Speeches

John Hofmeister's '07 Speech - Minneapolis

14/11/2006

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

Good afternoon, ladies and gentlemen.

I noticed this is a success series. I hope it’s all right if it’s a work in progress, because we’re not ready to declare success yet in the energy security arena.

In fact, in getting ready to speak today, I thought quietly to myself: “Why am I here?” I represent an industry that some would say has zero credibility.

We sell a product that you would not want to touch, taste, see or smell. We’re working on discoveries in such complex circumstances that most people don’t want to hear about those technical complexities.

We’re asking our public policy makers to please give us more access to traditional oil and gas and irritating every one of them that we talk to.

We’re working on new developments such as unconventional oil shale in Colorado, which, if we are successful, will take literally decades to penetrate the supply chain of oil and gas in the United States.

We’re advocating the management of greenhouse gases, which if successful, will take decades to have a material impact on greenhouse gas emissions in this country or around the world.

We’re promoting energy efficiency ideas, which, again if successful,l would take decades to increase efficiency in the use of energy. So, with all of that as backdrop, why am I here, and what do I have to say?

I’m here, frankly, for two reasons. Number one: I believe in our brand.

Our brand has been around nearly a hundred years in this country, and that brand has stood for quality fuels, lubricants, quality in everything we do; quality in the way we do it; with integrity, honesty, respect for people as core values behind that brand.

Secondly, I’m here to represent tens of thousands of everyday Americans who get out of bed in the morning or in the evening to go bring energy to the American people; whose jobs it is to bring energy forward.

In hot tropical of Gulf of Mexico working conditions, in harsh cold Artic weather conditions where this time of year you can say goodbye to the sun.

And those people work every day to see to it that the lifeblood of the American economy continues to move through pipelines, trucks, and trains to try to support our needs, whether it’s motor transport or whether it’s electrical generation requirements, to keep our economy moving.

So, for those two reasons, I’m proud to be here and I thank you for the invitation – but what do we have to talk about?

Well, the American people suffered two serious black eyes in the course of the last 14 months; one in the form of high prices for their fuel, and the other this “mysterious” high profitability of the companies bringing them high-priced fuels.

Those two black eyes we’ve seen all over the country, in which people resent what’s happened to them. Why have oil prices gone so high, and why are these energy companies making so much money?

The answer, if it’s accepted, is simple. We don’t have enough supply to meet the demand.

And, because we live right on the edge day in and day out, when we had the interruptions of the hurricanes in the summer of 2005 we lost 25 percent of the nation’s production capacity for crude and 25 percent of the nation’s refining capacity for gasoline.

That 25 percent loss of supply reverberated through the economy, where the demand never diminished, and as a consequence the price went up. Because the crude price has been so high for so long and the cost of getting crude out of ground has remained somewhat stable, the profitability of the oil companies is directly related to the high price of crude.

Because if you ask our retail station owners and if you ask Shell’s retail managers, the actual profitability from the retail price of gasoline is thin at best, and they struggle to keep meeting the demands of consumers with these razor-thin margins at the retail level even while companies like Shell are reporting very large profitability numbers because of the high price of crude.

So what do we do about it? Well, I’m here to promote energy security through energy diversity. What does that mean? It means, specifically, more access to more conventional resources of oil and gas.

We have, over a hundred years, built an economy that is dependent upon oil and gas as the lifeblood of the American way of life and the American economic success that we have experienced.

Over that hundred years of building that infrastructure, the energy industry – the oil and gas companies specifically – have become very good at developing known reserves and producing the product that comes from the ground.

If we are to sustain that machine, keep that machine supplied, in the short term we need more access to more oil and gas, which is why we take it upon ourselves – this irritating job of asking members of Congress to please give us more access to federal lands and to the outer continental shelf where we know there’s more than 100 billion barrels of conventional oil and gas to be developed, but where we are prohibited from access because of public policy.

In the short term, access to the outer continental shelf, access to federal lands will, we believe, help the supply side in order to meet the demand requirements of the American consumer.

But is that enough? No. We don’t think that’s enough.

We also are asking permission to develop the unconventional oil and gas resources in this country. Oil shale in the Colorado, Utah, and Wyoming region represents a trillion-barrel resource of oil and gas, which for decades, if not centuries, could continue to supply the oil and gas needs of America. Not exclusively, but in conjunction with conventional oil and gas.

The unconventional reserve of a trillion barrels is, we believe, tappable.

There was, once upon a time, a desire to exploit that natural resource through mining technology, which was expensive, and which had environmental issues, and by the 1980s companies that were exploring for oil shale using conventional exploration and mining technology gave up because the price of oil sank too low; they could never make money extracting unconventional oil shale through mining technology.

Shell stayed behind. Shell stayed behind to experiment with different technology than mining, and today we’re able to talk publicly about an in situ technology, where we can produce oil and gas from the oil shale of Colorado by drilling holes, putting heaters down the holes, heating the oil shale to about 700 degrees over a period of years, in which we naturally accelerate the maturity of the oil and gas in the oil shale to where it drips out and flows, and then we can pump it to the surface without mining.

