Speeches

John Hofmeister's '07 Speech - Milwaukee

20/03/2007

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

It is important, I think, to come and talk about energy security.  Why?  Why is energy security so important to us? 

First and foremost, energy is the baseline, the baseline on which businesses plan their future.

Whether you are Microsoft – and I’ll tell you a story about Microsoft.  When we were out in Seattle a few weeks ago, I met with Microsoft senior leadership on energy security and whoever thought about Microsoft as a company that would worry about energy security?

But, they’re going to be building six new information centers in the Northwest part of the country, which will require for building these centers a 350-megawatt-equivalent power station. 

They can’t run the information centers without 350 megawatts of new power in the state of Washington.  Energy security is the baseline of every business that operates.

You need to turn on the lights.  You need to operate the factory.  You need to operate the motors, the pumps, the valves, whatever it may be.  And when you plan your business each year, one of the budget items in your business is energy cost.

At the last meeting of the National Association of Manufacturers board of directors, we had a long discussion about energy security.  And it has moved to the number one concern of major manufacturers across this country. 

What is the cost of energy in terms of running our business?  Energy security is, in part, knowing you can afford the energy that you need to run your business.
 
Secondly, energy is our lifestyle.  It is our lifestyle of mobility, of convenience, of warmth, of coolness, of entertainment.  Imagine your frustration if you were to go to an entertainment event and the power’s out.  It doesn’t happen.

Communication depends upon energy infrastructure supporting communication.  So, lifestyle, the baseline of business and the lifestyle we choose, is dependent directly upon available and affordable energy.
 
So, what is the definition of energy security?  I just said it.  Energy security is available and affordable energy for as far into the future as we can imagine.  Not just for our generation, not just for our children’s generation and their children’s generation, but every generation into the future as far as we can imagine it.

That’s what energy security means.  Now, the question is: can we deliver it?  Well, you might say, “What does an oil company have to say about delivering energy security well into the future?  I mean why would we listen to them given the experience we’ve had over the last two or three years with energy companies?”

And you might say, “Why is he even here?  He represents an industry that the API (the American Petroleum Institute) now knows – because we asked the question as an industry, “What’s our favorability rating among the American people?”  You know they taught me a long time ago, “Don’t ask a question unless you can stand the answer.”

Well, after much research we learned last summer in a presentation by a firm called Edelman that on a favorability rating of 20 industries, where do you think energy came out?  Number 20 – 20th out of 20.  Not a good place to be.
 
When we think about the experience of 2005, in which prices really escalated after the hurricane season (particularly when Katrina and Rita bashed ashore as two of the most devastating hurricanes in recent memory and prices rose), I got letters from 48 Attorneys General across the country saying, “We are watching your prices,” or “You are gouging our consumers in this state and we are going to investigate you.”

Not a popular place to be – and then to be called in to testify in the Senate twice in six months, in the House, and in your state.  We had an invitation to testify in your state, as well as at a hearing in November of 2005.

This is not how we want to run our business, ladies and gentlemen.  We are not at war with the American consumer, despite what you may read in the press.

Because here’s the irony of it all – after the 2005 hurricane season you heard a lot about Katrina and Rita but did you know that five other hurricanes came through the Gulf of Mexico in that summer, causing us to shut down production in the Gulf of Mexico and at refineries along the Gulf Coast?

It was Katrina and Rita that did so much damage, but five other times during the summer, we evacuated staff from the Gulf of Mexico, shutting down platforms, reducing production. 

By the time Katrina came around, we had 25 percent of the nation’s production out of commission.  Twenty-five percent.  Imagine 25 percent of the milk supply, or 25 percent of the coffee supply, or any other commodity being out of production and unavailable because it’s just not there.
 
But, thanks to the tens of thousands of really committed people – really committed employees – who went out into that Gulf of Mexico to platforms where they weren’t sure what the damage was, who went back into refineries at 95-degree temperatures and 95 percent humidity wearing all of their safety garb, so they could go back in and repair facilities, we were able to get energy up and running.

We are congratulating them; we’re praising them; we’re giving them recognition awards. 

Meanwhile -- because of the great work they’re doing to return energy to the American people – meanwhile, if you read the press, if you listen to politicians, if you talk to our customers at Shell stations, it’s like we’re punishing American consumers.  Whose fault is this, ladies and gentlemen? 

