Technology in the Oil Industry: What's Now and What's Next?

Verity Craig, Managing Director, CV Management, and Director, The Empire Club of Canada; Kitty Ma, Grade 12 Student, Riverdale Collegiate Institute; Reverend Chris King, Incumbent, Little Trinity Anglican Church; John C. Koopman, Vice-President, Spencer Stuart, and Past President, The Empire Club of Canada; David Linds, Senior Vice-President, Business Development and Client Relationship Management, CIBC Melon Trust; The Hon. Jake Epp, Chairman, Ontario Power Generation; Lisa A. Baiton, Vice-President, Government Relations, Environics Communications Inc., and Director, The Empire Club of Canada; Dr. David Wheeler, Director, York Institute for Research and Innovation in Sustainability (IRIS), Erivan K. Haub Professor of Business and Sustainability, Schulich School of Business, York University; Caroline Di Cocco, MPP, Parliamentary Assistant to the Premier, Government of Ontario; and Daniel Barclay, Managing Director, BMO Nesbitt Burns.

Introduction by William Whittaker

The late Anthony Sampson in his 1975 book "The Seven Sisters--The Great Oil Companies and the World They Made" details the evolution of the big oil companies from the time of John D. Rockefeller and the Standard Oil Company. Mr. Sampson writes about the impact on these companies of the nationalization of their sources of supply in the Middle East and elsewhere and of the founding of OPEC. It is a compelling read even today.

Mr. Rockefeller and Standard Oil have not only become part of business folklore but also of investigative journalism folklore. Ida Tarbell's "The History of the Standard Oil Company" published in serial form in McLures Magazine between 1902 and 1904 was ranked by the New York Times as one of the top journalistic works of the twentieth century. Ms. Tarbell had this to say about Mr. Rockfeller:

"Who then is this John D. Rockefeller? Whence did he come? By what qualities did he grow to such power? Has he proved his right to power? Does he give the public from whence he has drawn his wealth a just return in ideas, in patriotism, in devotion to social betterment, in generous living, in inspiring personal character?"

These are questions asked of the big oil companies today. The Seven Sisters are now thanks to mergers four--Exxon Mobil, Chevron, British Petroleum and Royal Dutch Shell, Shell Canada's parent company. In large part, public opinion in the West is that big oil maintains its trust with the public and that shareholder-owned companies and the market economy are still the best mechanisms to allocate scarce oil resources.

However, not many consumers understand the dynamics of retail gas pricing! My personal experience in Toronto is that the lowest gas prices are late Wednesday evening after one has filled up following the previous weekend's activities and before one remembers to fill up for the coming weekend!

Shell Canada Limited, which has a public shareholding of 22 per cent, is one of the largest integrated petroleum companies in Canada, producing natural gas, natural gas liquids and bitumen. It is Canada's largest producer of sulphur and is a leading manufacturer, distributor and marketer of refined petroleum products.

Shell Canada is also a significant investor in the Alberta Oil Sands. It has over six million barrels of recoverable bitumen in its Arthabaska leases, which could ultimately support over 500,000 barrels of oil per day of production and Shell Canada recently announced plans to achieve this goal. The international community is finally recognizing the potential of the Alberta Oil Sands, which were discovered by Samuel Hearne in 1771.

Mr. Mather will address us today on technology in the Canadian oil industry from Shell Canada's perspective. I am advised he will not be commenting on Shell Canada's retail gas pricing strategies!

Clive Mather was appointed President and CEO of Shell Canada Limited in August, 2004. His 36-year career with Shell has spanned all its major businesses, including assignments in Brunei, Gabon, South Africa, the Netherlands and the United Kingdom. Mr. Mather's last position was Chairman of Shell U.K. Limited and he has previously held senior management positions with Group responsibility for Information Technology, Leadership Development, Contract and Procurement, e Business and International Affairs.

Mr. Mather is currently a director of Placer Dome Inc. and the C.D. Howe Institute. He is Chair of the U.K. Government/Industry Corporate Social Responsibility Academy and of the IMD Business Advisory Council in Switzerland. He is also a Companion of the Chartered Management Institute and a Fellow of the Chartered Institute of Personal Development and of the Royal Society of Arts.

Please join me in welcoming Clive Mather, President and Chief Executive Officer of Shell Canada Limited.

Clive Mather

In spite of ugly rumours to the contrary, I was not around in 1919 when an ox named Nig set out for the Northwest Territories with six drillers and a geologist. Over six weeks, they travelled 1,900 kilometres by rail, riverboat and on foot to reach what is now known as Norman Wells along the Mackenzie River. Nig helped the crew build a log house and install the drilling rig, only to be slaughtered for meat and clothing during the long, cold winter. I would call that optimal resource utilization and recycling that was way ahead of its time.

