Speeches

John Hofmeister's '07 Speech - Jacksonville

07/01/2007

John Hofmeister's remarks to the Jacksonville Chamber of Commerce in Jacksonville, Florida.

Ladies and gentlemen, you may be wondering, what are we going to hear from an oil executive heading a company, selling a product that you would probably rather not see, smell, taste or feel. 
 
A company which is banging on doors and state houses and in Washington, in the Capitol building asking for more access, please, to the Outer Continental Shelf.  A company whose infrastructure everybody wants except in their backyard. 

A company whose current pricing methodology is under tremendous scrutiny across the country.  In fact, it was scrutinized this morning on the local ABC channel.  It was also scrutinized a week ago Monday on the “Today Show” with Meredith Vieira. 

I had the opportunity to meet Meredith and before the camera was turned on for nationwide broadcast, I was curious and wondered had she ever met an oil executive before and well, no. 

She was nervous; I was nervous.  She didn’t know what I was going to say.  I didn’t know what she was going to ask. 

So, again, before the camera came on I said, “And what do you do, Meredith, after you’re done with me?”  She said, “Well I put a carrot in my mouth and I go out and feed the giraffe outside the studio.”  And I thought (and just before the camera came on), I said, “So, which do you prefer?”
 
What I have to say, ladies and gentlemen, is energy security in this country is a fundamental need for the future.  And the question is, “Can we achieve energy security in this country in ways we can embrace? 

In ways in which we can help our economic model, our business model, predicated on affordable and available energy? In ways in which we can live our lifestyle, which is also predicated on available and affordable energy?” 

We’re at a crossroads.  Since Hurricane Katrina and Hurricane Rita ripped through the Gulf in 2005 and devastated the infrastructure of the Gulf (both in the Gulf of Mexico producing oil and gas and along the coast), the refineries, the pipelines, the tank farms along the Coast.

We suffered the consequence of that outage - a 25 percent shortage of supply not just for a few days, not just for a few weeks, but for many months.  In fact, to this day, we are not completely recovered from the effects of 2005 hurricanes and what’s today?  June 1st. 

What’s June 1st?  The beginning of the next hurricane season.  And still recovering from 2005.  We were fortunate in 2006.  What will happen this year?  We don’t know.  But I would say, and I will say later, how much better prepared we are for this hurricane season because of the lessons learned.
 
But having said that, there’s a story many people don’t know.  On the Friday night after Rita blasted through East Texas and West Louisiana (keeping in mind the Katrina effect was already shutting down Eastern Louisiana, Mississippi and Alabama), I called the Secretary of Energy, Sam Bodman – Friday night the week after Rita. 

It turns out that our Motiva Refinery, co-owned by Shell and Saudi Refining, had the last 300,000 barrels of finished inventory to put into the Colonial and Plantation Pipelines, which feed the entire Southeast quadrant of the nation - the whole Southeast corner from Washington, D.C. all the way to Houston, Texas, and all the states in between fed by these two pipelines. 

We had the last 300,000 available barrels of finished product and guess what?  No electricity. 

Without electricity, you don’t move product out of tanks into pipelines.  So I called the Secretary to say, “Mr. Secretary we’re going to work night and day as we have been since Rita went through to get temporary electricity hooked up.” 

Now on a Friday night calling the Secretary of Energy, it’s not a pleasant experience particularly when he’s at his daughter’s wedding rehearsal dinner.  And he said, “I’ll pray for you, John.”  He did. 

Our folks worked throughout the weekend.  Five o’clock Sunday afternoon we got power and we started pushing barrels into the pipeline.  But, imagine if we had not gotten power.
 
Here we are – United States of America, land of plenty, land of the free – and on Monday morning, no gasoline for the entire system from Houston, Texas all the way to Washington, D.C.  And I also told the Secretary on Friday night when he said, “Well, why are you calling me now?” 

I said, “So you won’t be surprised Monday morning when I call and ask you to please ask the President to declare a ‘Day of National Reflection,’ because the alternative will be panic buying and once it starts in the Southeast, how do you contain it in the Northeast, the upper Midwest and even the far West?”  United States of America, land of plenty, almost out of gas.  How did we get to this situation and what are we going to do about it in the future?
 
Well, here’s the crossroads where we have to make choices which way to turn – right or left or straight ahead, what have you.  We have to make choices in this nation. 

The last 50 years of available, affordable, convenient oil and gas are behind us – from World War II to the time when Uncle Jed shot a bullet in the ground and out came bubbling crude. 