Whose fault is it that it seems like we’re at war with one another?  I point the finger of blame right here, right here.
 
The companies have a responsibility and an obligation to tell their story, to explain how our business works, to explain what we’re trying to do for energy security for the future, to explain to the American people what this is all about and how we can have energy security.

So, that’s the essence of my remarks.  We can have energy security.  I want to lay out for you what I consider to be one of the most optimistic, promising messages that perhaps you will hear today. 

And the hope is that you will tell others and that we will begin to share a belief that we can have energy security, which means available and affordable energy for the generations of the future.

But there’s an “if;” there’s always an if: if public policy will enable that future.  Let me explain.
 
People always ask, “Are we running out of oil and gas?”  The answer is, “No.”  As simple as that, the answer is, “No.  We are not running out of oil and gas.” 

In fact, in this country in terms of conventional oil and gas (that is conventional oil and gas is that which we can drill and pump and refine and distribute), there are more than 110 billion barrels of known oil and gas in the Outer Continental Shelf and on Federal Reserve lands, which we’re not allowed to access – public policy.

Public policy says you cannot drill in 85 percent of the Outer Continental Shelf by law.  The entire West Coast, the entire East Coast – off limits for drilling and possible production of oil and gas.  The Gulf of Mexico is only open in a portion of the Gulf of Mexico.

Now, we’re grateful that the 109th Congress last December opened up eight million acres for new exploration and production, but it was the first new access, the first new acreage in 25 years of public policy prohibiting access in that region.

So, the issue around conventional oil and gas, is access to that 110 billion barrels, which is a lot when in this country we’re producing about six million barrels a day.

You can divide six million barrels a day into 110 billion barrels of known oil and gas and you know that will last decades – decades of production.  But we’re not allowed to go there.  Public policy prohibits it.
 
But what about unconventional oil and gas?  That’s the oil sands of Alberta and the oil shale of Colorado – more than a trillion barrels of oil sand oil in Alberta, Canada – a trillion against the 110 billion we talked about in the U.S. that’s known.  About a trillion barrels of oil shale in Colorado, Utah and Wyoming.  Can we go get that oil and gas?

Well, Canada (as a national strategy) opened up the oil sands for production in the 1990’s and Shell Canada, Limited, is up there producing 150,000 barrels a day, on its way to 300,000 barrels a day under current investment plans. 

In Colorado, in the oil shale, we know about the mining technology, which was essentially rejected as too expensive in the early 1980’s, when oil companies basically discontinued investigating the oil shale of Colorado because the mining technology was too expensive.

Shell stayed.  Shell stayed in Colorado to research new and different technologies rather than mining. 

And so today, we continue to research and develop a technology to get unconventional oil from oil shale by drilling holes rather than mining, drilling holes, by putting heaters down into the holes, by heating the oil shale and producing liquid oil and gas that we can then pump out of the oil shale in conventional fashion, at affordable investment levels.

We’re not ready quite yet to make a financial investment decision, because we’re still researching the environmental impact and the movement of water underground before we commit ourselves to multi-billion dollar investments. 

But, in the coming, who knows, the coming decade we should be in a position to make such a financial decision.  That represents tremendous new gas and oil coming into the nation.  But is that enough to meet our energy security needs for the future?  No, there’s more.
 
There’s something called liquefied natural gas.  Around the world, there are huge stranded gas fields off the Coast of Australia, in Nigeria, in Russia, and in many other parts of the world, which have no market because there’s no need for this natural gas. 

By cooling that natural gas to 260 degrees minus Fahrenheit, we can turn it into liquid and transport it by ship to bring it to this country.

But there’s a public policy issue.  Where do you re-gasify that liquid gas?  You need a regasification terminal. 

A regasification terminal requires licenses and permits and virtually every location along the East Coast or the West Coast where we are attempting to build a regasification terminal, we are faced with opposition, faced with threats of lawsuits.
 
Last Monday, a week ago, I was in Connecticut where Shell and Trans Canada are proposing a regasification terminal, where the Attorney General of the state said, “Please take your project to Massachusetts, or to Maine.  Don’t put it near Connecticut, please.”

When I said, “It looks like the best location to us.”  He said, “If you are granted permits, we will sue you to stop you from moving forward.” 