In 1994, author and futurist Alvin Toffler, who wrote "The Third Wave" and "Future Shock," called technology "the great growling engine of change," which sounds rather menacing. While some people believe we have unleashed a dangerous force on society, I think most of us would agree with his statement that, "Technology feeds on itself. Technology makes more technology possible." And my hope today is not that anyone leaves here with a deeper technical understanding of why this is so. Rather, I would like everyone to leave with a sense of what technology in the oil industry has done, is doing and will do in our lifetime. And if you feel just a little more enthused, even inspired by some of the remarkable developments, then I will be more than satisfied.

So let's start at the beginning. One of the greatest technological advancements in history was the development of the wheel in Mesopotamia about 5,500 years ago. So what's new about that? Well, it has never stopped evolving and, in the development of the Alberta oil sands mining, we use the largest trucks in the world to remove huge quantities of ore quickly and efficiently. Each truck is as high as a two-storey house and weighs 900 tons when full. They sit on tyres that are 12 feet in diameter and weigh about 15 tons each. Some wheels! The tires alone cost $40,000 each and last just a year or so before they are recycled as cattle feeders and playground features, as well as perimeter "fences" at our sites.

And where would the oil and gas industry--or any other industry, for that matter--be without the computer? The computer has a long history, starting from the abacus dating from around 750 BC. In 1989, Tim Berners-Lee is credited with inventing the World Wide Web and the rest, as they say, is history. The Web practically runs our lives with millions and millions of users and uses. Today, Shell's laptops and desktops are part of a global network of more than 120,000 devices that all connect in one integrated design--same laptops, same programs, same security, same mobile connections in every part of the world.

So, here is the first key point: even the oldest known technologies keep evolving to where they are almost unrecognizable from their origin. So what propels this change? What drives technology in the oil and gas business? Well, certainly the physical challenges of nature--oil and gas are often found in wild and difficult places--but also safety, competition, cost, the consumer and the environment. Let me give a few examples.

Every motorist likes to drive his car as reliably, efficiently and cheaply as he can. And the racetracks of Formula 1 provide the ideal test bed for the most extreme driving conditions. And it's here with Ferrari that we developed Shell V-Powerª, our latest premium gasoline for Canadian motorists. It's quite a fuel and is helping drivers improve their performance all around the world.

Mind you, even the mighty V-Powerª is no match for special fuels under competition conditions. Shell's annual Eco-Marathon has already achieved a world record of over 3,000 kilometres per litre (10,000 miles per gallon). To be fair, these are very small cars, with tiny engines driven by very small people--usually school kids--but they show what can be done. It's a little better than the average 5.3 to 7.1 kilometres per litre (15 to 20 mpg) in today's family vehicle and I am sure is an indicator of what can and needs to be done to improve mileage efficiency and reduce greenhouse gas emissions.

Let us turn from small drivers to big rigs. Only two weeks ago, I was at our Peace River heavy oil operation in Western Alberta, watching a drilling rig move itself from one well site to another. This is a remarkable piece of equipment that weighs 1,400 tons and is able to lift itself up on six "legs" and, metre by metre, "walks" across prepared ground to a new location. It's fascinating to watch. Equally impressive is this rig's ability to drill one group (pad) of 16 wells so efficiently it takes many months less than a conventional drilling rig with savings of millions of dollars per pad.

I can think of many areas where research has reduced the environmental footprint of our operations, particularly in terms of energy consumption and emissions. A very recent one has only just been developed at CANMET's Western research centre in Devon, near Edmonton, Alberta, which relates to the treatment of bitumen. At the Athabasca Oil Sands Project, where bitumen is surface-mined, the ore is broken up and mixed with warm water to form a slurry. In what you might call a giant washing machine, agitation and heat begin to separate the bitumen from the sand. This conditioned ore enters a separation vessel where bitumen froth floats to the surface. The froth is treated with a reusable solvent that separates out most of the remaining water and clay, and partially upgrades the bitumen. Shell Canada was the first and remains the only company to have commercialized this novel froth treatment process. Now, we have gone one better. With the development of high temperature froth treatment, the separation is faster and more energy efficient. It all sounds rather technical, but the point is that the new system greatly reduces greenhouse gas emissions and leaves a smaller environmental footprint.

Shell Canada's 2004 Tay River discovery in Alberta is another example of leading-edge technology at work. It took state-of-the-art seismic interpretation to identify reservoirs under heavy rock layers that we could never have spotted with earlier techniques. Then we used modern drilling techniques, which allow us to minimize the environmental impact. Directional or horizontal wells start by heading straight down, like traditional vertical wells. Then they turn and extend horizontally into the reservoir, which reduces the number of wells we have to drill. At Tay River, which is the largest natural gas find in Western Canada since 2000, the horizontal extension was 1.5 kilometres--almost 15 football fields laid end to end.

