Shell Oil Company and the Technology Management Issues That It Faces - Research Proposal Example

Shell Oil Company and the Technology Management Issues that it faces Copyright Royal Dutch Shell, or Shell, is amongst the pioneers of offshore deep and ultradeep exploration and production of hydrocarbons. With operations in 110 countries and territories and a vast product range that is directed towards providing for transport systems, Shell has been responsible for discovering more than 8 billion barrels of oil in the past 7 years. The company strategy subscribes to the view for having more upstream to have a better downstream. However, Shell has to rely on a vast range of technologies to sustain its production and exploration operations. As projects become more challenging, the technologies become more exotic. Thus, Shell must properly manage its technology interests if it is to remain competitive and useful. This essay presents a discussion about Shell and the technology management issues that are of importance to this company. Declaration I certify that, except where cited in the text, this work is the result of research carried out by the author of this study. _____________________________________________ Name and Signature of Author October 2008 This write - up is for a research paper on Shell Oil Company and the Technology Management Issues that it faces. Biographical Sketch Acknowledgments Contents Introduction 1 Operational Realities and Strategic Technology Management Issues for Shell 3 A Technology Strategy for Shell 8 Conclusion 10 Bibliography/ References 13 (This page intentionally left blank) Introduction The Royal Dutch Shell Group is one of the world’s leading producers of oil, gas and petrochemicals. This company is active in more than 110 countries and territories from around the world (Royal Dutch Shell, 2008, “Annual Report 2007”, pp. 12) and (Fundinguniverse.com, 2008, paragraph 1). Royal Dutch Shell, or Shell, markets more oil products around the world than any other firm that markets similar products and maintains a philosophy of “more upstream, better downstream”. Thus, the Shell Oil Company is always actively engaged in developing new energy resources around the world to try to meet global energy needs. Royal Dutch Shell has discovered more than 8 billion barrels of oil internationally in the last seven years and this company was one of the pioneers of deep and ultradeep water exploration and production (Lynch, 2008, paragraph 1). Offshore oil exploration had commenced as early as the 1930 when oil companies based in Texas made their first forays into the Gulf of Mexico (Pratt, 1997, pp. 1 – 14). However, the early offshore efforts were nearly a disaster because of the oil glut that had persisted then. The situation today is different and with oil prices predicted to reach US$ 140 per barrel, deep and ultradeep water exploration is now critical for global energy security (Lynch, 2008, paragraph 2). It is in the deepwater that oil companies can find the giant and the supergiant oil fields, despite production costs that stretch budgets and exploration is going into even deeper waters with depths of 3000 meters or more. Currently, Shell is trying to improve its competitive position by developing the Athabasca Oil Sands Project, the Sakhalin II deepwater project in Russia and the Perdido project in the Gulf of Mexico among others (Royal Dutch Shell, 2008, “Building New Heartlands”, pp. 1 – 16). All of the previously mentioned projects employ leading edge technologies and many Shell’s recent upstream projects, including the Bonga Deepwater Project and the Na Kika Project in the Gulf of Mexico have been deepwater projects in depths of around 2000 meters that present great technology challenges (Royal Dutch Shell, 2008, “Strategy”). Although global oil reserves have increased because of recent exploration activity, the reserve life index for these oil reserves is about 50 years, with the reserve life index for Asia / Oceania, Western Europe and Eastern Europe / Former Soviet Union estimated at about 20 years (Mochida, 2006, pp. 86). Typical oil and natural gas project flow consist of exploration followed by test drilling, development and production. When a field becomes unprofitably, it is abandoned. It is necessary to incur large costs and risks at each stage of the project and technology must not only make things possible, but it should also improve discovery rates, improve recovery rates and reduce exploration and development costs. Thus, strategic management of technology is important for the continued success of an oil and gas company and for ensuring global energy security. This essay presents a discussion about the strategic management of technology at Shell Oil Company. Judicious application of existing technology to oil and gas exploration and production is required and efforts to ensure that the technology of tomorrow is developed or acquired must be ongoing so that future projects are competitive. Operational Realities and Strategic Technology Management Issues for Shell The world will be in need of vast amounts of extra energy in the coming decades if improvements in standards of living can be realized (Royal Dutch Shell, 2008, “Sustainability Report”, pp. 2 – 10). However, ensuring energy security is not the only important consideration for the future. It is also important to fulfill energy requirements in economically, environmentally and socially responsible ways. It is important not to endanger the future of living species on the planet earth and this means that the environment should remain free from pollution. Arresting climate change is important so that future generations can continue to exist and this requires controlling carbon emissions. When Shell or any other oil company is drilling for oil in the deep oceans, leaks from deep ocean