Speeches

John Hofmeister's Energy Speech in Chicago

06/06/2007

How to Ensure Future Energy Supply. John Hofmeister's remarks at the Rainbow PUSH Conference in Chicago, Illinois.

Good afternoon, everyone.  Reverend, thank you for that introduction.  But thank you even more for the opportunity to be here at your annual meeting.  Reverend, it really is an honor to be among you and to be part of these great proceedings. 

When I was driving in, if you’re in a job like mine, you always look at the gas price.  I looked at the gas price in Chicago today, ladies and gentlemen – it’s too high.  It’s too high and we do not like these high prices.  Whether you are a consumer, or whether you are a producer, we do not like these high prices so what are we going to do about it?
 
We have a challenge, ladies and gentlemen, a very serious challenge for our nation.  A very serious challenge, which has to go right into our heart and soul and mind to decide what public policy do we want in this nation regarding energy.  Because it’s not only the gas prices that are so high. 

Check your electric bill.  Turn down that air conditioner, turn up that furnace.  Check your natural gas bill.  All of the energy costs in our nation, ladies and gentlemen, have been going up.  And we have to look at who we are and what we are as a people and decide what do we value and what do we need?
 
Now, I come to you as a business person.  My career has been in business, but I’m a member of society. 

I’m a member of a society that cares about its fellow citizens and one of the reasons I accepted Reverend’s invitation was to bring the issue of price and the issue of social and economic justice to the same conversation, because public policy can make the difference on the price of energy, which not only impacts those on the lower rungs of the socioeconomic ladder the most, but it affects the competitiveness of business in America.
 
Americans pay the full cost of energy.  American manufacturers, American businesses, American consumers pay the full cost of energy.  There are other parts of the world, ladies and gentlemen, where the cost of energy is absorbed in large measure by the state for the purpose of economic development of the country.  That is their right. 

There’s no complaint there.  But when we pay in our country the full cost of energy, our companies, our manufacturers, our businesses, our families are competing to succeed in life at a different level than other parts of the world.  This is why we need to come together as consumers and producers to say to our policy makers, “Let’s get together. 

Let’s tell the special interests – let’s tell the special interests – and the partisan politicians to please quiet down so we can have a national dialogue on energy security for the following two reasons:
 
Energy security defined as affordable and available energy for now and for the future requires two things.  It requires public policy that enables businesses to compete and it requires public policy which enables consumers to have a lifestyle they choose.  And we can have both.  The cost of energy is too high because we restrict the amount of energy we are allowed to produce. 

Energy is the basis of our economic model and energy is the basis of our lifestyle – our mobility, our creature comfort, our hot shower instead of our cold shower.  Energy makes a difference in our lifestyle.  Energy makes a difference in our economic growth model as a nation.  So, why does American public policy restrict the production of energy?
 
For example, conventional oil and gas (like the gasoline you buy at your neighborhood station) comes from oil wells, oil reservoirs.  It’s called conventional oil and gas.  The American energy companies are restricted from 85 percent of the Outer Continental Shelf to go find and produce more conventional oil and gas. 

We’re only allowed to explore in 15 percent of the Outer Continental Shelf.  We are forbidden to explore for oil and gas on federal lands -- hundreds of thousands of square miles of federal lands off-limits for exploration and production.  So, where do we get our energy?  Well, about two-thirds of our energy today comes from expensive imports from around the world – some from very reliable trading partners and some from some very questionable and unreliable trading partners. 

But, it drives up the cost of crude oil when we have this unreliability and this geopolitical tension in the world, along with increasing demand for more energy.  While we fail to produce energy in our own country, we have seen the share of domestic production of energy (of oil and gas I’m speaking of) in this country slip from 100 percent to 33 percent over the past 50-60 years.
 
And it’s not because we’re running out of oil and gas, ladies and gentlemen.  We have plenty of oil and gas in this country – the Gulf of Mexico, off the coast of Alaska, on federal lands – plenty of conventional oil and gas.  We know where there’s 110 billion barrels that we’re not allowed to access – point one.  Point two – there’s unconventional oil and gas, as well.  In the Alberta oil sands, more than a trillion barrels. 

When people describe the Middle East, they describe the Middle East as several hundred billion barrels.  Well, the Alberta oil sands have a trillion – a trillion – barrels of unconventional oil trapped in the oil sands.  Or in Colorado, Utah, Wyoming – another trillion - another trillion barrels of oil trapped in the rock of the Western Rockies.
 
Public policy, as it has in Canada, is now enabling the production of oil sands.  Public policy in the U.S. does not yet enable the production of oil from oil shale in Colorado.  Shell has research going on in that part of the country, but we are not yet allowed to produce.  Now frankly, we’re not ready to produce.  But one day we will be and we will need public policy to enable that.  So, with conventional oil and gas and unconventional oil and gas and so much of it around, why is it so expensive?
 
It’s because we are not allowed to go get it.  We could bring more supplies to meet the demands of a growing economy, of changing lifestyles, but we need permission to go get it.  But there are other sources of energy, as well.  There’s liquefied natural gas, which is gas that comes from other parts of the world where there is no market. 

