Speeches

John Hofmeister's Energy Speech in Oklahoma City

24/04/2007

How the U.S. Can Ensure Energy Supply for the Future. John Hofmeister's remarks to the Rotary Club of Oklahoma City in Oklahoma City, Oklahoma.

Thank you, Larry and thank you, Sam. 

And ladies and gentlemen, thank you for the opportunity to come and be with you today and talk about a subject that I consider very important to the future of the nation, not just for today, but even more importantly, for the years and decades to come.  But, first, let me say what lesson I learned in Oklahoma as a young man. 

As Larry said, I did go to Kansas State.  And I shall never forget learning what happiness meant on an October afternoon in Manhattan, Kansas, when the K State Wildcats actually won a game.  And back in those years, it didn’t happen very often.  But on that particular October afternoon, it was the Sooners of Oklahoma that Kansas State Wildcats beat by some score of 70 – 39. 

I thought that was happiness.  No, that was not happiness!  That was the initial step of learning about payback.  Because payback was all I understood for the rest of my academic career at Kansas State University.  They never should have run that score up, because it was payback for the next four years.
 
Ladies and gentlemen, I am here today to talk about energy security in our country.  A subject that I think is important for two reasons:  one is the economic model of our industrial base and of our post-industrial base is predicated on available and affordable energy, so the ability to build, grow and succeed in business – whether in the industrial world or the post-industrial world – is predicated on affordable energy; secondly, a lifestyle which we have all collectively worked to achieve over essentially our country’s history is dependent (at the same time) on affordable and available energy. 

The affordable and available energy enables us to live mobile lives.  Lives in which we can enjoy the material benefits of the economy in which we operate.  Lives in which we can assure our children and their children material comforts, material well being, predicated on affordable and available energy.  And so I’d like to talk about energy security, defined as energy – available and affordable – for now, for generations to come and for every generation we can imagine as far out as we can think.  That’s a very long time.
 
Now, there are some cynics who say that in a post-industrial world, energy is not all that critical.  Well, let me explain a meeting I had with three of Microsoft’s top officers recently.  As Microsoft, which I think we can all agree, is a post-industrial type of company, information-era based, focused on the Internet, software and the kinds of things which minds can apply themselves to.

Talking to three of the top officers of Microsoft, it was about their need to build six additional information centers in the State of Washington, requiring a minimum of 350 megawatts of new electricity.  Without those 350 megawatts of new electricity, they couldn’t assure their investors that they should go ahead and build those information centers. 

The core of their business, ladies and gentlemen, while we think of it as software, they think of it as energy.  Because without the energy, the software sits there and does nothing.
 
For many of the rest of us, particularly those of us in the oil and gas industry, energy means something else; it means technology.  And technology is partly at the heart of what I have to say this afternoon.  But here is a very serious issue that we face:  we have passed the tipping point, in our opinion, of readily available, conventional, and affordable oil and gas. 

We have basically passed the peak in this country of the easy-to-obtain, easy-to-find and easy-to-produce conventional oil and gas, which has been at the heart of much of our industrial success and our lifestyle success.  In addition, I would submit, we have passed the peak of the coal-fired electricity generation that society will tolerate, using conventional, pulverized, coal-burning processes to produce steam-based electricity.

I would submit we passed the tipping point some time in the last decade.  But yet, the demand for energy continues unabated.  The demand for energy for mobility purposes, as well as for electricity purposes, continues to grow, year in and year out.  We like our lifestyle.  We are successful economically.  And we have come to a pinch point. 

The pinch point is what will the affordability and the availability of energy, what will that be over the coming decade or two, having passed a serious tipping point?  Well, as in most cases, there is good news and there is some bad news. 

Let me start with the bad news.
 
What separates us as Americans from available and affordable energy for as far into the future as any of us can imagine is public policy:
· public policy which prohibits access to available, conventional oil and gas;
· public policy which restricts the development of unconventional oil and gas resource development opportunities;
· public policy which prohibits the rebuilding of re-gasification terminals in coastal cities around the U.S.;
· public policy which slows down the conversion from pulverized coal to gasified coal (otherwise known as clean coal) to develop energy-generating sources in the future;
· public policy which prevents some of the alternative energies from getting a faster start-up.
 
Public policy, ladies and gentlemen, which is devised, designed and practiced by whom?  By the elected officials who are in office based on what we Americans decide when we go into the voting booth. 

So, not to blame elected officials for public policy, but to come back to the citizens who vote on public officials to say, “What pressure do we apply, what expectations do we set, what requirements do we place on elected officials who represent us in cities, in state houses and in the national Congress and in the White House, in terms of what we expect as citizens who have a need for available and affordable energy?” 

