I think it has developed extremely well. We are working with CNPC and PetroChina within China, but also globally. I think the success here is based on a win-win partnership, inside and outside China. If you only focus on what you can do inside China, and not let these companies participate on the global stage, I think this will not be successful. So we are combining with CNPC's technologies to (extend) the global range. We are in Australia, Syria and Qatar. We have shale gas acre-age in China, and we do R&D together.
We have similar partnership with Qatar Petroleum. We have a good partnership with Petronas here in Malaysia and in one or two places abroad. It's another partnership where we can clearly see that developing things together will (lead) to success in the future.
Q. China is estimated to have one of the largest reserves of shale gas more than the U.S. What role does Shell want to play here? How involved do you want to be in shale gas in China?
I think it's the key strategy to go for Shell. We are operating with PetroChina in the Changbei field, which is already in production. We are drilling in the Sichuan and Ordos basins already.
So we are well placed to help China develop their gas resources that it'll need for the future, because it is the lowest kind of CO2 fossil fuel. I think that's where we can bring technology and people, and PetroChina can give us access to develop these things together. We're in the middle of it, and this will develop into something big over the next few years.
Q. How big?
It's too early to say because we are doing exploration at the same time, so to say how much is difficult at this stage. But if you look at external estimates, China is mostly going to be bigger than what we have seen in U.S. and Canada. Therefore this is a great prospect for us in the future.
Q. You say Shell will produce more gas than oil next year. Where do you see demand and gas prices going from here?
This is correct. In 2012, there will be more gas than oil.
We clearly see that volumes and growth in the Middle East and Asia Pacific will be substantial, as the gas percentage in the energy mix goes up. Also, Europe is shifting into gas which will see growth as well, including the U.S. (The) U.S. is a bespoke market and therefore reflecting the shale gas costs.
I think Europe and Asia Pacific will be more oil price-linked, therefore they will follow the volatility of the oil price. We are satisfied with the margins that we have at the moment, and we see them in a similar way long term.
Q. How fast do you see gas prices going up from here?
When we look at the supply-demand balance, a year ago we thought that up to 2014 and 2015, we'll be long in the market, so more supply and some pressure on the pricing side.
With what has happened in Japan, that window is actually coming together in probably 12 months or a year to go. It will probably shift around and demand will outpace supply. Therefore, we don't see pressure on the pricing side like 12 months ago so we are actually quite optimistic on the pricing side.
This interview is an excerpt from CNBC’s longest-running feature program Managing Asia. Catch the full interview with Christine Tan over the weekend at these times: July 22nd at 1730 (SIN/HK).