Speeches

John Hofmeister's '07 Speech - New Orleans

17/09/2007

How the U.S. Can Ensure Energy Supply for the Future. John Hofmeister's remarks at the World Trade Center of New Orleans in New Orleans, Louisiana.

Thank you very much.

Ladies and gentlemen, it’s really a pleasure to be in Shell’s second home. 

It’s nice to have two homes—we have a home in Houston and we have a home in New Orleans.

And, thanks to the great leadership of Frank Glaviano and his leadership team, the decision to restore our operations here in Downtown New Orleans was really quite an easy decision under difficult circumstances.

But, when you have confidence in his leadership and those of his senior team, you know that you’re investing wisely in a community that has mattered for so long in Shell’s U.S. history.
 
One of Shell’s first investments in the United States in1912 was the New Orleans Refining Company, now a town called Norco.

I don’t know how many of you knew that, but from 1912 onward, Shell was active in this country through the New Orleans Refining Company, which is an interesting little tidbit in Shell’s history.

For many years, Shell operated in the United States without using the word “Shell.” It was operating under a variety of names—which in those days, being a foreign-owned company, at the time of the Great Industrialization of America through American companies, being a foreign investor was something that you handled in a low-key manner.

And so by using other names, Shell was able to gain a very strong foothold and operate, of course, as an American company in America. In fact, the country that owns the most shares of our publicly-held company is the United States. So we feel very much at home.
 
I had the pleasure of working in the Netherlands for eight years before coming back to the U.S. So, Counsel General, it is very nice to see you here. We could share a lot of stories about rainy bike rides and other kinds of experiences living in the Netherlands.

But, it is wonderful to be in New Orleans today to talk about what I consider one of the most serious dialogues that needs to occur in this country, and needs to occur now.
 
There are three great securities that matter to the American people—the way in which we live, the way in which we operate, and how we take our position on the world’s stage.

Financial security is part and parcel of how our economy operates to support hundreds of millions of people in a lifestyle that is the envy of the world. Financial security is part and parcel of that great underlying security, which we seek in life.

The financial insecurity that comes from major storms as we’ve seen in New Orleans, or comes from major disruptions in market practices as we’ve seen in the sub-prime loan arena, or from other abuses when companies go overboard and exceed the law as we saw in Enron and as we see in other kinds of abusive financial practices, is something that we correct very quickly.

It does not take long for either our judicial system, or our legislative system, or our executive branch to respond to issues of financial insecurity because at the heart of the nation, financial security means economic growth.
 
Homeland security is a second important security for this nation, and homeland security means we protect ourselves from enemies within and abroad. Homeland security—it doesn’t take long when there’s insecurity for the Executive Branch, the Legislative Branch and the Judicial Branch to operate for the benefit of the American people when it comes to homeland security.

And whether it’s financial security, or whether its homeland security, we move quickly. We move in material ways using taxpayer funding, if necessary, or using legislative remedy, if necessary, to deliver the homeland security that all American citizens deserve to expect.
 
There’s a third security that seems to have a great deal of trouble getting unleashed in this country in current times, even though for decades and decades we have enjoyed its benefit, which has taken this country to the economic model of the world and to the lifestyle model of the world—and that’s energy security. 

Weren’t the last 50 years of energy security wonderful, ladies and gentlemen? 

Except for a few aberrations, particularly in the 1970s (if you think about the history—the economic and lifestyle history of our country), through the 1950s, ‘60s, ‘70s (with a few bumps in the road), ‘80s and ‘90s—weren’t those wonderful half-century years exciting in terms of what affordable and available energy did for this country: building the economic model, building the lifestyles and enabling such lifestyles in the future to be predicated on a continuing supply of energy security?
 
But, if you recall, when many of us were children in the post-World War II period, this nation produced 90 percent of its own oil and gas for consumption in this country and exports abroad. 

Today, we produce only about 30 percent, 35 percent of our oil and gas and are having to import from around the world more than 60 percent of the oil necessary to meet daily demand and daily demand, by the way, is a very important matter for Americans. 

