing torches and some vehicles. It is also a major component of LPG.

Petroleum coke A black solid residue used as a feed- stock in coke ovens for the steel industry, for heating, chemicals production and for other purposes. It has a high carbon content In a steam cracker, ethylene and — around 90-95% — and a low ash con- benzene (building blocks for styrene) tent, so it burns well. However, it has a high are extracted from naphtha

93 – www.energy-future.com 6.3 — Understanding oil and gas

low-carbon solutions; it involves extracting

Carbon capture: CO2 from power plants, factories and other industrial facilities before it is expelled into explained the atmosphere. The captured gas is then injected into a secure underground stor- It’s economically and technically age site — and removed from the climate- speculative, but CCS could be a change equation (see box). bridge to a low-carbon future It’s the key to the sustainable long-term use of fossil fuels — helping mitigate the ef- ossil fuels are set to remain a large part fects of climate change while renewable en- Fof the world’s energy mix for the foresee- ergy systems are developed. As such it’s an able future, so the hunt is on for the best “airbag” technology, says George Peridas, way to carry on using them while drastically a climate scientist at the Natural Resources cutting the amount of carbon dioxide (CO2) Defense Council (NRDC), a US-based envi- pumped into the atmosphere. ronmental non-governmental organisation. A technology called carbon capture and How effective an airbag could it be? The storage (CCS) is among the most promising International Energy Agency (IEA), a multi-

Capturing CO2: the key to clean coal

CO2 can be captured before or after coal is In another variation, called oxy-combus-

burned. In post-combustion capture, the CO2 tion, fossil fuels are burned in nearly pure is stripped out of a power plant’s exhaust oxygen rather than in air. This produces a gases with a solvent such as amine or am- nitrogen-free flue gas that has water vapour

monia. Post-combustion technologies can and CO2 as its main components. Although be added — retrofitted — to existing pulver- using oxygen increases costs, the highly

ised-coal power plants. concentrated stream of CO2 that results Pre-combustion carbon-capture technol- from the process again makes capture rela- ogy can be used in the new wave of inte- tively straightforward. grated-gasification combined-cycle (IGCC) Leaders in IGCC technology, such as US plants. Here, instead of being directly com- company GE Energy, say the cost savings busted, the fossil fuel is gasified to produce a at the carbon-capture stage make IGCC the synthetic gas (syngas) — a mixture of hydro- way forward, but there is still much debate gen and carbon monoxide (CO). The syngas over the pros and cons. One certainty is that is then processed in a water-gas-shift reac- post-combustion CCS technology will con-

tor, which converts the CO to CO2 and more tinue to play a significant role in the power

hydrogen. The CO2 is then captured, leav- industry for decades to come. ing a hydrogen-rich syngas that can be com- That’s because you can’t retrofit con- busted to generate electricity. ventional pulverised coal power plants with IGCC plants are more expensive to build IGCC technology and not only do most ex- than conventional coal-fired plants and the isting plants use conventional technology, high hydrogen content of the fuel gas (over but many new facilities in countries such 90%) makes them less efficient than steam- as China — which has been opening more driven plants. However, they come into their than one new coal plant a week on average

own once CCS is factored in, as the CO2 recently — use it as well.

they produce is in a high pressure, concen- So if we are to tackle CO2 emissions trated form that is relatively easy to capture through carbon-capture technology suc- — and that means big cost savings com- cessfully, a multi-pronged approach will be pared with post-combustion CCS technology. needed. V

94 – www.world-petroleum.org Profile — Mark Nesbitt

Name: Mark Nesbitt oversee the completion of the giant floating, production, storage and offloading (FPSO) Company: BP vessel that is now producing oil from those Present job: Process engineer fields. Then I worked in a rotational role off- Age: 27 shore, until the start-up of the facilities; I was tasked with ensuring vital parts of the facilities Nationality: British were commissioned to the required standard. Degree: Queen’s University Belfast, I won’t forget the day we commissioned the Masters in chemical engineering first well — seeing equipment I’d worked on processing first fluids from the Plutonio reser- voir was immensely rewarding. Recently, I have moved into a joint venture — In Amenas, a big gas project in Algeria in partnership with Norwegian oil company StatoilHydro and Algerian gas company Sonatrach. It’s been interesting to be ex- posed to other companies’ ways of working. Initially, I was based in Oslo, Norway, working in an engineering contractor’s of- fice. Again, the responsibility was huge: sometimes I was the only BP representa- tive, even though I’d only been with BP for Before I joined BP, in 2005, I’d already short time. Since completing the Challenge spent a year with the company — on an in- scheme, I’ve stayed on at In Amenas, as- ternship programme, between my third and suming responsibility for all aspects of proc- fourth years at university. I worked at the ess engineering on a new gas compres- Grangemouth terminal in Scotland that proc- sion project. I want to see the project right esses oil from North Sea fields, stabilising through the design and build phases to pro- it for onward transport to refineries. It was duction. The whole process could take sev- a steep learning curve, but a great opportu- eral years and will involve working in the nity to take what I’d learned in the academic UK and on-site in Algeria; but it’s not often world and apply it on a practical scale. you get the chance to see a project through That experience helped enormously all the cycles. And, if I stick with it, I could when I joined BP’s training programme for become the lead start-up engineer, which new graduate recruits in the Exploration & would be a great opportunity. In the long Production business (E&P) — Challenge. term, I see myself in engineering manage- My first role at BP was in the E&P technol- ment for big projects in the E&P business. ogy group at BP’s offices in Sunbury as a fa- Variety is one of the things that makes the cilities engineer, providing technical support job so interesting: one day you can be work- to business units around the world — help- ing with a deckhand offshore and the next you ing select development concepts for projects can be presenting to senior management in and preparing feasibility studies for prospec- head office. There’s enough diversity in the tive projects, for example. I provided techni- energy business to satisfy anyone’s ambition: cal support on the business case for invest- if one role isn’t to your liking there’s the flexi- ments in Libya, which the company has since bility to move into many different disciplines. followed through, which is satisfying. But you need to be flexible too — pre- I then worked as a commissioning engi- pared to travel widely and enjoy interacting neer on Greater Plutonio, a $5 billion, five- with people from different cultures. If you are field development in deep Angolan waters. adaptable and open-minded, the industry of- Initially, I spent time in South Korea, helping fers great opportunities. V

95 – www.energy-future.com 6.3 — Understanding oil and gas government think tank, says CCS could pro- transport it and bury it underground. Energy vide a fifth of the greenhouse-gas emis- companies don’t have that kind of capital sions cuts the world needs to make by 2050. knocking around. Even if they did, no sen- However, the snag is that, unlike many other sible chief executive would invest in some- methods of cutting CO2 emissions — renew- thing as economically and technically spec- ables, nuclear power and greater energy ef- ulative as CCS, at present. ficiency — the idea remains untested at a The energy industry is well positioned to commercial scale. Demonstration projects play a central role in developing the neces- are urgently needed to show that the tech- sary technology, not only because the sus- nology can operate safely and economically. tainability of its own operations is likely to The EU’s Zero Emission Fossil Fuel Power rely on the deployment of CCS, but also be- Plants (ZEP) programme, for example, cause of its expert knowledge of areas such wants to have 10-12 demonstration projects as reservoir and pipeline management. up and running by 2015. However, the financial impetus must come from governments — at least until CCS is The problem of price an established business with predictable But therein lies another problem: the plants streams of revenue and profit. are very expensive to build. According to When that happens, companies will be Hydrogen Energy, a joint venture of BP and queuing up to invest: according to Gardiner Rio Tinto, it costs $1.5-2.0 billion to build a Hill, head of CCS at BP, the CCS industry large power station with the equipment and could be handling the equivalent of 120 mil- infrastructure needed to capture the CO2, lion barrels of CO2 a day by 2050 — half as

Illustration Prosjektlab/Courtesy Bellona CCS

CCS: CO2 extracted from power plants, factories and other industrial facilities is injected into a secure underground storage site

96 – www.world-petroleum.org 6.3 — Understanding oil and gas

big again as today’s oil industry. If a high Beyond carbon capture enough economic value can be attached Carbon capture and storage (CCS) is not to decarbonising energy supply, you don’t the only way of cleaning up the coal indus- have to be Warren Buffett to work out that try. New clean coal-burning technologies this could be big business. — some of which can be applied not only But how do you assign a value to low-car- to new capacity, but also to some exist- bon energy that is high enough to get the ing plants as they are upgraded — can cut necessary finance flowing? One option is to coal’s environmental footprint significantly. tax carbon emissions: that’s worked at the Part of the solution lies in improving ther- North Sea’s Sleipner West gas field. For mal efficiency, so enabling plants to gener- ate more power from less feedstock. over a decade, Norwegian energy company Germany’s Siemens, for example, is Statoil has been removing CO2 produced planning to build what it calls the world’s with natural gas from the Sleipner field and “most efficient coal-fired power plant”, for reinjecting it into an aquifer more than 800 power company E.On in Wilhelmshaven, metres below the seabed because that is

Germany. The plant, which could be up cheaper than releasing the CO2 into the air and running as early as 2014, will oper- and paying the taxes that this would incur. ate at a steam temperature of 700°C, com- pared with today’s maximum of 600°C, Cap and trade giving it an efficiency rating of more than Another approach, being favoured by 50%, says Siemens. That improved effi- many governments around the world, is to ciency should translate into 40% less coal being used than in a typical coal plant — create a marketplace in which carbon allow- ances — essentially the right to pollute the and 40% less CO2 being emitted. Another idea is to mill renewable bio- atmosphere with CO2 — can be bought and mass, such as forestry residues and left- sold. Known as cap-and-trade schemes, the over agricultural products, into a powder higher the price of the carbon allowances and mix it with the pulverised coal before goes, the more expensive it becomes to combustion — a process known as co-fir- pollute and the more profitable it gets to in- ing. The UK’s Drax power station is devel- troduce pollution-saving technologies and oping what it claims will be the world’s larg- equipment (see p111). est biomass co-firing project of its type: Another way of incentivising investments scheduled for completion in the first half of in CCS — and indeed other, expensive low- 2010, the facility will boost the plant’s co- carbon energy systems, such as solar power firing capacity to 500 megawatts of power and cut emissions from the North Yorkshire — would be to provide subsidies from pub- power plant, which has a total capacity of lic funds. Yet another would be simply to ban 4 gigawatts, by over 2.5 million tonnes a power plants that aren’t equipped to capture year. That, it says, is equivalent to the CO2 and store CO2. saving that would be achieved by generat- Why power plants? Because they’re the ing power from 600 wind turbines. best place to start fighting climate change. Carbon-efficient fossil-fuel technolo- The power sector accounts for around 33% of gies are applicable elsewhere, too. US oil greenhouse-gas emissions and 45% of CO2 company ExxonMobil, for example, has emissions, says World Resources Institute, adapted a combined heat and power tech- an environmental think tank. And over 40% nology called co-generation for use at of energy-related CO2 emissions come from some of its refineries — reducing its own coal, according to the IEA. That’s because energy bills and cutting CO2 emissions from its plants. V coal, when burned, produces twice as much CO2 as natural gas.

