Speeches

John Hofmeister's '07 Speech in Albuquerque

24/01/2007

How the U.S. Can Ensure Energy Supply for the Future. John Hofmeister's remarks to the Albuquerque Chamber of Commerce in Albuquerque, New Mexico.

Ladies and gentlemen, thank you for being here today, for the hospitality that you’ve been presenting to me and to members of my staff as we’ve visited with some of your town folk last evening in a Town Hall session and as we’ve visited parts of the city this morning.
 
And we look forward to a continuing engagement in this session this afternoon.

The last 50 years of oil and gas and energy in this country were both affordable and available.
 
But what about the next 50 years? Will the affordability and the availability that we have grown so accustomed to in our country be there for us or for our children or for their children? But take another 50 year addition, what about 100 years from now?
 
What about when our grandchildren’s grandchildren are thinking about energy and their needs of the future?
 
At Shell, we’re deeply concerned about energy security. And the President of the United States is deeply concerned about energy security.
 
In fact, ladies and gentlemen, we should all be concerned about energy security because we are the solution sitting in this room, because we elect the people who run our nation and run our states who will determine whether we do or we do not have energy security.

The definition of energy security I’m using for this purpose is affordable, available for the generations to come, because we can muddle through the next decade or two based on the energy strategies of the last 50 years.
 
But energy will be more expensive; its supply will be less predictable and the geopolitical tensions that we see around the world could actually get worse based upon the energy issues, particularly when it comes to importing and exporting of oil and gas. And so where do we go?
 
But before I get to “where do we go?” let me try to explain “why are we here?”

Why would somebody from a company that has charged you so much per gallon and reported such high profitability over these last 15 to 18 months put his face in this town?

Not just representing the company which charged you so much, but representing an industry as well which some say has just about zero credibility – offering solutions that if we made decisions today could take seven to 10 years to actually bring more new oil into the market.

I’m a person who is always banging on the same doors of Congress saying, “More access, please. More access, please.” Driving them right up their walls because – on the other hand – they have many constituents who say, “Don’t give those guys more access.

That’s dirty, nasty stuff that they do and we should be promoting alternatives that are cleaner and better for the environment.” And so this tension is going on.

And I’m here also promoting energy efficiency. This again, if we took decisions today, could take 10, 20 or 30 years to have a material impact on the use of energy. So with that as a platform, one might say, “Why are you here?”

I think it’s critically important that we better understand what we face because here’s a story that’s true.

On the Friday night the week after Hurricane Rita passed through East Texas and West Louisiana, Katrina had already gone through and shut down most of Mississippi, Alabama and Louisiana. Now Rita came through and shut down Texas and East Texas.

I called the Energy Secretary, Sam Bodman, Friday evening and said, “Mr. Secretary, the reason I’m calling you tonight is our Motiva joint venture in Port Arthur has the last 300,000 barrels of finished oil products to be pushed into the Plantation and Colonial pipelines, which serve the entire southeast corner of America right up to and including Washington, D.C. and Baltimore, Maryland.

“But Mr. Secretary, we don’t have any electricity. We’re working full-time to get electricity emergency power back into our refinery. But we have no guarantee that we’ll get it this weekend and if we don’t push product this weekend those two pipelines are dry come Monday morning.

“And if they’re dry, Mr. Secretary, we’re going to have panic buying up and down the East Coast within hours of Monday morning start of business. And if it’s in the Southeast, you can imagine what the Northeast will look like; imagine what the Upper Midwest will look like.

“We could have a national disaster of panic buying because of these hurricanes. And the reason I’m calling you on Friday is I may have to call you Monday and ask you to please ask the President to declare a day of ‘National Reflection’ so no one drives on Monday with dry pipelines.” He said, “I’ll pray for you over the weekend.”

Now, fortunately, our staff worked around the clock; they got the emergency power about four o’clock on Sunday afternoon. They pushed; they started pushing barrels into the pipeline so they didn’t go dry.

But, ladies and gentlemen, this is the United States of America hours away from dry pipelines. We’re not used to that. But that’s how tight the demand-supply equilibrium has become.

We lost 25 percent of our production capacity for months - not days, not weeks but months - and had this very serious issue with price.

And that price was the only rational decision maker of whether you bought gas or didn’t buy gas. The good news is the industry continued to supply product; the bad news is it cost a lot of money. It doesn’t have to be that difficult.

But, here’s the issue. The last Congress on the last day of the last session in the last hour passed an access bill opening up eight million acres in the Gulf of Mexico. It was the first access bill opening up more acreage in the Gulf of Mexico in 25 years.

Twenty-five years we’ve been denied access to more Outer Continental Shelf in the Gulf of Mexico. Eight-five percent of the nation’s Outer Continental Shelf is still declared “no access” to oil and gas exploration and production.

Vast tracts of federal land are off limits in this country for development of natural resources. That’s because public policy says we’d rather protect the land than develop the land.