wells that will pollute the oceans are unacceptable. Thus, oil production and exploration must be safe and pollution free. Technology has to be judiciously applied in all areas of Shell’s operations and it is important that efforts are made to constantly redesign and upgrade technology to do things better, safer and more economically. Exploring for oil and gas in the deep oceans at depths of more than 2000 meters is a particularly hazardous and expensive business in which unique challenges are faced (Burleson, 1999, pp. 197 – 203). Divers cannot operate at depths greater than 1000 ft or about 300 meters and remote controlled unmanned submarines perform all the tasks at depths that extend to 4000 meters. Scientists are now testing unmanned deep ocean subs that can operate to depths of 11,000 meters, which is the height of Mount Everest. Unmanned subs and specialized survey equipment is used to carry out detailed surveys of areas that have been found to be promising. Sunlight does not penetrate such depths and these submarines provide information about what is going on deep below the ocean’s surface. Unmanned subs with precisely designed grippers and vision systems are necessary in deep oceans and these subs carry out all installation, maintenance and inspection work in a deep ocean field. Powerful computers control the unmanned subs and they remain tethered to the surface structures. Without the precise control in the face of random ocean currents, unmanned subs can entwine themselves around the legs of a surface structure and become lost (Broere, 2007, pp. 1 – 2). The right lease or buy decisions for the unmanned subs are crucial because they are expensive. In addition, it is often necessary to use the same unmanned sub for a number of projects. Marine drilling is far more complicated as compared to drilling for oil or gas on land (Burleson, 1999, pp. 197 – 203). It is necessary to screw together lengths of drill pipes that are about 30 ft when drilling a well in the deep ocean. Screwing together lengths of drill pipes increases the length of the drill string. Thus, the process of increasing the length of the drill string continues as drilling progresses into the depths of the ocean and under the seabed. The rotating bits that do the actual cutting are made of advanced materials that are extremely hard and can cut into almost any type of rock. A drilling fluid is pumped into the hollow drill pipe to remove what has been cut by the drill bit into the space between the outside of the drill string and the wall of the hole. Sophisticated filtering systems separate the cuttings from the mud. It is necessary to pump back the mud into the drill bit after separating the cuttings from mud. Thus, for a well that is being drilled in depths of 2000 meters of ocean, which is likely to go far deeper before oil is struck, a very long drill string is needed that requires massive power to turn. Sophisticated hoisting systems are needed for the job of lowering a massive weight of the drill string to the ocean floor and into the seabed and. In addition, stabilization systems or “heave compensators” provide protection against surface turbulence, which can cause the drill string to move several meters during the process of cutting into the seabed. A permanent structure for the well has to be constructed (Burleson, 1999, pp. 197 – 203). The permanent well structure is made by lowering a well casing into the well that has been dug and cementing this to the walls of the well. It is also important to put into place “blowout preventer” that will divert pressure if the drill bit was to strike a reservoir of oil or gas that is under high-pressure be provided. Without the blowout preventer, the whole drill string or even the surface platform could be wrecked because of high-pressure oil or gas which could even cause fires if the inflammable outpourings of the deep ocean well were to be allowed to reach the surface. After tapping into the reservoir of undersea hydrocarbons, it is necessary to put into place pumping systems, pipelines and transport systems for taking oil to refineries or export terminals (Devegowda, 2003, pp. 123 – 125). The design of the previously mentioned infrastructure requires judicious decision-making that must follow sound technology management. It is important to design subsea separation and boosting, multiphase pumping and other artificial lift options to offer benefits of cost-effectiveness. Judicious design can help boost production in the early stages of development that can help reduce costs by helping reach ultimate recovery scenarios earlier. It is possible to reduce hydrate formation and surface footprints by using subsea processing. Subsea wells and intervention technology is constantly evolving and the right choices must be made. Standardization of equipment is often preferred for easier maintenance, replacement and cost-effectiveness. Thus, in-depth economic studies for projects are necessary with cost-benefit analysis and the intervention options. Improved project performance needs better technology, which must be improved, and this means that Shell must fund research into the development of new technology. Shell constantly funds research into promising technologies by providing grants and assistance to specialized research centers that are located around the world (CSIRO, 2006, “Research Partners”). It is important to select the most promising technologies for funding and further research in the right research centers. Seismic imaging techniques for deepwater exploration with time as a variable, called 4D seismic imaging, can provide information about the movement of hydrocarbon deposits in the seabed (Royal Dutch Shell, 2008, “Shell Technology Webcasts – Shell Technology Report”). However, these techniques have to be further refined to improve reliability and