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Daily Telegraph: Shell battles ‘new players’ in fuel search

Jeroen van der Veer

(Royal Dutch Shell CEO Jeroen van der Veer said the company
added 150pc more reserves than it lost from production last year)

By Ambrose Evans-Pritchard
Last Updated: 1:51am GMT 02/02/2007

Oil companies are finding it ever harder to secure fresh sources of energy, as China, India and the new emerging powers join the global scramble for fuel, Royal Dutch Shell has warned.

“We see tremendous competition for new oil and gas resources. There are new players, some of them state-owned, prepared to pay top dollars,” said Jeroen van der Veer, the chief executive of the Anglo-Dutch group.
Delivering the group’s results for 2006, he said Shell would continue to work on a $10bn (£5.07bn) deal with Iran to develop the South Pars gasfield, brushing aside a threat of sanctions by the US state department.

“We have a dilemma,” said Mr van der Veer. “This is Iran. They are number two in oil and gas reserves in the world. We try to develop projects that fulfil our long-term objectives but we have all the short-term political concerns. We have not yet taken the final investment decision. That is when you commit the big money.”

The flirtation with Teheran at such a delicate juncture, with gambling firms taking bets at shortening odds on the likelihood of a US or Israeli air strike on Iran’s nuclear facilities, shows the lengths that western oil firms are now willing to go to stop their reserve base shrinking.

Shell is already reeling from a costly clash with the Kremlin, forced to cede its majority stake in the Sakhalin II liquefied gas project to Russia’s Gazprom.

The company said the sale would cut reserves by up to the equivalent of 1.1bn barrels of oil, though it would receive a payment of $4.1bn from Gazprom this year. Shell’s operations in the Niger Delta remain paralysed after the death of six employees last year at the hands of rebels demanding a greater share of the profits. “There’s a very serious security situation – 80,000 barrels a day are shut up,” said Mr van der Veer.

Shell made up the shortfall by boosting production in Mexico, achieving a 2.6pc rise in profits for 2006 to a record $25bn, largely on booming oil prices above $70 a barrel in the first part of the year.

It expects output to rise at a glacial pace, 1pc-2pc over the next three years, from the current level of 3.5m barrels a day. “The numbers were solid if uninspiring,” said analysts at Citigroup.

The relentless slide in reserves appears to have stopped, although Shell still has just nine years of reserve cover compared with 12 or 14 for other big producers.

Mr van der Veer said Shell added 150pc more reserves than it lost from production last year, chiefly due to a liquefied gas project in Qatar and a greater share of the Alberta oil sands after buying out minority stakes in Shell Canada. The tar sand projects are a dicey bet, requiring oil prices of at least $30 a barrel.

Shell has yet to reap bankable rewards from an exploration drive in 13 “big-cat” projects, or its green ventures. Mr van der Veer said renewable energy sources were all “too expensive” and raised other problems.

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