We use 10,000 gallons of oil a second, ladies and gentlemen, in this country. Just in this country—10,000 gallons a second.  Think how much that is in a minute. What is it—600,000 gallons a minute? Gone. And once it’s gone, it’s gone and it needs to be replenished with new supplies.

But, we know that reservoirs have a limited, finite amount of oil in them and so we need new reservoirs to meet continuing requirements. But, in a day, we’re using nearly a billion gallons of oil, seven days a week.
 
So, when it comes to energy security, we have seen our country pass, in my opinion, the tipping point of energy supply keeping up with energy demand in ways that secure our future.

And what’s happened as a consequence? The price of energy has been volatile and the price of energy has been very high for a very long period of time. The underlying dimension of that is good news, because it represents economic growth and continued demand increase.

That’s good news. But the bad news is we need evermore energy from the natural resource base of this country, which is prohibited from development by public policy—public policy that inevitably feeds energy insecurity, if we don’t do something about it.
 
Example: the Outer Continental Shelf of America is, in the view of energy experts, a vast source of as-yet untapped and, in many cases, undiscovered, oil and gas. What we do know (and API numbers verify) is where more than 100 billion barrels of oil and gas off the shores of this country exists and also on federal lands.

But 85 percent of the Outer Continental Shelf of this country is off limits by public policy for exploration and production of new oil and gas supplies. Only 15 percent of the Outer Continental Shelf is available to the energy companies to go explore and produce.

Fortunately for Louisiana and for Texas and Mississippi and Alabama, much of that 15 percent is close to our shorelines here, which is good for our economic base in this area and good for the infrastructure development that comes with it and the jobs and the economic vitality of those jobs in this industry.
 
But, 85 percent of the Outer Continental Shelf is off limits and vast, vast tracts of federal lands are off limit while we continue to import more foreign crude from other parts of the world—fortunately, from many valuable and reliable trading partners, but increasingly from parts of the world where natural resource nationalism is beginning to get a grip on the future security of supply issues that we face.

By national resource nationalism, I mean, very appropriately, sovereign nations control their national resources, which is appropriate. But when that natural resource is used as a bargaining leverage, rather than being freely and openly commercially traded, then it becomes more challenging to our energy security.
 
So, the point of my remarks, ladies and gentlemen, is to try to move the dialogue in this country on energy security to the same level of dialogue as homeland security and financial security, because aren’t they all wrapped up together in a concentric circle of securities, which lie at the base of the success of our society?

And whether it’s Executive Branch or Legislative Branch or Judicial Branch of the government, don’t we need the public policy support for energy security in similar ways that we realize it for financial and homeland security?
 
So, let’s go a little deeper into the subject. Do we have enough natural resources to achieve energy security in the future? Natural resources, of course, in the hydrocarbon area I’ll talk about first.

But, we’ll talk about other natural resources. But, when it comes to knowing whether or not we have enough natural resource, given the 100 billion barrels I mentioned of conventional oil and gas, is there more?

Yes, there is more. There are vast tracts of unexplored Outer Continental Shelf and vast tracts of federal lands that have yet to be explored in terms of future resources. So, the 100 billion barrels is just a baseline opportunity.

If we move into other sources of hydrocarbons, there is the oil shale of Alberta, which is now being developed, due to a national energy strategy put together by the Canadian government in cooperation with the Province of Alberta, which is now being developed to the tune of well over a million barrels a day, with much more to come in the future.

Shell is actively involved in the oil sands of Alberta.
 
In this country, in Colorado, Utah, Wyoming, there are vast tracts of oil shale. This is solid oil and gas locked in rock. With technology and with permission to develop, there are more than a trillion barrels of potential resources to be developed in oil shale.

Did I mention that the oil sands of Canada also represent a trillion barrels or more of developable-potential resource? 

So, there in this great continent of ours, North America, there are two trillion barrels of developable hydrocarbon resource base, which, with technology and permission to pursue, can help deliver energy security for a very, very long time. Affordable energy security for a very, very long time.
 
So, conventional oil and gas, and unconventional oil and gas represent a huge natural resource base to deliver energy security for a very long time in this country. But, there’s more than that. 