effectiveness. Development of smart wells and intelligent fields can increase field performance and productivity. Hosts of improvements are possible in subsea and technologies that are useful inside the well. Advances in technologies encompass geophysics, biotechnology engineering for cleaning spills, mathematical and information engineering for modeling, chemical engineering, materials engineering, electrical and electronic engineering, general engineering and social infrastructure engineering (Mochida, 2006, pp. 90 – 93). Enhanced drilling technology, advanced technology for the evaluation of oil reservoir and technologies to better utilize energy resources are important development targets for a global energy company like Shell (Mochida, 2006, pp. 93 – 95). Shell has a responsibility for trying to develop alternative energy sources in preparation for the day when hydrocarbon reserves will become too depleted. It will then be impossible or undesirable to utilize hydrocarbons in the global energy mix. Thus, Shell managers and executives have to review research and performance reports to reconcile that, which can be supported in line with performance results and targets on an ongoing basis. Technology, like hydrocarbons is the mainstay of Shell operations and its future. However, technology can be expected to improve even when the demand for hydrocarbon is reduced because of resource depletion and successful alternative energy sources. Shell has to be able to identify the technology of tomorrow today and support the right technologies. Thus, technology management is vital for Shell. A Technology Strategy for Shell Two important requirements that Shell faces today include exploring and developing energy resources that can provide for the global needs and also trying to rapidly develop energy sources that are sustainable and environment as well as climate friendly (Edmonds, 2007, pp. 6 – 24). Thus, as much attention is needed to try to develop alternative energy as is needed to exploit hydrocarbon resources of the planet. Technology for exploiting deep ocean reserves can be made better but development of cleaner fuels, wind and solar energy systems that can reduce dependency on hydrocarbons and efforts that are directed towards trying to develop systems that can reduce the dependency of transport systems on combustion engines are important for the future. It is important to understand that humanity needs to prepare for the day when hydrocarbon fuel reserves will be too precious to be used for terrestrial transport systems and ways will have to be found to convert electricity generated from a wide array of sources to power transport systems. With the rising price of hydrocarbon fuels, that day may not be far off and a radical change in the transport systems that serve terrestrial transport can be envisaged. Although it can be argued that Shell is not responsible for developing transport systems, it should also be realized that when fuel becomes just too expensive for mass transport and burning of hydrocarbons on a massive scale cannot be tolerated, new systems would be needed. Thus, it will be necessary for firms that are today heavily dependent on the sale of petrol at the pumps to focus on the new transport systems that may be radically different from the automobile of today. It makes sense for Shell to try to assist in finding new ways to provide energy for transport systems that are essential for both urban and rural transport systems and for all essential activities. Rising fuel costs have created huge problems and new ways will have to be devised for old solutions. Thus, some contribution from Shell is desirable for finding solutions that substitute fossil fuels in transport engines. Apart from the previously mentioned radical inclusion in a technology strategy for Shell, this company can continue to identify and help create new technology that will assist with its exploration, production and refining programs. Immediate benefits are possible from technology improvements in areas that are of interest to Shell production and operation, but being an energy company with a transport focus Shell is likely to benefit from anything that can reshape energy systems for transport. Conclusion It is clear from the previous discussion that Shell uses a wide variety of technologies to deliver hydrocarbon fuels that are essential for all types of transport systems on which humanity has come to depend upon so heavily. The unquenchable thirst for hydrocarbon fuels has today forced oil firms to produce in deep oceans, but it makes sense to try to develop radically new systems, especially for transport. After all, hydrocarbon fuels are responsible for climate change and environmental degradation that cannot be sustained. Thus, radical new ideas are needed for new transport systems. However, the array of technology on which Shell depends is so vast that it is impossible for this company to assist in developing everything. Shell can continue to identify and develop the best and most promising, but it should also try to invest in the long-term future of humankind. Energy, the environment and climate are the long-term future because with the best of the previously mentioned, it will be difficult to continue to have a secure future. Multinationals must now try to look beyond the immediate future and their short-term profits. Attempts have to be made to try to develop solutions for the long term and efforts cannot remain confined to government or the public sector only. (This page intentionally left blank) Bibliography/ References 1. Albaugh, Kurt E. (2000). 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Deepwater Development: The Ultimate Frontier. Total Worldwide. Retrieved: October 27, 2008, from: http://www.total.com/static/en/medias/topic1026/deepwater-development_2007.pdf Read More