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The other reason to tackle power plants and For the moment, we just can’t do with- industrial facilities first is that a large amount out it. And that reality won’t change much of CO2 is being emitted from a single point, for decades: 13.6 trillion kilowatt hours — so there’s more to capture from one place. A or 43% — of our fast-rising energy require- power station called Drax is the UK’s biggest ments will still be met by coal by 2030, ac- emitter of carbon emissions, with an output of cording to the US government’s Energy

21 million tonnes a year of CO2. That’s equiv- Information Administration. alent to the CO2 output from something like Unless greener coal technologies are de-

6 million cars. But capturing CO2 from a sin- ployed, either the world won’t have the en- gle, static point is obviously much easier than ergy it needs or it could find itself facing an capturing it from 6 million mobile ones. environmental catastrophe. Could we just stop using coal? No: it is forecast to account for 8.67 trillion kilowatt Going underground hours of the power we generate globally in Thankfully, greener technologies are be- 2010 — that’s 42% of total power produc- ing developed. Reducing coal plants’ envi- tion. In India, Germany and the US it ac- ronmental footprint partly depends on find- counts for around half of electricity genera- ing more efficient ways of burning coal to tion. In China the figure is about 80%. Other reduce the amount of coal burned — and fuel sources, such as oil, gas, nuclear and CO2 emitted — per unit of energy gener- renewables, couldn’t fill this sort of gap over- ated. But taking coal and other fossil fuels night. Besides, coal is relatively cheap, it is to the next level of cleanliness will have to abundant in some of the world’s most stable involve CCS. countries and it is generally easy for energy- There’s good news on the technical side: deficient countries to buy — so it’s econom- the technologies that make up the various ically and strategically attractive. stages of CCS are already proved. CO2 is

© BP plc

BP is working with Statoil and Algerian national oil company Sonatrach on a big CCS project linked to the In Salah gas development in the Algerian desert

98 – www.world-petroleum.org 6.3 — Understanding oil and gas already routinely stripped out from natural However, there can be few places better gas to improve the gas’ heating value or to suited to storing CO2 securely than the sub- meet pipeline specifications. It’s also cap- terranean chambers that managed to hold tured from industrial facilities to supply the oil and gas securely for millions of years food industry. The oil industry, meanwhile, until man removed it. No-one can say the has a profound understanding of oil and gas CO2 will never leak out into the atmos- reservoirs and other geological formations; phere, but Statoil estimates its North Sea in fact, CO2 has been injected into oil res- site is highly unlikely to leak for several ervoirs for decades to boost recovery of oil hundred years, by which time the human by flushing more of it out, notably in the US. race should have created other solutions

And even some of the infrastructure is to the CO2 problem. The Intergovernmental in place: there are over 3,500 kilometres Panel on Climate Change (IPCC), the main of pipelines transporting more than 40 mil- global forum for collating scientific advice lion tonnes a year of CO2 to support the on climate change, says tests so far indi-

US’ enhanced oil-recovery business. And cate that more than 99% of CO2 is likely to be retained in properly managed geological There can be few places better suited to storing CO2 securely Where can the CO2 go? than the subterranean chambers There are three main types of geological that managed to hold oil and gas storage. The most attractive are existing oil securely for millions of years and gas fields: their ability to hold gas in- definitely is already proved, the geology of producing fields is well defined and com- pipelines elsewhere that were formerly panies have experience of re-injecting gas used to transport hydrocarbons from such through enhanced oil-recovery operations. reservoirs to refineries might be suitable Re-injecting CO2 can also defray the cost of for sending CO2 the other way — back to CCS by boosting rates of recovery of oil and empty reservoirs. gas at mature oil fields. There’s also plenty of space for storing The second category is geological traps the gas underground, which can be held in that do not contain hydrocarbons, but have various geological formations (see box). BP similar characteristics to oil or gas bearing — which is working with Statoil and Algerian structures, or coal seams. The third possibil- national oil company Sonatrach on a big ity is aquifers — deep saline reservoirs with CCS project linked to the In Salah gas de- no defined structural traps. Although less velopment in the Algerian desert — has es- well understood than oil reservoirs, aquifers timated that old North Sea reservoirs could are an attractive long-term solution because hold all the CO2 produced by European of their large size. power stations over the next 60 years; oth- CO2 does not necessarily have to be ers say they could accommodate consider- stored underground. Alternatives under con- ably more. Just the aquifer of which Sleipner sideration include deep-ocean storage, West is a small part has a thickness of 250 in which CO2 is dissolved into seawater. metres and has the potential to hold 600 bil- Mineral sequestration above ground is an- other possibility, with CO2 exothermically re- lion tonnes of CO2. At present, Statoil is stor- acted with natural minerals to form stable ing just 1 million tonnes a year there. carbonates. Another possibility would be to But what about leakage? If the CO2 capture CO2 directly from the atmosphere seeps back out into the atmosphere, then with chemical solvents. V the benefits of storage would be lost.

99 – www.energy-future.com 6.3 — Understanding oil and gas structures after 100 years and that it could ing the use of CCS technology. NRDC, for potentially be held there for thousands of example, wants the White House to make years with little of it escaping. the fitting of CCS technology to all new coal plants compulsory. Can we afford it? Some potential CCS investors are con- Not everyone sees CCS as an appropriate cerned that high-cost CCS projects — like solution to global warming problems: plenty other expensive, climate-oriented technol- of people have questioned whether CCS on ogies — may become lesser priorities for a scale able to tackle climate change is fea- governments grappling with the more im- sible, either technologically or financially. mediate problem of stopping the economic While storage is comparatively straightfor- rot caused by the credit crunch of 2008. But ward, the process of capture is complex and many involved in the green-energy business expensive. The IPCC estimated in a report say CCS could help move economies out on CCS in 2005 that building a power plant of trouble, generating jobs and economic with carbon-capture technology would add growth. Says BP’s Hill: “The financial crisis 20-40% to the cost of electricity production. is minuscule compared with the long-term

The good news is that the cost of this tech- challenges of climate change. CO2 stays in nology is likely to fall rapidly, as engineers the atmosphere for 200-300 years.” understand more about it. Even environmental organisations that Signs of serious action would prefer to see fossil fuel use reduced It is clear that governments are coming dramatically admit that this is not a practical around to this view and are now taking the proposition in the short term and are back- technology seriously as part of a basket of measures to limit global warming. President Barack Obama’s US administration has brought a greener hue to its policies than its predecessor. Australia and China — like the US, countries with huge coal reserves — have been pushing ahead with programmes to develop and implement CCS schemes with government backing, while the North Sea of-

fers ample room to handle European CO2. The UK said in April 2009 that all new coal- fired power stations in England and Wales must include CCS demonstration on at least 300 megawatts of their capacity and that de- velopers must agree to retrofit CCS across the whole plant once the technology is proved, if they are to get the go-ahead. The UK’s first application of carbon cap- ture at a commercial coal-fired power sta- tion became operational at the end of May 2009 at the Longannet power station in Fife, Scotland. The 1 megawatt test unit, devel- The NRDC wants the US government to oped by Aker Clean Carbon, is capable of make the fitting of CCS technology to processing 1,000 cubic metres an hour of all new coal plants compulsory exhaust gas, although the captured emis-

100 – www.world-petroleum.org 6.3 — Understanding oil and gas

The US government of Barack Obama is reconsidering a decision made by its predecessor to halt a $1.8 billion CCS project called FutureGen sions are then being released into the at- 2016, in preparation for wider commercial mosphere at present. Operator Scottish deployment by 2019. Power — owned by Spain’s Iberdrola — In Canada, Alberta province has allo- hopes Longannet will be awarded up to £1 cated $2 billion for CCS projects. And in billion of government and EU-backed fund- Australia, the development of CCS is now ing to develop one of four large-scale dem- seen as essential if the country’s large coal onstration CCS plants the UK has pledged industry is to clean up its act: the govern- to build. If that happens, then CCS could be ment recently said it would help fund be- tween two and four new CCS-equipped 1 It could take up to 10 years to gigawatt coal-fired power plants, as well as build a major CCS project. That creating a CCS research centre. time needs to be shortened to Governments must also make it easier help achieve the emissions cuts to finance projects. Again there are causes scientists say are needed in the for optimism. The parliament of the EU this year voted to include CCS in its Emissions time available Trading Scheme, providing an important stream of financing for the 10-12 demon- applied to 330 megawatts of Logannet’s to- stration plants the bloc wants to build. The tal 2.3 gigawatt capacity by 2014, with the allowances set aside for CCS were worth

CO2 being buried beneath the North Sea. around €6-7 billion in total when the move Meanwhile, the US government is revers- was approved, although the ups and downs ing a decision made by its predecessor to halt of the carbon market could substantially af- a $1.8 billion CCS project called FutureGen fect their value in the future. and says it plans to build a National Carbon But some think more could be done to ac- Capture Center to speed up technological celerate the technology’s uptake. Those run- development — the country is already home ning the ZEP programme say it could take to the world’s first, large-scale, fully function- up to 10 years to construct a major CCS ing CCS plant at Wilsonville, Alabama. In project under the existing system. That time October, US energy secretary Steven Chu needs to be shortened to help achieve the said the US could have 10-12 commercial emissions cuts scientists say are needed in CCS demonstration projects operational by the time available (see p102). V

