Introduction: The pervasive power of new information and communications technologies is enabling change in almost every area of human activity. Energy industries are no exception.
They face important challenges. Energy needs are expanding and shifting, as supplies become more diverse and competitive.
They must contribute to environmental solutions, and meet changing societal expectations. Like all enterprises they must learn to do business in a connected world.
Shell companies are active in many areas of e-Commerce, including procurement, trading and serving business and individual customers.
They see huge scope from digitizing business processes, across and beyond the organization.
But being connected is also about building networks, sharing learning, developing relationships, and enabling complex undertakings.
Shell aspires to be a partner of choice in Saudi Arabia – investing in the Kingdom’s development and contributing capabilities gained from worldwide experience.
Much has changed over my working life - in our world, in business, in energy industries, and in Arabia which I was fortunate enough to first come to over 30 years ago and many times since.
Change is nothing new. The world is constantly evolving. Were the changes in the last part of the 20th century really more fundamental than those a century previously? Perhaps not, although they have affected many more people.
But change seems to be accelerating. There are many reasons why, including the increasing effort devoted to scientific and technological advance.
Particularly powerful is the pervasive potential of new information and communications technologies (ICT) to enable change in almost every area of human activity.
The impact of these technologies on business - the theme of this session - will be profound. GE's Jack Welch has spoken of `destroyyourbusiness.com'.
But - as always in the constant renewal that is capitalism - one person's threat is another's opportunity. Energy industries are no exception.
Let me start with those industries - in which the Kingdom plays such an important role - and the vital challenges they face. I will describe these changes and challenges and then address the impact of ICT and e-Commerce on our industry.
Meeting energy challenges:
Global energy needs have expanded and shifted over the past 30 year, with rising population and increasing wealth. Energy demand has increased by three-quarters.
This is only slightly more than the rise in population, but much less than the nearly threefold growth in real economic output.
This trend of falling energy intensity is very important for the future, but differs in mature and developing economies.
While real per capita income climbed by 2 percent a year in the US and Canada, per capita energy demand rose by just 0.2 percent annually. Even faster income growth in the huge developing economies of Asia was outpaced by surging energy demand.
Energy consumption grows quickly in the early stages of economic development - to power new industries, provide heat and light for expanding urban populations, and fuel transportation.
It slows in mature economies - as services predominate, markets saturate, energy efficiency improves and increasing priority is given to the environment.
The developed world consumes only half the energy, down from two-thirds in 1970. The developing world's share has risen to a third.
Looking forward, the energy needs of mature markets could soon peak, while developing consumption accelerates. Demand overall should continue growing steadily.
Meeting such huge changes is a challenge, as well as an opportunity. It goes with increasing diversity and competition in energy supplies.
Oil remains dominant, still secure as the most efficient transportation fuel. Coal faces competition from gas, while nuclear has emerged to meet 6 percent of energy needs.
We think gas will become increasingly important - because of its convenience, efficiency, cleanliness and lower carbon intensity. Gas consumption could more than double in 20 years. Demand for oil - together with liquids from gas and heavy oil - should remain buoyant.
Coal and nuclear face environmental and economic challenges, although cleaner and more efficient ways of using coal are being developed. We plan to apply Shell coal gasification technology in China.
We are also investing to build commercial renewable energy businesses, focusing on solar and wind. Gaining mass markets will be a challenge and renewable are only likely to come into their own after 2020. A third shift has been in the structure of energy industries.
The most fundamental change was in the 1970s when oil-producing countries took control of the development of their own resources. More recently there has been a spate of mergers among private energy majors.
New oil producing areas have emerged and major gas supply industries have been developed - based on expanding pipeline infrastructures in the United States and Europe, and liquefied natural gas in Asia.
Energy markets are being transformed by privatization and liberalization - the full impact of which has still to be seen.
These developments have taken place in the context of an oil price roller coaster - challenging companies and governments.
Major exporters still retain a decisive influence on oil markets. This enabled them to raise prices from low levels two years ago. But in such dynamic markets it remains very difficult to manage prices. There is continuing potential for volatility.
Despite uncertainty, energy industries have met changing energy needs, supporting economic development. Extending the use of gas has continued to decarbonise energy.
And we have done much - although not yet enough - to improve environmental standards.
We face even greater challenges.
Foremost will be meeting the needs of emerging economies, supporting sustainable development. This will require huge investment - in infrastructure and in recovering the necessary resources.
At the same time we have to manage the commercial implications of slowing demand in mature markets, while continuing to improve standards and offer new choices.
The potential of e-Commerce for reducing costs and strengthening customer relations is vital.
And we have to help solve the paramount environmental challenge of the impact of expanding energy use. Energy systems must continue evolving.
