Speeches

John Hofmeister's '07 Speech in Montgomery

15/03/2007

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

Ladies and gentlemen, thank you for coming out today and thank you for offering the opportunity to discuss the subject that is near and dear, frankly, to every one of us, every one of our children, our grandchildren, our future grandchildren and their grandchildren for generations to come. 
 
The topic for today is energy security in these United States and what can we do about it.  And there are a couple of key principles to start with.  One is the definition of energy security – what are we talking about? 

Energy security (for our purposes today) is available and affordable energy for as far into the future as we can collectively imagine, which is a very long time.  “Available” and “affordable” – two critical operative words for the future for as far out as we can see.  That’s the definition.  Why is that important?
 
First and foremost, our economic model depends upon energy.  Any business, any institution, any level of government, any school, any community that values economic progress relies on energy.

And if that energy is neither affordable nor available, the economy slows, the economy stops and we all suffer because we thrive on growth.  So, available and affordable energy for the sake of economic progress is critical to the society in which we live. 

And there’s something else.  Energy is important for our lifestyle: how we live; how we get about; how we spend our leisure time; how we plan our life, our future.  Our lifestyle is energy dependent. 

Whether we enjoy the night, whether we enjoy the day, whether we enjoy the summer; whether we enjoy the winter – whatever it is that we enjoy in our lifestyle – it is energy dependent.  And so “available” and “affordable” are essential for our economic well-being and our lifestyle well-being.
 
So, how are we doing on energy security?  If we look back (let’s take the last 50 years), we look pretty good. 

The last 50 years (think about this country in the early to middle 1950’s in terms of economic well being and in terms of lifestyle) - the beginning of the television era, the radio era, the building of the interstate highways – we had the beginnings of economic prosperity in the post-World War II period that really would say, “This has been a very affordable last 50 years.”

A lot of people have more than one car in their family.  A lot of people have air conditioning in their home.  A lot of people have gas heat, gas hot water or electric hot water, or electric heat (don’t want to miss out on Gordon’s business here).  So, the last 50 years have really been pretty good for energy security. 

What about the next 50 years?  What have we learned in these last two to three years in an era of continuously upward creep in gasoline price, oil price, natural gas price, electricity rates?   What have we been learning these last three or four years about availability and affordability when it comes to energy from all sources?  Much more expensive in terms of affordability.
 
How about availability?  Let me tell you a story because Montgomery is part of that story, Alabama is part of that story.  We all remember Katrina.  We all remember Rita.  The story relates to the Friday night after Rita blew through East Texas and West Louisiana, a month after Katrina. 

Now, with Katrina, and the devastation of Katrina from Mobile all the way over to West Louisiana, every refinery was shut down from Katrina through the month of September.  Rita comes along and shuts down every refinery from Galveston to West Louisiana.  Twenty-five percent of the nation’s refining capacity shut down between Katrina and Rita in that four-week period. 

On top of that, virtually every producing platform in the Gulf of Mexico (manned or un-manned) was shut in because of the severity of those storms.  Right through the most prolific production fields in the Gulf of Mexico – shut down.  Lots of damage.
 
What happened on that Friday night a week after Rita?  I learned that our Motiva Refinery in Port Arthur, Texas, had the last 300,000 barrels of finished oil product (gasoline) to put into the Plantation and the Colonial Pipelines.  About four o’clock in the afternoon, I learned that we’ve got the last 300,000 barrels but we’ve got no electricity to push those barrels into the pipelines.  The Colonial and the Plantation Pipelines supply everything east of Louisiana and north, up to Washington, D.C.

Those are the pipelines that supply you, supply the state of Alabama and all your neighbors, all the way up to Washington, D.C.  We’re down to our last 300,000 barrels and we’ve got no electricity. 

I called the Energy Secretary, Sam Bodman, and said, “Mr. Secretary,” – and I got him at his daughter’s wedding rehearsal dinner on Friday night about 7:30 – not the best time of day or convenient moment to tell the Energy Secretary, “We’re just about out of gasoline for the Southeast of the country.”  But I explained the situation, and he said, “Why are you calling me now?” 

I said, “Because Mr. Secretary, if we don’t get electricity over the weekend by hooking up emergency generators – and we’re working 24/7 to try to get those emergency generators up and running – I need to call you back on Monday morning to say we didn’t get electricity. 

“And then to ask you to please ask the President to declare a day of ‘National Reflection’ so nobody drives.  Because if we don’t have gasoline coming out of that pipeline and people get wind of it, what are they going to do?  Everybody is going to go fill up their tanks and what’s that going to do? 

