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Financial Times: Evangelist who is in the right place

By Ed Crooks
Published: March 10 2008 02:00 | Last updated: March 10 2008 02:00

Linda Cook, Royal Dutch Shell’s executive director for gas and power, does a great sales pitch for the merits of natural gas.

“It is available today; it’s relatively cost-competitive, and it is the most environmentally-friendly of all of the hydrocarbon energy sources,” she says.

“We see demand for natural gas continuing to be robust and growing at a higher rate than that for oil in the coming years.”

She is in the right place to be an evangelist for her product. Shell is the second biggest gas producer among the international oil companies, after ExxonMobil, and the world’s biggest producer of liquefied natural gas.

About 46 per cent of its upstream production is gas, compared with 39 per cent for BP, its closest rival among the European international oil companies (IOCs).

“We’re proud of our position in natural gas,” Ms Cook says. “We have had a separate natural gas business within Shell for many years and I think that’s given us a bit of focus and drive on the product.”

There is a contrast again with BP, where the gas, power and renewables segment has been broken up as part of the cost-cutting drive launched by Tony Hayward, the chief executive who took over last year.

Shell does not run its gas business as a fully integrated operation, from the wells to the gas mains. Finding and developing gas reserves is the responsibility of the exploration and production division.

But after that, Ms Cook says, “the gas and power business is in charge of the development concept, [whether] LNG or domestic gas. We build the liquefaction and we build the gas-to-liquid plants and international pipelines. We’re in charge of all the commercial aspects as well.”

In a world in which the IOCs are struggling to find a role, confronted by assertive resource-rich countries and national oil companies, gas can often offer more attractive opportunities than oil.

The IOCs’ strengths are in managing the integration of complex high-technology projects and in getting access to markets. The gas industry increasingly demands mastery of both.

“I think the gas value chain is still more complicated than the oil chain around the world, and so indeed companies such as ourselves can create value to the major resource holders,” Ms Cook says.

“For example, we’ve been in the LNG business now for more than 30 years. Across the LNG plants in which we had an interest last year we averaged 98 per cent reliability. We’re the biggest among the international oil companies in terms of LNG shipping, and with a very strong and safe track record in that area.”

Shell also has a global LNG marketing arm, and regasification capacity in Spain, the east and west coasts of North America, and India, where it runs one of only two LNG import terminals in the country.

Ms Cook says: “We’re not in the business of just having lots of LNG import capacity around the world. We have it for strategic reasons, to get us access to what we believe are premium markets.”

The appeal of LNG in terms of profitability and growth potential has made it a focus of Shell’s massive investment programme, set to total some $29bn across the company this year. It has five “trains”, as LNG liquefaction plants are known, under construction.

“We have two trains on Sakhalin Island in Russia, we have one big train under construction in Qatar, and we have interests in two projects in Australia: the fifth train of the North West Shelf project there, and then Woodside took their investment decision on Pluto train one, and we indirectly hold an interest in that.

“So that is one important portfolio of investment for us,” Ms Cook says.

Like most big energy projects, Shell’s gas investments have been hit by delays and cost overruns.

At Sakhalin 2, where Shell was forced to double the cost estimate to about $20bn, “good progress continues to be made”, Ms Cook says.

However, she confirms an earlier warning that the timetable has slipped a little further from the plan to begin deliveries this year.

“The aim at this point is for construction to be complete by around the end of this year, and then to ramp up production next year,” she says.

However, another massive project, the Pearl plant to convert gas to liquid fuel in Qatar, with an estimated cost of up to $18bn, is still on budget.

“We’re a year and a half into the construction of the project and so far it proceeds within the range of expectations we had for it when we made the investment decision,” Ms Cook says.

“That’s not to say it doesn’t have its challenges; it does. All major projects do these days. But so far, it’s within the range of expectations.”

Shell’s strategy is for these projects, along with other huge investments such as its capacity expansion in Canada’s oil sands, to power its growth in the next decade.

When they come onstream, it expects that the trend of declining production that is now entering its sixth successive year will be reversed.

If Ms Cook is right about the long-term outlook for gas, those investments should pay off handsomely.

She is seen, alongside Malcolm Brinded, the head of exploration and production, and Peter Voser, the chief financial officer, as one of the leading candidates to succeed Jeroen van der Veer as Shell’s chief executive when he steps down next year.

Long experience in the gas business will be one of the most valuable qualifications that any candidate can offer.

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