101 – www.energy-future.com 6.4 — Understanding oil and gas

mate — would be much higher than the cost Climate change: of taking preventative measures. Stern has become no more optimistic: explained in 2009, he said his report had underesti- mated the rate of global warming and the ighting global warming is going to cost situation was even more perilous than he Fus a lot of money. The International had thought. Energy Agency estimated in 2008 that it would cost $45 trillion to halve carbon What’s the panic about? emissions by 2050. The Earth’s climate changes all the time But the cost of doing nothing is likely to and was subject to extreme fluctuations long be even greater, both in terms of human before man started pumping industrial gases suffering and financial cost. UK government into the atmosphere. What is different now adviser Lord Stern said in an influential re- is that the present period of global warm- port on climate change in 2006 that fail- ing is widely believed to be at least partly ure to take action could end up costing the caused by man, and that we can do some- world more than 20% of global GDP every thing about it, if we act quickly enough. year to fight famine, disease, rising sea lev- In 1995, the International Panel on els and so forth. Given that global GDP to- Climate Change (IPCC), a worldwide team talled more than $55 trillion in 2007 alone, of expert scientists, forecast that the aver- the cost of inaction — based on Stern’s esti- age temperature around the world would

What are we doing about it? Getting countries to collaborate on global 1990 levels by 2012. The Kyoto Protocol also warming has been a tough task. helped promote wider use of mechanisms Few states have wanted to take a lead on such as cap-and-trade to incentivise industry such a costly and complex process without to cut emissions (see p111). others agreeing to do so as well. They are Initially, some of the big developed econo-

worried that the extra expense incurred by mies — and CO2 emitters — such as the US their industries and residents would put them and Australia refused to sign. Big developing- at a competitive disadvantage, while achiev- world emitters such as China and India were ing little if other countries aren’t following suit. also not included. However, since then the Developed countries want emerging mar- world has become much more convinced of kets such as China and India to adopt tough the need for concerted action; crucially, the measures to cap emissions from their fast- US is now much more supportive than it has growing power and industrial sectors, which been in recent years. That has raised expec- have often used old, polluting technology. tations that the next big climate conference, But developing countries argue that wealth- to held in Copenhagen at the end of 2009, ier industrialised countries — which have will produce far-reaching results (see p40). benefited economically from industrialisa- Everyone from individuals to big compa-

tion, in the process causing much of the CO2 nies are being asked to play their part. The pollution to have occurred so far — should push is on to find sustainable power from

shoulder the bulk of the costs. clean renewable sources, lowering CO2 A meeting of governments from industrial- emissions from transportation (see p20), us- ised countries in Kyoto, Japan in 1997 led to ing less energy in power stations, refineries an agreement, or protocol, under which the and petrochemicals complexes, and cap-

treaty’s signatories would aim to cut green- turing and burying the CO2 that is produced house-gas emissions by 5.2% compared with (see p94). V

102 – www.world-petroleum.org 6.4 — Understanding oil and gas rise by between 1°C and 3.5°C by 2100, if A GHG can be a good thing — up to a we carried on pumping greenhouse gases point. It makes the world warm enough to

(GHGs) such as carbon dioxide (CO2) into live in, but too much of the effect will also the atmosphere at the then prevailing rate. threaten our existence. Since then, some scientists have said the Methane from agriculture and landfills is impact could be even more pronounced — the GHG we are responsible for that has perhaps 5-10°C of warming over the next made the most important impact on global two centuries if we don’t move fast. warming so far, its atmospheric concentra- It might not sound like much, but 3.5°C tion having more than doubled since pre-in- refers to the average for the whole globe, dustrial times. CFCs are even more potent day and night, pole to pole. It translates into GHGs than methane, but strong global ac- much hotter weather in many parts of the tion on reducing the use of these in everyday world, which would trigger droughts, rising products in the latter part of the 20th century sea levels through melting of the ice caps has reduced their global-warming impact. and possible humanitarian catastrophe. It In terms of the energy industry, CO2 is the seems the effects are already being felt: 11 main GHG. There is over a third more of it than of the 12 hottest years on record occurred there was in pre-industrial times. Readings between 1995 and 2006, according to the at the Mauna Loa observatory in Hawaii IPCC’s Fourth Assessment Report.. (where better to put an observatory?) show Scientists say that to stem global warm- ing, we need to act urgently. CO2 stays in A 3.5°C rise translates into much the atmosphere for 100 years or more, so hotter weather in many parts of we will be living with what we do now for a the world, which would trigger long time to come. That means that even if droughts, rising sea levels and we want to limit the increase in global tem- possible humanitarian catastrophe perature to less than 5°C by 2100, we need to cut CO2 emissions by perhaps three-quar- ters compared with the present level, ac- CO2 levels in the atmosphere now stand at cording to some estimates. around 390 parts per million (ppm), the high- est level for at least 650,000 years, according Man-made global warming to the US National Oceanic and Atmospheric Some of the residual gases from indus- Administration (NOAA). Between 1970 and trial processes that we pump into the atmos- 2000, the concentration rose by around 1.5 phere contribute to the greenhouse effect, ppm annually, before jumping to an average which causes global temperatures to be annual increase of around 2 ppm between warmer than they otherwise would be. 2000 and 2008, according to NOAA.

The greenhouse effect is caused by the The greater the amount of CO2 pumped ability of some gases and particles to trap into the atmosphere, the more average glo- within our planet’s atmosphere the radiation bal temperatures are likely to rise, but it is from the sun reflected back from the earth’s not a straightforward link. For example, not surface. This radiation is mainly at the infra- all CO2 stays in the atmosphere: the sea ab- red end of the spectrum and is absorbed by, sorbs some of it as does vegetation — hence for example, water vapour, methane, CO2, the worries about the rate we are cutting nitrous oxides from fertilisers, chlorofluoro- down CO2-absorbing forests. Other factors carbons (CFCs) and ozone. This trapped ra- also influence temperature, such as solar ac- diation heats up the atmosphere and, con- tivity and the amount of dust in the atmos- sequently, the earth’s surface. phere — from volcanoes for example. V

103 – www.energy-future.com 6.5 — Understanding oil and gas

resume, consumers across Europe had, Natural gas: once again, received a harsh reminder of just how heavily they depend on Russia to heat explained their pots of pasta, fire their power stations and factories, keep their economies ticking over and stay warm during the winter. ext time you boil a pot of pasta spare a People in rich, developed nations tend to Nthought for the stuff that’s heating the wa- take their energy supply for granted. But un- ter. If your hob lights up with a blue flame then less you live in a country blessed with large you’re one of the many millions in advanced reserves of oil and gas then you rely as much countries who rely on natural gas for the ba- as the average eastern European on politics sics. You use an electric hob? Well, there’s a and politicians to keep the lights switched on. good chance that the electricity is generated In fact, you don’t just rely on politicians. in a natural-gas-fired power station. You rely on an entire industry that is built As winter started to bite across east- on the task of putting oil and gas into pipe- ern Europe earlier this year, the question lines and energy into your home. That might of where the gas comes from suddenly be- look simple on the surface: build a pipeline came a political topic as hot as that pot on and fill it with gas. But financing and building your stove. pipelines is anything but easy — especially For the best part of three freezing weeks if they’re routed across the sea, traverse in January 2009 the problem seemed insol- more than one country or pass through ar- uble. Russia, home to almost a third of the eas where sabotage might be a problem. Or world’s natural gas reserves, and neighbour- if the costs run into the billions of dollars. ing Ukraine were bickering about gas prices Even if the governments of the countries again. Moscow said Ukraine was refusing to that will host the pipeline can agree on a carry out its job of passing on Russian gas route, studies must be carried out to show to customers in Europe and that the country that the project will not damage the environ- owed Russia about $2 billion in back pay- ments. Kiev said Russia had deliberately When do you find oil and when charged punitively high prices for the gas. do you find gas? Gas shortages The type of hydrocarbons that will be It was political and it got nasty — especially found — assuming they’re there at all — for anyone relying on the gas. Shortages depends on pressure and temperature, quickly occurred in Poland, Hungary, which rise the deeper you go. Oil tends to Romania, Turkey, Greece and Macedonia; be found within a certain temperature and pressure range — in which geologists re- some countries, such as Slovakia, experi- fer to as the oil window. Typically, the oil enced major falls in energy supplies. Russia window’s 65-150°C temperature range accounts for about a third of the European is found at depths of up to about 5 kilo- Union’s gas supply, so the conflict between metres, although oil that’s formed at one the former Soviet states spread across depth can later migrate into shallower the entire continent. Brussels, home of the rocks or move closer to the surface be- European Union’s leading politicians and bu- cause of erosion above it. reaucrats, begged both sides to compromise. Natural gas tends to form at higher Eventually they did. temperatures and, therefore, at greater By the time Moscow and Kiev had signed depths. V an agreement that enabled gas flows to

104 – www.world-petroleum.org Profile — Katherine Smith

Name: Katherine Smith tity to one focused on quality and safety. I’ve been given a role in some of our most im- Company: Tenaris portant projects; the workload’s both chal- Present job: Global trainee, process lenging and demanding. engineer Helping manage the cultural shift from one Age: 25 system to another has been among the most interesting problems. How do you communi- Nationality: American cate the value of a new system to people ac- Degree: Engineering management, customed to the old way? Add in language Missouri University of Science and and cultural barriers and it becomes even more challenging. Technology Our main project is recording and ana- lysing our data more effectively to create a more efficient and safer industrial system at our facility. I’m working on verifying that our pipes are being made exactly in accordance with our customers’ specifications. The precision required to make a uniform section of pipe is incredible and requires high-tech equipment. Some of our facilities have developed amazing systems to track and catalogue everything produced. In the US, we are introducing more so- phisticated ways of weighing, controlling Tenaris, a leading supplier of tubular prod- and stenciling our tubular products for track- ucts and associated services to the oil and ing purposes. We’re continually upgrading gas industry, hired me as a process engi- the technology and we’ll gradually introduce neer straight out of college. In 2008, I joined those systems, capitalising on the accumu- the Global Trainee Program for recent uni- lated know-how in the organisation. versity graduates. Improving production processes serves a During my first year, I have travelled double purpose. It helps ensure the safety of throughout Tenaris’ manufacturing net- our employees and guarantees we comply work. I recently spent a month in Campana, with our customers’ expectations for quality, Argentina, getting to know the main aspects reliable products, delivered on time. of the company at the Induction Camp — The implementation of these processes, a requirement for all new recruits. To con- which is part of a co-ordinated effort carried tinue my training, I will be transferred to our out in Tenaris’ mills in more than 25 countries, seamless-tubes plant in Veracruz, Mexico, in will facilitate the entire supply chain process. a couple months. Since that plant has been Beyond the plant, there’s a massive, global part of Tenaris for a long time, many of the network — trucks, trains, boats — to move problems I may face at facilities in the US materials from plant to plant and to custom- have already been solved. Being exposed ers. It’s a taxing logistics operation. to those solutions will help me implement I’ve found that even in a big company, you change here. can make a material difference, if you’re in- I am now based in a plant in Arkansas sightful and think creatively. You have to find that manufactures welded pipes for drilling the non-obvious stuff and gain acceptance. operations and for transporting oil and gas. Personally, I am interested in finding ways to The mill recently became part of Tenaris so make the plant more energy efficient. For a we are still in a transitional phase. We have company to be successful, it must be dedi- to go from a system that prioritises quan- cated to sustainable development. V