“That’s going to drain every retail station from Mobile to Washington, D.C. in a matter of a day or two.  And the rest of the nation is going to see these gas lines with everybody trying to fill up their tanks and we can’t supply, we can’t re-supply, first of all, without anything in the Southeast coming up the system.  But then we can’t re-supply the rest of the nation that’s out there panic buying at the same time.” 

He said, “John, I’ll pray for you.” 

The good news is divine intervention worked.  Our crews got electricity going by about five o’clock on Sunday afternoon.  We were pushing barrels a few hours later.  Monday morning nobody knew the difference.  We supplied the Northeast, and by the time those 300,000 barrels were used up, we had other supplies coming into the system.
 
What does that say about availability?  This is the United States of America: land of plenty.  Land of everything and we’re hours, hours away from panic buying for gasoline; something so basic as that.

Katrina and Rita taught us a lesson.  The follow on from Katrina and Rita that we unfortunately experienced were ever-escalating gasoline prices through October, through November, into December.  Then, they dipped a little bit with the winter months. 

Fortunately, it wasn’t a horrible winter, so heating oil didn’t rise much further than that January/February.  But then something else happened.  March, April, May of 2006 and we’re back up to $3 gasoline, $3.50 on the West Coast, $3.70 in Hawaii.  What happened was the decision to take MTBE out of the gasoline system and replace it with ethanol where that oxygenate was necessary by law.
 
A public policy decision, which gets me to one of the key points of today’s conversation.  Energy security in America – available, affordable energy for as far out as we can see is, ladies and gentlemen - predicated on enabling public policy, which allows oil and gas companies, electric companies, coal companies, alternative energy companies, all the above to make a difference in the future. 

Enabling public policy led by the political leadership of the country, which can rise above the self-interest of any particular industry.  Parochial interests of specific industries are not a solution for energy security.  Let me explain.
 
Conventional oil and gas: are we running out?  Absolutely not.  Easy conventional oil and gas – yes, we’re running out.  Conventional oil and gas, not so easy, there’s plenty more to be discovered, plenty more to be produced. 

In this country alone, in the Outer Continental Shelf of this country and on federal lands in this country, well over 100 billion barrels of gas and oil to be produced but we can’t get at it. 

Public policy prevents the development of Outer Continental Shelf resources and resources on federal land, in order to protect and preserve the earth.  Public policy for good reason says we can’t have it. 

We’re only allowed access as an oil and gas industry to 15 percent of the Outer Continental Shelf.  Now, we’re grateful for the eight million acres in the Eastern Gulf of Mexico, approved last December.  That was the first extension of access in the Gulf of Mexico in 25 years – eight million acres. 

Now, to you and me, that sounds like a lot of acreage.  But in terms of the Gulf of Mexico, it’s a postage stamp because of how huge and prolific the Gulf of Mexico is.  But, 15 percent is all we’re allowed to go after by public policy. 

What about the rest of the 85 percent, which contains along with federal lands the 100 billion barrels?  Only enlightened political leadership can make the decision to grant access.  But if they granted the access, would 100 billion barrels be enough for energy security?  No, not the kind of future energy security we all care about.
 
We can move over to unconventional oil and gas.  Unconventional oil and gas is the type of oil and gas that comes from the Canadian oil sands or comes from Colorado oil shale - prolific, abundant resources in both Alberta and in the Colorado Western Slope - technically more challenging, therefore, a bit more expensive to produce. 

In the Colorado oil shale, for example, Shell has a research and development project, which in time we hope (perhaps within the next four or five years) could lead us to a commercial decision to actually begin developing the oil shale – not by mining it but by drilling holes in the ground, placing heaters into the holes, heating the oil shale to advance its natural maturation cycle as oil and gas and then take it out in conventional means. 

It could be a great alternative to conventional oil and gas, but we need the enabling public policy to make that possible, in addition to the technical research and development.
 
But, if we get the unconventional oil and gas, will that solve our energy security future?  No, we’re not done yet.  This nation loves natural gas.  Electricity production from natural gas is continuing to grow. 

It’s growing so rapidly that over the next 10 years, if you look at the supply/demand balance relationship, we won’t have enough natural gas to make electricity in all the natural gas combined-cycle generating stations that have been built. 

We need to augment the natural gas supply.  The most convenient way to do that (in fact, the only way to do that) is by bringing liquefied natural gas into the U.S. market place.  We bring some in today and that helps, but it’s less than five percent of what we ultimately would need. 

Around 20 percent of the natural gas supply to bring liquefied natural gas into this country from gas fields elsewhere in the world where there’s no market, for example, the Northwest Shelf of Australia, or from Nigeria, or from Russia or other locations where natural gas is abundant. 

What we need are regasification terminals where we turn the liquid back into gas and then distribute it as normal natural gas through the pipeline system.
 
We know how to build regasification terminals, but, but we need enabling public policy to build them.  Who wants a liquefied natural gas facility in their community? 