Our natural gas resources are being stretched. Right now, there’s a surplus—fortunately there’s a surplus—that is reflected in the price of natural gas.

But, if you look at the demand-supply curves over the next 10 years and you think about all of the integrated gas combined cycle power production that’s predicated on natural gas in the future, sometime in that 10-year forecast, the supply of natural gas does not keep up with the demand for natural gas, a clean-burning fossil fuel that is going to need augmentation.

Now, new discoveries will be important, but we can augment our natural gas supply, ladies and gentlemen, with liquefied natural gas. Liquefied natural gas coming from stranded gas fields around the world.

By stranded, I mean there’s a lot of gas there, but there’s no market. But by liquefying that gas, bringing it to this country and gasifying it, we can bring a great augmentation—10 or 20 percent of the supply of natural gas could feed this nation’s economy in energy production for a long time to come, if we allow regasification terminals to be built. That’s a public policy challenge.
 
Shell is involved in a project right now called Broadwater, where we propose to build a regasification terminal in the Long Island Sound. One of the reasons for choosing a floating regasification terminal is because we face around the country the issue of “not in my backyard.” 

The thought was, “Well, if we use the Long Island Sound—eleven miles from Connecticut and nine miles from New York—we’re not in anybody’s backyard.” Well, that’s not the way it’s perceived.

The perception is we’re in everybody’s backyard. And so there are officials in that region who are very concerned about this development because it represents, in their view, the commercialization of the Long Island Sound.

We respect that point of view, but we also respect the facts as they are, and the facts are more than 6,000 commercial ships move up and down the Long Island Sound every year.

So the commercialization of the Long Island Sound is already a reality, and the regasification terminal is one floating terminal amongst the other 6,000 ships moving up and down the Long Island Sound.

But the issue of “not in my backyard” for infrastructure development of regasification terminals or, as we will see in a moment, other energy opportunities, is a public policy issue and by not dealing with the public policy issue, whether legislatively or through executive government, we jeopardize our energy security.
 
But, liquefied natural gas gives way to coal-to-gas or coal-to-liquids, coal gasification.

Coal gasification is different than burning pulverized coal to create electricity, because the coal gasification process (some call it “clean coal” because it is not burning the coal, but gasifying the coal, putting coal dust or a consistency of talcum powder into a pressurized gasifier where the pressures are over 1,000 PSI and the temperature’s over 2,000 degrees Fahrenheit), the gasification that occurs inside the contained gasifier also enables the product of that gasification to be managed for the benefit of society.
 
For example, the hydrogen that comes off the gasification can have nitrogen added to it and create syngas. That syngas can then be burned cleanly and integrated combined cycle generation, which is what natural gas is used for.

The CO2 that comes off of that gasification can be captured and sequestered in reservoirs under the earth to permanently rid the atmosphere of that carbon dioxide.

Other elements that come off the gasification process can likewise be managed through the technology of the gasification process and the membranes that capture the various elements that come from that process.
 
So, clean coal technology represents a huge energy security opportunity for us, but it needs public policy help because the capital investment of coal gasification is somewhat higher than pulverized coal—even though over the life of a gasification project, you could argue the economics are better.

But publicly held utilities have to satisfy their shareholders that they’re making good, economic return decisions and that higher capital expense without rate release yields sort of a negative view toward coal gasification as an investment. Public policy could change that.
 
We have conventional oil and gas, unconventional oil and gas, liquefied natural gas and coal gasification as future opportunities for energy security. But it doesn’t stop there.

The whole world of biofuels is opening up to us, and while Shell is a 30-year investor and distributor of biofuels, we do have a concern about continued investment in food-based ethanol products where, whether it’s corn or whether it’s sugar, while that is a good substance to produce ethanol, our view of the world demand (the 10,000-gallons-a-second-type demand) is that it warrants more research and development of non-food-based source of biofuels called cellulosic ethanol.

And rather than spend more money in the development of corn- or sugar-based ethanol, Shell has turned its attention to the investment in cellulosic ethanol research and production.
 