Let me back up just a bit and move to some of the good news.
 
The bad news is that public policy gets in the way.  The good news is there is no shortage of energy in this country to develop.  Pause, for a moment, to think about conventional oil and gas, which has made this state famous and which this state continues to produce in large quantities for the nation. 

Conventional oil and gas that we know about includes more than 100 billion barrels of yet-to-be-accessed Outer Continental Shelf geology, or Federal lands, which sit idle, in which oil and gas companies – independent or publicly held or as the case may be – are prohibited access, knowing that it’s there and watching the landscape unchanged for us as oil and gas companies – to be prohibited from exploring and producing what’s there, while our customers and stakeholders beat us over the head and shoulders for high prices is an anomaly that we have a difficult time understanding. 

But public policy prevents us from pursuing those hundred billion barrels of known oil and gas reserves in the Outer Continental Shelf or on Federal lands.
 
There’s more good news when it comes to conventional oil and gas and that is the technology of reservoir management has moved on in the decades in which reservoirs have, in a sense, become depleted.  And the term that you may know already, but if you don’t, the initials EOR, for enhanced oil recovery, means tremendous wealth creation in the future for Oklahomans and Texans and Kansans, as we see the technology applied in the future. 

Enhanced oil recovery is the technology by which semi-depleted conventional oil and gas fields can be re-enhanced by the introduction of carbon dioxide, or other steam-based or other nitrogen substances, to produce more pressure in existing oil field.  We haven’t tallied the possibility of re-starting or re-invigorating conventional oil and gas fields, because the technology is reasonably new and relatively untested. 

But, where it’s applied, we know it works.  So, when it comes to conventional oil and gas, ladies and gentlemen, I would submit to you that in this country, there are not just the 100 billion barrels that we know about, but tens of billions of additional barrels in what we consider exhausted oil reservoirs, which we should pursue.
 
But there’s also more good news in the world of unconventional oil and gas.  “Unconventional” is defined as not the existing conventional, but oil existing in other substrates or other formulas.  For example, the oil sands of Alberta, the oil shale of Colorado, Utah and Wyoming. 

When it comes to unconventional oil and gas in North America, between Alberta and Colorado, there is more reserve of oil and gas in unconventional form than is in the entire Middle East of conventional oil - more than a trillion barrels in Canada, more than a trillion barrels in Colorado, Utah and Wyoming, where technology has developed and research is continuing to see how we can exploit this natural resource. 

Shell, for example, has had a research project in the Western Slope of Colorado for nearly 20 years, developing an in-situ method for producing unconventional oil and gas from oil shale by introducing heat into the earth. 

Rather than mining the oil shale and the consequential environmental issues that mining raises, by drilling simple drilling holes and entering heating devices into the ground, an in-situ method of heating turns that rock (over a several-year period) into oozing oil and gas, where the molecules are then recoverable in conventional pumping methods.

Nearly refined, as a matter of fact, because of the intense heat of the heating process and the length of time in which those molecules are (in a sense) being released from the rock in which they currently reside.  The ability to produce oil from oil shale, oil from oil sands represents a prolific new resource of oil and gas for the decade and decades to come – in the billions of additional barrels.
 
But there’s more.  There’s more good news.  We love natural gas in this country; Oklahoma in particular loves natural gas.  Natural gas is the cleanest fossil fuel.  There are some states that actually categorize natural gas as a clean form of energy, which we support.  Natural gas is prolific in some respects, but here is a dilemma. 

It is so much in demand that when we sit back and do the demand/supply curve analysis over the next decade, we see an issue.  The issue is we are not finding and producing enough natural gas to meet the demand over the next ten years, without some kind of an augmentation to the natural gas supply. 

Liquefied natural gas represents a wonderful opportunity to augment natural gas supplies in this country, to move us forward where market supply meets market demand and price equilibrium is at an affordable level.  We have a difficulty with public policy, and that is bringing liquefied natural gas into this country. 

Shell’s been very active in liquefied natural gas for a long time; we’re fortunate to have regasification positions in Cove Point, Maryland, and Elba Island, Georgia.  And, we’re able to seek expansions of those regasification terminals.  But, those are only two terminals on the East Coast and the East Coast is very large.

So, we’re attempting to put another regasification terminal with a partner, TransCanada, into the Long Island Sound – not in anybody’s back yard, but, really, in the middle of the Long Island Sound, eleven miles from Connecticut and nine miles from New York. 

