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Andrew Vaughan, Shell vice-president for Abu Dhabi and Kuwait and country chairman for Shell Abu Dhabi, discusses the oil and gas multinational’s plans to develop its business in the Middle East

Shell ADIPEC 2015 Abu DhabiAndrew Vaughan, Shell vice-president for Abu Dhabi and Kuwait and country chairman for Shell Abu Dhabi.

Oil Review Middle East: What is your view on the prospects for Shell in the region, and here in the UAE in particular? 

Andrew Vaughan: Shell has a strong project and business portfolio in the Middle East and North Africa (MENA), stretching back more than 100 years in some countries, and we continue to use our technology leadership to build an even stronger one for the future.

We have been present in Abu Dhabi since the late 1930s. Shell had a 9.5 per cent shareholding in the Abu Dhabi Company for Onshore Oil Operation (ADCO) for seven decades, and has a 15 per cent shareholding in Abu Dhabi Gas Industries Limited (GASCO). In 2013, Shell was selected as a 40 per cent shareholder in a challenging sour gas project – Bab Gas Development – in partnership with ADNOC.

In Dubai, the world’s largest non-disconnectable internal turret was constructed at Dubai Dry Docks as part of the Prelude Floating Liquefied Natural Gas (FLNG) project. We also have a vibrant downstream aviation and lubricants business in Dubai, and supply Liquefied Natural Gas (LNG) to meet Dubai’s rising energy needs.

ORME: What are the challenges in developing and sustaining a proactive or generative HSSE culture in the MENA region and how is Shell meeting those challenges?

AV: At Shell, keeping people safe is our top priority. We aim to have zero fatalities and no incidents that harm people. We aim to make sure our operations are safe and reduce our impact on the environment and our neighbours.

Each country in the region has its own set of challenges when it comes to health, safety, security and environment (HSSE) and at Shell we do our best to provide solutions to many of those challenges specifically in our host countries and around the areas in which we operate.

For example, Shell has been involved in the UAE since 2013 in the Bab Gas Development project working with our partner, the Abu Dhabi National Oil Company (ADNOC). A specific HSSE Safety Culture programme, starting with senior leadership, is planned to embed the required HSSE culture, in particular given the high H2S driven risk profile and need for strict compliance behaviour by all staff as well as the Front End HSSE in Design focus.

The Majnoon oil field in Iraq is another example where HSSE plays a huge role in our operations and the communities surrounding them. Majnoon is built on what used to be a battlefield and as a result we have already cleared more than 16,000 explosive remnants of war, and our work continues. A remarkably brave team is clearing this lethal debris, allowing Majnoon to return to significant production.

ORME: To what extent is the oil price drop impacting or likely to impact Shell’s operations in the Middle East?

AV: We have to get used to a future that might be more uncertain than before and where different trends (e.g. OPEC strategy, non-OPEC resilience, cost deflation, economic and oil demand growth) can play out in different ways. 

OPEC has been a swing producer for decades, they are not doing that today and they are looking for market share, not simply price. The upstream industry should spend US$500bn per annum in the period 2015-2020 to match demand and cuts in investment amplify upside price risks.

Demand for oil, even demand growth, is expected. This year, oil demand growth is proving strong, triggered by low oil prices. 

Shell is planning for low oil prices in the next several years. We do not give an oil price outlook – this is commercially sensitive. 

Our 2015 capital investment is expected to be around US$30bn which is a 20 per cent reduction from 2014 levels. This reflects a measured pragmatic response to managing the financial framework in lower oil prices and cost opportunities in the supply chain.

ORME: Shell is setting up a new integrated gas division – to what extent are you focusing on gas and gas processing in the Middle East?

AV: Across the MENA region, it is recognised that economic growth is essential to delivering the millions of new jobs which are central to maintaining social stability. 

One of the fundamentals to achieving this economic growth is a reliable energy supply, at the lowest possible cost. The energy mix will vary from country to country and many sources of energy will play a part, from hydro-carbons through to renewables such as solar. But gas can play a central role in every country. The benefits of gas in the region are clear: large reserves of both developed and undeveloped gas: gas-fired power stations take less time to build and they are cheaper, gas is also by far the cleanest fossil fuel, and capturing gas rather than flaring significantly reduces waste.

The easy, low cost gas has already been developed. There remain huge reserves of gas that are as yet untapped. This gas is more difficult to access. And at Shell, in addition to playing a role in investment we have the proven technology and the expertise to reduce the cost of unlocking difficult gas. We have a track record of delivering the complex, integrated projects that are necessary to unlock sour, tight and shale gas and develop gas in ultra-deep water. 

Also, a faster solution to addressing the energy gap for countries with or without indigenous supplies of gas is LNG. Floating LNG re-gasification facilities can be developed within as little as two years. LNG is competitively priced compared to alternatives such as diesel, it offers the greatest flexibility, it enables long-term energy diversification and it is available from multiple sources, inside and outside the region.

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