A Look at Emerging Markets
Kim Code, vice president Technical and Production, Shell Russia, and James S. Wang, business development manager, Oil & Gas China, Cabot Specialty Fluids, talk about the future and potential of emerging markets.
Do safety standards differ in your emerging market(s)? How much effort, if any, did it take to bring the safety culture up to the required standards?
JW: Because of the nature of our business, safety standards in the oil and gas industry are universal anywhere you go and always a top priority, not only for management but also for personnel involved in daily operations. The only difference I’ve observed over the years is that offshore operations are much more stringent than onshore, and Western operating companies are enforcing safety rules much more strictly than the local companies. As for the Chinese industry, the safety culture and standards have been greatly improved, particularly through international joint venture projects. In terms of operating internationally, along with global players and operations around the world with a variety of cultural standards, it will eventually boost the domestic safety culture.
As for the efforts to bring up the safety culture to the required standard, I personally think the Chinese industry needs much more solid validation efforts, rather than many of those empty rules, slogans, and propagandas that are frequently applied in the workplace. We need to reinforce a “lessons learned” culture of open-minded and team-spirit communication and sharing of experiences to prevent mistakes and accidents.
KC: Shell has strong health, safety, and environment (HSE) standards, which apply to all Shell companies around the globe. These are based on international best practices in the oil and gas industry. Our joint ventures in Russia comply with local legislation and also implement the best practices from their shareholders, including Shell. Building a safety culture is a long process, particularly in areas of the world where some of the ideas are new, such as wearing seat belts as a standard practice. As a company, we are striving to achieve “Goal Zero,” which means no harm to people, environment, assets, and reputation. This process takes continuous effort on all levels of the organization and involves everyone.
What are some of the technical challenges of complying with local safety/environmental regulations in these new markets?
JW: The biggest challenge is the “soft” criteria, which means the nonstandard considerations such as people’s mind-set and short-term concerns because of the current economic situation. China, as one of the fast-growing industrial, developing countries—and being the most populous nation in the world—has many new laws and rules appearing all the time. However, the government officers and people in the industry need to strengthen their mindset that failure to comply with safety/environmental regulations is criminal behavior.
KC: There are some challenges, but continued focus works to resolve them. For example, the nature of HSE legislation in Russia is prescriptive rather than risk based. There are many standards, regulations, and procedures that prescribe technical and HSE solutions in detail. Shell practice is to apply a risk-based approach to many situations, to come up with the best solution designed to specific conditions. In Russia, we try to combine both approaches, involving local staff and regulators.
Another challenge is the so-called “white spots” in the Russian legislation. National safety standards for the Arctic offshore have not been developed yet. Shell is participating in the 2020 Barents initiative, driven by the Russian and Norwegian governments, to develop Arctic offshore HSE standards that would incorporate the best international practices and requirements.
What do you see is the role of international oil companies (IOCs) in these markets? Do they operate independently, or do they mostly help out national oil companies (NOCs) as technical consultants?
JW: Obviously, the IOCs will play important roles in the emerging Chinese market, particularly in joint venture projects, not only to bring in world-class technical expertise and experiences based on best practices, but also to accelerate the global operating management standard. These kinds of international operations will eventually improve efficiencies and maximize productive capacity. They will also enhance the standard of local industrial operations through their interactions. The IOCs in China are all operating under the joint venture model together with NOCs. They can also work as project technical consultants and participating investors, but can’t operate independently in this market.
KC: Shell is involved in upstream operations in nearly 40 countries. In many cases, this takes the form of joint ventures with NOCs. We have the utmost respect for NOCs—for their people, as well as for their technical and commercial skills. NOCs today are knowledgeable, capable, and confident. As our local partners, they bring knowledge of the environment, culture, and regulations. Shell brings to these partnerships our vast experience in delivering major, large-scale projects and cutting-edge technologies. We can widen the customer base and help to build local skills and businesses. Shell operates as a full partner within this business model, as opposed to bringing only technical know-how. For example, our cooperation with Gazprom in Russia on the Sakhalin 2 project has been very positive, and the successful delivery of this project is a strong indication of what can be achieved when Shell works closely with Russian national oil and gas majors.
Based on some recent experiences in your countries, is there a concern that IOCs will be made redundant once technical know-how is acquired?
JW: For large projects involving international cooperation, it all depends on the investors’ needs and all the investing parties involved. It doesn’t have to be technical know-how per se, but many times it could be financial or strategic needs or some other factors involved. Really you can’t say that the IOCs are redundant in any circumstances.
KC: Collaboration and knowledge sharing are the keys to developing substantial projects in emerging markets. IOCs will have a strong position for as long as clear value is brought to the table. Shell leans on the many decades of experience that we have with capital-intensive projects and innovation. From the start of the Sakhalin 2 project, we have been cooperating with the Sakhalin administration, the Russian Government, and later with Gazprom. This cooperation has been very positive and productive. The Sakhalin 2 LNG plant startup in 2009 was very successful. Last year, Sakhalin Energy produced 5.8 million tons of LNG—3% of the world LNG production, and about 50% above the initial plan. Although since 2007 Shell has not been the majority shareholder of Sakhalin 2, we still take an active part in continued investment and production optimization. In our other producing Russian joint venture, Salym Petroleum Development in West Siberia, we are now cooperating with Gazprom’s subsidiary Gazprom Neft. And I can say that we have good working relationships with this team as well.
