• China lends Nigeria Dollars 2bn in exchange for oil talks. • Ft com site : China oils Nigeria talks with loan

China. We've built on our positions in Nigeria onshore and in deepwater and in Ormen Lange delivered a technically very challenging project through a great partnership. And together these projects will deliver some 270,000 barrels a day Shell share, as shown on the right, that peak production, and help build our portfolio of high cash flow assets.
Let me focus on Ormen Lange for a minute, it's the third largest gas field in Europe, it's the first in deepwater, it will be producing for the next 40 years providing 20% of the UK's gas at peak through the longest offshore pipeline in the world. And the Shell contribution, we've drilled very high flow rate subsea production wells through large bore tubings that are the first of their kind at these depths in the world and that have brought together experience really from the Gulf of Mexico deepwater and from the [Froning in] very high capacity wells. And in terms of start-up date, production and reliability, Ormen Lange is well ahead of the plan we had when we took final investment decision in 2003.
Now this year and next the projects shown here will add another 200,000 barrels a day new Shell share production. First LNG at Akhalin of course is going to be a huge milestone and you saw more of that outside. And together with Angel in Australia they're going to add to our leading Asia-Pacific gas position. Perdido in the Gulf of Mexico and BC-10 in the deepwater off Brazil will be major new production hubs. And both of these are really innovative projects and I hope you have time to look at those outside. They're both on budget and they're on time to deliver first oil around the end of next year.
They're part of a strong portfolio of hubs for further development and another is Gumusut, which is our first Malaysian deepwater project in 1,200 meters of water. In the middle there you see the offshore development part of the Pearl project in Qatar, which I think is coming along as another good example of project delivery. Drill the limit approach there has already cut rig times by approach 30% on average per well and we're targeting taking a further rig year off the total drilling schedule, which would save some $80 million.
In Oman on the right, enhanced oil recovery is key to the future and in two major heavy oil fields we should more than triple the recovery factor and open the way for a whole series of EOR projects. In fact from 2013 onwards we expect a quarter of our Oman production to come from enhanced oil recovery projects and that's why we've chosen Oman as an absolutely key global EOR technology center, which we at Shell have established there.
Now to the next time period, and there's a lot of projects on here and I suppose in terms of size of these new ones that are moving towards start up, Pearl and Kashagan really stand out. But you can see there are significant projects right across the globe. All the projects shown are post FID, they're all more than $1 billion in 100% terms and at peak they'll add more than 0.5 million barrels to production. And as it says on the bottom right, we've got lots more potential to develop. Over 20 new projects are being designed that could commercialize over 6 billion barrels of resources and add another 800,000 barrels a day Shell share.
The strategic choices that we're making as we make these investments are of course shifting our production mix. They reflect our focus on technology and value chain integration and scale because we think that will give us better returns and we think it's key to enabling us to compete for future resource access. 75% of the production from the key projects I've shown will be from long-life assets with low decline rates, bringing sustained cash delivery. And it's these long-life fields that underpin our potential to grow production by 2% to 3% per annum in the next decade.
So let me come back now to strategy. Since 2004 we've revitalized our portfolio, establishing major new positions well before our Heartland in the Gulf of Mexico and the North Seas run down, whilst divesting mature and isolated assets for excellent value. We're targeting positions with strong oil price and volume upside and we've been bold and I think successful, for example, growing our Albertan heavy oil resources and establishing what are leading acreage positions in Australia, in the Gulf of Mexico and offshore Alaska.
Now of course as we build for the long-term I realize that short-term delivery is essential. And that's why on the right you see the global must win programs which focus on business improvement across the globe, shared and managed globally but actually delivered locally in every one of the countries where we operate.
So what does it deliver? On asset integrity we're more than half way through a multi-billion dollar major renovation program and over 50% of our operated assets are now top quartile in both up time and direct unit costs with a 2% to 3% reliability improvement since 2004. And in terms of drilling, more than half the wells we drill all also benchmarked top quartile. And that saves hundreds of millions of dollars against the industry average and accelerates production.
