Speeches

John Hofmeister's '07 Speech - Birmingham

31/07/2007

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

Ladies and gentlemen, it’s a pleasure to be here in Birmingham today and to talk about a subject that I believe touches each and every one of us in both seen and unseen ways. 

And the reason to talk about such a subject is, it is becoming a dearer and dearer topic as we move forward into the future. 

You might say, “Well, why is somebody from an oil company out here talking about this subject?  Isn’t this just about Big Oil trying to put more money in Big Oil’s pocket?”  And, let me try to put that in perspective for a moment.
 
When I hear the term “Big Oil,” I tend to think about the tens of thousands of employees who work at Shell every day, who get up early in the morning to bring more energy to more American people, who are everyday Americans just like ourselves here in the room, who do take risks because this is an industry that has a lot of risk associated with it. 

We work with that risk every day.  They can be 12, 14 days on and 14 days off through the heat of the summer in the Gulf of Mexico, through the cold of the winter in the Arctic Circle, trying to bring more energy to the American people.
 
“Big Oil” is big because it takes a lot of money to do what “Big Oil” does.  But for those who think this is just about greed and sitting on piles of cash, I would rather make our case in a somewhat different way. 

I would rather make our case with the following rather bold statement. 

Today’s public policy on energy is creating social injustice day by day because those who can least afford energy are being caused to pay more and more for energy by the day because public policy is not supporting the opportunity to bring more energy to the American people.
 
What do I mean by that?  When it comes to the production and development of domestic, conventional gas and oil resources, ladies and gentlemen, public policy enables the exploration and production of oil and gas resources in exactly 15 percent of the Outer Continental Shelf; 85 percent of the Outer Continental Shelf is off limits by public policy. 

The Congress three weeks ago had the opportunity to vote on an amendment by Representative Peterson to open up more Outer Continental Shelf for gas exploration. 

It was voted down by an overwhelming number, meaning that the opportunity to move beyond the 15 percent of currently available Outer Continental Shelf was voted down.
 
In addition, in the Energy Bill being worked on today federal lands will be severely limited in terms of further exploration and production. 

And so the reality is over 110 billion barrels of known, available, domestic oil and gas resources are off limits by public policy, while the cost of energy becomes dearer and dearer, particularly to those who can least afford the costs.
 
I think this is an issue for a national dialogue and, as a consequence, Shell and Shell leaders have been visiting cities across the nation over the last 12 months to try and talk more deeply about this issue, but at the same time to listen – to listen to the perspectives of Americans from Boston to San Diego, from Seattle to Miami and many, many other cities in between. 

I’m pleased to say that Birmingham is the 40th city we’ve visited in the past 12 months and delighted to be here where we’ve been meeting with a number of key stakeholders in the community this morning, such as the National Urban League and the Birmingham News. 

This afternoon, we’ll have an opportunity to visit with the mayor.  This evening we’ll have a community Town Hall, which we hope a number of people will come and join us so that we can hear their views on energy.
 
But, I would like to articulate to you what I think could be an energy security strategy for the nation in a nation which has not had an energy strategy in anyone’s memory. 

We’ve had energy policies come and go, but to have a comprehensive, cohesive, coherent energy strategy that deals with the supply side and the demand side and the technology side and the environmental side, all at the same time, we’re still looking for one.  And so here is something, here are some items you might think about.
 
When it comes to oil and gas many people ask, “Are we running out of oil and gas?”  The answer is, “No.”  To the peak oil theorists, I would say I agree in part with what peak oil theorists suggest because we are probably past peak oil when it comes to what is defined as easy, conventional oil and gas. 

If you go back to the Beverly Hillbillies days when Uncle Jed shot a bullet in the ground and out came bubbling crude, those days are behind us, for the most part. 

There are very few opportunities to find easy, available oil and gas by conventional means of production. 

And so we’re going into more expensive, somewhat more costly, somewhat more risky areas like the Perdido Project, which Shell is developing in the Gulf of Mexico.

Where in 7,800 feet of water (yes, 7,800 feet of water, more than a mile deep) we’re 28,000 feet below the surface of the earth to find the reservoir, which looks like a very promising reservoir, and the amount of money to be invested is nearly a billion dollars to try to bring this oil up 28,000 feet to the surface of the earth then up 7,800 feet of water, in which the sub-sea equipment and infrastructure is all built by a robot in pitch-black darkness.