Those days are over in this country.  We’re now at 7,000 feet of water in the Gulf of Mexico, drilling 26,000 feet below the surface of the Earth to find a reservoir which can produce enough oil, which we can then take it 100 miles to shore to put it into a refinery. 

That’s a long way from bubbling crude coming out of the hills of where Uncle Jed came from.  And that’s just the beginning, ladies and gentlemen.
 
The conventional oil and gas, easy to obtain, shallow, sub-surface – those days are behind us.  That conventional oil is essentially used. 

So, where do we go next?  Well, the good news is there’s still plenty of conventional oil and gas available.  We know there’s more than 110 billion barrels located in the Outer Continental Shelf of the United States, located on federal lands across the United States. 

But there’s a problem.  We’re not allowed access.  The oil and gas industry is allowed access to exactly 15 percent of the Outer Continental Shelf, with 85 percent being off limits and federal lands being off limits. 

That’s public policy.  Public policy is preventing the production of more crude oil, while we increase the imports coming into this country.  Now, beyond 65 percent of the oil consumed in this country is imported. 

Sometimes, from some unreliable suppliers.  The price of crude is driven up because of the imports, not just imports to the United States, but also imports to China and India and other developing countries, which are also short of oil necessary to meet their economic development.
 
So, we have a choice.  Do we continue to import ever more oil, or do we allow access to the 110 billion barrels that we know are out there?  That’s a public policy question - one that we will have to answer. 

But if, in fact, we were able to achieve access, will that meet all of our future energy requirements going forward?  At Shell, we think not.  We think there’s more needed.  Now, the good news is, there’s plenty more unconventional oil and gas.
 
For example, in the oil sands of Alberta, Canada, or in the oil shale of Colorado. Shell’s busily working away in the oil sands of Canada, which by the way became a national strategy of the Canadian government to open up the oil sands to development for the purpose of economic development of Canada and for the purpose of supplying world supplies, world-class supplies of new oil to the markets. 

The question for the United States government and the State of Colorado is whether we one day open up oil shale as well. 

Shell’s busy in the oil shale region as we are in the oil sands.  We have a research project underway in the oil shale region, which is still some years away, however, from declaring commerciality. 

We have a lot of research going into an in-situ production methodology, which would avoid mining and, instead, would drill holes and put heaters down the holes and would then over time heat the oil molecules to separate them from the rock in which they currently reside and then pump it out as a liquid and a gas at some future point. 

But, we’re still years away from knowing whether the technology is viable enough to turn it into a commercial project.
 
But the good news is in addition to the 110 billion barrels of conventional oil and gas that we know about, there’s more than a trillion (a trillion) barrels of oil in the Canadian oil sands. 

More than a trillion (a trillion) barrels in the Colorado, Utah, Wyoming oil shale.  So we’re not going to run out, but we have to make access possible.  If we had access to the unconventional oil and gas, does that meet all of our needs of the future?  Again, we think not.
 
There’s more energy to meet our energy security needs of the future.  This country has more coal than the whole rest of the world put together. 

We are blessed with an abundance of coal, but coal has a reputation for not being clean.  But, here’s where technology makes a difference.  Coal gasification technology (often referred to as IGCC), coal gasification technology treats coal differently. 

Instead of breaking coal rocks into pulverized coal, which is then burned, coal gasification takes the pulverized coal and basically reduces it to the consistency of talcum powder.  The talcum powder is then introduced into a gasifier at some 2,500 degrees Fahrenheit at over 1,000 PSI’s (pounds per square inch) and the molecules gasify, rather than burn. 

There are three advantages to that.  One is the use of the coal molecule is more efficient, so you get more energy from the use of that coal.  Secondly, the syn gas that comes from that efficiency can be used to generate electricity in combined cycle gas turbines, which is very efficient. 

And thirdly, from the syn gas you can also produce a liquid fuel-like, a sulfur-free diesel fuel, which can also be used as a motor fuel.  So, benefits of coal gasification are enormous and the technology is here and now. 

In fact, Jacksonville has a clean coal technology-driven power plant, which is very successful.  But the nation does not.  The nation has not yet embraced gasified coal.
 
But in addition to that, there’s natural gas.  Now, natural gas coming from the ground is becoming scarce.  We have enough supply today, but we’ve seen that the price of natural gas is about three times its historic average over the last decade. 