So operational indicators are fine but in the end you want to look at the bottom line. And here again we stayed ahead of the competition in terms of unit cash per barrel, which is consistent with our strategy of focusing on value not volume. As you look at this what I would stress, as I did last year, is that the projects now under construction will deliver even stronger unit cash returns in the future than the assets we have on stream today.
So in summary, in EP our strategy is delivering. We're an industry leading explorer and I think we've built a strong set of opportunities for the future. Our resource and reserves base continues to grow and that's through leveraging our key strengths around global scale, technology and integration through the value chain. Project delivery is on track, building the foundation for long-term growth. And top quartile operational performance is generating strong earnings and leading unit cash in the industry today. Thank you very much and I'll hand over to Linda.
LINDA COOK, EXECUTIVE DIRECTOR, GAS & POWER, ROYAL DUTCH SHELL PLC: Thanks, Malcolm. Ladies and gentlemen, good afternoon. So today I'll give an update on some of the key projects in Gas & Power. This will include of course projects in our LNG business where I'm also going to take a few minutes to say a bit about how we see the LNG marketplace developing. And then finally I'll give an update on the Pearl GTL project and our activities in wind energy.
First let me just start with a brief look at the Gas & Power financial results for 2007. Earnings were $2.8 billion, this was up 6% from 2006 driven mainly by an increase in LNG volumes and prices. And I think we also delivered a relatively strong cash performance. As in recent years the LNG sector continues to be the main contributor to earnings in the Gas & Power business and delivering once again a strong return, more than 20%, even with a relatively high level of capital under construction. You can see capital investment was up considerably in the business, it was 50% higher than in 2006, as we now have multiple LNG trains under construction as well as the Pearl GTL project.
So we continue to grow the overall business while at the same time we continue active portfolio management. During the past five years we've started up six new trains of LNG and gained access to four new LNG import sites, two in the U.S., one in Mexico and one in India. At the same time we continued reducing our exposure to the non-strategic pipeline investments, exiting for example the enterprise MLP in the United States last year and also agreeing to sell our interest in BEB in Germany, which we expect to close during the course of 2008.
All together over the time period we've generated over $5 billion in cash proceeds from divestments and at the same time increased our capital employed by more than 50% to $9 billion. So our strategy in Gas & Power has remained essentially unchanged for many years. We leverage our exploration and production natural gas position, our global LNG portfolio and our market presence, technology, commercial skills to profitability grow. And I think this is reflected in our financial results over the years and in particular our LNG growth.
LNG sales grew again in 2007, up 9% over the previous year. One driver was excellent operational performance. So overall the five operating LNG ventures that we have delivered first quartile reliability for the entire year, so I think quite a remarkable achievement actually. This resulted then in more spot cargos to sell in what was a very strong LNG market. And all together these five joint ventures delivered about 30% of the world's LNG during the course of 2007.
It's also good to see our marketing strategy delivering now with access to both Mexico and Hazira in India as examples and now starting to pay off. These enable us to secure higher value for our cargos through diversions and our own marketing efforts. And overall we see a real strengthening in the basic LNG market fundamentals and I'll come back to that later. We're also well placed for growth in the years ahead with five new LNG trains now under construction, which is more than any other international oil company. This includes North West Shelf train five in Australia, the two trains at Sakhalin, the huge Qatargas 4 train and then Woodside's Pluto project which began construction last year.
So now let me give an update on most of these and I'll start with Nigeria. We completed construction of train six in Nigeria around the end of last year, on time, within budget and within excellent safety performance. This now makes Nigeria LNG the fastest growing and the world's third largest LNG venture. Train six produced its first LNG in less than nine days after requests for start up and this breaks, as far as we know, the world record that was held by our Oman Qualhat project set in 2005. So an excellent performance by the team building that plant in terms of quality and as I already said, budget and safety as well. We expect sales from the sixth train now to ramp up slowly as additional [seed] gas is made available to the plant.