What do you see as the biggest growth areas in your emerging market for service companies?
JW: The biggest growth for service companies arises from needs related to technically challenging wells. The development of deeper and hotter (e.g., HPHT) wells requires expertise and experience. In other words, they will be the opportunities for service companies down the road in the Chinese market.
KC: I would encourage companies that participate in this sector to embrace the concept of collaboration with local companies. This can often be the seed from which new ideas grow. Because many conventional oil fields in Russia have been producing for long periods, lowering operating costs by means of new technologies and systems integration is a key area.
What unexpected challenges have you encountered working as an expatriate?
JW: The major challenges I have encountered as an expat include differing working behaviors and cultural standards. This is challenging, particularly when you’re holding very different views, and there is a disagreement among colleagues.
KC: I feel very fortunate to have the opportunity to work in Russia, with its great wealth of natural resources, with such strong culture and academic history, and it being a very key region for our company. The main challenge for me is the language barrier, which requires translation at some meetings. One observes the importance of body language in these situations, but in Russia people can be quite reserved until they begin to trust you.
What emerging basins or plays do you see on the horizon?
JW: I would call the deep gasfield basins in western China and deepwater development in the South China Sea the emerging markets on the horizon in China.
KC: Russia has a wealth of different resource types and many opportunities for enhanced oil recovery technologies. Over time, additional technologies and innovations will be required for developments in the Arctic.
What skills/lessons from emerging-market environments can be transferred to traditional operating areas?
KC: With respect to technical learnings specifically, many oil and gas projects are now within challenging natural conditions. For more than 50 years, Shell has built up operating and development experience in sub-Arctic and Arctic regions in operations and projects in Alaska, Norway, Canada, and more recently Russia. We can transfer knowledge about these technologies to other operations with similar conditions. Most of the technology focus of the oil and gas industry in the Arctic has been on overcoming the direct challenges of the physical environment and on developing safe, reliable, and affordable solutions. Key areas include prediction of global and structural loads from sea-ice features, performance of marine vessels in and around ice, and interaction of ice with on-bottom structures, such as pipelines, subsea trees, and manifolds.
In Sakhalin 2, we took a very significant step forward in LNG technology with the proprietary dual-mixed-refrigerant process that is applied in the LNG liquefaction trains to compress natural gas in low, sub-Arctic ambient temperatures. This technology allows full use of all installed compression power, making compression more efficient and producing more LNG. The LNG produced at Sakhalin 2 is delivered to customers in special LNG tankers that are capable of operating year-round in the sub-Arctic region of Sakhalin.
Do you find it beneficial to bring in primarily expat expertise, or is the tendency to rely on as much local talent as possible?
JW: There are always positive benefits to including expat expertise in a project team. It will all depend on how big the team is and the leadership needs of the project. This is obviously a human resources issue to discuss. However, in my personal opinion, the majority of the tasks still need to be carried out by local workforces. Expat expertise is good for leading team efforts, especially within certain specialty areas where local talent is lacking. The core value of the leadership is to direct operations, not to validate everything in detailed work. Also, it will need to give local workforces enough room to learn and grow into larger roles on the team.
KC: The best successes come from talent collaboration, i.e. coupling the global experience of expatriates with local talent. At the peak of construction of Sakhalin 2, 25,000 people were employed—more than 70% of them Russian nationals.
IAre emerging markets a good test ground for new technologies, perhaps even requiring the use of new technologies? Or do companies prefer to stick with proven processes and methods?
JW: I would not recommend deploying untested, new technologies in emerging markets, unless there’s no other proven method available. Any new technology from research to routine field application will require a full range of deployments to become reliable and mature. Emerging markets entail other risks and uncertainties and, as such, are not always the best test beds for new technologies.
KC: A company can use proven technologies and invent new ones. For example, in Sakhalin 2, we first applied dual-mixed refrigerant technology at this LNG plant. However, we also made use of proven well technologies for the super big-bore, monobore completions in the Lunskoye field gas wells, enabling production of up to 350 MMscf/D from each well.
In your market, could you list some technologies you see as very prevalent? What about those that could be used more?
KC: LNG technology is a strong fit with the Russian market. Shell pioneered LNG technology more than 45 years ago and is now the world’s leader in LNG. In 2009, Shell ventures supplied more than 30% of global LNG volumes. Russia’s first LNG plant at Sakhalin opened new markets for Russian gas in the Asia-Pacific area. We believe that Russia could become one of the world’s largest LNG exporters in the future because the country has vast gas resources and is situated close to gas consuming markets.
|James Wang is business development manager, Oil & Gas China, Cabot Specialty Fluids. He works out of Beijing, with the primary role of introducing cesium-based formate brines to high-pressure/high-temperature (HPHT) operations across China. Wang is a trained chemical engineer and holds an MBA degree. He has substantial experience in oilfield technical services, project management, research and development, and marketing and sales management, much of which comes from his involvement with onshore and offshore operations in China.|
|Kim Code is vice president, Technical and Production, Shell Russia, based in Moscow. Joining Shell in 1989, she gained technical and supervisory experience in the geophysical field and then progressed through a series of leadership positions. Starting in 2007, Code managed a technical department for Shell International Exploration and Production in the Netherlands, later becoming vice president, Technical Strategy and Planning. She assumed her current position in 2009. Code is an active supporter of mentorship programs geared toward talent development. She was educated in geological engineering at the University of British Columbia, Vancouver, Canada.|
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07 December 2018