105 – www.energy-future.com Central Asia to Europe: main natural gas pipelines '!IFS[/ CPTOJB HFSNBOZ NPOUFOFHSP Ujsbob 1 1 BMCBOJB USBOTHBT Wjfoob IVOHBSZ Tbsbkfwp Csbujtmbwb Tlpqkf Mbo{ipu 211 ZBNBM.FVSPQF 311 Qpehpsjdb TMPWBL!SFQVCMJD TFSCJB Cvebqftu QPMBOE NBDFEPOJB HSFFDF Cfmhsbef 311!njmft OBCVDDP 511!ln Xbstbx CVMHBSJB Buifot V{ihpspe Tpgjb Wjmojvt MJUIVBOJB OPSUIFSO!MJHIUT SPNBOJB Dijtjobv Cvdibsftu NPMEPWB Nfejufssbofbo!Tfb CFMBSVT Cvshbt VLSBJOF!.!CVMHBSJB!)QSPHSFTT* Njotl OBCVDDP TPVUI!TUSFBN VLSBJOF Bolbsb Ljfw TPZF[ Cmbdl!Tfb DZQSVT CSPUIFSIPPE Tifcfmjolb UVSLFZ CMVF!TUSFBN Tjwbt SVTTJBO!GFEFSBUJPO E{ivchb TZSJB HFPSHJB

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106 – www.world-petroleum.org 6.5 — Understanding oil and gas ment. Both steps take time — usually more to describe a market place where a com- than consumers would like. And the banks modity is traded by lots of people. Sure, and governments that will stump up cash to prices go up and down, but there was still pay for them want to see guaranteed mar- oil to trade. The oil market is global, too. kets and supplies in the form of long-term Consumer countries buy oil from across the contracts. This takes years too. world. Producers take it out of the ground Iran, with the world’s second-largest natu- and send it down a pipeline to a port, and ral gas reserves after Russia (see p128), has once the crude is loaded onto a boat it can been trying to build a pipeline to India and travel to whichever buyer pays the most. Pakistan for years — but no-one is throwing cash yet at a project that would require two Oil’s troublesome little sister of the world’s long-standing political antago- Natural gas, by comparison, is oil’s trou- nists to set aside their disagreements. blesome little sister. In fact, not long ago oil There are some fundamental reasons explorers who found gas in a well consid- why natural gas has been a flashpoint re- ered their discovery a let-down. In the bad cently. We all know about the surge — and old days, much associated gas — gas found then crash — in oil prices in recent years. alongside oil in a reservoir — was simply But even when oil prices were flying through burned away, with adverse environmental the roof in mid-2008, hitting almost $150 a consequences. Making use of the gas would barrel, gasoline and other oil products were have required a whole different kind of ex- still flowing freely to consumers. Even if it pensive infrastructure. And then the compa- cost more, you could still fill up your car. nies would also need to line up customers. That’s because the oil market is liquid. Not so now. Gas burns more cleanly than That’s not a pun, it’s a term economists use oil, making it a vital source of energy in a

© BP plc

The SCP gas pipeline crosses three countries and the Caucasus mountains

107 – www.energy-future.com 6.5 — Understanding oil and gas

To liquefy or not to liquefy? Like oil, natural gas is often found in some pipelines. And, when it has needed extra gas, of the world’s remotest regions. Russia, for there are pipelines that cross the English example, wants to develop a gasfield called Channel, tapping continental supplies. Shtokman; it’s in the Barents Sea, well north The North Sea’s production is declining, of Russia’s landmass and close to the Arctic. however, and UK gas consumption contin- For most of the year, it is under ice. ues to grow. So LNG terminals are sprouting One solution for getting those kinds of up along the country’s shoreline. That’s cru- reserves to market is to liquefy it close to cial: any consumer nation that wants to take the gas field and export the liquefied natu- advantage of LNG’s flexibility needs a so- ral gas (LNG) by tanker. That involves cool- phisticated infrastructure to receive the tank- ing the gas to -162°C. LNG is the fastest- ers that carry it — and then the facilities to growing segment of the natural gas market. regasify the liquid gas and deposit it in the But it’s costly. Some of the LNG projects local pipeline grid. It also needs deep-wa- being developed on the northwest coast of ter ports able to handle the LNG tankers — Australia, a burgeoning exporter, cost up- enormous cryogenic ships that can carry up wards of $15 billion. to 260,000 cubic metres of gas, and stretch LNG accounted for about 7% of total almost 350 metres in length. gas demand last year, according to Wood Mackenzie, an energy consultancy. But this A commodity for the world will grow rapidly, because LNG has advan- Piped gas is a commodity for regions, tages that pipelines lack. but LNG is one for the world. That is trans- For example, many consumer countries forming the gas business — and the en- see LNG as way to reduce their reliance ergy outlook for many countries that de- on piped gas. Gas through pipelines ex- pend on imports. China, the world’s fast- poses consumers to the kind of problems est-growing energy consumer, now sees that eastern Europeans faced last winter — LNG as critical to its ability to keep supply- when the supplier can’t ship his product, the ing the economic powerhouses along its pipelines can stand empty. If an LNG sup- coastline — cities such as Shanghai and plier fails to deliver, another one can be Guangzhou — with energy. found to fill the gap. There are other uses for gas reserves that once seemed stranded in inaccessible lo- More liquid cations. Gas-to-liquids (GTL) technology in- The LNG market is beginning to oper- volves converting natural gas into ultra-clean ate as a liquid market too. In theory, that liquid products, such as synthetic diesel and should result in the most favourable price naphtha, which are traditionally produced by for consumers. refining crude oil. Qatar, home of the world’s Lots of the LNG produced in countries largest gasfield, is leading the way with this such as Qatar, the world’s LNG power- technology, as it has with LNG. So far, GTL house, is contracted on a long-term basis. production is small and, to some eyes, the But already, says Wood Mackenzie, 15- whole process looks costly and fiddly, given 20% of LNG is traded on the spot market, that established infrastructure allows oil to where buyers can purchase short-term car- do the same thing. goes as and when they need them. But, then again, there was a time when Pipelines are still vital. In the UK, for in- people thought natural gas would never be stance, the North Sea has long been the main much use for anything. Your boiling pasta source of natural gas, all of it supplied through pan suggests otherwise. V

108 – www.world-petroleum.org 6.5 — Understanding oil and gas world where consumers are concerned about Kiev and Moscow. So, in addition to the two pollution and global warming. And building new pipelines Russia plans, Brussels also gas-fired power stations is fairly cheap. wants at least one more pipeline to supply Those reasons, combined with the world’s eastern Europe with gas from Central Asia, abundant reserves of gas, have made it a another region rich in reserves. fuel of choice for many advanced economies. To understand the geopolitical chess The downside is that getting gas to a market game of gas supplies, it’s easiest to look at can be a heinously complex business. a map (see p106). Consider the European In the gas world, everything hinges on in- Union’s dilemma: to diversify its sources of frastructure. The problems between Russian natural gas, it wants to import it all the way and Ukraine last winter stemmed from the from Azerbaijan, Iran, Egypt, Iraq and even Soviet era, when Moscow sketched out the Turkmenistan through a proposed pipeline routes for the USSR’s gas exports to the called Nabucco. It is one of the most am- West. The most important pipeline goes bitious infrastructure projects ever consid- through Ukraine. And once the Soviet bloc ered. Linking Turkmenistan with central disintegrated, Moscow’s control over that in- Europe, for example, would require a pipe- frastructure grew weak. line under the Caspian Sea to Azerbaijan, Most of the world’s gas is shipped from pro- then the transit of the gas through the ducer to consumer by pipeline. Consumers pay producers for the gas, and the mole- Politics isn’t the only problem cules magically appear at the other end of producers face when they want to the pipeline. Usually, the seller wants to lock deliver their gas to market the consumer into a long-term agreement to buy the gas. These contracts often last for up to 20 years or more and commit the Caucasus, Turkey, up through the Balkans buyer to a given price, even if for some un- and into Austria. And that doesn’t include foreseen reason he doesn’t need the gas. the spur lines that would allow Iranian, Iraqi, or Egyptian gas to feed into the system. Politically complicated OMV, the Austrian firm that leads a group Things grow more complicated, politically, of companies planning the Nabucco pipe- when third parties get involved. Transit coun- line, says it could cost around €8bn, al- tries — between the producer and his mar- though many analysts expect it would be ket, which receive a fee for allowing the pipe- much more expensive. At the same time, line to cross their territory — can be the bane consider the challenge of getting all of those of producers and, sometimes, consumers. countries to agree even a timetable to begin After its experiences with Ukraine in re- building the infrastructure. cent years, for example, Russia is keen to That and the Iran-Pakistan-India ven- build pipelines that link its borders directly ture are the most political pipeline projects to the EU, its main customer. It has two around. But politics isn’t the only prob- pipelines in the works. One, Nord Stream, lem producers face when they want to de- will go under the Baltic Sea to Germany liver their gas to market. If a gas field is too and the other, South Stream, will go un- far from a market to make building a pipe- der the acidic waters of the Black Sea, at line practical, or if environmental or physical a depth of up to 3,000 metres, and land in conditions mean it can’t be done, the alter- the Balkans. Both pipelines avoid Ukraine. native is to liquefy the gas and ship it out in Meanwhile, the European Union is tired of tankers. But that’s a whole new ball game in what seems to be an annual dust-up between terms of cost and technology (see p108). V