That’s because the demand keeps growing.  We can increase the supply of natural gas, ladies and gentlemen, if we would embrace liquefied natural gas as a new energy source. 

Liquefied natural gas, which is gas from stranded gas fields in places like Northwest Australia or off the coast of Australia, off the coast of Nigeria, off the coast of Russia (either in the Arctic Circle or off the coast of Sakhalin) there are plenty of stranded gas fields, meaning there’s no market for the gas. 

By cooling the gas to negative 260 degrees Fahrenheit, it turns into a liquid, which can be transported by ship to a regasification terminal on a coast of the United States. 

There are several regasification terminals in existence such as Alba Island, Georgia or Cove Point, Maryland, but try to build another one.  Try to get the permits to build another one and everybody says, “Yes, it’s a good idea.”  But recently, I was told by a senior political executive in one of the Northeast states, “We like the idea but not here, please. 

Take it to another state nearby and have them bear the cost of the infrastructure.”  This is in a region that has the highest-priced electricity in the nation.  “We like the idea but not here, please.” 

This is an issue for liquefied natural gas.  Will we or will we not embrace the infrastructure necessary? And this raises an important question around refining, as well.  We’ll come to refining in a moment.
 
The question for America, ladies and gentlemen – and it’s a serious question in what we refer to as an information-age, post-industrial economy – can we get our heads around the notion that in addition to lovely information-era, economic growth can we accept the notion that we still need industrial infrastructure to support that post-information-age economy?
 
Example: during our visit to Seattle some months ago, we had the pleasure of meeting several senior executives from Microsoft (clearly, a post-industrial-information-age, successful company). 

The question we were tabling was can Microsoft achieve energy security in the State of Washington and build six new information centers necessary to support their business model and their growth of their Internet business, in particular?  Six new information centers requiring the electricity equivalent to a 350 megawatt, new power plant. 

The existing power infrastructure of Washington would not support the growth of the business for six new information centers all coming on line at about the same time.  What is the source of the new electricity? 

Where will the new power plant be built?  Can they get a power plant licensed up and built in time to meet their market demand for six new information centers? 

So the point being, even in an entertainment era, an information era, an era of electronic storage, the electricity demand keeps rising in this country and we need the infrastructure to support it.  Can we get our heads around that?
 
Now, if we do the liquefied natural gas, we do the coal gasification, we do the conventional oil and gas, and we do the unconventional oil and gas, does that meet our energy security requirements for the future?  We think not.  There’s more that’s needed. 

For example, biofuels.  Shell’s been around biofuels for 30 years.  We’re comfortable with biofuels.  Biofuels as an additive to the fuel motor transport fuel (primarily gasoline) are a way to stretch the gasoline supply, and in today’s tight market demand-supply situation, we could use a bit of stretch to the gasoline supply.  Biofuels can make a difference. 

Shell’s preference is to put its money and its time and attention into the research and development of second and third-generation biofuel, meaning cellulosic ethanol.  We’re currently one of the world’s largest distributors of corn ethanol, which is fine. 

We’re not opposed to corn ethanol, except that at some point we’re going to have to make a choice – do we eat or do we drive?  And can we afford to do both?  Can the system stand it? 

Well, we have our doubts and we already see pressures on the price of corn, which is playing over into the price of milk, and the price of eggs, and the price of meat because corn is more expensive and it’s an important animal feed as well as human feed.

Cellulosic ethanol, on the other hand, offers a different choice.  It deals with biomass, biowaste, rather than food and so corn and sugar cane are food. 

Let’s use biomass, such as wood chips, such as the corn stalk rather than the corn kernel.  But the research and development is not quite there yet for mass manufacturing, so we have a ways to go. 

We think we’ll get there, but it may be in the next 10 to 20 years before we can produce vast volumes of cellulosic ethanol.  But, biofuels represent a viable alternative fuel.
 
But, there are other alternative fuels such as wind.  This country is blessed with a lot of wind.  And some would say, “Let’s put wind farms in Washington, D.C.”  But, in addition, Shell is active in putting wind farms in seven other states, some of which are up and running, from Hawaii to West Virginia. 

Wind farms can make a difference.  They are a viable, CO2-free form of electricity production and we can see thousands of wind turbines coming online in the years ahead and we believe that is good for America and good for our energy security.
 
In addition, there’s hydrogen.  It was mentioned I’m part of the Hydrogen Fuel Cell Advisory Task Force.  It’s a pleasure to be part of that futuristic and forward-looking task force to deal with hydrogen as an energy source, because hydrogen is available from water and we have lots of water. 