Looking at Nigeria from another perspective, I think it's good to also say that Shell is now the largest customer of NLNG. This allows us to add value to Shell and to the venture through diversion and through access to our proprietary markets. In 2007 for example we diverted Nigerian cargos to Japan, to Taiwan and to India through Hazira amongst other locations.
Growth also continues at North West Shelf in Australia with construction of a fifth train nearing completion. I think just as important for us and often goes unnoticed, agreement was recently reached for the extension of the original Japanese sales contracts at North West Shelf which were due to expire this year. This provides the customers with an extended supply of LNG from a reliable source and the sellers it provides a price that's more reflective of the changing market fundamentals. We're also in active discussions with these same customers now regarding what's referred to as the high oil prices, which was not defined in the original contracts which may have defined oil price only up to $30 per barrel or $40 per barrel. And we expect these discussions to conclude favorably this year.
Construction also continues at Sakhalin where the LNG plant is now more than 90% complete and commissioning is well under way. The team on the island I have to say is working hard to overcome all of the remaining challenges and continue to aim to complete construction by the end of this year. I also have to say that customer demand remains quite strong for LNG from Sakhalin and from Russian and we all look forward, I think, with a lot of excitement and anticipation to the ramp up of production in 2009.
The final LNG project update, Qatargas 4. This is an exciting Middle Eastern addition now to our LNG portfolio at Shell and construction progress is so far in line with our expectations. Good progress was also made in 2007 on the various commercial agreements and underpin the venture and we continue to optimize the marketing strategy as we move towards start up. The current outlook is for material volumes to the Elba Island terminal on the east coast of the United States and the remainder to strategic markets in other regions.
So once these new trains and Pluto project are complete, Shell LNG capacity will grow to more than 22 million tons per annum, which is a 50% increase over today's level. We'll then have eight LNG ventures and operations compared to only five today, which will further diversify the portfolio. Our forecast indicates that this will enable us to maintain the LNG leadership position amongst international companies. So that was all about projects already under construction. We also have a number of growth opportunities in the portfolio that are not yet at FID. And in particular, I'd like to refer to Australia.
The massive Gorgon project achieved good progress during 2007, including securing some important government permit approvals. And then we were also pleased to sign a head's up agreement to sell 1 million tons per annum of Shell's LNG off-tick from the Gorgon project to CNPC in China, which is emerging as a very important LNG market for us.
In addition, we have our 100% Prelude discovery mentioned by Malcolm, an interest in the Woodside operated Browse and Sunrise project, all of which made some good progress during the course of the last year. So this means we have the resource base to more than triple our LNG capacity in this country in the coming years.
So now for just a few words on the LNG market. Our portfolio in LNG is weighted towards what we think are strategic markets in the Asia Pacific. And pricing in this market continues to strengthen, including in Japan and Korea, the traditional markets for LNG in the region, but also now in China and India, both of which are competing effectively, successfully for new long-term contracts in what is a very tight LNG market.
So we see the positive impact of all of this then in our existing mature operations, through sales of spot cargoes or diversions when we have the opportunity, but then we also have the periodic opportunities to adjust LNG contract pricing terms through what's referred to as price reviews or extensions, so like I referred to in Northwest Shelf earlier.
And importantly, new long-term Asia-Pacific contracts continue to be tied to oil price and recent deals have been agreed at substantially higher indexation than we've seen before. So driven, I think, just quite frankly just by the basic fundamentals of supply and demand. So this enables returns for our new projects to remain competitive in spite of increased capital costs and it gives us the opportunity to further improve returns on our existing projects as well over time.
So now for the Pearl GTL project in Qatar. This is a world-scale integrated project that covers the ground all the way from the drilling of the well to the marketing of the product. We'll take 1.6 Bcf per day of gas from two offshore platforms. We bring it onshore for processing, where we extract 120,000 barrels per day of LPGs, condensates and ethane.