That’s the kind of public policy issue we face in terms of bringing new energy to the nation’s most expensive electricity market, ladies and gentlemen.  The most expensive electricity market place doesn’t want more energy, based on public policy.
 
Is that good for the nation?  Is that good for consumers?  Who gets blamed for the high prices of energy?  The oil companies. 

We haven’t explained ourselves well enough on the liquefied natural gas front, thus my visit to the Attorney General to try to help him understand why we are choosing this site.

But, if we get liquefied natural gas on the East Coast, the West Coast, the South Coast of the nation, does that now yield, with conventional oil and gas and unconventional oil and gas, energy security?  No, not yet.
 
This country has abundant coal.  Coal, more coal than the whole rest of the world put together.  Now, we know coal and have been using it for a long time.  Many people consider it a dirty power producer. 

Technology can change that.  There is, in our view, something called “clean coal,” coal that is no longer burned in pulverized coal-burning plants.

Instead, coal that is gasified.  By gasifying coal, you don’t burn it.  Now imagine creating gas (syn gas) from pulverized coal, which is reduced from the pulverized state to the consistency of talcum powder.

Enter that talcum powder into a gasification process (a Shell gasifier), which - with 2300 degrees Fahrenheit heat and more than 1,000 pounds per square inch of pressure - the molecules of that talcum powder-like coal don’t burn, they gasify.  That gasification process creates the syn gas, which turns a turbine (an integrated gas combined cycle turbine), which produces electricity.

The gasifier contains all of the nasty elements of coal – the CO2, the mercury, the sulfur, the other elements in that coal, which can then be managed out of the gasifier in ways that benefits societies (such as the sequestration of CO2, or the effective use of CO2 in other industrial purposes).  There are ways of managing this that require public policy support to make it happen.
 
But there’s more; there’s still more.  There’s biofuels.  Wisconsin is a state that’s very interested in biofuels.  Shell’s very interested in biofuels.  We can work together on biofuels.  Shell’s preference when it comes to biofuels is second-generation ethanol, rather than corn-based ethanol.

The reason for that is corn-based ethanol competes for food and now competes for fuel.  Who will win?  Where’s the bigger dollars?  Fuel or food?  We’d rather not be part of that debate.  We’d rather not be part of that struggle of food versus fuel.

But, rather, with cellulosic ethanol (which is the corn stalk, rather than the corn kernel, which is wheat, rather than wheat, it’s straw, and it’s wood chips, rather than the fruit of the tree), it’s the tree itself which can be turned into ethanol.

These are opportunities with research and development that can produce massive quantities of ethanol through cellulosic distillation.

That ethanol can then become a fuel for our use.  And it can be done in the billions of gallons, ladies and gentlemen.  We’re already going to pass five billion gallons this year on corn.

We believe we’re closely reaching the limits of corn-based ethanol, which means let’s hurry up the research and development on the cellulosic ethanol, so that we can grow that fuels market much further and over the next decade or so.

But that’s not all.  Ten years ago, when the oil price was $10 a barrel (imagine that -- $10 a barrel, 10 years ago, not that long ago), Shell invested in renewables as a new business in Shell. 

We determined that oil and gas, looking ahead, while a big part of our portfolio for as far out as we could see, was not enough for the future.

And so we invested in the solar business.  We’ve recently shifted gears slightly in the solar business and moved away from photovoltaic electric cells built with silicone to photovoltaic electric cells built with a thin-film substance called copper indium diselenide, which is a lighter, more efficient, less-costly way of making photovoltaic cells, which can make electricity from sunlight.

Simple as that.  We’re in a joint venture with another company to build a manufacturing plant to make these photovoltaic cells and we look forward to seeing how that new technology plays out.
 
In addition, we’re in the wind business.  This country has a lot of wind – and there’s several ways you could interpret that.  But, we have a lot of wind in this country that can produce electricity through wind turbine technology.  Shell has wind farms or interests in wind farms now in seven states from Hawaii to West Virginia.

You may have recently seen a week ago in the Wall Street Journal a front-page article on a thousand-turbine wind farm that is being developed for West Texas – a huge wind farm (the nation’s largest) in which Shell and TXU and other companies are trying to work together to create this huge wind farm in the west of Texas.