We can liquefy that gas, ship it in a ship, bring it to this country, regasify it, and keep prices down.  The price of natural gas today went through eight dollars for 1,000 BTU.  It’s going up.  It’s the air conditioning season; we need more electric power from natural gas.  Liquefied natural gas can be brought at even lower prices to this country. 

But nobody wants a regasification terminal on their coast, in their communities, because they don’t like the thought of a regasification terminal (even though Europe and other parts of the world are building such regas terminals and they are buying that liquefied natural gas and not the United States).
 
There’s another source of energy in this country called coal.  We have lots of coal.  In fact, we have more coal in this country than the whole rest of the world.  But, of course, people say, “Well, coal is dirty.” 

Well, yes, burning pulverized coal can be a dirty way of producing electricity from coal.  But, there’s a new technology called clean coal technology - coal gasification, which changes the whole structure of the molecule in which electricity is produced from coal.  And by gasifying coal rather than burning coal, we’re also able to capture the CO2 (the carbon dioxide), which can then, frankly, be buried in the Earth. 

We’re developing technology to do that so we believe there is a source of clean energy from coal called IGCC – Integrated Combined Cycle Gasification, which can be used by utilities to clean up the air and to produce more electricity.
 
And there’s more fuel to be had.  Shell has been in the biofuel business for more than 30 years.  We embrace biofuel.  Some people think we’re against it; we embrace biofuel. 

We prefer ethanol from second-generation biofuel such as cellulosic ethanol, because when biofuel comes only from corn it not only is expensive to produce as a fuel, but it also raises the price of food, which we’ve been seeing happening more recently.  But, research and development of cellulosic ethanol enables us to create ethanol from biomass, from wood chips, from the corn stalk instead of the corn kernel – a huge source of future fuel.
 
And then there’s wind and there’s solar and there’s hydrogen - other sources of energy.  So, ladies and gentlemen, the prices of today do not have to be what they are.  The social injustice of today does not have to be what it is but for the fact that we are not producing enough energy to meet the demands of our nation.
 
Tomorrow, I’ll visit Washington again and I’m very patient in talking with folks in Washington who make the decisions that impact us all.  And my point will be, “Please, please reconsider some of the language which is currently being suggested for new bills to further restrict the oil companies’ ability to get more oil and gas from the Outer Continental Shelf. 

Please reconsider the bills that make it more difficult to build new refineries, to produce more energy for the nation.”  In fact, on the refinery issue, one of the reasons Chicago is experiencing such high price currently is a shortage of refining capacity that can meet the fuel specification standards that your air quality requirements mandate. 

And because there have been issues with refinery shut-downs (both planned and un-planned shut-downs), your region is in fact one of the regions of the United States that is shortest of supply right now.
 
But, it becomes difficult to bring in fuel from elsewhere, because it’s all part of a system.  And so the fuel in Chicago must meet certain air quality specs, which means it has to be manufactured in a certain way, which means other parts of the nation cannot manufacture it for you without making adjustments in other parts of the country in other refineries.  So, there is a problem now that needs to be dealt with and it is being dealt with.
 
But, let me conclude on the following couple of notes.  In addition to energy security from all the forms of energy I’ve mentioned – conventional oil and gas, unconventional oil and gas, liquefied natural gas, coal gasification, biofuels, solar, wind and hydrogen - there are some other things that we must do and that affect the efficiency with which we use energy. 

There is technology that enables us to use energy more efficiently.  The automotive companies are working on it, the appliance companies are working on it, the lighting companies are working on it.  More efficient use of energy can bring down the cost of energy because the molecule not used is the cheapest molecule of all.
 
In addition, the air we breathe, the environment that is part and parcel of all of us.  Greenhouse gas management must become part of the national energy agenda.  We must ask our government to please lead on this issue.  Our health, our children’s health, our grandchildren’s health depends upon the quality of the air we breathe. 

Shell has recently joined the United States Climate Action Partnership.  A colleague here, General Motors, has also joined the Climate Action Partnership.  We need leadership to deal with the greenhouse gas issue, a regulatory framework in which markets can then operate.
 
And finally, we need to educate our children.  We need to educate ourselves.  Where does energy come from?  What causes energy to be created?  How does energy come into our life system, our business system?  What do we do about energy in the future?  What does technology and energy have to do with anything?  We teach so much in our schools. 

We teach history, we teach math, we teach reading, we teach all kinds of arts and science and culture.  But we don’t teach the very essence of our economic base and our economic lifestyle.  We can teach energy.  We can teach it in the middle schools, in the high schools and we can teach it to the general public, which needs to know it is not to the advantage of oil companies today, ladies and gentlemen, to experience these high prices. 

It makes enemies of consumers and producers when they have so much in common.  We produce what you use.  We have a lot in common.  It also divides society into the haves and the have-nots.  You should see my mail.  My mail includes letters from grandmothers and from sons and daughters who say, “My parents can’t buy gas.”
 
I had a letter from North Carolina from a sixth grader that said, “My mommy and my daddy can’t buy gas.  Can you please cut the price of gas?”  And I sent a note back to that child and I said to that child, “We will do everything within our power to increase the supply of gas so your mom and dad can buy gas today, tomorrow and forever more.”
 
Thank you very much, ladies and gentlemen.