OFFSHORE DRILLING:

Shell CEO defends Arctic operations as company touts new technology hub

HOUSTON -- A day of celebration for the opening of Royal Dutch Shell PLC's revamped research and development center was clouded by lingering questions over the company's Arctic drilling program and worries over the future of its Alaska offshore drilling activity.

Yesterday, Shell opened a newly refurbished research and development hub here, the largest of three global hubs that will serve as the center of the company's worldwide initiatives to advance new experimental technologies in oil and gas extraction and petrochemicals. Shell also consolidated its scattered European R&D efforts into one similar center in Amsterdam, while a company facility in Bangalore, India, will serve as its third research and innovation hub.

The new Shell Technology Center Houston, located on the city's west side, now holds 44 buildings containing some 1.2 million square feet of offices and labs, 60 percent more than the previous Westhollow campus, where the new site was built. The newest facility lies close to where Shell is adding some 670,000 square feet of new offices for its exploration and production division (EnergyWire, Jan. 4).

To launch the new center, Shell invited media and business leaders from an array of industries to its first Innovation Summit, where executives discussed their future plans for the center and asked outside experts, like X Prize Foundation's Peter Diamandis, to offer their opinions on the best way to propel technological innovation.

But first, Shell Oil Co. President Marvin Odum sought to clear the air regarding the situation in Alaska, where damage to an offshore drilling rig owned by Shell has cast some doubt on the company's ability to operate safely in the rough Arctic waters.

He offered a firm defense of Shell's operations last year in Alaska, where his company launched the first Arctic exploratory drilling effort seen in decades there.

"We finished the 2012 drilling season, didn't have any incidents there, we didn't have any accidents," Odum said. "It was done safely; it was done from an environmental perspective, the way we wanted it done."

The Department of Interior and U.S. Coast Guard say they are investigating the offshore rig damage incident and the 2012 drilling activities, as well as as the activities of Noble Corp., the operator of a separate drillship that Shell has leased to help with last year's exploratory drilling program. The Obama administration will take 60 days to review the entire Shell drilling program in Alaska's offshore environment (EnergyWire, Jan. 9).

Odum seemed undeterred, however. While he admitted that he was "disappointed" with the way things are going in the Arctic so far, he dismissed some claims by environmental groups that the mishaps with the Shell-owned rig Kulluk demonstrate clearly that the oil and gas industry cannot safely operate in Arctic waters.

"This wasn't a drilling operation," Odum said. "This was a marine transportation, or transport, operation, and that's important to draw that distinction."

The Kulluk was being towed from southern Alaska to Seattle when Shell said a freak storm caught the crew off-guard. Odum said the crew struggled with wind gusts of 70 mph and 40- to 50-foot swells during the operation.

Eventually, the tow line came undone and the Kulluk ran aground, sustaining damage. But Odum said its workers sustained only minor injuries and "there wasn't any environmental impact from this incident," despite large volumes of fuel held on the offshore rig.

Shell has since successfully moved the Kulluk into harbor in Alaska, where it will remain while inspections are conducted.

"The rig, which was disconnected from its tow ship in the Gulf of Alaska ... has been recaptured; it's been towed to safe harbor," Odum added. "Everything is seaworthy, so from that perspective, it looks really good."

Odum said he takes the accident very seriously and that Shell would conduct a full review of the incident and cooperate fully with government investigators. He offered no other updates on where the post-incident review stood, declining to speculate on where it might lead but promising to make any changes that may be necessary to avoid a repeat.

'Start of a new era' in technology

Despite the government scrutiny over the company's mishaps in the Alaskan Arctic, Shell employees still found time to celebrate their newest, state-of-the-art center for pursuing advanced hydraulic fracturing technologies, enhanced oil extraction methods, deepwater offshore drilling tools and other facets of an increasingly technologically sophisticated oil and gas industry.

Matthias Bichsel, director of projects and technology at Shell, said the launch of the new Houston center represents "the start of a new era in Shell's research and development activities in North America."

In an interview, Bichsel said the center would serve as home to some of the latest advanced technologies that Shell is exploring. That includes studying the possible use of catalysts for shale oil and gas extraction, something that could lead to methods to nudge hydrocarbon molecules out of tight formations at nano-scales.

Whereas Shell once kept R&D for upstream exploration and production and downstream product refining separate, Bichsel said his firm sees value in keeping them on the same campus, as will be the case from now on. Scientists and engineers from the different levels of Shell's business bring with them different expertise and perspectives, and he said their collaboration could lead to new innovations that neither team would have been able to come up with on its own.

"You start to see the sparks flying," he said.

Shell says that on average, it spends more on annual R&D than any of the other vertically integrated oil and gas supermajors -- about $1 billion per year.

The new Shell Technology Center Houston received the U.S. Green Building Council's Leadership in Energy and Environmental Design, or LEED, certification by incorporating designs that reduces energy consumption by about $2 million per year. The company says the new construction and retrofitting have reduced carbon dioxide emissions by 30 percent and cut emissions of ozone-depleting chlorofluorocarbons.