That is the nature of today’s conventional oil and gas and the technologies required.  But the good news is there’s plenty of oil and gas (conventional oil and gas) in this country to be developed.  I mentioned the 110 billion barrels that we know about.
 
In addition to the conventional oil and gas, this country and this continent contain vast quantities of unconventional oil and gas, such as the Alberta oil sands, north of Calgary, where there’s more than a trillion barrels of oil sands and Shell is developing about 150,000 barrels a day production now, on our way to 300,000 barrels a day. 

But the whole of the oil sands of Canada is a good example of a national strategy for energy development where the government of Canada (the federal government, working with the provinces) decided to develop these oil sands as a matter of national energy strategy.  The United States could learn from that experience.
 
But, in addition to the unconventional oil in Canada, there is again a trillion barrels of unconventional oil shale in Colorado, Wyoming and Utah. 

So to the peak oil theorists, I would say that conventional easy oil is peaked but there’s plenty of oil and gas yet to be had and the technology is developing or is already here to make it possible to bring oil sands to market, later to bring oil shale to market through technology that doesn’t have to mine the earth, but rather an in-situ technology where we can essentially extract the oil and gas from the oil shale without having big quarries with lots of rock pile. 

Instead, we drill holes in the ground, we place heaters down the holes, we heat the carrageen in place and out comes the oil and gas after a period of heating – all possible, all doable in the foreseeable future.
 
But, in addition to the conventional oil and gas, of which I mentioned 110 billion barrels, the trillions of barrels of unconventional oil and gas, there is more energy available, such as coal, and coal does not have to be used in the traditional way of burning pulverized coal. 

Instead (and I know this is being debated in the nation right now), Shell is a believer that the integrated gas combined cycle methodology of using coal through a coal gasification process is a cleaner, more-efficient way of using coal, particularly if the gasification of coal is coupled with the sequestration of carbon dioxide. 

So CO2 capture and sequestration, coupled with coal gasification – while  more costly than the burning of pulverized coal – Shell nonetheless believes this is a viable future energy strategy, which with public policy support can and should be developed.
 
The U.S. has barely touched coal gasification as a technology, which not only can produce syn gas for combined-cycle electricity production, but can also produce liquids from the coal, which is a clean burning fuel of the same quality as gas to liquids, which we know is being sold in Europe today and greatly cleaning up the diesel products in Europe, because of the cleanliness of this gas-to-liquids product. 

But in addition to that, as I said, the capture and sequestration of carbon makes this a virtually CO2-free possibility.  Shell is active in China, active in Australia, active in Europe.  We’d like also to be active in this technology in the United States of America.
 
But, in addition to coal gasification, there is another form of gas – liquefied natural gas.  Now, there’s a little bit of a debate in the country at the moment as to whether we have sufficient natural gas supplies or not.  Actually at the present time (today as we speak), we’re in a fairly good position in terms of the supply of natural gas. 

But that’s largely because use of natural gas by the manufacturing industries in this country has been in decline.  Why is that?  Because manufacturing plants have essentially stopped production – fertilizer production, chemical production – much natural gas that has been in production in manufacturing is now not necessary. 

But there is an increase in demand for natural gas for power production, which we would like to continue to supply, and it’s very clean-burning natural gas.  So, from an environmental standpoint, we see it as value adding, both from a commercial and from an environment standpoint.
 
But if you look ahead 10 years and you think about the demand-supply curves, sometime in that next 10-year period, the demand for clean natural gas for power production (despite the decline in manufacturing demand but coupled with continued increased demand from a consumer standpoint), we’re not going to have enough natural gas, the way we see the declines in existing gas fields and the challenges of opening up new gas fields.
 
Consequently, we could augment our gas supply with liquefied natural gas.  Liquefied natural gas is a liquid form of natural gas coming from stranded gas fields around the world. 

A stranded gas field is a gas field with no market, such as off the coast of Australia or in Nigeria, where there’s essentially no gas market.  And we can, instead, liquefy that gas, ship it in a ship, bring it to this country and run it through a regasification terminal and turn it back into natural gas. 

You might say, “Well, that seems simple enough.  Why aren’t we doing more of it?”  Well, the difficulty there is who wants a regasification terminal on their coast?
 
I had a meeting recently with an Attorney General of a particular state (which I shan’t mention) who said, at the beginning of the meeting, “Mr. Hofmeister, thank you for coming to visit me.  Would you please take your regasification project and take it out of our state?” 

