In its portfolio P&T has some 150 operated and non-operated projects in different phases of development across different lines of business in different countries. These projects involve the development of oil and gas fields, pipelines, refineries, natural-gas-liquefaction trains and petrochemical plants. Some entail constructing entirely new facilities and some involve expanding existing facilities.
P&T wants to make sure that Shell gets the highest return from every dollar invested in projects. We have already reduced by more than half the unit development cost (UDC) of all major Upstream and Integrated Gas projects since the end of 2014. As a result, Shell has essentially doubled the expected volumes per dollar invested in project development while keeping the same forward-looking production volumes. Similarly, the average break-even oil price, on a forward-looking basis, has gone from about $40 a barrel in 2014 to less than $30 a barrel in 2019. Over the last five years, 80% of Shell's major projects were delivered on or ahead of schedule. An important consequence of all this is that, despite falling oil prices in recent years, Shell has seen an improvement in the average internal rate of return across its project portfolio.
Independent Project Analysis (IPA) has reported that more than 70% of the major upstream projects that Shell sanctioned in 2018 and 2019 have UDCs that are in the top performance quartile, if not best in class. Similarly, IPA benchmarks show that the cost and schedule performance of Shell’s completed downstream projects are best in class.
By 2025, Shell plans to start up 35 large projects and expects to progress an additional 40 projects towards FID. P&T has the ambition to further reduce UDCs by more than 20% in the coming years. We intend to achieve this by continuing to pull on the levers that led to success over the past few years: scrutinising projects’ scopes; replicating successful engineering; making project execution more efficient; and improving supply chains.
Some 85% of Shell’s project-related work is actually done by contractors. For that reason, P&T has embraced a portfolio-wide supply chain transformation on the basis of a number of critical success factors:
- getting contractors on board early and making better use of their industry experience;
- using low-cost-country supply chains to deliver facility modules that can then be connected on site. For an example in the retail sector, see “Asset support";
- modernising commercial arrangements that offer win-win outcomes for both Shell and the contractor; and
- driving longer-term, cross-project collaborations with contractors.
For more information, see “Contracting and procurement”.