We accept that and we’ve gone after imports to make up the need that we have to meet our daily demand. Every day 14,000 Shell stations need to be re-supplied with gas. We have to get it from somewhere, so we import it if we can’t develop it in our own nation.

But when it comes to conventional oil and gas, ladies and gentlemen, there are billions and billions of barrels that are undeveloped in this country because public policy says, “Don’t develop those basins, those reservoirs.” We will continue to develop that which we can and we are working in the Gulf of Mexico, in South Texas, in Wyoming, in Alaska, to try to develop more natural resources.

But there is so much more that we could do with the permission of government. But that’s the conventional oil and gas story. There’s plenty out there, we just need permission to develop it.

But when it comes to unconventional oil, that’s things like oil sands that you read about in Alberta, Canada or oil shale, which you read about in Colorado, Utah, and Wyoming.

There are vast amounts of unconventional oil and gas resources, which could be developed. Now Shell has interest in the oil sands of Canada through our Shell Canada subsidiary and we are producing about 150,000 barrels a day in Shell Canada. And there are prospects of growing that.

In Colorado, we have a research project under way in the oil shale region where, in a few years, we may be able to make a commercial decision to produce oil and gas from the oil shale of Colorado.

But we are still years away from the production of that possible product. And we’re still testing some of the technology to make sure it works and that we can meet all of the environmental issues that people may raise with respect to water and air and CO2 and all of the other things associated with a new development. But the oil is there; the gas is there.

So that’s conventional oil and gas and unconventional oil and gas. But if we were to develop all of those billions and billions of barrels, is that enough for the future of energy security in America? We don’t think so. We think we have to do even more. And we are doing more.

For example, you’ve heard of liquefied natural gas. Liquefied natural gas is the movement of natural gas in liquid form from stranded gas regions of the world where there are vast quantities of gas, natural gas, but no market.

For example, the Northwest Shelf of Australia, or Nigeria, where there is not a huge market for natural gas but vast, vast amounts of natural gas to be produced.

So we can take that natural gas; cool it until it’s liquid form; ship it to the U.S.; re-gasify it (meaning bring the temperature back up) and we can augment the natural gas supply of the United States with liquefied natural gas. But there’s an issue.

Who wants a re-gasification terminal in their town? We’re working as hard as we can to convince policy makers in the State of New York and Connecticut to permit a project called Broadwater in the Long Island Sound (nine miles off the coast of New York, 11 miles off the coast of Connecticut) in a facility that looks like a ship because it is.

It is a permanently moored ship, which would re-gasify liquefied natural gas. Getting permission is the biggest obstacle.

It’s not the cost; it’s not the security; it’s not the safety – all of which are manageable.

We’ve been doing this for 40 years in other parts of the world. But getting the permission is the issue. Will we develop an asset like the Long Island Sound to bring energy to the Northeast?

And I’ve met with elected officials from the region to say it’s really a question of, “Do you want more energy brought to your region or not?” It’s that simple. “You have the most expensive natural gas and electric bills in the country. Would you like more energy, which will bring more supply, which can bring those bills down?

It’s a question you will have to answer.” We’re ready, willing and able to make it happen. We need the public policy to do it.

But that’s not enough, either. There’s something called “clean coal” these days.

This nation is blessed with an abundance of coal – more coal reserves in this country than in the entire rest of the world. We currently pulverize that coal and burn it. Not a very efficient way of getting energy out of coal.

Technology has moved on and we now have something called “integrated gas combined cycle technology” (IGCC), which can gasify coal rather than burn it.

The gasification of coal – imagine this – you heard I’m a political scientist, not an engineer, so I’ll give you the political scientist version of a technical process: take that pulverized coal and bring it down to the consistency of talcum powder. Imagine coal at the consistency of talcum powder.

Enter that talcum powder into a Shell gasifier, which is at 2,500 degrees Fahrenheit and over 1,000 PSI and what happens to the molecule of talcum powder? It explodes. It gasifies.

The gas can be used to drive a combined-cycle turbine; the CO2 can be captured; the other emissions can be captured and managed and what you have is a far more efficient use of coal molecules in a way in which you can develop, in essence, CO2-free electricity through the management of the CO2 through sequestration or other means.

This is do-able. It is happening now in other parts of the world. The U.S. is getting interested in this subject. The President mentioned it last night in his State of the Union. That’s a whole new vast source of electricity generation where we would like to play a technology provider role.

But is that enough? No, not yet. We have huge needs for energy in this country. And so we move on to biofuels. Biofuels represents a major step forward with the proper research and development to produce possibly vast quantities of new motor fuel.

Now, the President talked about 35 billion gallons by 2017. We like the direction the President is pointing us in but we’re not sure how to get there yet. Because corn ethanol is just about at its limit based upon the projected plants that will be built in the next few years.

There really is a question as to how much ethanol can we get from corn before it upsets other aspects of the supply-demand relationship, for example, with food? We eat corn.

The President of Mexico just declared a price ceiling on tortillas because corn is being sucked up by ethanol manufacturers, which doesn’t allow people to eat that corn.

