Speeches

John Hofmeister's '07 Energy Speech in Denver

02/02/2007

How the U.S. Can Ensure Energy Supply for the Future. John Hofmeister's remarks at the Denver Forum in Denver, Colorado.

Ladies and gentlemen, it is indeed a privilege and a pleasure to be here and yesterday and today—I’m sorry to say—were my first days of winter, coming from Houston, Texas. 

But I know that you have winter sports that people from Houston just wait for and they load up those airplanes and can’t wait to get here and I envy you that.

But thank you for coming out on a cold and blustery day. And one of the things that I think a day like today points out is how important energy is to our lifestyle and how important energy is to our families and to our community and also how important it is that energy is always there when we need it because we certainly need it today.

So I’d like to talk today about energy security and the way forward for America.
 
Energy security starts with a definition. Energy security, as Shell defines it, is knowing we have available and affordable energy for today, tomorrow and future generations as far out as we can imagine, which has to be a very long time.

Affordable and available are the operative words, because if it’s too expensive, we end up offending our democratic principles because some will have and some will not have. If it’s not available, it affects our balance, our well-being because of the unpredictability of it.
 
We had a genuine scare in this country in the aftermath of Katrina and Rita, those horrible hurricanes that came through the Gulf of Mexico in 2005. The horrible scare I can best describe to you with a story.

It’s a story of Friday night after Rita blew through east Texas the previous weekend. The electricity was still out in East Texas and Western Louisiana; most of the facilities in Mississippi, Louisiana and Alabama were still down from Katrina just a month earlier.

The offshore platforms in the Gulf of Mexico had not recovered production yet. And so we had a 25 percent shortage of available crude and a 25 percent shortage of available gasoline and diesel and other oil products, including lubricants.
 
On that Friday night a week after Rita, I got word from Motiva’s Port Arthur refinery—that’s a joint venture between Shell and Saudi Aramco—that they had the last 300,000 barrels of finished product on the whole Gulf Coast that could feed the Plantation and Colonial pipelines.

The Plantation and Colonial pipelines, ladies and gentlemen, are the two infrastructure pipes that carry gas and oil from the Gulf of Mexico—running through east Texas, Louisiana, Alabama, Mississippi, etc., up through Atlanta, up through Charlotte, up through Raleigh, Richmond, all the way to Washington, D.C.

The last 300,000 barrels available to push into this pipeline and we had no electricity—300,000 barrels in a tank don’t get to a pipeline except by a pump and a pump has to be electrified. We had crews working 24/7 trying to get electricity restored, with emergency generators in the first instance and later the infrastructure.
 
But on that Friday night, I called the Secretary of Energy, Sam Bodman, and I said, “Mr. Secretary.” And he said, “This better be good, John. I’m at my daughter’s rehearsal dinner.” And I said, “Well it’s not good, Mr. Secretary. It’s potentially quite bad. I’m calling you on Friday because we’re going to work around the clock on the weekend to get emergency power hooked up to these pumps so we can push product into the pipeline.

“If we don’t, I’ll call you back Monday morning and ask you to ask the President to please ask the nation to have a Day of National Reflection so nobody drives, because the pipelines are dry and panic buying will set in by noon on Monday and if the whole Southeast is panic buying, imagine what the Northeast will do and imagine what the Upper Midwest will do; and this could go all the way across the country.” That’s a real story.

The Secretary said, “John, it’s the beginning of the weekend, I’ll pray for you.”
 
And divine intervention worked. On Sunday afternoon, about five o’clock, we started pushing barrels. And a pipeline only is good if you’re pushing in one end to get out the other end. It’s a bit like a garden hose; you have to have something in to get something out.

And, we stayed wet across the Southeast of the nation. But here it is—the United States of America on the verge of panic buying of gasoline in the year 2005.  Can you imagine that? Whoever would have thought we would be that close to a lack of energy security?
 
People still remember the 70s and the gas lines, those who were around in those days. So, where are we going with this? Well, let’s take note. Most of us remember the last 50 years, if you’re over 50. The last 50 years have been the days of easy, available, affordable energy. 

Easy, available, affordable energy best represented by the Beverly Hillbillies, who got rich by shooting a bullet in the ground and out came bubbling crude—if you remember that TV show.  Well, in Kansas and Oklahoma and Arkansas and Texas, we had easy, available crude. That was then.
 
Around 2000, 2001, 2002, ladies and gentlemen, we crossed the tipping point of easy, available crude. And as we look at the next 50 years, we are still going to have plenty of crude—that’s the good news.

Plenty of gas and oil—that’s also good news—but it’s going to be more difficult; it’s going to be more complex and it’s going to test the technologies which we’ve been developing.
 