And so with partnerships with companies like Iogen, we are trying to move toward more supply of biofuel for motor fuel by means of investing in cellulosic ethanol as a major fuel source of the future. And there is great opportunity there, we believe. But, not overnight.

Legislative remedies that demand certain quantities by certain dates are really treading on unproven turf where “X” number of billion gallons per year by a certain date, if it doesn’t come from corn ethanol (we haven’t yet proved out the mass manufacturing methodology of cellulosic ethanol) and we have to be very careful about rushing the process too quickly in terms of the quality of the biofuel product that is produced.

But there is, nonetheless, great opportunity there.
 
But, there’s more. Shell 10 years ago decided that it really needed to be in renewables businesses because of a feeling within Shell—and a statement that’s practiced within Shell—that the Stone Age did not end for the lack of rock. So, Shell thinks the Oil Age will not end for the lack of oil.

And so by investing in technology and innovation, Shell sees opportunities with renewable fuels such as solar and wind. Today about 800 megawatts of wind electricity energy will be produced by Shell wind farms. That’s not a huge number, but it is a big number.

That’s like two or three pretty good-sized electrical power plants producing 800 megawatts a day.

That’s seven wind farms in five states, with more under construction and more in the planning.

We just announced in Texas a few weeks ago the potential for the world’s largest wind farm in Driscoll County, Texas, which, if it were to be successful, would be over a gigawatt of electric power produced just in that wind farm for Texas to be transmitted elsewhere on the grid. Wind represents a big opportunity.
 
Solar also represents an opportunity, but we believe the technology remains immature. Shell was in the silicone photovoltaic cell manufacturing business for a number of years.

What we discovered is that silicone does produce electricity from the sun, but we believe that there is more energy to be produced from the sun by different nanotechnology research and development.

So, we’ve essentially sold our silicone business to another company, so we could invest in a thin-film technology (a copper indium diselenide base), which becomes a future nanotechnology play in the years ahead. We’re building a plant now to try to produce copper indium diselenide photovoltaic panels.

It’s called “thin filmed technology.” And as I’ve visited universities around the country, I’ve come to discover many universities are doing additional research on different kinds of technology for solar panel construction, which I think is good for the future. But it’s an immature technology today.
 
Moving beyond that, hydrogen was mentioned. Hydrogen represents a tremendous opportunity to do two things—one is to build stationary hydrogen energy production, or mobile energy production-hydrogen fuel cell vehicles. 

If people wonder,  “Is it real?” you could go to Washington, D.C. today. You could go to a Shell station today on Benning Road, near RFK Stadium, and you could fill up your GM hydrogen fuel cell van with Shell hydrogen, just like you would fill up your car with Shell gasoline.

Now, GM and Shell have a research partnership, in which we are developing hydrogen fuel cell vehicles jointly—GM with the vehicle and Shell with the hydrogen distribution chain.

We hope to have hydrogen stations in New York and in Los Angeles later this year/early next year, because if we’re going to convert to a hydrogen fuel cell vehicle alternative—and GM is convinced (as are other major auto companies convinced) this is a technology that warrants more research and investment, and they are doing that that over the next 15 to 20 to 25 years—we’re going to need an infrastructure to support the refueling of these hydrogen fuel cell vehicles.

That’s where Shell has expertise—in the logistics management and the supply chain of bringing fuel to your neighborhood Shell station. That’s our role in the process—working with the auto companies on the speed, the pace, the direction of how this will come together.
 
So, in terms of alternative energies, there are terrific opportunities for energy security through alternatives, but let’s be clear. The nation does not currently have an energy strategy that deals with short-term, medium-term and long-term energy security requirements.

For example, today’s energy bill being discussed in the Senate and the House (different energy bills) looks at primarily long-term energy investment. Nothing wrong with that. Shell supports long--term energy investment in this country.

But, ladies and gentlemen, we know from facts, we know from reality that we are one hurricane away from energy scarcity and volatile high prices if we saw a hurricane yet this season come through this region requiring the shutdown of our platforms and the shutdown of our refineries, as we saw in 2005.