We’re researching this. We’re developing it. We’re now testing freeze wall technology to see to it that we can manage this in environmentally sensitive ways, but we believe that towards the end of this decade we should be in a position to decide whether we can proceed.

By that time we should have results of our research, we should know what the environmental constraints are and we should be able to seek permission. But, it would still be the middle of the next decade before we would see material production, if we’re successful.

But is that enough? We don’t think so – we think there’s more. There is liquefied natural gas. Around the world there are huge volumes of stranded gas in places north of Australia, near Malaysia, the Middle East, off Nigeria’s coast, where we believe this stranded gas could be turned into liquefied natural gas and brought to this country to augment the natural gas supply which we know is not keeping up with demand.

Natural gas has become a preferred alternative for combined cycle gas turbine electricity production. If we look at the 10-year demand curve for increased requirements for natural gas, what we see is that the supply is not going keep up. This supply could be augmented by liquefied natural gas, which comes to this country as a liquid and is re-gasified to become very clean and very affordable natural gas.

But, we’re having a difficulty siting liquefied natural gas re-gasification terminals. It’s the issue of “who wants a re-gas terminal in their backyard?” Frankly, not very many people, and so siting these terminals becomes a public policy issue that we need to deal with; mostly the East Coast, Gulf Coast, West Coast are the opportunities to put the re-gas terminals, and it’s a challenge in virtually every location.

But, if we don’t get liquefied natural gas, I think we face a very severe demand-supply crunch in the next 5 to 10 years, which would then spike the price of natural gas, leading to perhaps other issues in the political environment.

If we are successful with liquefied natural gas, and we site half a dozen or ten re-gas terminals, is that enough? Not yet. Shell believes, and Shell is an active player, in coal gasification.

Coal gasification, where, if you’ll excuse a political scientist’s technical version of coal gasification, instead of pulverized coal burning in a coal electricity generating plant, coal gasification comes from reducing that pulverized coal essentially to dry coal dust about the consistency of talcum powder, entering that coal dust into a gasifier under intense pressure and intense temperature, which then gasifies the molecules creating syn-gas – synthetic gas.

That synthetic gas can then move to the gas turbine electrical power generation, and within the gasifier lies the ability to manage the other emissions that come from coal gasification, such as CO2, sulfur, mercury, and other noxious products, which can then be managed for environmental health, and managed in ways in which we could perhaps use the CO2 for enhanced oil recovery in existing oil fields, or sequester it so that it doesn’t enter the atmosphere.

In addition to that, if you add liquefaction technology to the gasification process, you can also get clean diesel fuel from the syn-gas, which really accelerates the energy efficiency of coal into multiple forms of other energy.

It’s called “clean coal.” Some people dispute whether there is such a thing as clean coal, but we believe with the management of the emissions it comes as close to clean as you can find, including up against natural gas as a supply of electricity.

If we’re successful with coal gasification – and Shell has experience around the world, in Europe, in Australia, in China with coal gasification technology and indeed it works – is that going to be enough?

We think not. We think that the combination so far of conventional oil and gas, unconventional oil and gas, liquefied natural gas, and coal gasification gets a long way down the path, but this is a huge economy.

The demand for energy is incessant. The growth of our economy is everybody’s objective. The lifestyle we want to protect and sustain is in the interest of all Americans.

Therefore, we also want to invest in bio-fuels – particularly in ethanol, particularly in cellulosic ethanol. Shell’s preference for cellulosic ethanol is quite simple: if we’re already accused of high gas prices, and last year Shell was investigated by 48 Attorneys General for price gouging – so if we’re already accused of high gas prices, please let’s not also accuse us of high food prices.

The consequence of what we consider cellulosic ethanol, which comes from waste or bio-products which don’t enter the food chain, is good ethanol that can stretch the fuel supply by 5 or 10 percent and go a long way towards creating new jobs, new sources of energy, and adding to the fuel supply, which we believe is good for America and good for energy security in the future.

Now, we’re not against corn-based ethanol. In fact, we’re one of the world’s largest distributors of corn- or sugar-based ethanol, but we do believe over time there will not be sufficient supply of corn-based or sugar-based ethanol, and the time to focus on cellulosic ethanol is the present and move it forward.

So, Shell’s involved in three different kinds of cellulosic ethanol development: that ethanol which comes from straw, working with our partner Iogen; that ethanol which comes from the gasification of woodchips, working with our partner Choren; and another unnamed partner which is working on ethanol from municipal waste.

We believe concentrating on ethanol from those three sources will teach us a lot and move us down the path of ethanol production, which can meet the demand of a fuel system that continues to grow in this country.

But is that enough? No, we don’t think so yet.

Shell currently produces about 400 megawatts of electricity from wind farms in this country. One good thing about this country, ladies and gentlemen, we do have a lot of wind – and there are several ways you can interpret that statement! The wind farms are CO2-free opportunities to produce electricity.

Already in seven states today we’re producing electricity through wind farms, and we’ve just broken ground on a 200-turbine wind farm on Storm Mountain, West Virginia, which is our first entrance into the eastern part of this country.