109 – www.energy-future.com Profile — Mario Sobacchi

Name: Mario Sobacchi logical challenges facing the oil and gas in- dustry and gave me valuable insights into the Company: Eni types of solutions that might work. Present job: Project manager But although there are many exciting and Age: 31 creative ideas out there, there’s a long way to go. The industry is having to develop re- Nationality: Italian sources in increasingly difficult conditions — Degree: Degree in engineering, coping with deep waters, sour fluids, remote Politecnico di Milano; MSc in locations and heavier oils, for example. We mechanical engineering, University must extract the greatest possible value by, for example, maximising recovery factors, of Illinois, Chicago developing new products and reaching new markets. That’s what makes R&D an essen- tial investment for a major oil company. Last year, I moved to Eni Venezuela as a project manager. My role involves identifying the best development scheme for a heavy-oil block in the Orinoco oil belt. We’re setting up a joint venture with PdV, Venezuela’s state- owned oil company, to develop it and I’m pro- viding technical support. Finding the most economic ways of trans- forming the heavy oil we will be producing into marketable products requires careful co- ordination of a large number of professional Since joining Eni — after graduating in 2002 functions; all components of the business — the job has exceeded my expectations: chain — from reservoir exploitation to refining the variety of activities, the different locations technologies, and from enhanced oil-recov- I’ve worked in, the diversity of people I have ery technologies, to market analysis and dis- teamed up with have given me a wide range tribution to end users — must be thoroughly of valuable professional experience. investigated and finely tuned. I started in the engineering department of The breadth and scope of this project is Eni Exploration & Production in Milan as a fascinating and careful planning is essential. process engineer. I moved to a project-engi- In addition to the technical issues, we must neering position two years later, co-ordinat- take full account of the needs of local com- ing a range of engineering disciplines on var- munities around the site and strict sustaina- ious upstream projects, mainly related to gas bility requirements, as well as complex legal, production and flaring in Nigeria. Although taxation and financial constraints and difficult still based in Milan, I often travelled to project negotiating conditions. Being exposed to the sites, spending about half of my time in west entire value chain of the industry is a unique Africa. I also travelled more widely, working learning opportunity — and one that should with several different divisions of the company help me move forwards to business manage- across the world — in Pakistan, Indonesia, ment and more senior positions. Russia and elsewhere. The oil and gas industry is complicated: it In 2006, I was given a managerial role in relies on teamwork. And it depends on mo- Eni’s research and development (R&D) de- tivated professionals all over the world get- partment, co-ordinating R&D activities re- ting to know and adapting to different cultures lating to surface-production facilities. It was and ways of doing things. It supports people a very interesting experience — one that with a can-do attitude. It’s a business where helped me understand the biggest techno- people still make the difference. V

110 – www.world-petroleum.org 6.6 — Understanding oil and gas

Under a cap-and-trade scheme, pollut- Cap-and-trade: ing companies are issued with a certain amount of free, tradable credits — effec- explained tively emissions-cuts IOUs — each rep- resenting a set volume of carbon dioxide

(CO2) emissions and covering what the overnments generally claim to be in fa- managers of the scheme deem to be an Gvour of fighting climate change, but are acceptable level of atmospheric emissions also reluctant to introduce emissions-regula- from the companies’ plants. tions domestically if it puts their companies If a company exceeds the emissions limits at a competitive disadvantage to rivals from covered by the credits allocated to its plant countries with laxer emissions regulations. then it must either reduce its emissions or What’s needed is a global system that re- buy more credits from another company that wards reductions in carbon emissions while has some spare ones. Those sellers may penalising excess pollution, without mak- have acquired their surplus credits by mak- ing companies and countries feel they are ing their plants cleaner, so that they produce putting themselves at a disadvantage. This, fewer emissions than are covered by the according to its backers, is where cap-and- number of free credits issued to them. trade comes in. Effectively, the big polluter in this case is paying someone else to make emissions How does cap and trade work? cuts so it doesn’t have to. But as long as Cap-and-trade schemes aim to make it the caps are set at a low enough level, the very expensive and undesirable for indus- effect should be to lower overall CO2 levels tries to produce more than a certain level in the atmosphere. The scarcer the trada- of carbon — hence the “cap” — and to re- ble credits, the higher the price of carbon ward companies financially for developing and the more prohibitive the cost incurred greener projects. These two elements are from producing it: a sufficiently robust price closely linked by a mechanism involving signal should then encourage investment in the “trade” aspect. low-carbon technologies.

The EU Emissions Trading Scheme covers more than 10,000 installations in the energy and industrial sectors,

collectively responsible for nearly half of the EU’s CO2 emissions and 40% of its total greenhouse-gas emissions

111 – www.energy-future.com 6.6 — Understanding oil and gas

This type of scheme can be applied not The EU is ahead of the field. The EU just within one country, but over a larger re- Emissions Trading Scheme (ETS) was gion, or even — potentially — the world. launched in January 2005 and has gradu- It still relies on co-operation between as ally increased its scope through successive many nations as possible if it is to work phases, each introducing tougher caps and properly, but cap-and-trade supporters say covering more sectors and companies such a scheme is the easiest route towards than before. At present, the ETS covers such co-operation. more than 10,000 installations in the en- ergy and industrial sectors, collectively re-

Who is doing it? sponsible for nearly half of the EU’s CO2 So far, cap-and-trade is in the relatively emissions and 40% of its total greenhouse- early stages of development and is mostly gas emissions, according to the European being adopted by the world’s long-standing Commission. Phase three of the ETS is industrial powers. due to be introduced in 2013 and will run

CDM projects A particularly thorny issue for the architects from the industrialised world to generate of global emissions legislation is the partic- credits by building green projects in devel- ipation of developing countries in cap-and- oping countries. Those credits can then be trade, or indeed any tough action on car- used in, for example, the EU’s ETS, to offset bon emissions. Developing countries argue the cost of carbon emissions produced by that their economic progress would be held those companies at home. back by the need to adopt expensive green CDM projects are becoming increasingly measures and that developed countries — widespread. A carbon-capture project in which are largely responsible for manmade China could be eligible, as might a solar-en- climate change — should shoulder most of ergy project in the Middle East or a reforest- the burden. ation programme in Africa — anything that

The trouble is that the biggest of the de- can be shown to reduce the amount of CO2 veloping world countries, including China, going into the atmosphere. India and Brazil, are responsible for a grow- But they remain controversial. One argu-

ing proportion of today’s CO2 emissions. ment against CDM projects is that they do The US Energy Information Administration not encourage Western firms to make big estimates that energy consumption will be emissions cuts at home, if they can do so — around 73% greater in the developing world usually more cheaply — in the developing — non-OECD (Organisation for Economic world. In other words, the resulting cuts may Co-operation and Development) coun- be “instead of”, rather than “as well as”, cuts tries — in 2030 than it was in 2006, but only in the industrialised world. 15% higher in the industrialised world — Another issue is that the CDM en- OECD countries. That suggests the failure of courages developing countries to rely on emerging markets to participate in cap-and- Western firms to create green projects on trade would make the system much less ef- their soil, rather than doing it themselves. fective. So can cap-and-trade be adapted to And then there is the tricky concept of “ad- make it more palatable to developing coun- ditionality”, which CDM projects are sup- tries, even if they don’t participate fully now? posed to embrace. This means a project One solution being tried is the use of that earns CDM credits is supposed to be schemes such as the UN-managed Clean one that would not have gone ahead any- Development Mechanism (CDM), set up un- way without that incentive — and that can der the Kyoto Protocol. This enables firms be a very hard thing to prove. V

112 – www.world-petroleum.org 6.6 — Understanding oil and gas to 2020, by which time the EU aims to have achieved emissions cuts of 20%, com- pared with the 1990 level. The credits traded are known as “allow- ance” units, each representing a tonne of

CO2. The sheer number of credits generated by the EU ETS means the most straightfor- ward way to trade them is to set up big ex- changes as intermediaries, much like stock and bond markets. Trading on these ex- changes determines the price at which al- lowances change hands. The biggest estab- lished so far is London’s European Climate Exchange (ECX). Several other nations have their own schemes in development. Australia — one of the world’s largest CO2 emitters per cap- ita because of its high reliance on coal for power generation — hopes to introduce its own trading scheme in the next few years, One of the main problems for for example. But the big prize for cap-and- regulators is deciding how to calculate trade proponents would be to get the world’s emissions from movable sources, such largest economy, the US, on board. as planes

Going it alone late 2009, where emissions trading will be The reluctance of the government of one of the hottest topics. George W Bush to adopt emissions-cutting Already, one of the main problems for reg- policies prompted several states to attempt ulators is deciding how to calculate emis- to go it alone. California — one of the world’s sions from movable sources, such as planes top-10 economies on its own — together with or ships, which may start their journey in one six other US states and four Canadian prov- part of the world and end up in another, with inces decided in 2008 to set up their own different emissions regulations. How should trading scheme. However, it may no longer the cost of emissions be allocated between be necessary: President Barack Obama, the regions? What about the emissions made who is supportive of climate-change meas- in international waters or airspace? ures, wants to introduce a US-wide scheme, The EU is working towards including similar to the EU ETS. emissions from all flights landing in or de- These national and regional initiatives, parting from the region in the ETS, from and others that will follow, are all well and 2012. But that has already caused a clash good, but unless the countries involved co- with the US, which, under the Bush admin- operate by merging their schemes or mak- istration, threatened retaliatory trade sanc- ing the credits from one tradable in the oth- tions if US airlines landing in Europe were ers, emissions trading is unlikely to max- required to fork out to cover the cost of imise its potential. International negotia- some of their emissions. A solution to that tors are putting a lot of effort into resolv- problem may yet be found, but it illustrates ing how this can be done, ahead of the the complexity of getting everybody on Copenhagen climate change summit in board the same low-carbon bandwagon. V