Another example of a pioneering technology is located in Ontario. Shell has a significant stake in the Canadian company Iogen Energy, which is producing ethanol from agricultural residues such as corn straw. The first pilot plant is already in production in Ottawa and a commercial scale facility is now being planned. The waste straw itself produces no net carbon and the overall carbon lifecycle emissions are reduced by 90 per cent, giving a healthy boost to the environment.

Beyond ethanol and other bio-fuels, hydrogen may yet emerge as a promising alternative to fuels based on hydrocarbons. Shell is investing in the development of fuel cell technology, not least here in Canada. There are already liquid hydrogen-fueling stations in Iceland, Japan and in Washington D.C., with more to follow. I do not want to suggest that we will all be driving with hydrogen fuel cells any day soon, but it is an important technology to follow.

I hope you see from this how Shell and, in particular, Shell Canada Limited demonstrate their technological prowess and indeed always have done during the course of our history. Now 94 years old, Shell Canada is a major integrated company with oil and gas plants, a fully integrated oil sands operation, three refineries and a Canada-wide network of retail sites. We are profitable, growing and at the leading edge of technology, and I believe those three things are closely linked. Shell Canada was the first company in Canada to recover sulphur from natural gas; the first to build an offshore semi-submersible drilling rig in Canada; and, closer to the consumer, the first to introduce tunnel car washes, make and sell unleaded gasoline in Canada, and launch "easyPAYª" so motorists can pay electronically at the pump. In all this, our association and close collaboration with Royal Dutch Shell plc has been invaluable. Research and development is a costly and complex challenge, so our major research centre in Calgary benefits hugely from being linked into colleagues at other Shell research facilities around the world.

All of this is new and exciting. But let me put it into a broader context. If I think back over my career of 36 years in the oil business, what have been the three most spectacular technological advances? I hasten to add this is a very personal view.

My first would be that today there are almost no known limits to exploration. Around 1860, Canadian oilmen in the Petrolia area of Ontario started to use the "pole and tool" method of drilling, where metal bits hanging from black ash poles were raised and lowered, punching through the rock. Canada exported this technology all over the world. It was effective under certain limited conditions, but by today's standards very primitive. Now we are able to drill in water depths of 2,000 metres and more, using complex well designs in some of the biggest seas and challenging Arctic winters. The deepest borehole drilled for scientific purposes measures over 12,000 metres and penetrates more than eight miles into the earth's crust in the northwestern part of the Baltic Shield. For practical purposes, a modern vertical drilling pipe can go 10 kilometres down and a horizontal pipe can deviate to distances of 10 kilometres from the rig. It is simply amazing technology that combines physics, astronomy, telemetry, meteorology, metallurgy, engineering, economics and human endurance. It has allowed us to open up the seas off Newfoundland and the frozen North.

My second choice would be modern conversion processes in our refineries and chemical plants. In 1846, Abraham Gesner of Nova Scotia developed a process to produce kerosene from coal. The process was revolutionary at the time, but today we can produce almost anything from anything. We can produce the most modern transport fuels from the treacly oil sands around Fort McMurray; gas from the heavy residue that is left behind; and even diesel fuel from gas. Shell has developed a Gas to Liquids (GTL) business that produces an ultra clean, colourless synthetic diesel from natural gas, which delivers ultra-low vehicle emissions without sacrificing performance. All conversion processes are costly, but the refiner's art with catalytic chemistry, high temperature, pressure and some extraordinary science can now deliver quite remarkable results.

And finally, I would point to the application of intelligent systems to almost every part of our business. Come to a modern manufacturing facility like Shell's Scotford Complex and you will find state-of-the-art control rooms where thousands of delicate and difficult processes are managed--safely, continuously and automatically. They optimise the cost, quality and quantity of production on technicolour display screens, which baffle me but fortunately not our technicians who watch over them. Come to our Athabasca oil sands and see the biggest earth-moving equipment in the world, full of sensing equipment linked to GPS, which enables us to not only optimise thousands of safe truck movements every day, but also to monitor the wear and tear on expensive machinery. Come to the Na Kika project in the Gulf of Mexico with a semi-submersible production facility in over 1,900 metres of water and see how we can manage oil and gas wells on the sea bed, with intelligent control equipment that avoids the need for expensive production platforms and personnel to be stationed on them. It is easy to take all this for granted, but the impact in terms of safety, cost and reliability is simply astonishing.

So what's next? What is coming up perhaps in the next 36 years or even less?