Let me give you an example. Instead of drilling a couple of thousand feet into a reservoir on a land-based Texas or Oklahoma, we are today working on a project called Perdido in the Gulf of Mexico, almost 8,000 feet of water to the bottom of the sea, 28,000 below the Earth’s crust is the reservoir.

It’s a big reservoir, fortunately. But we have to get oil from seven miles from the top of the platform, up to the platform to send it 150 miles to shore where we can put it into production—or crude oil moving it into refined production. That particular reservoir—we depend upon it for future energy security.

At 8,000 feet below the surface, the wellheads and the safety valves and the pumps that have to move this column of oil up 8,000 feet all have to be worked on by robots because humans can’t work in 8,000 feet of water.

So, this is a robotized assembly and construction project to move future hundreds of millions of barrels hopefully up to the surface of the Earth and then on into the nation. That is more typical of future oil and gas production then the simple well in the plains of Kansas.
 
Again, I said the good news is there’s plenty of conventional oil and gas out there, but we have a problem. The problem is we’re not allowed access. I spend a lot of time in Washington talking to members of Congress and senators and Executive Branch members talking about access. 

The reality is we have access to 15 percent of the offshore Continental Shelf of America to produce oil and gas, most of it Gulf of Mexico. Eighty-five percent of the nation’s Outer Continental Shelf is currently off limits by public policy.

So, there is oil and gas out there somewhere in the range of 102 to 105 billion barrels that we know of on the Outer Continental Shelf and on federal lands, but by public policy there is no access to this oil and gas; hence, we import over 60 percent of our daily requirements of oil and gas from other parts of the world.
 
Now we can do something about that with public policy changes, and the 109th Congress, on the last day of the session, actually did and gave us access to eight million acres in the Eastern Gulf of Mexico, which we can now go develop, once all the rules and regulations have been established.

But, that’s the first eight million acres that have been granted to the industry in 25 years. That’s a long time gap between access and acreage. Fortunately, we are able to develop the Outer Continental Shelf of Alaska; that’s under development.

We’re making steps to make that happen. We believe that the offshore technology is safe and reliable and that we can develop the offshore assets responsibly and well.
 
But, if we were to develop all of those national reserves of oil and gas, does that deliver us energy security? The answer is no. That’s not enough for generations to come. It will be used up one day so where do we go next?  Well, you happen to live in a prolific oil basin yourselves in Colorado.

It’s not conventional oil and gas, but it’s unconventional oil and gas called oil shale. 

Shell has been developing a research project in the Piceance Basin for some 20 years, trying to develop the technology that can extract that oil and gas in environmentally-safe and responsible ways, taking into account the land, the water, the air, the CO2 –-all the other aspects of developing it—with an in situ technology, which is not a mining technology, but a drilling technology.

We’re still doing the research; still doing the development; we’re still a bit away from a financial decision to go forward or not.

We discussed the project with the Governor yesterday in some detail. It is a massive possibility, but all of the public policy needs to come together and a company like Shell has to demonstrate to the satisfaction of the policy makers that, in fact, we can economically, technically, socially and environmentally produce from the oil shale before such a project could go forward.
 
Also, in the oil sands of Alberta, of which Calgary is the capital—the oil sands of Alberta are prolific and today Shell Canada is producing about 150,000 barrels a day, on its way to 300,000 barrels a day in a few years. And that represents more opportunity for North America to benefit from unconventional oil development right here in our hemisphere.
 
But, if we develop all of that unconventional oil and gas and we add that to the conventional oil and gas, does that satisfy our requirements to the future? No. We’re not there yet. The future is a very long time. We have learned in this country to use natural gas extremely well.

We heat our homes; we heat our factories; we use it in all kinds of process activities and we make electricity form natural gas. It’s one of the cleanest fossil fuels we can find in the Earth. There’s a problem. 

The sources of natural gas—even though there are abundant quantities—will not keep up with the demand over the next 10-year period. When we look at the construction of new power plants, which will be based on gas turbine technology, there simply will not be enough supply of natural gas to meet that demand without some new source of natural gas.
 
And here the good news is: technology enables us to bring liquefied natural gas into our marketplace. Liquefied natural gas comes from stranded gas fields in places like the Northwest Shelf of Australia, from the Middle East, from Nigeria, from Russia, where there are abundant quantities of natural gas without a market.

So by cooling that natural gas to a liquid form, shipping it safely, which we’ve been doing for 40 years, we can bring liquefied natural gas to the shores of America and augment our natural gas supply—perhaps as much as 20 percent.
 