I said, “Where would you like it?”  He said the names of the next adjacent states, which are also rejecting regasification terminals. 

I said, “But, Mr. Attorney General, don’t you know that it’s clean?”  “Yes, I know it’s clean.”  “Don’t you know you have the highest energy costs in the nation?”  “Yes, I know we have the highest energy costs in the nation.”  “Don’t you know this is a new supply in a state that has not had new supply in decades?”  He said, “Yes, I understand that, but put it in the next state, please.  Not in our state.”
 
This is an issue we have to get past, ladies and gentlemen. 

Liquefied natural gas can be a value-added complement to existing gas supplies, but we need regasification terminals to be built in a timely manner.  If we don’t, here’s what happens. 

The gas goes to Europe, the gas goes to Asia, and the U.S. will not have the gas – frankly at any price – because there will be sufficient demand in other parts of the world, and over the last 40 years the marketing method for liquefied natural gas that has been to tie up long-term contracts, so we need to do something in this country to start tying up long-term contracts of liquefied natural gas.
 
So, there we have four fossil fuel opportunities, of which there are ample supplies – coal, conventional oil and gas, unconventional oil and gas and liquefied natural gas.  But is that enough?  No, it’s not.  There’s more energy to be had.
 
For example, biofuels.  Shell’s been in the biofuels business for 30 years.  We’ve been part of the whole Brazil transition.  We believe that biofuels will add to the motor transport fuel supply chain and we’re not opposed to it.  Some people think oil’s opposed to biofuels. 

Shell is certainly not.  We’ve been at it 30 years, as I said. 

But we do believe that we should be working on second-generation biofuel, which is ethanol from biomass, rather than ethanol from food products because, again, the social injustice of creating a choice between food and fuel from a limited corn supply makes food more expensive for those who can least afford it, while the fuel that is being made from that corn is going into a fuel supply chain, which avoids it going into the food chain. 

We get enough pressure – believe me, we do – for high gas prices. 

We’d rather not also get pressure for high food prices at the same time. 

So, our energy and our money is going towards second-generation ethanol from straw (not from wheat), from corn stalks (not corn kernels), from switch grass, from woodchips, saw dust, all the above.  The challenge there is the enzyme technology is still being researched, still be developed. 

Once the enzyme technology is proven, then we have to prove the manufacturing technology in vast quantities.  What do I mean by vast quantities? Well, if ethanol is to be a substitute or an extension of oil for motor transport fuels, here’s the challenge.
 
Every second (just look at your watch), every second 10,000 gallons of oil is consumed in this country.  While we’re having lunch here during this hour, about 38 million gallons of oil will be consumed in this country.  In a day, more than 850 million gallons of oil will be consumed today. Imagine replacing that oil with ethanol.  That’s a lot of ethanol. 

That’s a lot of oil.  So we see that the dimensions of the size of the market place.  People talk about Brazil. The entire liquid fuels market of Brazil, ladies and gentlemen, equals six percent of the U.S. market. 

And so when people think of the miracle in Brazil (and they have done a great job, let’s give them credit in terms of positioning ethanol), it’s building a market of only six percent of what is represented by this country.  So, the challenge is huge from a biofuels standpoint.  But we continue on the biofuel journey.
 
Shell recently announced (as recently as last week) the appointment of a very senior executive to lead our biofuels effort into the future, taking into account a whole range of different kinds of biofuels.
 
In addition to biofuel, there’s wind.  There’s a lot of wind in this country (that can be interpreted in several ways), but Shell’s been active in the wind business for about a decade. 

Last Friday, we announced the potential of a new wind farm development, which could, in West Texas, become not only the largest wind farm not just in the nation, but in the world. 

It was announced as a possibility of a three-gigawatt wind farm; three gigawatts is the equivalent of about 10 power plants, 300-megawatt power plants.  A major, major possible investment (not a final deal yet), a lot of PUC work needs to go on and a lot of property acquisition needs to take place and so forth, but it could also be added to, to get to a four-and-a-half gigawatt wind farm – that’s a big wind farm.
 
We’re active in seven states already, with wind farms from Hawaii to West Virginia, and we think wind offers a lot of continuing growth opportunity.  But in terms of percentage of the total electricity market place, it’s single digits and it will be single digits for many years to come, because of the huge demand for electricity in this country.
 
