Some crude facts about technology

The main issue is not therefore the management of the chain but whether in doing so the companies are maximising the value at each stage of transaction. Are they, for instance, recovering as much of the hydrocarbons in a reservoir as is technologically possible? Have they in place the appropriate technical tools and processes to make the correct decisions? Have they the right performance metrics against which to judge their efficiency? These are some of the questions that they wrestle with (or at least should wrestle with) perennially. They know that given the scale of their business even a fraction of a percentage point improvement in operational efficiency can translate into billions of additional value for the business. They know that to secure this improvement they must keep abreast of technology and ensure its timely implementation.

The Directorate General of Hydrocarbons (DGH) has acknowledged that the recovery rate of hydrocarbons discovered by our oil companies is on average around 28 per cent. This means that for every 100 barrels of discovered oil reserves in a reservoir, we succeed in bringing only 28 barrels to the market. The DGH, and our companies too, know that the average recovery rates of fields of comparable geology worldwide are significantly higher — some even in excess of 50 per cent. The reasons for the difference between the two averages can be several. But other than those that have to do with the characteristics of individual fields it is generally related to the nature and delivery of technology. Today, for instance, several companies utilise ‘smart tools’ for managing the production process in a reservoir. These tools separate the water from the oil so that the water never reaches the surface. They also help manage the production process in real time and remotely. The companies that have deployed these tools successfully have seen an improvement in the recovery rate of their fields by as much as 8 per cent. Were we in India to successfully raise our recovery rates from the current average to international levels through the deployment of such technologies we could raise our domestic production significantly.

Technology also offers huge scope for added value creation in the downstream refining and marketing segment. The differentials in the price of the relatively less expensive heavy sour crude and the more costly lighter sweet crude has widened appreciably in recent years, for instance. Refiners can now derive huge economic benefits by selecting the right slate of crudes for processing through their kit (assuming they have the kit for running a flexible slate in the first place). The process of selection is not, however, simple. One, the price of crude is volatile; two, the supplies of different crude types are uneven and three, there are many options. The technical tools exist to facilitate the decision but these are useful only in an environment that allows for entrepreneurialism and accepts risk taking. They are of no benefit in situations where crude contracts have to be tendered and bureaucratically vetted. If, however, the right decisions are made the gains can be enormous. The potential can be gauged from the fact that the refining industry has a total annual value of over $2 trillion. A marginal improvement in efficiency could conceivably translate into billions of added value. It might be interesting to note that in 2005, Shell processed 219 different types of crudes; of these 92 were new to its individual refineries and 18 to Shell worldwide.

IIT alumni congregated recently in Mumbai to deliberate on how they could harness their material and intellectual resources for the well being of the country. Judging from the commentary in the papers, I believe there was no session on energy and technology. If that was indeed the case, it is a pity. A gathering of arguably some of the finest technical brains would have been an appropriate setting to shine the light on the technological robustness of our hydrocarbon industry.

There is a clear policy blueprint for energy. But there is also a clear disjunct between intent and reality. The gap between demand and supply is not reducing; the quality of energy services is poor and truncated; and the nexus between economic growth, energy demand and environmental degradation is still too strong. We need a ‘technology initiative’ akin to the technology missions of Rajiv Gandhi which catalysed our telecommunications revolution. Such an initiative should involve people like those that gathered in Mumbai. It should be a public-private partnership with three broad objectives: to ensure our industry keeps abreast of ‘state of art’ technology; to help develop feasible procedures for the timely delivery and implementation of such technologies; and to facilitate intense R&D efforts on ‘greening’ our current energy basket and on developing competitive renewable alternatives to fossil fuels.

The writer is chairman, Shell Group in India. The views are personal

Vikram.Mehta@shell.com