We are so tight on the demand-supply relationship that here’s a little story that you may have never heard that took place after the devastation of Katrina and after the devastation of Rita.

After Katrina (apart from all the human misery and the incredible work that needed to be done here in New Orleans), up the river, we had to put our refineries back in order because they were damaged. We had to repair damages in the Gulf of Mexico on our crude platforms and natural gas platforms.

While that work is going on, along comes Rita smashing things to bits in East Texas and Western Louisiana. So, essentially, we had 25 percent of the nation’s production capacity shut down from the advent of Katrina until months and months after Rita.
 
But, here’s a story that’s true.

On the Friday night after Rita came through Beaumont, Texas, one week after, on Friday night I learned from our supply people that the last 300,000 barrels of finished product on the Gulf Coast were sitting in a tank farm in Shell’s joint venture facility in Port Arthur, Texas—the last available 300,000 barrels, needed to push into the Colonial and Plantation Pipelines, which essentially feed a quarter of the nation with daily supply of gasoline. 

Think about that. The last 300,000 available barrels, but we couldn’t get them out of the tank farm. Why? There was no electricity.

We’d been struggling for a week trying to restore electricity and working, to get emergency generation up and running, but because of damages to the electrical infrastructure, pumps and motors buried under water, we had to move quickly to replace all of this electrical infrastructure and get generators in to make it possible to move that product.
 
So I called the Energy Secretary, Sam Bodman, Friday night about seven o’clock. I got him at his daughter’s wedding rehearsal dinner. Not the best time to have a conversation with the Energy Secretary, and he said, “John, this better be good.”  And I said, “Mr. Secretary, I wish it was.” 

He said, “What’s the problem?” 

I said, “Well, we’ve got the last 300,000 barrels of finished product to push into Plantation and Colonial, but we have no electricity.”

He said, “Why are you calling me?” 

I said, “Well, Secretary, to tell you two things. One, we will work round the clock as we have been for the last week to hook up this emergency power. Two, it’s to give you time to plan that, in the event we’re not successful by Sunday night, I would call you back so you could ask the President on Monday morning to declare a Day of National Reflection so that nobody drives.

“Because if people drive as normal and we’re not pushing gasoline into the Plantation and Colonial, we will have panic buying from Mobile, Alabama all the way up to Washington, D.C., because people will hear there’s no gas in the pipes.

“And if you don’t put gas into the pipes, you don’t get gas out of the pipes, and it won’t take long until the residents of Atlanta and Charlotte and Baltimore and Washington are rushing to their local stations to fill up their gas tanks to make sure they get a full tank of gas before the stations run dry. And we have no means by which we can refill the stations.”

He said, “That doesn’t sound good.” I said, “It’s not.” He said, “I’ll pray for you.”
 
The good news is we got electricity, but it wouldn’t take much, as you know, ladies and gentlemen, if panic buying set in across the Southeast of the nation, how long would it take for CNN and Fox TV to be broadcasting about the gas lines through the Southeast, which then would get replicated in the Northeast, in the upper Midwest. And we would have panic buying out of control because of what? Not enough supply.
 
This is America, the land of plenty. This is America, which created the oil and gas infrastructure that the world has emulated. This is America that was 24 hours away from panic buying of gasoline over much of the nation, because of lack of supply. That is called energy insecurity.

Shell reached a point after Katrina and Rita and the experiences following—having received complaints from our customers and from elected officials all across the nation—that Shell said, “Something has to change.”  And, what needs to change is the energy security formula for this country.

So we began engaging stakeholders across the nation in 2006, and we continue to do that through 2007, to try to increase the conversation that needs to take place to drive energy security concern deep into the nation, to recognize that the international oil companies can only do what they’re allowed to do and if they’re not allowed to, they won’t do.

If we’re not allowed to drill in a certain part of the Gulf of Mexico, we won’t. If we’re not allowed to drill in certain lands, we won’t. But then the nation will not get the energy that they might otherwise get, and Americans will face what I believe is not just an energy crisis, ladies and gentlemen.