We believe there’s a long way to go. The only limitation on wind farms today is, frankly, the availability of turbines – there just aren’t enough to go around, because the whole world is moving toward wind and the availability of turbines is a world-wide shortage.

In addition to that, there is solar energy. Solar from thin-film technology is Shell’s preference. We were in the silicon photovoltaic business but we recently sold it, because it’s our belief that silicon-based photovoltaic electricity is not the ultimate solution for solar energy.

We believe that there is more opportunity through thin-film technology, called copper indium diselenide, which is a spray of metal on a glass plate. This is less expensive and more energy-efficient overall, in our view, for the future of solar electricity production.

And, we’re not done yet. We believe that ultimately the fuel source of choice that we will work towards technologically is the hydrogen fuel cell. There are those who dispute it and we understand that.

There are legitimate reasons to dispute it, and some consider it the promise that will never end being a promise, but the hydrogen fuel cell vehicle currently in use in Washington, D.C., fueled at a Shell hydrogen station which is a normal Shell retail station on Benning Road in Washington, D.C., works.

General Motors makes the van. General Motors and Shell are in a strategic partnership demonstrating to our Congressional leadership in Washington that hydrogen fuel cells are a reality.

Yes, today they are expensive, and yes, today hydrogen is in short supply, and basically, you can tool around Washington but don’t go outside of Washington because there are no hydrogen stations nearby...but that’s a solvable problem.

General Motors believes and Shell believes that over the next years we’ll see technological breakthroughs which both increase hydrogen storage and decrease the cost of the vehicle.

Shell will be working to build hydrogen highways between Washington and New York, between Los Angeles and San Francisco, someday between Chicago and Detroit, perhaps Chicago and Minneapolis, and we’ll see the evolution of hydrogen highways and hydrogen fuel cell vehicles across the United States.

So if we add up all of those: conventional, unconventional, LNG, coal gasification, ethanol, wind, solar, and hydrogen; is that enough?

No. There are two more essential elements of energy security for America, ladies and gentlemen. One: we must manage our greenhouse gas emissions, and yes, this is the head of an energy company saying that that’s a necessity.

We must manage our greenhouse gas emission. For Shell, the debate is over on global warming. We’re not climate scientists but when 90 percent of the world leaders decide that greenhouse emissions are contributing to global warming, who are we to offer a debate?

Who are we to decide otherwise? We’re citizens. We follow our leaders – so let’s work on solutions. In this country, we see a number of states proposing greenhouse regulatory frameworks.

We worked in California with the Schwarzenegger administration on AB32 to see if we could contribute to the development of a workable bill. In the end, we felt the bill was too ambiguous; and while we didn’t oppose it, we didn’t support it. We’re now working with the state to try to develop the regulatory definitions of how that bill will work as it comes into law.

Our preference, quite logical for a company that operates in 50 states, is that we have a national framework – a national solution for greenhouse gas emissions; that as a nation we work on this, because emissions don’t recognize state boundary lines, and if states take different approaches to the problem, we don’t know quite how to solve that except on a national basis.

We applaud the White House for its numerous meaningful voluntary proposed solutions to greenhouse emissions, but we encourage a move from voluntary to mandatory, and from state to national solutions. That has to be part of the energy security formula, in our view, for the future.

And finally, energy efficiency, which is the demand side of energy, needs to be addressed simultaneously with the supply side.

If the demand side is unmanaged…in other words, if the demand side does not call for what Shell refers to as a “culture of conservation,” a hearts-and-minds commitment to get more energy output per unit of input in the vehicles we drive, in the buildings we work in, in the homes we live in, then we’re chasing a never-ending struggle, which takes us to energy insecurity, because energy is a precious resource.

The availability of energy in the last 50 years – its affordability, the fact that it is easy, convenient, next door, flip of a switch, the convenience we’ve trained ourselves on in the last 50 years – is going to be far more challenging in the next 50 years, simply because the technology is moving on. The availability of conventional oil and gas is diminishing.

All of the other choices I described are more challenging, more complex, more difficult, and if we are to solve the energy security issue of the future, we believe that energy efficiency in all of the above applications needs to be thought through and put into place as well, along with education, which we have not seen heretofore.

We do not educate our children on energy. Our school systems do not educate our children on energy; where it comes from, how it can be used, what its consequences are, what the social responsibility aspects are with respect to energy.

Given that gap, Shell has created a website called “Energize Your Future.” “Energize Your Future” is targeting middle-school students and high-school students and their teachers to try to teach a semester’s worth of energy information.

Not to promote Shell, but to promote energy, and the efficient use of energy, and to understand it better.

So we’re promoting that – we announced it about two months ago and we’re promoting it in schools across the United States to try to get teachers to take this free curriculum and use it with their students, to educate the next generation even while we as an older generation are out speaking about this issue and talking to our policymakers on both sides of the aisle, in both houses, and in state houses, to try to recognize that the last 50 years were easy – the next 50 years are more challenging.

Challenging, but, we believe, doable, because the combination of all of the above, ladies and gentlemen, we believe, will deliver energy security to this country, not only for us, not only for our children, and their children, but for their grandchildren’s grandchildren. Thank you.