But, we have an issue. The issue comes down to public policy. Will local communities, states and regions tolerate the building of a regasification terminal in their backyard? That’s what it will take. 

Shell is currently working with a partner, Trans-Canada, to put a regasification terminal in the middle of the Long Island Sound, so it’s in nobody’s backyard.

But the forces of “NIMBYisms” are at work, convincing political leaders of both parties to resist this infrastructure development on the basis that it industrializes the Long Island Sound, which people want to maintain as a pristine waterway, despite the fact that 6,000 ships a year traverse the Long Island Sound, they don’t want to see a regas terminal built there.

Ultimately, the public will decide whether this is acceptable or not and Shell will follow the wishes, the will of the public however that plays out.  But the reality is Long Island and Connecticut has the nation’s most expensive energy and this is a new source of a billion cubic feet a day, which could help that region have more stable prices and have more secure supplies in the future.
 
Liquefied natural gas does come into this country now with regas terminals, which Shell is a part of in Alba Island, Georgia, in Cove Point, Maryland. In addition, Shell’s been active in Mexico with an East Coast and a West Coast liquefied natural gas location.

The West Coast will help to feed Southern California. These are helpful additions to the natural gas supply. Do we have enough yet?  Not yet, ladies and gentlemen.
 
In addition we have abundant, vast reserves of coal in this country—more coal in this country than in the whole rest of the world. And, here again, technology comes to our rescue because we all think of coal as “dirty ol’ coal.” But there is something now that is called “clean coal.”

Some people would say, the cynics would say, “That’s an oxymoron. How do you ever call coal clean?”  Well, the methodology of coal gasification, oftentimes referred to as IGCC or Integrated Gasification Combined Cycle, electricity generation is really a technology that has arrived but has not yet been built.

It has arrived in other parts of the world and is being used; the U.S. has not yet adopted it. It’s a Fischer-Tropsche technology that’s been around 60 years, so it’s not all that new. But think of how you keep it clean coal.

Today’s pulverized coal plants basically introduce little pebbles of coal. I’m a political scientist. I apologize, this is not a technical description but little pebbles of coal, which are burned, which creates heat, which heats water and produces steam, which turns turbines.

It’s been around for decades and it works, except that much of the exhaust of the coal goes right up the smoke stack and goes right into the environment, so the CO2 and many other aspects of the coal are emitted although some scrubbing is used to take some of the nastier elements out of the exhausts.
 
Coal gasification is different. Coal gasification reduces the pebbles of coal to talcum powder, a talcum powder substance. That talcum powder coal enters a gasifier, which is a contained vessel, at nearly 25 hundred degrees Fahrenheit, and at over a thousand pounds of pressure per square inch.

And it gasifies the coal; it doesn’t burn the coal. So, the molecules are destroyed in ways in which the hydrogen can be turned into syn gas, which is a synthetic gas just like with all the qualities of natural gas, which then drive a gas turbine electricity production system, and the CO2 and the mercury or the sulfur, or whatever else is in the coal, is still in the gasifier and can be managed out because it’s controlled in its release.

And whether that CO2 can then be sequestered, or whether that CO2 can be moved into productive uses, perhaps in agriculture or perhaps in enhanced oil recovery in oil fields, there are ways to prevent it from going into the atmosphere. IGCC is a reality.

Governor Ritter, Governor Freudenthal, Governor Schweitzer, Governor Richardson—this whole region is a coal region—each of those governors and I have had a conversation about IGCC for the future. It can happen, working with utilities and public policy to make it happen.
 
So there we are, right? Conventional oil and gas; unconventional oil and gas; liquefied natural gas and clean coal—are we set for the future? Not yet, ladies and gentlemen; there’s more.  In addition to the oil products fuel that we use for transport purposes, we can also use biofuels for transport purposes. Shell’s one of the largest distributors of ethanol today.

Most of it corn-based ethanol or sugar cane-based ethanol, because that’s the technology we know and that technology works. But, it has a problem and that is it competes in the food chain for the available source—corn for tortillas or corn for fuel tanks. And the debate is, of course, raging in the nation at the moment over the use of corn ethanol and its future, versus cellulosic ethanol.
 
Cellulosic ethanol comes from biomass—the corn stalk, instead of the corn kernel, or the sugar cane mass, instead of the sugar of the sugar cane. It is possible with enzyme technology. And yesterday, we had the pleasure of visiting the renewable energy lab here in Denver to see how the cellulosic research is unfolding.

And it’s a powerful concept, which can in the future deliver vast quantities of biofuel in sustainable ways.

We want to be party to that. Shell’s currently investing in a company called Iogen, which makes cellulosic ethanol from straw; a company called Choren, which makes cellulosic ethanol from woodchips in a gasification process; and another company experimenting with ethanol from municipal waste—paper, cardboard—all of which is cellulosic by nature; all of which can be developed into future fuels.