The dry gas then goes to a GTL plant, where it's converted into 140,000 barrels per day of gas oils, base oils and naphtha. And these will then be marketed as premium transport fuels, lubricants and other products. And then all of this takes place under a development and production sharing agreement where Shell invests 100% of the capital.
So now 1.5 years since taking the investment decision. The overall project is about 35% complete. In particular, we're pleased with the safety performance on site, which is a priority, of course, for us. Where we now have 20,000 workers busy building the project. And this will increase to about 35,000 workers around the end of this year, just to give you a sense of the scale of the undertaking.
So there's good progress on sites, the materials offloading facility is now complete, the foundation work is progressing rapidly and four of the 24 GTL reactors have now been delivered, and three of them are now -- have now been erected and are in place. So quite exciting for the project teams. So all in all, progress on the major project proceeds generally in line with expectations and I'm sure we'll face a number of challenges ahead in what is a very exciting project for us.
We also finally have a small, but growing wind energy business. The current focus for new projects is in North America, where we can leverage our business development skills, project management skills and our power marketing skills through Shell Energy North America and some government incentives to generate what we think are competitive returns. Once construction at the two-phase Mount Storm project in the State of Virginia is complete, we'll have over 500 megawatts Shell share in operation and we'll be one of the larger wind power players in the world.
So in summary, gas and power continues to deliver strong financial performance, driven by increasing LNG volumes and the ability of our portfolio to capture the benefits of a strengthening Asia-Pacific market. We have a strong global position in natural gas in our company and a solid portfolio of new LNG projects under construction and in development. And these coupled with the Pearl GTL project and our other activities, I think, give us an exciting platform for continued growth well into the next decade. So thank you very much and I think I now turn it back to Rob.
ROB ROUTS: Thanks, Linda and a short reappearance on oil sands mining. This oil sands mining is part of the downstream portfolio at Shell because basically the mining and upgrading facilities have much more of a manufacturing in the nature than the upstream would have. And secondly, we would be able to upgrade across North America and look at the best opportunities across the landscape.
If we go to the first slide, we'll see the Athabasca Oil Sands Project. This is a joint venture basically of 60% Shell, Chevron and Marathon have each 20%. The mine includes a mine and an upgrader. They are both linked by a third-party diluted bitumen and diluent return pipeline.
In the mine, the Muskeg River Mine, the sands containing bitumen is excavated and delivered to a crusher for processing. The crushed ore is then cleaned, diluted and delivered to the Scotford upgrader. The upgrader uses hydrogen-addition technology rather than coking, which most of our competitors do, to turn this high-viscosity, extra heavy crude into a range of synthetic crudes.
Shell's Scotford refinery takes a significant amount of Shell's share of the crude and processes it into consumer products such as diesel, jet fuel and gasoline. And then some crude oil is also shipped to Shell's Sarnia refinery and other refineries in the U.S.
If we go to the next slide, you'll see the earnings over the last couple of years. The earnings decreased from 2007, from 2006. It was largely due to a number of unplanned shut down events and mostly in September and the latter part of the year. We had a fire in November in the Scotford upgrader, which caused about $200 million in repair and opportunity loss in the fourth quarter. The failure was related to some metallurgy issues that have now been resolved. So basically to be brought back to the construction period.
In 2007, we were also impacted by an increase in the royalty rate that actually came into effect by mid-2007 as the project reached its regulatory capital pay-hold -- pay-out threshold. The decrease between 2006 and 2005 was mainly due to the first major scheduled turnaround at the mine and at the Scotford upgrader. Also we had a tear in a major conveyor belt at the mine in the early part of that year. Shell's share of net bitumen production for 2007 averaged about 81,000 barrels a day and in 2006, 82,000 barrels a day. And in 2005, it averaged 95,000 barrels.