So we have a choice – the fuel tank or the belly for the corn. We believe, Shell believes, that cellulosic ethanol is a better answer over the longer term. Not that we’re against corn ethanol but there are implications.

We believe instead that the cellulosic ethanol is a vast untapped supply of biofuel, but the technology is different than with corn. We’re still conducting the enzyme research that makes the cellulosic ethanol possible and, most importantly, affordable against the alternative of gasoline.

We believe that a five-to-10 percent blend of ethanol across the country would be a welcome solution – that would take us to 16 billion gallons, which is still short of the President’s goal. But we believe that’s do-able and achievable and so let’s go in that direction to see where do we go next from there?

If we get into E85 ethanol, now we’re talking about a new infrastructure, as well. A new fuel distribution infrastructure where the pipes, the valves, the storage tanks all have to be E85 compatible and that’s not always the case in the existing infrastructure.

In fact, no current gasoline pump in its current design can take E85; it takes a special pump at a gas station to sell E85. That might be possible over the longer term but let’s get to the five to 10 percent level first and move on from there and see what the market wants.

But is that enough? No, there’s more and Shell is involved in wind energy, where nearly 350 megawatts of electricity will be produced today through Shell wind farms.

There’s solar energy where Shell has moved from silicone photovoltaic panel production into the research and development of a copper indium diselenide alternative for photovoltaic cell production, which we believe is less expensive and more efficient – meaning it produces more electricity for the consumer. And we believe there’s a lot of opportunity for solar electricity production as well.

And we move on to hydrogen. Hydrogen fuel cell vehicles are on our roads today. In Washington, D.C. at a Shell station on Benning Road, we have a hydrogen pump that refuels General Motors vans (hydrogen fuel cell vans) to take members of Congress around Washington so they can see that this is real technology.

It’s not commercial yet; it’s still in development.

It’s too expensive for commercial applications currently, but over the course of the next years and maybe a decade or two, we could see not thousands, not hundreds of thousands but even millions of hydrogen fuel cell vehicles sometime in the 2030 timeframe if we’re successful in breaking through some of the technical barriers that we currently face such as the storage of hydrogen in the car and the development of a hydrogen distribution infrastructure around the country.

All of which takes time, all of which takes investment and all of which has to work not only technically but it has to work for you. You’re the consumers of this product so it has to work for you.

But if we do all of that – conventional oil and gas; unconventional oil and gas; liquefied natural gas; clean coal, biofuel; wind; solar; hydrogen – is that enough to deliver energy security for the future? No.

There are three more important aspects from Shell’s perspective that are not “nice to-do’s” but are “must-do’s,” starting with the management of greenhouse gases. If you go to today’s “Financial Times,” you will see an op-ed from the Global Chief Executive of Royal Dutch Shell calling for government leadership of greenhouse gas emissions on a national and a global basis, where a framework is necessary to manage this issue for society going forward.

We don’t believe we can ignore it; we believe government should set the policies. There should be standards that work in market conditions so that we can incentivize companies to do what needs to be done on the CO2 front to manage this issue going forward, because the world will demand more energy as the world economy grows.

That energy will be provided for the most part by hydrocarbons, so today’s CO2 level will only grow unless we manage it differently. And so Shell calls for government-led initiatives that will solve this problem over the longer term. That’s point one.

Point two – energy efficiency is a must-do for this nation: the energy efficiency of mobility, the energy efficiency of buildings, of homes, of factories, of schools, the energy efficiencies of appliances, the energy efficiencies of lighting, of everything that we touch that uses energy.

There are technical improvements possible virtually across the board. So whether it’s market pull or technology push or maybe a little government advice on how to get where – all of that is important to us to make the more efficient use of energy molecules which then makes more molecules available for the generations to come.

And, finally about those generations to come. What we do today to educate our children about energy is simply invisible for the most part. We’ve surveyed school curricula in a number of states and have yet to find a bonafide, meaningful academic curriculum on energy.

But yet energy, ladies and gentlemen, is our lifestyle. Energy is our economic base on which prosperity resides. And yet we teach our children almost nothing about where energy comes from, how it’s formed, how it’s managed, how it’s developed, how it impacts society, how it costs us in many different ways.

We don’t teach it. We teach history; we teach science; we teach math; we teach all the other things that children need to know as they grow into adults. Shell’s view is we should teach energy as well.

And we’re not just saying the words; we’re putting actions behind it.

“Energize Your Future” is a website where teachers (for free) can download a semester’s worth of energy education – not put there by Shell to sell Shell products; put there by Shell, thanks to the work of academicians, which we’ve paid them to do, to produce this curriculum of energy education, which is targeted at middle school and high school age children so they can learn something about energy to be educated consumers and to be educated voters as the future unfolds on something so essential to our way of life and to the economic prosperity that we all enjoy.

With those three added elements – greenhouse gas management, education and energy efficiency – we believe that lays out the path, with all of the other areas of energy work that we can focus on, to deliver energy security for the future.

Thank you for listening.