And so that helps augment the transport fuel supply and it offers great promise.
 
In addition, another form of renewable energy in which Shell takes a role is solar energy. In solar energy, we prefer to move away from silicone-based photovoltaic panels, moving into thin-film panels, which the renewable lab also affirms is a very viable technology—glad to hear that since we’ve spent the money.
 
In addition, the wind is a viable source and in Lamar, Colorado, today a huge Shell wind farm on a day like today is producing a lot of electricity for the citizens of Colorado.

But, we’re in six other states, as well, with wind energy, and over the course of the day we will be producing about 350 megawatts of wind energy in the United States—with more to come, with more turbines and more rights of access, which, again, has to be granted by public policy.
 
One more source—and that is hydrogen. Hydrogen fuel cells could be in the years to come a mobility source of choice to American consumers.

Today in Washington, D.C., a half dozen General Motors vans (hydrogen fuel cell vans) are likely to refuel at a Shell station on Benning Road, three miles from the Capitol.

The purpose of these vans is a demonstration to show our decision makers in Washington that, in fact, hydrogen fuel cell vehicles are real. And hydrogen storage and hydrogen distribution through a hydrogen pump at a Shell station is real. The President’s been there, and many other government officials have been there to see it for themselves. It is working.

It’s too expensive to be commercial today. But you start somewhere. And with hydrogen fuel cell technology, breakthroughs are needed with storage of hydrogen in the vehicle and with battery life, in some instances, and with the hydrogen infrastructure to support fuel requirements from city to city.

Because if you’re going from Washington to New York in your hydrogen fuel cell vehicle, you need to know you can buy hydrogen along the way. And there we have to provide the infrastructure, which takes time to develop and public policy support to make it happen.
 
So with all of that—with wind, with solar, with hydrogen, conventional, unconventional, LNG, coal—are we there yet? Not quite. From Shell’s point of view, there are three more public policy requirements to ensure energy security in the future, starting with energy efficiency.

Public policy, which helps put pressure on markets to increase energy efficiency, can be good for all of us.  It can stretch the use of molecules of energy by addressing mobility, by addressing homes, factories, hotels, by addressing all of the ways in which we use energy today—appliances, lighting, furnaces, air conditioners.

There are ways in which we can use less energy to obtain more output from that energy by technology.  We believe that it’s helpful to have public policy push to create market pull in order to get this kind of energy efficiency increase, which is possible if it is in the public’s interest.
 
Second: education. How do we educate ourselves? How do we educate our young people on how precious energy is; how important energy is to the economy which we enjoy and to the lifestyle which we’ve come to expect?

Educating our youth is something that is so critical about what energy means to today’s society and tomorrow’s future generations that Shell has done more than talk about it.

We have, in fact, created a public website for teachers in America where an education curriculum can be downloaded—a semester’s worth of teaching material for middle school and senior high school students is available for free.

It is not a website that sells Shell; it is a website that produces information created by academics, not by Shell, which students can learn and teachers can employ to try to teach energy education in our school system.

Thousands of teachers have already downloaded the teaching tools that are there and thousands more children have accessed this website to see what it says. It’s called “Energize Your Future.”
 
Third: and today is symbolically very important with respect to the third item—the public policy that surrounds climate change and greenhouse gas management. Shell is very clear and has been for some time that we are not climatists; therefore, we are not there to challenge the science. 

We are there to learn from the science and when some 97 percent of scientists say there’s an issue, who are we to say there may not be?  We simply accept the science and want to move forward. For us the debate about climate change is over. 

And, in fact, we have publicly stated, and I’ve recently said this to members of Congress, to chairs of committees and to ranking members of committees in Congress who have jurisdiction, that what Shell asks for is a public policy framework on a national level in which markets can operate to find ways to reduce emissions of greenhouse gases; let’s get on with it.

Let’s make the solutions possible (hopefully through market-driven ways) where everybody wins.  Companies win. In fact, I was asked a question this week in Seattle, “Can Shell make money from conservation?” The answer, “Absolutely.” Absolutely, there are whole mechanisms by which end-products, by which a company can make money from conservation.

So our view is—let’s have the public policy framework; let’s work on the solutions and not debate the science any longer.
 
Ladies and gentlemen, with conventional oil and gas; unconventional oil and gas; liquefied natural gas; coal gasification; hydrogen; wind; solar; biofuels; efficiency; education and greenhouse gas management; I believe we can deliver energy security now, in the future and for generations to come as far out as we can imagine.
 
Thank you.