I stress evolving. Such vast and complex systems - on which people depend - cannot be abruptly shifted. The conditions need to encourage efforts to:
reduce the impact of delivering energy,
extend the use of gas,
develop new ways of fuelling vehicles and generating power,
make renewables commercial, and
deal with carbon dioxide.
There is already a ferment of activity. Shell companies are involved in all those areas. There is huge potential for change - including the possibility that e-Commerce will transform patterns of travel and transport.
High efficiency vehicles are already entering the market. My wife has just bought a Toyota Prius, a highly efficient gasoline-electric hybrid - made possible in part by advances in computer controlled power management systems.
More expensive than a small mass family saloon, but cheaper than an up market model.
As they develop and gain market share - remembering that cars last for about 12 years - average fuel efficiency will improve, perhaps doubling by 2020 in OECD countries.
But demand for liquid fuels will continue growing as transportation expands elsewhere.
All businesses face the challenge of learning to operate in a world which expects enterprises to make more than just a commercial contribution, and demands the transparency to see they do.
Finally, there is the challenge of learning to do business in a connected world. This is not just about using the internet as another tool - but of a fundamental change in the way business operates. It is about building networks, sharing learning, developing relationships, enabling complex undertakings.
Building on firm foundations:
The 1970s restructuring tested the whole industry.
The development of Saudi Aramco as the national energy company - responsible for a quarter of the world's oil reserves and 12 percent of supplies, as well as extensive natural gas, refining, distribution and marketing operations - has been a striking achievement.
The company continues advancing - finding and developing new reserves, extending its infrastructure and expanding its international presence.
We are proud to be a partner - both in the Jubail refinery, and in refining and marketing in the United States.
The Kingdom has, of course, always played a pivotal and prudent role in OPEC - as the largest producer, with essential spare capacity.
Similar sound judgment has been evident in the country's economic and social development. A measure of this progress is the fivefold increase in energy consumption, including increasing use of gas - for power, desalination and feedstock.
Foreign investment has contributed. As well as the refinery at Jubail, we are proud to be partners - with SABIC - in a major petrochemical plant. We also have long-standing marketing interests. Shell companies have been involved in investing some $7 billion.
The Custodian of the Two Holy Mosques, King Fahd, and His Royal Highness Crown Prince Abdullah have re-emphasized the importance of attracting foreign investment. A new regulatory framework has been established and a General Investment Authority created.
Another far-sighted initiative has been the invitation to major international energy companies to take part in harnessing the Kingdom's gas resources to support development. I recently had the pleasure of signing a Letter of Intent expressing our keen interest in doing so.
A vital aspect of this drive holds important lessons for us as we consider the process of globalization and the impact of new communications.
That is the Kingdom's absolute determination to maintain its religious beliefs and cultural traditions as the stable foundation on which development can be built.
We should heed this example. People everywhere cherish their heritage and will not allow it to be swept away.
Companies will succeed in a global economy by appreciating, valuing and harnessing cultural diversity.
A capacity to respond:
International energy companies have also been able to respond to the upheavals in their industry. But the choice in competitive markets is always harsh - adjust to changing conditions or go under. This relentless pressure engenders a powerful responsiveness.
There have been three main thrusts:
continuously improving our technology and our ability to apply it - including through ICT - to access new resources and cut costs,
responding to changing needs, such as for clean gas and the challenge of e-Commerce, and
forging new relationships with producing countries.
Let me focus on the last first.
This relationship depends on delivering added value - which requires something special when you are dealing with operations as sophisticated as those I described for Saudi Aramco. It is about capturing, integrating and sharing the experience of diverse and worldwide operations.
This doesn't happen by chance. In Shell, we have systematic programmes for learning from experience and from each other - which have helped us drive our finding, development and production costs below those of our industry peers.
And we are utilizing the internet to make the knowledge gained everywhere available to us all anywhere.
For example, harnessing our worldwide drilling experience through a programme called Drilling the LimitTM has enabled us to save some $700 million over the past couple of years.
In Oman, it doubled production from horizontal wells in the Lekhwair field. In Abu Dhabi, it enabled ADCO to reduce the time taken to drill a horizontal well in the Bab field by 40 percent. IT contributes in many others ways.
For example, using down hole sensors and controls to make wells smarter - with real-time measurement of reservoir conditions, automated control, and down hole separation of oil and water - allows us to manage fields much more effectively, and with less environmental impact.
We are developing these very important technologies in a joint venture with Halliburton, a major service company.
We expect to gain considerable extra value from applying them, and have already identified $200 million worth in projects over the next two years.
Mark Moody-Stuart, Chairman of the Committee of Managing Directors (CMD) of the Royal Dutch/Shell Group of Companies and Chairman of The "Shell" Transport and Trading Company, plc. at the Jeddah Economic Forum, Kingdom of Saudi Arabia
Source:Shell.com
© 2001 Mena Report (www.menareport.com)