113 – www.energy-future.com 6.7 — Understanding oil and gas

Germany produces biodiesel from rape- Biofuels: seed, among other feedstocks. Brazil, the world’s biggest ethanol exporter, pioneered explained the production of ethanol from sugar cane, taking full advantage of its ample land re- With the world’s largest sources and sub-tropical climate; it has also economies pushing increased developed flexible-use, or flex-fuel, cars that usage, biofuels are here to stay can run on any ratio of gasoline and biofu- els. China, India and other fast-developing he internal combustion engine is a part of economies in the Asia-Pacific region are Tvirtually everybody’s life — like it or not, also turning to biofuels as part of their ef- it’s here for the foreseeable future (see p20). forts to find viable new transport fuels. But we need to cut down on the amount of According to the US Department of Energy, harmful carbon emissions it produces. total annual biofuels production across the That’s where biofuels come in: they offer world could increase more than sixfold by the prospect of reductions in carbon emis- 2030, from 12 billion US gallons in 2005 to sions without the need to replace or radi- 83 billion US gallons in two decades’ time. cally alter existing transportation infrastruc- ture. Hydrogen and electricity are interest- Fuelling change? ing alternatives for powering vehicles, but Exactly what form biofuels in use in a dec- they require a complete redesign of the way ade’s time will take remains to be seen, but vehicles work and can’t be used with exist- a big change seems to be in the offing. The ing cars, whereas biofuels can. main biofuels on the market today — so- Biofuels are created by processing veg- called first-generation biofuels — are bioeth- etation high in sugars or vegetable oil into anol and biodiesel, which can be made from bioethanol and biodiesel. These can be a variety of raw materials, but are generally blended with, or even used instead of, con- derived from crops such as maize, sugar ventional gasoline and diesel — and they cane, palm oil and rapeseed. However, produce much less pollution when burned there are doubts over whether they make a than conventional refinery fuels. positive contribution to the environment: in In the EU, one of the world’s biggest vehi- cle markets, nations are being asked to raise the amount of renewable energy — mainly biofuels — used for transport to 10% of total fuel consumption by 2020, compared with an average of well under 5% now. That’s a significant increase. Similar measures are being implemented, or targeted, around the world; this will require billions of dollars in financial incentives, but proponents believe the environmental benefits will be worth all the effort and money. The biofuels industry is already well es- tablished in the major economies. The US, the world’s biggest biofuels manufacturer, produces bioethanol from maize (known lo- Biofuels are created by processing veg- cally as corn) cultivated across the Midwest. etation high in sugars or vegetable oil

114 – www.world-petroleum.org 6.7 — Understanding oil and gas some cases, carbon savings made by burn- ing clean biofuels in motor vehicles can be Biofuels: key concepts outweighed by the carbon dioxide (CO2) that Bioethanol: also known simply as ethanol is emitted during the cultivation of the crops, (ethyl alcohol), this is the most widely pro- their conversion into fuels and their trans- duced biofuel. It is usually created by fer- portation to market. menting starch or sugar crops, including Biofuels present another significant risk: maize (corn), sugar beet and sugar cane. by occupying land that could be used to Bioethanol is often blended with gasoline to fuel cars. In some cases, it can com- grow food crops, the cultivation of crops for pletely replace gasoline as a fuel. fuels could lead to food shortages and infla- tion in food prices. Biodiesel: a combustible fuel that can be mixed with mineral diesel. Derived from However, the commercialisation of sec- fatty-acid alkyl esters, biodiesel can be ond-generation biofuels technologies — bi- made from a wide variety of feedstocks, omass-to-liquids and cellulosic ethanol, for such as rapeseed and soybean oils. example — could assuage many of these Biomass: in the context of the fuel sector, worries. These emerging technologies en- any vegetation whose energy can be har- able biofuels to be manufactured from a nessed in fuel. Biomass-to-liquids (BTL): a combustion, Emerging second-generation rather than fermentation, process, in which technologies enable biofuels to biomass is converted into synthesised be manufactured from a much gas, or syngas, and then put through re- wider range of raw materials actions with other compounds to produce a variety of end-products, including diesel and ethanol. BTL products are made us- much wider range of raw materials, includ- ing Fischer-Tropsch technology, which has ing agricultural by-products, such as plant been developed in another area of the en- husks and inedible maize stalk and grasses, ergy industry, the gas-to-liquids sector. which are easy to grow and can’t be eaten. Cellulosic fermentation: most fermenta- Even algae can be used to produce biofuels tion processes could be called cellulosic, (see p78). This should improve production as the word just refers to breaking down efficiency and reduce carbon emissions per lignocellulose in plant matter. However, in the biofuels industry, it normally signifies unit burned. It also ought to ease compe- the ability to break down a much greater tition with the food industry because some amount of plant matter than has been second-generation biofuels crops can be possible on a commercial scale to date. grown on marginal land that is unsuitable for The end result is the same, though — cultivating food crops. bioethanol, for example. Much scientific work remains to be done to Jatropha: a plant indigenous to Central perfect these technologies, but the backing America that produces oil suitable for they are receiving in high places suggests conversion to biodiesel. It has attracted they have a bright future. The US already much interest because it grows well on requires a minimum amount of bioethanol to marginal land across tropical and sub- be blended into gasoline and has set a tar- tropical areas, in places such as India get of using 36 billion US gallons of biofuel and Africa. This reduces the pressure on a year by 2022. And, in May 2009, US pres- land needed for food crops, although it remains to be seem whether jatropha’s ident Barack Obama’s government upped much-touted potential can be converted the ante, with plans to spend $1.8 billion on into commercial success. developing second-generation biofuels.

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The US Environmental Protection Agency much higher energy content than the bioeth- estimates that bioethanol use in the US re- anol in use at present. It can also be made duces CO2 emissions by around 16% com- from next-generation feedstocks, including pared with using just conventional gaso- grasses and stalks. BP has also invested in line. Now it wants to see a 20% reduction jatropha, an inedible, oil-producing crop that in greenhouse-gas emissions from renew- grows on marginal land and from which bi- able fuels produced in new facilities, 50% odiesel can be derived, through a joint ven- lower emissions for biomass-based diesel ture with UK firm D1 Oils. and advanced biofuels and a 60% cut from Shell, meanwhile, is developing new biofu- cellulosic biofuels. els-to-liquids (BTL) technologies through an investment in Choren Industries, a German Industry leaders company that has built the world’s first com- Oil companies are eager to play a role mercial BTL plant, in Freiberg. in helping to achieve such goals. Most of US ethanol producer Poet is another pi- the big oil firms were among the pioneers oneer, developing cellulosic processing of of bioethanol and biodiesel, and have suc- maize in an effort to make greater use of all cessfully integrated biofuels into their supply parts of the plant in the production of bio- chains. Given their growing familiarity with fuels — not just the edible bits. In January the biofuels business and their history of 2009, it opened an $8 million pilot plant in technological innovation, their focus is now South Dakota that runs on corn cobs and switching to developing the technology for other crop residue. The 20,000 US gallons second-generation biofuels. a year facility is a precursor to a $200 mil- BP, for example, has several biofuels lion, 125 million US gallons a year com- projects on the go, including a partnership mercial-scale cellulosic plant being built with chemicals giant DuPont to develop bi- in Emmetsburg, Iowa, and scheduled for obutanol, an ethanol-based product with a start-up in 2011. V

The US government estimates that bioethanol use in the US reduces CO2 emissions by around 16% compared with using just conventional gasoline

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Gasoline: packing a punch

Calorific value 45 megajoules per kilogramme

40

35

30

25

20

15

10

5

0 Gasoline Coal Ethanol Butter Peanuts Milk Wood chocolate Note: values are approximate and may vary Sources — National Physics Laboratory (Kaye & Laby online), FDDB.info

117 – www.energy-future.com 6.8 — Understanding oil and gas

Grow your own (oil, that is)

Diesel, jet fuel and other useful liquid products don’t just come from crude oil. Using some clever chemistry, they can be made from other hydrocarbons — coal, natural gas, biomass

f you’re worried about climate change, pol- Ilution or running out of oil, you’ll like the sound of this: fuel manufactured locally from Salt and vinegar with your chips sir? renewable plants or waste that produces al- Choren Industries claims BTL could most no greenhouse-gas (GHG) emissions cut GHG emissions by up to 90% and burns more cleanly and efficiently than compared with conventional fuels today’s pump products. It sounds too good to be true, but it’s pos- used to power the production facilities were sible; biomass — organic matter, from wood derived from green sources, the process chip and stalks to chicken manure — can be could be carbon neutral. German BTL firm converted into valuable fuels. How? By rep- Choren Industries, which has been operat- licating the process that, over 400 million ing a small pilot plant since 2003 and hopes years, generated oil from organic matter — to begin operating its first commercial unit in in the case of plants, by converting photosyn- 2010, claims BTL could cut GHG emissions thesis-derived chemical energy into hydrocar- by up to 90% compared with conventional fu- bons. But a few hundred million times faster. els. Widespread use of BTL would also mean countries could grow their own oil — prefera- The FT process ble to relying on other countries to supply it. So-called biomass-to-liquids (BTL) technol- It might sound revolutionary, but the FT ogy is based on two main steps: first, the bio- process has been around for almost a cen- mass is converted into a synthesis gas, con- tury. It was invented in 1923 by a German sisting of hydrogen and carbon monoxide. chemist, Franz Fischer, and Czech-born Next, the Fischer Tropsch (FT) process uses Hans Tropsch, at Germany’s Kaiser Wilhelm chemical catalysts to convert that hydrogen Institute for Coal Research. and carbon monoxide mix into liquid hydro- It hasn’t yet been applied to biomass on carbons similar to the oil products produced a commercial scale, because costs are too by a conventional oil refinery. These liquid hy- high and because there isn’t enough bio- drocarbons are known as synthetic fuels. mass available. But the FT process is be- When BTL products are burned in a car, ing used commercially to make synthetic fu- they emit CO2; but the cycle is, in theory, car- els from other hydrocarbons sources — nat- bon neutral because the emitted CO2 is ab- ural gas and coal. sorbed by next year’s crop. If the trucks All three processes — BTL, gas-to-liq- bringing the biomass to the processing unit uids (GTL) and coal-to-liquids (CTL) — yield ran on these green fuels and if the energy identical end products. The big difference is

118 – www.world-petroleum.org Industry facts

Flying with natural gas In October 2009, Qatar Airways operated the world’s first commercial passenger flight using gas-to-liquids (GTL) jet fuel — from London to Doha. GTL fuel is produced using the Fischer-Tropsch process, which involves a catalysed chemical reaction in which carbon monoxide and hydrogen are converted into liquid hydrocarbons (see p118). On 1 February 2008, the Airbus A380 became the first commercial aircraft to fly with a synthetic liquid fuel, although that aircraft did not carry passengers. Airbus says GTL, at some locations, could be a practical alternative to conventional jet fuel. Reflecting the growing importance of GTL, the World Petroleum Council (WPC) will dedicate part of its programme for the 20th World Petroleum Congress, in Doha in December 2011, to natural gas and GTL. Says WPC Director-General Pierce Riemer: “Qatar is proving that GTL will become a commercially viable, environmentally friendly fuel.”