Even as important as an energy crisis to the economy and to our lifestyle is the crisis of social injustice that would play out across this country as the “haves” have all the energy they can buy and the “have nots” can’t afford energy.
 
When gasoline prices or electricity prices reach a certain point, people on fixed incomes, people in low-wage positions only have so much discretionary spending, but they are part of the American way of life.

They have the entitlement we all have to the goodness of this life from energy, but if it’s no longer affordable to them because the price is so high, because the demand is so high and the supply is so short, then who will take care of them and what will that do to the sense of equanimity, to a quality of opportunity in this country? It’s taken away from them.

Why?  Not because there aren’t enough natural resources, ladies and gentlemen, but because public policy prohibits the development of those natural resources.
 
Shell doesn’t think it has to be that way.  We think we can have it all: short term—more oil and gas, medium term—more oil and gas and alternatives, and long term—more technology and innovation to drive not just new energy supplies, but also the management of greenhouse gases. 

It’s Shell’s belief that the debate is over on the discussion of climate change. It’s time to deal with the solutions of managing our greenhouse gases.

Shell prefers or recommends a cap-and-trade system as a way of capping the emission level of the nation and then using other means such as trading to drive more efficient operators to sell their CO2 credits so others can buy them and the costs of high carbon management will drive companies (producers of energy) to less-CO2 -intense solutions by economic means.

Shell believes it’s time to get on with that on a national basis. States are already doing it. States are already putting greenhouse gas management plans in place. For a company that works in 50 states, it could be nightmare to have 50, different greenhouse gas management scenarios under which we need to operate, compared to a single, national greenhouse gas model.
 
In addition, technology and innovation over the longer term can directly affect the efficient use of energy. And we believe that technology and innovation can go a long way toward stretching existing, known supplies to make them available and affordable for the long-term future.

For example, how we light our homes. Three percent of the energy of a typical incandescent light bulb produces light, and 97 percent of the energy that you’re paying for by burning that light bulb produces heat, not light.

The heat is the waste product of the energy used to produce the light, but it’s 97 percent wasted. Meanwhile, you’re running your air conditioner to keep your home cool, because of all the heat from these lights.
 
So, it’s kind of a vicious cycle of inefficiency. Technology and innovation can change that formula.  When you fill up your gas tank (whether it’s Shell gasoline or one of our competitors’ products), 20 percent of your purchase dollar moves you down the road while 80 percent of your purchase dollar (not because of the gasoline, but because of the technology that is using that gasoline), 80 percent of the energy in the gas tank is wasted as heat.

Many people don’t realize that the energy inefficiency, which is part and parcel of our lifestyle, is actually contributing to energy insecurity. 

So, over the longer term, alternative forms of engine manufacturing, different kinds of fuels, different kinds of technologies (such as hydrogen fuel cell) can make a material difference in the manner in which we use energy. Those are but of which just a few examples.
 
And finally (and this actually can be fun), we don’t actually educate ourselves very often or very much on the whole subject of energy.

From our school children, to our college students, to our citizens across the nation, how many of us have had a good soaking in what energy education means in terms of where it comes from, what it can do, its implications, all of the things that support our economic model and lifestyle? Energy is one of those things we know the least about. 

We flip a switch and we’re happy. We turn on an ignition and we’re happy. But, where that comes from and what it will take to make sure that our children, our grandchildren and their grandchildren can enjoy the sustainable life that we’ve enjoyed is another question all together. Energy education can help make a difference.
 
Rather than just talk about it, Shell did something about it. We have a website called, “Energize your Future,” which students and teachers can access for free that goes a long way toward educating youngsters in what they need to know for a lifetime base knowledge of energy.
 
Ladies and gentlemen, I think we can have it all.

We can have financial security, we can have homeland security, we can have energy security if, as a democracy, we put our minds to it, if we put our solutions forward and if we as voters move public policy agenda forward by, first of all, having the proper dialogue about it and examining the options, and then calling on our national and our state and our local leadership to get behind the energy security agenda equivalent to the way we get behind the other security agendas.
 
Thank you very much.