I spent Monday in Hartford, Connecticut, where Shell has a project on the books with Trans Canada to build a regas terminal in the middle of the Long Island Sound.  Now, you would think the middle of the Long Island Sound does not meet the criteria of anybody’s backyard. 

There are no neighbors.  But, elected officials in the state of New York and in the state of Connecticut are vociferously opposed to the project and so we’re meeting with them to try to understand their vociferousness. 

In doing so, we have intelligent discussions about whether we do or don’t need more energy in a post-industrial, information age society.  And I have a great story to tell about that.
 
I was in Seattle recently, meeting with Microsoft officials about energy security at Microsoft.  Energy security at Microsoft?  What kind of factories do they have?  Microsoft (because of their exploding business in the Internet) knows that they need to build over the next 10 years six additional information centers.  Information centers are what? 

They are big buildings full of servers.  Servers run on what?  Electricity.  How much electricity Microsoft needs to build those six new information centers is equivalent to one 350-megawatt power plant.  So even in the information age, we need energy to sustain the information network. 

So, talking to the people in Connecticut and New York, it is important for them to appreciate that energy is essential in the Information Age as it was in the Industrial Age. 

But, if we get all of those regas terminals built along the Gulf of Mexico, along the East Coast or along the West Coast, does that meet energy security requirements for the future?  No.
 
There’s coal.  This country has lots and lots of coal – more coal than the whole rest of the world.  But people think the word “dirty” when they think coal.  Is there such a thing as “clean coal”? The cynics say, “That’s an oxymoron.  There’s no such thing as clean coal.” 

But, to technologists and to power advocates, clean coal is possible through integrated gasification combined cycle technology (IGCC as it’s often termed) by gasifying coal (rather than burning coal), by capturing or sequestering the CO2 that comes from that gasification process; these people believe that we can move into a clean coal generation. 

The gasification technology works.  It’s been working for decades.  We have not chosen to adopt it in this country, preferring less expensive, pulverized burning of coal.  But, we all share the air we breathe; we all share the environment we live in and clean coal means something from an environmental standpoint.  And we have huge generation needs for the future. 

So, the idea of bringing integrated gasification combined cycle technology into our coal processes is here and now.  It is here and now.  Now, I’m not an engineer but let me explain how it works very briefly.
 
Pulverized coal (as you know) is like pea-gravel-sized coal that is burned and the heat and the CO2 go up the smoke stack; scrubbed a bit to get some of the nastiest stuff out of it, but a lot of the effluent into the environment.  Coal gasification works differently.  The pulverized coal is further reduced in size. 

It’s reduced to the substance of talcum powder – pulverized pea gravel coal taken to the essence of talcum powder.  The talcum powder is introduced into the gasifier (a big enclosed vessel), 2600 degrees Fahrenheit or hotter; more than 1,000 pounds per square inch of pressure (lots of pressure). 

The coal doesn’t burn, it gasifies. The molecules simply explode.  And in that explosion, it is the most efficient destruction of carbon molecules, which produces hydrogen, which can turn into gas and that gas can then run clean combined-cycle gas generation generators. 

Clean coal is doable and carbon sequestration and other technologies for the management of the effluence can be used to really clean it up.  But, if that is successful, are we now there with all of the energy security we can imagine into the future?  Not yet.
 
In addition to all the gasoline and diesel and aviation fuel we make from oil products, there’s also biofuels. Biofuels represent a very intriguing possibility to extend our motor fuel capabilities and our mobility lifestyle.  Currently, Shell is one of the world’s largest distributors of ethanol – ethanol made from corn and sugar cane. 

We’ve been at it in Brazil for 30 years.  Other parts of the world, we’ve been distributing ethanol as part of gasoline for a very long time. 

Shell’s view is that the future of ethanol is actually quite bright and we can make a lot of it, but let’s move away from corn and sugar; let’s move towards cellulosic ethanol, where we make ethanol from biomass (the corn stalk, instead of the corn kernel, the sugar cane mass, instead of the sugar cane sap, or wood chips or grasses or even municipal waste), all of which can be dealt with enzymatically to produce ethanol, which is alcohol by any other name with additives put in it to distinguish it from distilled spirits. 

And this ethanol can actually extend the gasoline supply at a time when we use internal combustion engines that don’t burn alcohol very well.  But flex-fuel engines make a difference, and we’ll see how the flex-fuel engine takes off in this marketplace and whether E85 (85 percent ethanol) becomes a real possibility. 

But, certainly, we can get to 10 percent ethanol across the nation, focusing (we believe) on cellulosic ethanol to avoid the food price impact that would come from corn- or sugar-based alcohol.
 
But is biofuel enough?  No, technology is a wonderful thing and there’s more that we can do.  There’s solar power.  Shell’s been at solar power for 10 years. 