Beyond wind, there’s solar.  Shell’s been active in solar.  Solar is challenging, particularly in a commercial sense, but, nonetheless, we continue to look at thin-filmed, hybrid technology for solar – a copper indium diselenide substrate, which is a different substrate than silicone. 

Where many people today have been using silicone photovoltaic cells, we think that that technology is going to move on and so we’re looking at the next generation of technology for solar.
 
But beyond solar, we believe hydrogen and hydrogen fuel cells represent a breakthrough technology sometime in the next decade, which could severely challenge the internal combustion engine in terms of what a hydrogen fuel cell could do. 

A hydrogen fuel cell basically is an electric car, an electric car with a sustainable energy source, which you refill just like gasoline.  So, you pull your car up to a pump, instead of gasoline, you put hydrogen in your tank.  The hydrogen working with the fuel cell produces the electricity, which drives four motorized wheels, could be any size of a vehicle. 

The two breakthroughs that are needed currently – one is how much hydrogen can you store in the automobile, where GM (our partner) would like to get about 300 miles to the tankful (which is what we currently get with gasoline), and the second breakthrough is the nature of the distribution system.

If you imagine the more than 100,000 gas stations across the country needing a hydrogen pump, needing to be supplied with hydrogen, you’re looking at a major investment in infrastructure and every fire marshal in the land will need to pay attention as to the permitting of the hydrogen pump, the hydrogen storage in every gas station that would offer hydrogen for sale. 

So, major breakthroughs are required to make that happen, but we believe it’s possible.
 
So, with hydrogen, with solar, with wind, with biofuels, with conventional oil and gas, unconventional oil and gas, coal and liquefied natural gas, does that get us there with energy security and an energy strategy?  Not yet. 

We believe three more elements are critical to complete an energy strategy for the nation.

Point one – energy efficiency is necessary, in Shell’s opinion, through both regulation and through market forces – energy efficiency that would, for example, increase miles per gallon in a vehicle – truck, bus, car, you name it.  Today, the internal combustion engine uses about 20 percent of the gasoline for mobility; 80 percent of the gasoline is wasted as heat. 

In an airplane, about six to eight percent of the gallon of jet fuel is used for mobility, the rest is wasted as heat, meaning the heat just dissipates in the atmosphere and it doesn’t produce any value.

So, if you think about the opportunity for technology to take more advantage of the efficiency of the BTU’s in the gasoline or the jet fuel, you can think, “Wow.  What an opportunity to get more miles per gallon, to get better use of that technology.” 

But, apply it also to light bulbs, to refrigerators, to appliances of any sort.  We have lots of opportunity to use energy more efficiently and from an oil company point of view, the best way to save energy, the best way to have an energy strategy for the future, is to use fewer molecules. 

And by having more efficient use of energy, we use – by definition – fewer molecules.  That’s point one.
 
Point two – we must, as a matter of public policy, deal with the greenhouse gas emission issues of both the country and the world.

And so Shell calls for a national framework which leads the way on greenhouse gas management, which could start with carbon trading, carbon caps (the capping of carbon emissions and a trading platform) on which more conservation of carbon could occur by making it commercially attractive to emit less carbon and other solutions such as the technology of carbon capture and carbon sequestration, which should be priced into the cost of energy as a way of dealing with CO2 emissions. 

Absent a national framework, we could end up with 50 state frameworks.  Currently, there are eight states in the Northeast, California and a number of other states that are working on a CO2 -reduction initiative at the state level, which, of course, we will comply with as a citizen of those states. 

But, wouldn’t it make more sense – instead of 50 different frameworks for carbon emission management – that we look at a national framework.  A national framework could then be held up as an example to the world to move toward a carbon management set of initiatives.
 
And third – education of ourselves.  Education of all ages, all classes, all parts of the nation and, in particular, at the student level, because that is where it is the easiest to educate. 

Rather than just talk about it, Shell has created an energy curriculum for middle schools and high schools in which teachers can download for free a program developed not by Shell but by Scholastic, which targets the education of students. 

A whole semester’s worth of energy education about where energy comes from, how it’s produced, how it’s used, how well the technology is managed, and what the environmental effects of energy are on the atmosphere in which we live.
 
These are education, environmental and efficiency initiatives, which, when coupled with the whole array of energy opportunities, ladies and gentlemen, we believe represent an energy strategy for the future – an energy strategy that delivers energy security, which means affordable, available, energy for now and for generations to come as far as we can imagine.
 
Thank you very much.