News and Media Releases

Marvin Odum's Speech in Washington, D.C.

24/09/2008

Marvin Odum's speech at the Washington Post Climate Change Conference in Washington, D.C.

Thanks very much.

I have to tell you this quick story that occurred to me while I was sitting at the table. When you grow up inside a company like Shell, at some point somebody comes to you and they pull you aside and say, “You need a couple of hours of training on how to give presentations.” So, I took my couple hours and they said, “Not great but you’ll survive. Go ahead. I just have one piece of advice for you. Never follow Tony Blair.” Anyway, hopefully we’ll survive that.

I think my opening line still fits, though, and that is that timing is everything. This summer, when crude prices were soaring through daily historical highs, gas broke the $5 barrier in some places and record-high temperatures were shocking electric bills, Americans woke up almost all, as one. They and their neighbors were paying a heavy price for not having a sensible national energy policy.

Now, diverse exploration and production and new refineries suddenly had to be at the center in the halls of Congress and had to be at the top of the agenda in the national debate. It reminds me when Churchill wrote that being shot at focuses the mind. In some ways, the summer’s high prices had the same galvanizing effect for us.

The Washington Post and others indicated that one silver lining of this change was that all Americans, policymakers, politicians and consumers were now ready to get serious about energy supply, consumption, usage and the absence of a national energy policy that also addressed climate change.

Then, something happened. High prices started to result in a reduction in demand – at least in the U.S. Supplies started to rise a little bit and crude prices started to fall back. Back-to-back hurricanes brought devastation and many of the world’s camera crews went down to the Gulf Coast.

And, the presidential election heated up and the vice presidential election really heated up. Then, what some would call the biggest financial crisis – perhaps since the Great Depression – happened.

Much of the energy and climate talk just went away. It’s easy to explain this on a very short-term basis, with some of these very important things hitting the headlines. It really exemplifies what, I think, is the thing that I am most worried about.

And that is that we struggle to keep our eye on the long-term goal in solving this energy and climate issue. It may be off the front page, but really nothing has been done, I don’t think, in a big way to solve that problem, yet. And, if we don’t do something, the prognosis is still fairly grim.

That’s a shame, because it seems like we were poised to make pretty good progress here in the last six months. Consumers were taking efficiency and conservation more seriously. Of course, they had to, because they were making very difficult financial decisions on which they really had no choice. Public transportation saw a noticeable bump and hybrids were in more demand than the latest iPhone and real, do-something energy legislation almost started to take shape.

Let me talk about the hurricanes for just a moment. I do that because Gustav and Ike brought devastation, of course, to the area but they also brought some insight. And, although those storms cut a devastating swatch through most of the Gulf Coast, the industries rigs and refineries withstood that challenge. We faced down that stress test and those assets are still there, they’re still in good shape and the environment was protected.

But, that threat has also reminded us of the critical need not only to diversify where our energy comes from, but the absolute geographic, ultra concentration that this country has in the Gulf of Mexico region. And then as I mentioned, the financial hurricane hit and blew energy off the front page. But we can’t let it stay that way. We simply cannot afford to lose the momentum to deal with energy needs and climate challenges of both this nation and the world.

We are focused on this at Shell but, of course, that is our business. I would like to share with you some of what Shell is doing in our corner of the energy world but, maybe equally important, share with you how we see the world as a whole.

If you would allow me, I am going to state the obvious here and that is that climate and energy must be addressed together. They are fundamentally linked. From our perspective, addressing this challenge starts with recognizing three undeniable truths. I would be shocked if anybody in this room hasn’t heard me or somebody say the three undeniable truths.

Those are (and Tony Blair alluded to it) that global energy use is surging and supply is going to struggle to keep pace, and environmental and climate stresses are increasing. Now, we’re seeing a step change in the rate of growth of energy demand – easy oil and gas, conventional oil and gas that which is relatively easy to get to is not going to keep pace with demand growth.