But, recently, while meeting with the Attorney General of Connecticut, he said very clearly to me, “Mr. Hofmeister, I’m formally asking you to withdraw your application to build a regasification terminal in the Long Island Sound.  It is the wrong place, the wrong facility and the wrong product at the wrong time.” 

And that was problematic, because we’re actually going through a whole process of seeking federal approval (through FERC) in which we would like to see that project move forward.  The recommendation was move it to Maine, or move it to Massachusetts.  But yet, the highest energy prices in the nation come from Long Island and Connecticut, which we would attempt to serve. 

So, the real question then, for liquefied natural gas regasification terminals, is will post-industrial, well-to-do coasts, East and West, accept new infrastructure to absorb the capacity of the energy demand through the import of liquefied natural gas? 

There are huge quantities of stranded natural gas around the world; we believe it is necessary to bring that natural gas to market here.  But, we must have public policy support infrastructure construction for that to occur.
 
There’s more good news when it comes to energy affordability and availability, and that is coal.  This nation has more coal than the whole rest of the world put together.  But we talked earlier about the issues that society experiences from burning pulverized coal. 

We believe the technology has moved on and that it is possible to gasify coal and use clean-coal technology – often referred to in shorthand as integrated combined-cycle technology, or IGCC, where the gasification of coal molecules turns the coal molecule into a synthetic gas, which is then burned in the way of natural gas to produce electricity. 

Under such technology, the gasification process can then control or manage the effluence, the emissions, so that it is possible, with coal gasification technology and the gasifier, to capture carbon dioxide and then to manage that carbon dioxide in ways that society will accept, such as sequestration, or such as the productive use of carbon dioxide, for example, for agricultural purposes, or other means. 

So, coal gasification, we believe, is an ample source of new, affordable electricity and power generation from coal.
 
But, it doesn’t stop there.  There’s even more.  In additional to the conventional oil and gas, the unconventional oil and gas, the liquefied natural gas, and coal gasification, there’s a whole world of biofuel and alternative energy – energy from wind, energy from the sun. 

Shell’s been involved in wind and solar energy for more than a decade now, where we have experimented with a variety of technologies.  Recently, for example, deciding to move from silicon-based photovoltaic cell manufacturing for solar energy purposes (because silicon is an energy-intensive substrate that weighs a lot and produces what we consider a less-efficient production of electricity than other technologies, such as thin-film technology). 

So, we basically sold our silicon photovoltaic cell business and prefer to move to a thin-film, copper indium diselenide substrate of technology, which is lighter, more efficient and less expensive for solar production in the years and decades to come.  Still early days in that technology, still working on commercializing that product.
 
But then there’s wind, as we know, living in Texas, or in Oklahoma, or in Kansas.  We’re blessed with a lot of wind; sometimes cursed.  And we can capture that wind.  And modern turbine technology and transmission allowances can move that electricity to markets from distant wind sites to commercial use in markets where people live. 

Shell’s been active in the wind business, as I said, for over a decade.  We now have wind in seven states across the country, from Hawaii to West Virginia, with our largest concentrations in California, Texas and Colorado.  Wind represents a tremendous new CO2 form of electricity, but it is variable. 

Just as the wind does not always blow, the electricity is not always produced.  So, wind, in and of itself, while valuable and useful, is not the end-all, be-all solution.
 
Then there are biofuels.  Biofuels have been around for a very long time.  Shell’s been active in biofuels for 30 years.  We’ve been part of the transformation of Brazil, for example, which is an ethanol-based motor transport system. 

And we know how it works.  But, here’s the issue that we face in America.  There are advocates of biofuels who see biofuels as the alternative to gasoline and diesel – that our plant life will be the source of future motor transport fuels, citing Brazil as the example. 

Brazil, however, as a fuels market, is roughly six percent, six percent of the American fuels market – a market roughly the size of the State of New Jersey, relative to the rest of the nation.  Not really adequate, in terms of meeting national transport needs of some 160 billion gallons of fuel a year, with today’s production of about 5.5 billion gallons a year, but it’s a good start. 

Our advocacy is, let’s get the ten percent of ethanol in our motor transport fuels and then see where we go from there.  We believe we can get the ten percent, based upon sugar ethanol (which is from corn or from sugar cane).  But to really move beyond the ten percent level requires three things. 

It requires new infrastructure, meaning new automobiles with different engines that will tolerate a higher blend of ethanol.  It requires the distribution infrastructure to get the ethanol to market where it’s needed, where pipelines are currently not possible (because ethanol is, essentially, alcohol and in a pipeline attracts water – and we know what happens to our alcoholic drinks when we put ice cubes in them, they dilute. 