119 – www.energy-future.com 6.8 — Understanding oil and gas

B-1B Lancer: a different way to fly how each feedstock is turned into a synthe- spectacular effect in 2006, when an Audi sis gas ready for FT catalysis. It might sound R10 TDI, running on a blend of GTL and self-evident, but turning natural gas into a normal diesel became the first diesel car to synthetic gas is relatively easy, because it’s win the Le Mans 24-hour race. And it wasn’t already gaseous. Gasifying a lump of coal a fluke: the team has since chalked up sev- or a pile of woodchip is more difficult and — eral more high-profile race victories. yes, you guessed it — more expensive. As a Diesel is a big component of GTL, but result, GTL is the most popular option. the process makes other products too. Last The similarities with conventional refinery year, for example, the Airbus A380 became fuels are important: GTL products can be the first commercial aircraft to fly with a syn- transported, distributed and marketed using thetic liquid fuel processed from gas (see the same infrastructure as refinery prod- pxx). At some locations, GTL could be a ucts. And car engines don’t need to be mod- practical alternative to conventional jet fuel, ified to use them. So they fit neatly into the even in the short term, says Airbus. existing supply chain. But there are important differences, too: Reduced reliance on oil GTL fuels are cleaner than conventional re- Another attraction of synthetic fuels that finery fuels. They are virtually free of sulphur, reducing reliance on crude oil by using other nitrogen and aromatics; as a result, they can sources of energy to do the same job — reduce local pollution and improve air qual- gas, coal or biomass — is just good sense. ity. (But unlike BTL, GTL wouldn’t result in Sometimes it’s a necessity: synthetic fuels a significant decline in CO2 emissions com- produced from coal were used in Germany pared with products made from crude oil). during the Second World War and in South GTL manufacturers say synthetic fuels Africa during apartheid. Both regimes had have other advantages. With a cetane rat- coal, a need for mobility, but not enough oil. ing of 70 or more, compared with closer to The US Air Force also sees strategic ad- 50 in the case of standard refinery diesel, vantages in being able to use alternative fu- GTL diesel can enhance engine perform- els to oil, because oil is a commodity that the ance. Audi and Shell demonstrated that to US needs to import in large quantities. Last

120 – www.world-petroleum.org 6.8 — Understanding oil and gas year, a B-1B Lancer became its first aircraft ness in 2006 and, after overcoming some to fly at supersonic speed using an uncon- technical problems, is close to its design ca- ventional fuel — a 50:50 blend of synthetic pacity of 34,000 barrels a day. The next big fuel and petroleum gases. The Air Force project scheduled to enter service will take wants to be producing at least half of its fuel the GTL industry to a new level of scale: the from domestic resources by 2016. Those re- Shell-operated Pearl project, also in Qatar, sources might include coal, which is abun- should start selling products in early 2011, dant in the US. China, another oil-deficient adding 140,000 barrels a day to global capac- economy that would also like to become ity and roughly tripling world output to around more self-sufficient, also has large coal re- 213,000 barrels a day. That’s rapid growth, no serves and is developing CTL projects. doubt about it, yet GTL will still be just a drop But despite these growing pockets of in- in the ocean of the 84 million or so barrels of terest in the technology, CTL has failed to oil consumed every day around the world. have much of an impact on the fuels market. There’s only one large CTL facility: Sasol’s GTL will still be just a drop in the 150,000 barrels a day (b/d) Secunda plant in ocean of the 84 million or so South Africa. This is because oil products are barrels of oil consumed every widely available and much cheaper. CTL also day around the world produces a large amount of carbon and would only be feasible on a large scale if combined with carbon capture and storage technology. There are several reasons why GTL is still That would add significantly to costs. a niche industry. To make a commercial suc- GTL, however, is set for a rapid growth cess of GTL, the ideal ingredients are abun- phase. The world’s first commercial GTL dant natural gas reserves, low production plant, Oryx GTL in Qatar, opened for busi- costs for the gas and good port facilities, preferably within easy reach of a big oil mar- Photo courtesy Sasol courtesy Photo ket. Qatar’s North Field has those qualities, which is why the world’s main GTL projects are in Qatar. But there aren’t many other North Fields around. If one of those ingredients is missing, there are alternatives to building an expensive FT refinery: liquefy the natural gas and ship it to market on liquefied natural gas (LNG) carri- ers or, if there’s a market within range, build a pipeline. One of those two options will often be cheaper and more profitable than GTL. And, like other parts of the energy busi- ness, GTL suffered from the rampant cost inflation that coincided with the 2004-2008 oil-price boom. Oryx got the go-ahead be- fore costs began their steep rise and ended up costing just over a $1 billion. But a simi- lar project, Escravos GTL, which received ap- proval a year later, could end up costing $6 bil- Sasol’s 150,000 b/d Secunda plant, the lion, even though it uses the same technology only CTL plant in the world as Oryx and has the same design capacity.

121 – www.energy-future.com 6.8 — Understanding oil and gas

One reason for higher costs is that it, but often — especially in remote offshore Escravos GTL is located in isolated swamp- locations — there will be no pipeline to ex- land in the Niger Delta, as opposed to port this so-called associated gas to market Qatar’s state-of-the-art Ras Laffan Industrial and building one would be too expensive. City. Just preparing the Escravos site in- Two commonly used solutions, burning the volved dredging nearly 4 million cubic me- gas off (flaring) or venting it, are not sustain- tres of sand to make way for the sophisti- able: both are bad for the environment and cated system of steel piles being used to a waste of a valuable resource. support the plant. CompactGTL, a privately owned UK tech- Chevron, the operator, has also had to cope nology company, says FT technology could with Nigeria’s security threat and to estab- be the answer. Its idea — which has drawn lish a new, high-tech sector for the Nigerian interest from Brazil’s state-controlled energy energy industry. Yet the original budget was company, Petrobras, predominantly an off- $1.7 billion, so costs look set more than to tri- shore oil producer — is to convert associ- ple. The project’s planned start-up date has ated gas into synthetic crude oil at the point also slipped from 2009 to 2012. Other poten- of production, using FT technology. The syn- tial GTL developers may look on aspects of thetic crude oil is then mixed into the flow of the venture as a cautionary tale. conventional crude oil being pumped out of the oil field and exported to market. Reasons for optimism Not only does this get round the environ- Then again, there are reasons for opti- mental problem presented by flaring and mism. Cost inflation is in reverse, following venting, but it generates a new and lucra- the collapse in oil prices in mid-2008, and tive source of revenue by turning previously this could tempt developers back into the useless gas into a marketable and valuable market. Certainly, technology-development commodity. CompactGTL estimates that as- in synthetic fuels is continuing. sociated gas reserves around the world with In addition, there are other ways of using no commercial value exceed 28 trillion cubic FT technology. For example, when oil is pro- metres — a large and potentially lucrative duced offshore, natural gas is produced with market with an environmental dividend. V

Photo courtesy SasolChevron

Oryx GTL, the world’s first commercial GTL plant, opened for business in 2006

122 – www.world-petroleum.org 7.1 — The World Petroleum Council

WPC is a non-advocacy, non-political or- The world’s premier ganisation and has accreditation as a non- governmental organisation (NGO) from the oil and gas forum United Nations (UN). The WPC is dedicated to the application of scientific advances in he World Petroleum Council is the world’s the oil and gas industries, to technology Tpremier global oil and gas forum and is transfer and to the use of the world’s petro- the only international organisation repre- leum resources for the benefit of all. senting all aspects of the petroleum sec- Headquartered in London, the World tor. 2008 marked the 75th anniversary of the Petroleum Council includes 60 member coun- organization. The WPC was established in tries worldwide representing over 95% of glo- 1933 with the intent to promote the manage- bal oil and gas production and consumption. ment of the world’s petroleum resources for WPC membership is unique as it includes the benefit of mankind. both OPEC and non-OPEC countries with The WPC’s prime value to the oil and gas representation of national oil companies as industry is to catalyse and facilitate dialogue well as independent oil companies. amongst stakeholders that will contribute to Each country has a national committee finding solutions to key technical, social, en- made up from representatives of the oil and vironmental and management issues facing gas industry, academia and research insti- the industry. In doing so, the WPC will con- tutions and government departments. Its tribute towards sustainable growth. governing body is the Council consisting The WPC provides a neutral and non-po- of representation from each of the country litical forum and works to bring together in National Committees. dialogue the various sectors of society that have views on specific issues. The World Petroleum Congress Every three years, the WPC organises List of Congresses the World Petroleum Congress as the prin- cipal meeting place for the international oil 2011 20th WPC Doha and gas industry. Hosted by one of its mem- th 2008 19 WPC Madrid ber countries, the triennial Congress is also th 2005 18 WPC Johannesburg known as the “Olympics” of the petroleum 2002 17th WPC Rio industry and covers all aspects of the indus- 2000 16th WPC Calgary 1997 15th WPC Beijing try from technological advances in upstream 1994 14th WPC Stavanger and downstream operations to the role of 1991 13th WPC Buenos Aires natural gas and renewables, management 1987 12th WPC Houston of the industry and its social, economic and 1983 11th WPC London environmental impact. 1979 10th WPC Bucharest In addition, outside stakeholders such 1975 9th WPC Tokyo as governments, other industry sectors, 1971 8th WPC Moscow NGOs, academia and international institu- 1967 7th WPC Mexico City tions have also joined in the dialogue. Qatar th 1963 6 WPC Frankfurt will be the host of the 20th World Petroleum th 1959 5 WPC New York Congress in 2011. 1955 4th WPC Rome Beyond the triennial Congress, the World 1951 3rd WPC The Hague nd Petroleum Council is regularly involved with 1937 2 WPC Paris 1933 1st WPC London a number of other meetings such as the WPC Youth Forum, the WPC-UN Global