In fact, I would be willing to say that all of the world’s energy sources – hydrocarbons and alternatives and renewables – could struggle to match demand growth. And we will have to meet that demand partly through additional efficiency and conservation efforts. So, in short, for the next couple of decades, we are going to need all of the energy that we can get from all of the sources that we can access.

Environmental strains － both through climate change and local pollution － are increasing, particularly as developing nations enter their energy-intensive phases. Again, nothing new for anybody in this room. Coal use is at its highest level and it’s on the rise.

So, in summary, I have characterized the global challenge that we face in five words: More energy, less carbon dioxide.

This is our reality. Where do we go from here?

Every four to five years, a team of Shell experts gets together and tries to answer that question by developing what we call the “Shell Global Scenarios.” This basically offers views for various energy and policy futures over the next 30 years or so. These scenarios help us, and sometimes they help others, pick the right strategies and make the right investments for complex and very expensive projects that often last for many decades at a time.

We recently completed the latest Shell scenarios and I’m not going to get into any sort of detail in terms of explaining those but I’ll just say this – one is characterized by energy and climate policies that are haphazard and crisis driven. And it’s a world where nationalism is really what prevails in those decisions.

The other scenario – and somewhat at the other end of the spectrum – are localities in countries developed more rational and linked energy and climate policies combining CO2 emissions valuation, clean energy and efficiency and conservation incentives. So, in all cases, it stills brings us back to the same two questions – what can we do as individuals and as leaders, and what can we do as a country through our institutions of government?

First, let me give you some idea of what we’re doing at Shell. We have what we call the six CO2 reduction pathways and some of these are going to sound quite obvious to you but they are still very, very important.

The first is increasing the efficiency of our existing operations. So, this is thinking about what is on the ground and using existing technologies to go in and make that better and more efficient than it is. That is an important piece of business.

The second is to establish significant carbon capture and storage capabilities, as Tony Blair mentioned. Building on that technology to make it both safe and affordable, because right now I would say it is not affordable.

A third is research and development to lower CO2 intensity of oil and gas production. Now, this is stepping back to before a project is ever designed or decided upon in terms of an investment, but looking at those technologies that make the whole system less CO2-intensive to produce them.

The fourth is to aggressively develop low CO2 energy sources. That includes natural gas that is shipped, alternatives and renewable fuel options.

Fifth is managing demand, meaning we can help our customers use energy smarter and use less energy. And that is becoming a thriving business on its own.

And, finally – and where I will spend the rest of my time this afternoon – is working with governments to advocate effective CO2 regulations. Let me give you a couple of concrete examples on how we are applying these principles.

First of all, with respect to carbon – and I hope this has come up earlier today because I don’t think I can over emphasize the importance of developing the transparency and the quality reporting systems that we need around carbon dioxide. Without it, I don’t think any system designed to encourage reduction is going to really work optimally.

These transparency and measurement systems could be developed now, even while we’re having this debate on exactly how we’re going to address the issue. And we need to get on with that definition.

In terms of new energy sources, this year, Shell is quadrupling its rate of investment in biofuels research and development.

We’re working with a variety of firms on a variety of projects. Let me give you a couple of examples. Making ethanol from straw so, again, the shift away from food to waste materials, producing fuel from wood residue, turning marine algae into biomass that can be used as the feedstock in biofuels, developing super enzymes that can convert non-food biomass into biofuels more efficiently, and turning sugars from plants directly into gasoline.

For those of you who are into the technology at all, what I mean is skip the ethanol step and go directly to gasoline.

Each of these provides a significant net benefit from a CO2-generation standpoint, relative to conventional hydrocarbons. Some of these hold the promise for even being net carbon dioxide negative, meaning they absorb more carbon dioxide in their development than they will ultimately emit.

We’ve also committed in a big way to turning natural gas into liquid fuels. It is a cleaner fuel than conventional diesel; it is colorless, odorless and it contains almost no sulfur and aromatics. So, in fact, earlier this year (around February), the world’s largest airliner, the Air Bus A380, became the first commercial aircraft to fly with Shell’s clean, synthetic jet fuel processed from natural gas.

