OBG talks to Peter Voser, CEO, Royal Dutch Shell

Interview: Peter Voser

How does the level of political risk in Egypt affect investments in the petroleum sector?

PETER VOSER: Egypt’s political situation has certainly affected the industry, though more so in downstream operations than in upstream activities. We are pleased to see the security situation improving. Shell has had a presence in Egypt for more than 100 years, so we have longstanding relations with the country. We expect to continue working with our partners to bring Egypt’s citizens the energy they need to prosper.

Our investment appetite in Egypt remains strong. One of our priorities is to extend some of our western desert blocks and increase exploration, building upon our earlier successes to find and develop more oil and gas resources. We would also like to explore with the government the opportunity to sell natural gas directly to industrial users.

What can be done to increase the appeal of Egypt’s investment environment in the upstream sector?

VOSER: Energy exploration requires major investments with considerable risk and uncertain returns. We need the assurance of stability in our agreements and concession terms. All indications are that previous agreements in Egypt are being honoured, which encourages continued investment.

Egypt’s producing oilfields are in decline, and discovering sizeable new and easily accessible reserves will be more difficult. This is why Shell is seeking oil and gas deposits that require enhanced recovery methods. These also require larger investments and a different type of agreement that takes into account longer development and production periods. These agreements should provide for a deregulated gas market, which would allow operators to sell all or part of their gas entitlements on the open market. This would result in increased development of resources, while reducing the country’s subsidy burden.

Additionally, development of local talent is needed to help Egypt take full advantage of its resources.

As Africa is increasingly targeted for upstream investment, are you concerned about a more complicated bidding environment for gas producers?

VOSER: Africa holds tremendous potential for upstream investment. As is the case elsewhere in the world, there will be international competition. Clarity, simplicity and a fair balance between the risks and rewards are needed to attract those investments.

How will production of tight and shale gas affect global demand for liquefied natural gas (LNG)?

VOSER: Tight and shale gas is not always in competition with LNG. In fact, it can serve as a source of LNG. Shifts could occur in the supply-demand balance, but overall we believe there will be sufficient global demand for LNG to maintain our current plans.

How has the Egyptian General Petroleum Corporation’s (EGPC) outstanding debt affected upstream activity in the country?

VOSER: We view the current political and economic situation in Egypt as temporary. In such times, we need to be patient and support the country as best we can through its transition.

However, payment delays can lead to reduced investments. To ensure the debt problem does not persist, the government must restructure and liberalise its energy sector, specifically by removing the subsidy burden. This would enable EGPC to have the resources to pay its outstanding debts.

What are the crucial elements you look at when evaluating the appeal of an upstream investment?

VOSER: We consider a number of factors. These include the investment’s fit within our strategy and portfolio, the stability and clarity of the regulatory framework, the overall economics and business environment, the access to local talent and infrastructure, and the societal impact and benefits. We also evaluate whether Shell can make a positive difference.