Wind technology is excellent technology, but is variable because the wind does not always blow.  But, as an alternative energy, it provides great electricity production for the nation and can do much more.  But is there more yet?  Yes, there is.
 
There’s something called hydrogen fuel cell technology, where Shell has been active for many years with our partner, General Motors.  Today in Washington, D.C., there are about a half a dozen General Motors vans on the streets of Washington fueled by hydrogen.

Hydrogen interacting with fuel cell technology to produce electricity in the vehicle, which puts electricity to the wheels of that vehicle without any internal combustion engine, without any fossil fuel connected to it.  And we are demonstrating to the Congress and to the administration hydrogen fuel cell technology works.

You can refill the car at a Shell station near RFK Stadium – a typical Shell station – and our goal is to keep developing this technology, so that over the next 15, 25 or 30 years we have a totally different form of technology for mobility, a totally different way of getting around, with hydrogen refueling stations as part of Shell stations, in which we have the license and the permit to distribute hydrogen, as well as other fuels at our Shell stations.
 
This technology works.  It’s still expensive, as most new technology is.  And General Motors and other companies are working very hard on the fuel cell side of bringing the cost down.  Shell is working very hard on the fuel development, the fuel storage and distribution side, so that when the cars are ready, the fuel’s there, because we need the two side-by-side.
 
So, there we have it, right? We have conventional oil and gas, unconventional oil and gas in unlimited quantities, liquefied natural gas, clean coal, biofuels, wind, solar, hydrogen fuel cell technology.  Is that going to deliver energy security for the future?  Not yet.  Not quite yet.  Three more major, major public policy requirements are needed for energy security in our view.
 
Number one – fossil fuels have been around a long time.  Fossil fuels will be around a long time.  Fossil fuels do what?  They decarbonize the earth, producing greenhouse gases, which many people believe contributes to global warming and possibly climate change.

Shell’s view is it’s time for government to step up, create a regulatory framework for greenhouse gas management such that the world can continue to utilize fossil fuel as energy and, simultaneously, manage that greenhouse gas effect through a regulation in which markets can operate whether they sequester that CO2 or manage it down to drive more innovation and more technology.

But we believe government must take the lead.  Voluntary initiatives are not enough, because voluntary means some do and some don’t.  And, if we’re serious about greenhouse gas management, ladies and gentlemen, we believe government must take a leading role and that’s what we advocate.

Yesterday, I signed a letter to Congressman John Dingle, in which we laid out Shell’s plan for greenhouse gas management in response to his request of companies to make contributions to what his Energy and Commerce Committee is doing in the House with respect to climate change and greenhouse gas management.  It’s real, it’s here, it’s now, let’s move on.
 
Second – energy efficiency is a desirable public policy in and of itself.  Those molecules not used are the most efficient form of energy conservation. 

Energy efficiency in which our mobility is more efficient, in which our lifestyles are more efficient, in which homes, offices, buildings, factories, any kind of facility that uses energy - uses less energy - is a major contribution toward energy security because the molecules not destroyed are molecules saved for future generations.

There is known technology that we are not utilizing across the board in terms of driving energy efficiency through market and technology push and pull. 

And, we believe the time has come to create a culture of conservation in this country in which our hearts, our minds and our behaviors are driven toward energy efficiency through technology and innovation because it’s available and because public policy supports it through incentives and through other devices, which enable us to move in that direction.

And third – we do not educate ourselves around energy.  We learn about history, we learn about language, we learn about math, we learn about science, we learn about many, many things.

But, if you go back to my starting point, the baseline of our economic success and the essence of our lifestyle are dependent upon energy about which we teach nothing or almost nothing in our schools.

Unless someone specializes in university in this field, otherwise we teach very little at elementary, middle school or high school levels.

It’s not enough to just talk about that.  Shell has done something about it. 

We’ve created an interactive website where teachers across America can download a curriculum of teaching energy, which was put together by the “Weekly Reader” – not by Shell but by the “Weekly Reader” – so that it is taught to students at the level at which they can learn and middle school and high school teachers can download this teaching curriculum for free and teach it to their students.

So the combination, ladies and gentlemen, of the three public policy areas of energy efficiency, energy education and greenhouse gas management, coupled with the litany of energy possibilities, in Shell’s view will deliver energy security for now, for the future generations and for as many generations into tomorrow as we could imagine.
 
Thank you very much.