Now, we’re also helping to provide lower-emission electricity by continuing to invest in cleaner-burning natural gas and in working to reduce the cost of energy from renewable sources, so that they can compete because, ultimately, they do have to compete in the energy mix. Shell’s renewable portfolio includes biofuels, wind, solar, hydrogen and others. None of these provides the answer for our issue, but they all have some potential.

I thought I would expand just a bit on wind. I think wind offers significant potential for the country. We appear to be on track to be one of the world’s largest producers of wind power. In the U.S., we’re already producing about 900 megawatts of power from wind – and that’s enough to supply the power to about a half a million homes. So, it’s a start, but it also shows that it’s a real business and it’s happening.

So, let me end by focusing for a moment on what governments can do to help us as individuals, companies and institutions do our job better and more efficiently.

I’m going to start with two “Motherhood of Statements” and I’ll apologize for those up front, but I’ll follow them with a little more detail.

The first is governments must create internationally aligned policies to address the energy challenge and the climate change, without distorting competition among companies worldwide. Again, I think, it fits right into the kind of comments we were hearing on the video.

Second, governments must set goals that enact even-handed policies that encourage private ingenuity and rationally regulated markets to deliver the best solutions. And the markets will deliver those solutions.

So, there’s a lot hidden in these statements, but let me try to make this a bit more practical – and I’ll do that by advocating five areas for government and regulations with regard to CO2 regulations and reduction.

First, I think, we need a cap-and-trade system as part of the answer for large, stationary sources. So, for power plants and big refineries like Shell owns, cap-and-trade is part of the solution with the goal, of course, of creating a global carbon market.

Second, we need clear incentives for carbon capture and storage. You’ve heard it, I’m sure all day long, and it is an important piece. Let’s make sure that it is not missed and, at the very least, companies should earn carbon credits for any CO2 that they capture and store – and that is not necessarily the case in the global systems today.

Third, we need a simple and credible target for the share of renewable energy sources in our energy supply with a caution to not have the government pick the technology. The market will find the right technologies to solve these problems.

Fourth, we need separate measures for the transport sector with pieces that are geared specifically to increase the vehicle efficiency and CO2 incentives for fuels accounted on the full life cycle CO2 generation of those fuels. We tend to call it well-to-wheels. That is where part of this measurement in transparency comes into place – we need to be very clear about those that are actually reducing the CO2 content.

And finally, we need robust energy-efficiency standards for buildings and appliances, with incentives for retrofitting.

I recognize that the polarizing atmosphere of the election does not encourage shared vision, compromise and consensus necessarily. You can call me an optimist, but I was pretty encouraged about 10 days ago when I sat in a session, on a panel with Dan Yergin, John Deutsche and others, with about 20 senators from both sides of the aisle and we talked about their views, answered their questions around what needs to be done to solve the energy and climate problems that we face.

I thought it was a significant shift, because it was a surprisingly constructive conversation and a lot less political than what I am used to in those sessions. I found that the amount of overlap in terms of commonality on things we could act on was much greater than what I had seen in the past.

It’s a recurring theme that comes up. I see John Holdren sitting at the table here. He and I have shared the podium in the past as we talk about this. John may say it differently, but I look at our positions on these various things and I think we overlap on 70 or 75 percent of the content there.

I made a presentation to the state legislators from all 50 states with Fred Krupp of Environmental Defense and I would say exactly the same thing about that conversation, with 75 percent overlap in terms of what we thought needed to be done next. There have to be a number of things that we can act on now within that space.

Some of the ideas that are coming up, of course, need greater discussion and examination. Ideas like those offered in The Washington Post just last Sunday, which had an interesting editorial on the topic. I can’t actually say I agreed with everything that was in there, but I do think there are bold, innovative ideas that need to get on the table that will ultimately lead us to solutions.

I’m going to end on that point, which is let’s find that common ground and let’s act quickly.

Thank you very much.