The mining chemical availability actually continues to improve year-over-year. The 2007 CapEx increased to $1.9 billion from 2006 of $0.9 billion. Increase was due to the expansion one spending online, additional 60,000 barrel production per Shell share in mining and upgrading.
Also in 2007, we filed for regulatory applications for an expansion to Checkpoint mine and a new Pierre River mine oil sands project. Combined additional 180,000 barrels Shell share. In July of 2007, then we filed for regulatory application for the Scotford upgrader. We are asking for expansion to a 4,000 barrel a day capacity. Again, 100% Shell share. Next please.
We acquired the initial lease in 1956. So we have been in this business for a long, long time. Additional leases were acquired in 2004 and 2005. Over the last several years, we acquired a number of these other leases north of the existing facilities, increasing our potential minable area in Athabasca to about 125,000 hectares. Estimated total of our minable Athabasca leases equals more than 10 million barrels of oil in the ground. Not all of this is recoverable, core hole drilling on the new leases must take place before we can more fully access the resource base. New leases yet to be evaluated and are not included in our resource base.
In terms of applications and approvals, our ambition is to grow the oil sands business in Athabasca to 770,000 barrels a day, which is 100%. Regulatory approvals for 470 barrels a day, again, 100% share and recently applied for additional 300 barrels of capacity at Jack Mine and the Pierre River mines. So a lot in the pipeline. And next slide, you see the expansion one update. We plan to continue to build our oil sands business and believe that it is one of the strengths in our strategy of end-to-end oil sands business.
The key to this is the mining integrated with upgrading capacity and that then integrated at the refining and marketing as well. The owners approved an expansion one in quarter four of 2006 and it's the first major expansion of the Alberta oil sands. Expansion one brings online another 100,000 barrels, about a 100% share production capacity through the new Jack Pine Mine and the Scotford upgrader. Synthetic crude production is scheduled to commence in late 2010. Increases in proved and probable net mining bitumen reserves at the time of the decision was 679 million barrels.
Becktell is taking care of the EPC side on the upgrading and Aramco is in the mine expansion. We expect to use up to 7,000 trades people at the peak of construction in 2008 and 2009. Key features of expansion one is that we have learned actually from the first project and we're putting a lot of corrective action in place there. For instance, we use high temperature frost treatment, which is a process which actually will cut the energy consumption by 3.4 million gigajoules in the plant, which will help in terms of CO2 emissions. Also we have switched to a two-by-two reactor design, which increases the flexibility of the upgrading plant.
On the next slide then, it is -- we seek to maintain actually a balanced position of production and upgrading over time in North America and this is the North American upgrading I was talking to you about earlier. The existing mine and expansion are integrated within the upgraders at Shell Scotford, but we have identified a portfolio option to match future bitumen growth for mine expansion and in situ operations. So both.
This portfolio leverages our full North American asset footprint. And the options that we are including here are one further upgrading within Alberta at Scotford or integrated in the bitumen production operations. Two is the opportunity to build a 150 kilobarrel to 250 kilobarrel heavy oil refinery in Ontario and we continue to evaluate that option. And number three is to process oil sands crudes in our U.S. refining system, either on the West Coast or on the Gulf Coast.
We're studying this right now and our ultimate decisions around these options will be guided by a couple of things, capital intensity, market access and transportation costs. The [optimal] sequencing of these options then continues to be working in conjunction with the bitumen growth plants, taking into account the evolving market and regulatory environment.
To get the key messages then, deliver AOSP expansion one, the 100,000 barrel a day expansion of a fully integrated oil sands mining and upgrading facilities. Downstream options being evaluated. Several alternatives are available, this gives us a lot of flexibility. Future mine expansions work is underway, expansion two and expansion three, with potential up to 770,000 barrels a day at 100% share.
And then for expansion one and future projects, we will all meet the federal and provincial government regulations in Canada that are currently being enacted. You have seen last week some new legislation or regulations on greenhouse gases by the federal government.
We're also