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Compact Best Practice Forum and a joint Young people were also addressed as th WPC/OPEC workshop on CO2 sequestra- a key aspect of the 15 World Petroleum tion, as well as regional meetings, for ex- Congress in Beijing through its theme ample for Latin America in June 2010. Other “Technology and Globalization – Leading the events so far have also focused on dis- Petroleum Industry into the 21st Century”. To pute resolution, calculating reserves and support their education and future involve- resources, regional integration and oil, gas ment in the petroleum industry, the Chinese and infrastructure developments in Africa. National Committee donated all computer and video equipment used at the Congress Legacy to its Petroleum University. As a not-for-profit organisation the WPC Profits from the 16th Congress in Calgary aims to ensure that any surpluses from its were used to endow a fund providing schol- Congresses and meetings are directed into arships to post-secondary students in pe- educational or charitable activities in the troleum-related fields. The Canadian host country, thereby leaving an enduring Government Millennium Scholarship legacy in the Host country. Foundation matched the amount dollar for The WPC Legacy Programme started dollar which created an endowment that to- in 1994 with the 14th World Petroleum date has supported over 2000 students. Congress when Norway put the surplus The 17th World Petroleum Congress was funds of the Congress towards the con- the first to integrate the concept of sustaina- struction of Stavanger’s state-of-the-art bility throughout its event. The Brazilian hosts Petroleum Museum to help inform and edu- took responsibility for the 16 tonnes of recy- cate the public and in particular the younger clable waste generated by the Congress, generation on the history and operations of with the proceeds of the recycling activities the petroleum sector. passed on to a local co-operative in Rio de

Vision, Mission and Values Vision • a forum for developing international busi- An enhanced understanding and image of ness opportunities the oil and gas sector’s contribution to sus- • information dissemination via congresses, tainable development. reports, regional meetings and workshops Mission • initiatives for recruiting and retaining ex- To promote the development and utiliza- pertise and skills to the industry tion of oil and gas resources and other en- • promoting best practises in the production ergy sources in an efficient and sustainable and consumption of energy resources. way, for the benefit of the current and future Values generations. The WPC values strongly: The WPC is the only global organisation • Cross-national dialogue and networking that represents all aspects of the oil and gas • Respect for individuals and cultures sector, with the purpose of providing: worldwide • an enhanced understanding of issues and • Unbiased and objective views challenges • Integrity • networking opportunities in a global forum • Transparency • co-operation (partnerships) with other • Good governance organisations • A positive perception of the industry • an opportunity to showcase the industry’s • Science and technology technical achievements • The views of other stakeholders

124 – www.world-petroleum.org 7.1 — The World Petroleum Council

ing generations. Young people were the main Key Strategic Areas benefactors of a number of legacy projects 1 World Class Congress created by the surplus from the event. A quality, premier world class oil and gas Qatar, Host for the 20th World Petroleum congress Congress in 2011, is already considering the 2 National Committees long term legacy they wish to leave through Attracting and retaining National the first Congress to be held in the Middle Committees and building stronger links East, with education likely to be playing a 3 Youth and gender engagement key role in the allocation of surplus funds. Attraction and retention of young people and women in the oil and gas industry WPC Structure 4 Inter Congress Activities The Council is the governing body of the To organise workshops/meetings and other World Petroleum Council which convenes activities on specific topics of relevance to once a year. Its global membership elects WPC members the President and an Executive Committee 5 Outreach to other stakeholders every three years to develop and execute Add value through the WPC by cooperation its strategy. The Council also selects the with other organisations host country for the next World Petroleum Congress from the candidate countries. To 6 Communication To increase awareness, internally and ex- ensure the scientific and topical quality of ternally of WPCs activities the event the Council elects a Congress Programme Committee whose members are responsible for developing the high-level Janeiro. Practical help was provided by 250 content for its Congress Programme. volunteers who painted a public school and The Secretariat of the World Petroleum collected 36 tonnes of rubbish in a special Council is based in London, led by the community effort, donating all proceeds to Director General and his dedicated team. some of the poorest inhabitants of Rio. The surplus funds of the Congress were used to WPC Youth set up the WPC Educational Fund in Brazil, Attracting young people to the oil and gas which was further increased in 2005 with tax industry, keeping them involved and engaging initiatives added by the government. them directly in WPC activities is a key strate- The 18th World Petroleum Congress also gic issue for the WPC. In response, WPC initi- chose a sustainability focus for the first ated a number of activities to engage youth in WPC held in Africa. Besides providing skills the industry and enhance their involvement in development and practical training for un- setting WPC’s agenda for the future. employed youths in its unique Volunteers The process began with the 1st Youth programme, the South African National Forum in Beijing in 2004 where the WPC Committee set up the 18th WPC Educational invited young people to address the future Legacy Trust to provide financial assistance challenges for the petroleum industry. Held to young South Africans wishing to pursue a under the theme “Youth and Innovation – qualification in petroleum studies. the Future of the Petroleum Industry” the In 2008 the Spanish organisers of the 19th Forum was an overwhelming success and Congress in Madrid were the first to achieve won widespread acclaim from its partici- a carbon neutral event by addressing the car- pants. The authors of the best papers were bon footprint of each delegate attending the invited to the 18th World Petroleum Congress event and neutralising its impact for the com- in Johannesburg the following year.

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To continue the dialogue and to enhance WPC Youth Committee Vision the involvement of young people in its agenda, Youth engaged in the petroleum industry to the WPC established a Youth Committee in design a sustainable future. 2006. The 17 young people under 35 from Mission WPC member countries act as ambassadors • Create and nurture a collaborative, global for the next generation, provide a young peo- forum for young people to be heard ple’s perspective for the Council’s work and • Champion new ideas within the petro- help put in place strategies to engage youth leum industry around the world in the petroleum industry. • Promote a realistic image of the pe- Their mission is to promote a realistic im- troleum industry, its challenges and age of the petroleum industry amongst the opportunities youth together with its challenges and oppor- Bridge the generation gap through men- • tunities and initiate the creation of a collabo- torship networks rative and global forum for young people to be heard and new ideas to be championed. Member Countries The Committee’s first task was to create a Algeria, Angola, Argentina, Australia, Austria, Azerbaijan, Belgium, Brazil, Young people are the ones who Canada, China, Colombia, Croatia, Cuba, will inherit this industry and should Czech Republic, Denmark, Egypt, Finland, be involved in crafting its future” France, Gabon, Germany, Hungary, India, — Dr. Randall Gossen, President Indonesia, Iran, Israel, Japan, Kazakhstan, World Petroleum Council Kenya, Korea, Kuwait, Libya, Macedonia, Mexico, Morocco, Mozambique, Netherlands, Nigeria, Norway, Pakistan, series of activities for the Youth Programme Peru, Poland, Qatar, Romania, Russia, of the 19th World Petroleum Congress. Saudi Arabia, Serbia, Sierra Leone, Slovak The new Youth Committee was elected Republic, Slovenia, South Africa, Spain, during the 2008 Council meeting and play Suriname, Sweden, Thailand, Turkey, th United Kingdom, Uruguay United States of a major role in planning for the 20 World America, Venezuela, and Vietnam. Petroleum Congress taking place in Qatar New Members from 2010 in 2011. They also play a key role in the or- nd Bahrain, Jamaica and Trinidad & Tobago ganisation of the 2 WPC Youth Forum un- der the theme of “Energise Your Future”, in For further information and to find out about Paris, France, November 18-20, 2009. membership with the WPC, please contact Members of the WPC Youth Committee the WPC Secretariat at: contributed to the programme development WPC Secretariat and the concept of an online youth network Director General Dr. Pierce Riemer “Energise My Network”, which will provide Director Communications Ms. Ulrike von an ongoing networking opportunity for young Lonski people interested in the petroleum industry. Fourth Floor, Suite 1 The members of the Youth Committee 1, Duchess Street continue working with each other and the London W1W 6AN United Kingdom Council’s bodies to engage with students and young professionals to design a sus- Tel: +44 20 7637 4995 tainable future and promote their message Fax: +44 20 7637 4965 [email protected] that the energy sector is a challenging and exciting industry to work for. V

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127 – www.energy-future.com Industry facts

Energy security One of the goals of energy policy-makers in economies that rely on large amounts of imported energy is ensuring they have energy security. That means that they want to have access to flows of energy that aren’t likely to be interrupted and to have contingency plans at the ready if something does go wrong. That’s not that easy: around 70% of the world’s conventional proved oil reserves are located in seven countries — Saudi Arabia, Iran, Iraq, Kuwait, the United Arab Emirates, Venezuela and Russia. And half of the world’s conventional natural gas is in just three nations — Russia, Iran and Qatar.

World conventional oil reserves

Billion barrels 800 2008 total: 1,257.98 700 Iran

600 Iraq

500 Kuwait 400

300 Saudi Arabia 200 Russia 100 Venezuela UAE 0 North America S/C America Europe/Eurasia Middle East Africa Asia-Pacific

Source — BP Statistical Review of World Energy

World conventional natural gas reserves

Trillion cubic metres 80 2008 total: 185.02 70 Iran 60 50 40 Russia Qatar 30 20 10 0 North America S/C America Europe/Eurasia Middle East Africa Asia-Pacific

Source — BP Statistical Review of World Energy

128 – www.world-petroleum.org People

Integrity

People Creativity Ingenuity People Ingenuity

Creativity Commitment Creativity Ingenuity Creativity Ingenuity Commitment

Commitment People

Integrity

Commitment

cggveritas.com/careers mmon interests Imagine if confronting climate change and solving energy needs were inseparable

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