And if electricity is used to separate the hydrogen molecules from the oxygen molecules in water we have an endless supply of hydrogen fuel energy from water.  And we can use CO2-free electricity to do that separation, if we produce enough electricity from non-fossil fuel or fossil fuel with sequestration-type technology to produce the hydrogen.
 
The issue with hydrogen for mobility purposes is two-fold. 

One, can we store enough hydrogen in the automobile and secondly, will we be allowed to store hydrogen in Shell stations across the nation?  Currently, that’s up for question. We have fire marshals who are concerned; we have local community officials who are concerned about what are the effects of storing hydrogen in gas stations. 

And I don’t just mean Shell stations, but other gas stations, as well.  If we are to have hydrogen fuel cell mobility in the future (say in the next 10, 15 or 20 years) as a competitive offering to the internal combustion engine, we not only have to break through the technology of hydrogen storage in the vehicle, we also have to break through the political policy issues of hydrogen storage in our neighborhoods. 

We believe that that can be done safely, efficiently.  We’re already doing it in Washington, D.C. on Benning Road, near RFK Stadium, where a hydrogen fuel station is alongside other Shell gasoline pumps, in which our partnership with General Motors fuels those hydrogen fuel cell vehicles every day of the week.  It is doable if we can make the public policy choices to make it possible.
 
So, there – hydrogen, wind, I didn’t mention solar; what about solar?  Solar represents probably the most abundant energy source known to the earth, the sun.  We have yet to figure out, however, the most efficient way to transfer solar energy into electricity.  There are solar photovoltaic panels around.  Most of them are silicone-based. 

Shell decided silicone (after being in the business for a decade) was not the product of choice.  Last year, we sold our silicone photovoltaic business to another company and we’re now investing in a different kind of solar photovoltaic technology called thin film, which is more electricity-efficient with less weight, with lower cost. 

Will it be the answer?  We don’t know yet, but the research is ongoing and the manufacturing plant is currently under construction.
 
These are all alternatives that with conventional energy we believe can help make a difference on energy security.  But is that enough?  No, not yet.  Three more critical elements for energy security for this nation: 
 
Number one, greenhouse gas management has to be addressed.  Shell has been at this for a decade, calling on government to take the leadership – to take the leadership – to create a regulatory framework in which greenhouse gases are managed. 

Managed means, yes, capping greenhouse gases and then creating a trading system, a trading mechanism called cap and trade, in which we can then trade credits and debits of CO2, which can drive energy efficiency across the utility industry and across other big users of energy. 

It’s being done in Europe today.  Early lessons learned are helpful and productive in terms of creating the kind of cap and trade market place in America.  Shell joined the United States Climate Action Partnership early this year, which is a voluntary organization of major companies to promote on Capitol Hill the notion of regulatory management of greenhouse gases.

We believe its time has come and we must move on.  Government taking the lead, markets following the creation of such regulations and we move forward.
 
Second, energy efficiency is a huge, huge opportunity for energy security because the most efficient molecule is the one not used.  The most efficient energy saving is the energy not consumed. 

And so more efficient automobiles, more efficient buses, trucks, more efficient homes, more efficient schools, more efficient appliances - technology can move us well down the path of designing and creating those product applications, which are energy efficient to use less energy, not more energy. 

It’s hard to meet an American who would not agree that we do waste energy and that waste is getting ever more expensive.
 
And, finally, education.  What do we do to educate ourselves?  To educate our children? 

If the last 50 years of affordable and available conventional energy are behind us and the next 50 years of not-so-available and not-so-affordable energy are in front of us, how do we educate ourselves as voters in a democracy who will choose public officials who know and understand energy, where it comes from, what it takes to get it, how it’s applied, how it’s conserved, how it’s managed in its emissions if we don’t educate ourselves and our children as to what should occur?
 
And so rather than just talk about it, Shell created a website called, “Energize your Future,” which enables middle school and high school teachers to teach a semester’s worth of energy education for free – for free – and tens of thousands of teachers and tens of thousands of students are accessing that website and that’s wonderful. 

But there are millions of people who still need to know about it. 

Education is critical to getting the public policy acceptance that will enable us to know enough to make intelligent choices to wrap our heads around the public policy issues, so that we can move to a national energy security strategy for the future that will tackle that next 50 years of affordable, available energy, so that we can live our lifestyle, we can grow our economic base and continue to be in the most prosperous country in the world.
 
Thank you.