And what you do not want in your engine is diluted alcohol, because it won’t burn).  So, we need a new infrastructure to move product to market. 

And, thirdly, we need dispensing infrastructure, where, at higher levels than ten percent, the current gasoline pumps that we see at our gas stations are really not designed to accommodate higher-blend ethanols and, in fact, gas station operators would need to install new pumps, new storage tanks in many cases, and new pipes within their gas stations, to accommodate higher-density ethanol.  These are all big, important decisions, which take time. 

That’s not to say it can’t be done, but let’s not see it as an overnight solution.  In the meantime, we have a problem with prices today.  So, we need to work on issues today.
 
One more technology that delivers available and affordable energy in the years to come, which we believe deserves a lot of time and attention, is the hydrogen fuel cell technology for either stationery electricity production, or for mobile source production. 

Hydrogen fuel cell automobiles are a do-able reality – not overnight, not in the next five or ten years, but certainly in the next 20 to 25 years, we should see large numbers of hydrogen fuel cell vehicles moving into the marketplace.  Currently, General Motors and Shell have a partnership, where, in Washington, DC, several General Motors vans are filled every day at a Shell station on Benning Road, near RFK Stadium. 

They work; they’re being used today to demonstrate to members of Congress and their staffs that it’s a viable technology that needs investment, and that needs research.  I’m pleased to be on the Hydrogen Technology Advisory Committee of the Department of Energy, in which we meet to help the Energy Secretary understand what’s required from a commercial, from a technological, from a market standpoint. 

And, over the next ten to twenty years, we expect to see not hundreds, not thousands, but tens of thousands, and then hundreds of thousands of hydrogen fuel cell vehicles on the highways of tomorrow - sometime, perhaps, not in the next decade, but in the middle of the following decade.
 
So, there we have it, right?  We have conventional oil and gas, unconventional oil and gas, liquefied natural gas, clean coal, biofuels, wind, solar, and hydrogen – are we there, yet, for energy security in the future?  I would submit, not yet.
 
There are three more critical elements of the future to enable energy security for future generations, starting with management of man-made greenhouse gas emissions that impact our climate.  In Shell’s view, it is time to move to address solutions, not to debate the causalities. 

But, move to address the solutions of CO2 into the atmosphere by government-led, national and global frameworks of policy, in which markets can operate to address the issue of emissions growth and, ultimately, emissions reduction. 

Government-led frameworks are necessary, in our view, to set a level playing field for suppliers, as well as for consumers, so that the supply side and the demand side take equivalent responsibility for man-made greenhouse gas emissions, in which markets to manage that carbon can be set up, such as cap-and-trade, or such as various and sundry kinds of tax mechanisms, which can be used to address the issue of emissions. 

We believe that’s a critical and essential step of energy security in the days and years and decades ahead.
 
Second, education.  We simply do not educate ourselves as Americans with respect to energy – energy supply, energy technology, energy products, energy demand.  And we should – starting with our children, and moving beyond our children to our young adults and to our adults and to all the rest of us. 

We should know more than we do today about what is, essentially, the bedrock enabler of our economy and the bedrock enabler of our lifestyle – affordable and available energy.  Rather than just talk about it, Shell decided to do something about it.  Shell has worked to create an education curriculum, suitable for middle schools and high schools, and we have made it available free on a national website called “energizeyourfuture.com.” 

Teachers from middle school and high school can download and students can access this website, to learn about energy through energy games.  They can learn about the importance of math and science that and math and science are fun.  And so by accessing this website, people can learn about energy as youngsters and continue to learn more as time goes on.  You’re welcome to access it yourself:  www.shell.com/us/energizeyourfuture.
 
And, finally, energy efficiency.  Energy efficiency that enters the culture, enters the hearts and minds of people – not for the purpose of jiggling thermostats.  Not for the purpose of lightening up on accelerator pedals. 

But, a cultural commitment to energy efficiency, which enters into our design and application of everything that uses energy, from buildings, to appliances, to mobile sources, to homes – all of the things that touch our lives where the best energy molecule is the molecule not used. 

The most available and affordable molecule is the one that is not expended by an energy-inefficient appliance, or an energy-inefficient vehicle, or building.
 
So, the combination, ladies and gentlemen, of energy efficiency, energy education and energy emission management, coupled with the sources of energy which we’ve talked about, we believe will deliver energy security not just for today, but for all of the tomorrows which our minds can imagine.
 
Thank you very much.