Indonesia back on the map of Shell’s investment portfolio

Vincent Lingga, The Jakarta Post, London | Thu, 03/18/2010 10:40 AM

Royal Dutch Shell’s Chief Executive 0fficer Peter Voser said Indonesia is now a target for his company’s investment portfolio in both the upstream and downstream hydrocarbon sectors.

“We have been in talks with state oil company Pertamina and the government, offering them our technology and experiences to develop energy projects such as floating LNG plant,” Voser told The Jakarta Post on Tuesday in London.

He acknowledged though that the US$292-billion Anglo-Dutch giant had been absent from Indonesia quite sometime despite its long history since its founding (in North Sumatra) more than 100 years ago.

The origins of the oil industry in Indonesia and of what has now become the world’s largest oil company are closely connected because it was the discovery of commercial quantities of crude oil in Pangkalan Brandan in 1890 that led directly to the formation of what is now known as the Royal Dutch Shell Group.

“But we have come back and we are the first oil major to enter the downstream market with our strong retail brand,” Voser added, citing the opening of several Shell gasoline stations in Greater Jakarta area over the past two years.

He said Asia is a key for the future growth of its downstream market, and Indonesia, as the country with the third largest population in Asia, will play an important role in its investment portfolio.

Therefore, while the oil giant plans to sell up to 9,000 gasoline stations in mature markets in a continued cost-cutting program, it will further expand its retail network in Indonesia, Voser asserted.

Earlier on Tuesday morning in his Shell strategy review to journalists from around the world, Voser said Shell’s oil and gas production is expected to increase by 11 percent from 3.15 million barrels of oil equivalent a day (boe) last year to 3.5 million boe in 2012.

“And as a result investment growth, Shell made proven additions to reserves of 3.4 billion boe last year,” he said, pointing out that the company also had some 11 billion boe of new oil and gas resources under exploration and development.

Charting out its future growth, Voser estimated Shell’s net global capital investment to be in the range of $25-27 billion a year between 2011 and 2014 with up to $3 billion per year of asset sales and $25-30 billion per year in investment.

In North America, he said, Shell added 8 trillion cubic feet equivalent (tcfe) of gas resources last year, bringing its global total to 21 tcfe or about 3.7 billion boe.

“But Australia should underpin Shell’s next tranche of LNG development, within a world wide operation set for a possible further 10 million tons per year of capacity by 2020 which could take Shell’s total global capacity to around 35 million tons per year,” Voser said.

Gas will be at the heart of Shell’s production strategy ahead of oil as the world attempts to reduce carbon dioxide emissions because clearly it is the fossil fuel that has the lowest carbon dioxide content.

Shell plans that more than 50 percent of its energy products will be gas based by 2012.

Voser added Shell continued with plans to build new upstream and downstream capacity, while managing the near-term challenges of the weak global economy.

He saw international oil prices stabilizing at between $60 and $80 per barrel over two years. At the lower price Shell’s cash flows from operations would increase by about 50 percent and with the higher price cash flows would rise by 80 percent, up from $24 billion last year.

Voser provided an overview of the downstream landscape characterized by narrowing spreads, increasing inventory levels, and a widening gap between refining capacity and demand, placing significant pressure on refining margins.

Shell always recognized the cyclical nature of the refining and chemicals businesses, so the current downturn is not unexpected, but is more severe than supply-demand analysis implied before the 2008 credit crisis.

Shell, he said, is active in downstream marketing (retail) in more than 100 countries but this portfolio is too scattered and not focused enough on profitability and growth “Therefore, Shell has plans to exit from 15 percent of its world-wide refining capacity, 35 percent of its current retail market, and is taking steps to further improve its chemicals assets,” Voser added.