Let me start in Alberta with the now world-famous oil sands. Yes, the resources are enormous--estimates of 1.6 trillion barrels of bitumen. But, today, only a small fraction of this (about 300 billion barrels) are deemed recoverable using our present mining and in situ technologies. This leaves a breathtaking opportunity for future technology development, something Shell Canada has been actively pursuing for many years. Back in the 1920s, Dr. Karl Clark of the Alberta Research Council developed a hot water process to produce synthetic oil from surface-mined bitumen that is still more or less in use today. Of course, recovery techniques have become more sophisticated with the introduction of steam-assisted gravity drainage, soak radial wells and horizontal cyclic steam. Nevertheless, we are going to need some remarkable new technologies to extract the full riches of the Alberta oil sands, and I am confident they will be developed over time. Such is the world's need for energy and such is the scale of the resource, that there will be sufficient economic incentive to find new extraction methods that will release the bitumen to flow to the surface.

Secondly, what about exploration drilling? Right now, for example, Shell Canada is developing opportunities to produce basin-centred gas, or deep-basin gas. Using multi-disciplinary teams of geophysicists, geologists, reservoir engineers and production engineers, we are able to feed various types of data into a computer model that allows us to predict with greater accuracy large traps that have enough natural fractures to permit economical production. Yet for all our geological and geophysical knowledge today, our industry still has to drill to prove the existence of gas in commercial quantities. And you know what, our success rate is not very good. If we take all our various gas interests in the foothills of Western Canada, it is only about 25 per cent and it is lower still--just 10 per cent--in the Canadian frontiers and similar areas where we have less experience. All over the world, and not least offshore Canada, we can spend more than $100 million on drilling a hole, only to fill it with concrete. It may seem like a pipedream, but I have to believe that sophisticated satellite and terrestrial equipment will allow us to understand formations and reservoirs deep under the surface without the need to drill as often as we do today.

And finally, there is carbon dioxide (CO2) capture on a scale that will drastically reduce greenhouse gas (GHG) emissions and even begin to wind back the combined impact of the last few hundred years of modern civilization. Shell Canada is already engaged in a project to capture CO2 from our oil sands production and sequester it in aging oil fields. Not only can this use of environmental technology enhance oil recovery, but it can also help Canada meet its Kyoto commitment by significantly reducing GHGs. Now, CO2 capture and sequestration are not new. But what is new is the commercial scale of the capture at the massive upgrading plant at Scotford and the concept of a common infrastructure that will enable other companies to join the project and sequester their CO2 emissions. This is a bold and exciting project, but I believe only the first step towards a partnership between industry and government to advance recovery and sequestration in Canada.

I ended with an environmental theme, because one of our most pressing challenges is to leave a much smaller footprint as we explore for and produce Canada's resources. The development and application of new technologies is making this possible. Past technology helped us open up the industry. Present technology was largely geared toward profitability, efficiency and consumer appeal. But already it is turning towards sustainable development and reducing the environmental impact of our operations. In the future, I am sure this will be the focus of much of our technological investment.

If you sense my own interest and enthusiasm for technology as a means of sustaining our energy needs within ever-tighter environmental constraints, you would be right. But, of course, technology is only part of the solution. It needs people to invent it and people to exploit it. At the front end, we rely on multidisciplinary teams of scientists to imagine, develop and realise new technology. That, in turn, requires a steady flow of scientific and technical graduates from our universities and technical colleges. It may seem obvious, but encouraging talented young people to study these disciplines and build careers upon them is an important part of Shell Canada's Human Resources strategy. We have teams of our most senior people working with schools and colleges right across Canada to maintain the talent flow that is vital to our success today and in the future.

Technology will be a vital part of preserving our planet, but its effectiveness will always be linked to consumer acceptance. From my experience, no matter how difficult it is to achieve technological breakthroughs, changing attitudes in society is harder still! We all need to get serious about reducing our personal energy use. Industry initiatives, technical improvements and government regulations alone will not be sufficient if Canada is to achieve the goals set out in the Kyoto Accord. It will require every one of us to make changes in our behaviour--even you and me.

Oil and gas lie at the core of our modern way of life. For over 100 years, technology has remorselessly advanced to fuel economic development and it will continue to do so. The challenges and costs are formidable, but so are the imagination and ingenuity of our scientists and technologists. We need leading-edge technology to make the most of our country's natural resources for the benefit of all Canadians and to meet the challenge of environmental sustainability. However, when I reflect on what our industry has accomplished so far, I am confident that we can continue to supply Canada with clean energy--safely, reliably and sustainably.

Thank you.

The appreciation of the meeting was expressed by Lisa A. Baiton, Vice-President, Government Relations, Environics Communications Inc., and Director, The Empire Club of Canada.