We recently made a decision to move away from silicone-based photovoltaic cell manufacturing to embrace a new technology called copper indium diselenide thin-film technology, which produces more electricity from sunlight than silicone, weighs less, costs less, so we’ve shifted technology already into another generation of photovoltaic cell, which we believe can make a significant difference in the future. 

The sun’s not going anywhere and you can make electricity from the sun with this kind of capability.  Let’s chase after it.
 
But in addition to that, there’s wind.  This country has a lot of wind and some people say too much wind in certain locations.  But with wind comes CO2-free electricity.  Wind turbine technology has moved far afield.  There are terrific opportunities for wind farms. 

Shell’s in seven states with wind farms, building a very large wind farm in West Virginia as we speak.  Building a wind farm in Maui and looking now at West Texas for a huge thousand-turbine wind farm that will produce significant electricity.  But, the wind doesn’t always blow, so it’s not enough.  We need other sources of electricity, as well.
 
And moving technologically further down the food chain, there is hydrogen fuel cell technology.  Hydrogen fuel cell technology, ladies and gentlemen, has been around a long time because we’ve been in space a long time and fuel cells are the primary source of energy in space. 

We can take that technology, commercialize it in stationary fashion or in mobility fashion.  And, today if you were in Washington, D.C. driving your hydrogen fuel cell vehicle you could fill up at a Shell station on Benning Road, right in the shadow of RFK Stadium.  In other words, hydrogen fuel cell vehicles are real.  The ability to re-fuel those vehicles is real.  Yes, it’s experimental, but it works.

And in the next five, 10, 15, 20 years, we believe we will see hydrogen fuel cell vehicles enter the mainstream of choice for Americans like ourselves to choose from internal combustion vehicles, diesel engine, hybrid automobiles or hydrogen fuel cell automobiles.  We believe it’s that real and that it’s coming in the next decade or two.

So there we have it, right?  Conventional oil and gas, unconventional oil and gas, liquefied natural gas, coal gasification, biofuels, wind, solar, hydrogen – do we have energy security for the future?  In our view, not yet.  Three more critical needs must be addressed to achieve energy security over the long term.
 
First, energy efficiency has a long way to go to make better use of molecules of any kind of energy, whether that’s the energy efficiency of our vehicles, our homes, our offices, our buildings, our factories, our lifestyles.  Energy efficiency through the way we think about it, the way we behave. 

At Shell we call it a “culture of conservation,” where it’s not about jiggling thermostats or lightening up on the accelerator pedal.  It’s about designing differently, designing for energy efficiency, rather than for energy wastage. 

In other words, not to get the maximum oomph for the energy input, but to get the optimum power from the use of molecules, which can lead to a greater extension of our energy availability and affordability by designing how we live and how we operate quite differently. 

Cars, we know, can get a lot more miles per gallon.  Buildings could be a lot more insulated.  Sources of power for buildings could be quite diverse, all of which could contribute to energy efficiency.
 
Point two – we have been de-carbonizing the earth with fossil fuels for quite some time.  It’s Shell’s view that the debate over global warming for us is over.  The debate should be the solutions that deal with greenhouse gas management. 

We need to look at a national framework and a global framework that enable mankind across the world, across this nation – not by state, but across this nation – to deal with the environmental impact of greenhouse gas emissions. 

Our preference is a public policy government-led regulatory framework, which enables markets to operate so that there’s a level playing field for the supply side of energy and the demand side of energy and we all participate in the contributed behaviors and the policy decisions to reduce the impact of greenhouse gases on our world.  We believe it’s time.
 
And, third – education of ourselves, particularly our young people (the generations to come).  How can we educate ourselves to be smarter consumers, change our hearts, change our minds, if we don’t formally educate people about what energy means. 

Where does it come from?  How does it work?  Why are the different forms what they are and what is our social responsibility around energy?  We should teach it in our schools – and Shell does more than just talk about teaching it in our schools. 

We’ve created with the “Weekly Reader” an interactive website called, “Energize Your Future,” in which teachers at middle school level, high school can download a curriculum for teaching energy. 

Not to sell Shell products, but to teach energy, and the math and science and engineering associated with energy, and the technology of energy, and to interest young minds in potential learning (maybe even careers) about energy and energy-related activities.  “Energize Your Future” - we believe education is a critical third element of a drive towards energy security.
 
So, with all of the above – with education, with energy efficiency, with greenhouse gas management, with solar, wind, nuclear (I’ll come to in a moment), with all of the above, the conventional oil and gas and the unconventional oil and gas, the coal gasification - all of that, ladies and gentlemen, we believe will deliver available, affordable energy for this generation and every generation to come as far as we can imagine.
 
Thank you.