Speeches

John Hofmeister's '07 Speech - Seattle

15/01/2007

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

Thank you, ladies and gentlemen.

It’s really a joy to be here and particularly on such a beautiful day and to see the tremendous environs in which you live. I do envy you.

From Houston, I can almost see Seattle; it’s so flat for so long. It is a pleasure to be here and to talk about a subject that I believe is near and dear to each and every one of us in one way or another – because, fundamentally, our economic strength is predicated on affordable and available energy.

And, frankly, our lifestyles – from our creature comforts at home to our mobility (the joys of mobility, although commuting can sometimes be a bit frustrating) but the mobility that we enjoy, from air transport to car transport, is really part and parcel of a lifestyle that most of the world emulates.

And so when it comes to affordable energy and available energy, economic prosperity and lifestyle, energy really does touch us all. And this is why I think it’s important to talk about it –as voters in a democracy, as consumers in a society that depends on energy, we should have a dialogue about what’s at stake.

One of the first points I would make, ladies and gentlemen, is any of us who have enjoyed the last 50 years of available and affordable energy have got to recalibrate our thinking and our understanding as we look ahead to the next 50 years.

I would submit that the nation passed a tipping point in the early part of this decade in terms of easy, conventional oil and gas, easy conventional coal, easy conventional other sources of energy – because the world demands ever more energy against available supplies.

What we’re actually looking at is a situation today where, for example, we will consume roughly 84 million barrels of oil today. It will be produced at a level of about 85 million barrels and we will consume about 84 million barrels. But by the year 2020 or the year 2025, every prediction says we will need at least 120 million barrels a day of production to meet consumption demands.

That’s about a 50 percent increase over the next decade and a half or two decades at the most.

And where is that oil coming from? Well the good news is there’s plenty of it. But the challenge is that the old days of the Beverly Hillbillies, where you fire a shotgun and oil comes bubbling out of the ground – the industry doesn’t operate like that anymore.

Instead, as we were discussing at lunch, our biggest venture in the Gulf of Mexico, which was announced last October, called “Perdido,” is an investment with partners in which we’re operating in nearly 8,000 feet of water, where the reservoir that we’re addressing is some 28,000 feet below the surface of the earth.

So from the top of the platform, where the operators drill, to the reservoir itself, which happens to be a huge reservoir (fortunately perhaps as many as a billion or more barrels), it is five miles away.

Five miles in which you’re going through deep, dark currents of cold water, which has a life of its own, and then into a geological sub-surface of many different strata of different kinds of geology; and then raising that oil from seven miles down up to where we can actually begin to take it to shore is a major challenge.

Shore is 150 miles away, but it’s the 8,000 feet of vertical push to get the oil up to where it can be dealt with that is something we haven’t done before. That’s the kind of conventional oil and gas that we’re now producing or working on producing in the years ahead.

Before I get a little ahead of myself, let me define energy security. Energy security, as we’re using it for today’s meeting, is that energy which is affordable and available to this generation and every generation to come as far into the future as we can imagine.

So, when we talk about energy security in America, how can we deliver on energy security (which will not only satisfy our requirements for economic prosperity and lifestyle) but those of future generations – not only our children and our grandchildren, but their children and their grandchildren as far into the future as we can imagine.

And here’s where we have some very good news. The good news is there’s plenty of energy to be had. But we have some bad news. The bad news is the obstacles to getting it are man-made.

The obstacles to achieving the energy security we seek are man-made obstacles that deal in particular with public policy, which can either enable energy production or get in the way of energy production or actually stop energy production. And I’d like to tell that story a bit.

So, let’s start with conventional oil and gas. In the United States, we know of some 80 billion barrels of conventional oil and gas located particularly in the Outer Continental Shelf, with dozens of more billions of barrels of oil and gas located on federal lands, to which we are denied access.

Now, the oil energy business today is allowed access to 15 percent of the nation’s Outer Continental Shelf – 15 percent. Meaning that 85 percent of the nation’s Outer Continental Shelf is off limits by public policy.

That’s where the oil happens to be and we are prevented from developing it, as well as on federal lands, where we are not permitted to develop it. So the point is, there’s plenty of conventional oil and gas to be had if we are granted permission – if the public policy grants permission to pursue it.

And, of course, the pursuit of that energy must be in keeping with any and all environmental regulations, laws and policies of states and federal government in terms of its development. But if we were to develop those nearly 100 billion barrels of conventional oil and gas, does that meet our energy requirements of the future? Does that deliver energy security? The answer is no.

But, there’s more good news. And that is in North America itself, particularly in Alberta, Canada, with the oil sands of Alberta and with the oil shale of Colorado, Wyoming and Utah, the nation (both nations – North America) has access to vast, untapped reserves of unconventional oil and gas.

The estimates are in the trillions of barrels – that’s huge. There are challenges – technical challenges. Which is why Shell has been actively researching the Colorado oil shale over the past 20 years.

And continues to research the development of oil shale in Colorado with pilot projects and research licenses from the Department of the Interior in which we are testing not a mining technology but an in-situ production technology in which we would apply heaters into conventional wells going down to the oil shale, which is about 2,000 feet below the surface, and heating the oil in place so that it loosens the molecules from the oil shale rocks and can then be pumped out in conventional oil and gas as vapor and as liquid.

The prospect of that unconventional oil and gas production is not quite here and now but over the course of the next five to 10 years could become – if we make the financial decision to go forward – a productive oil field for decades into the future.

As well, the Canadian oil sands, where Shell’s subsidiary Shell Canada is today producing about 150,000 barrels a day in the Alberta oil sands, with announced plans to increase that production to at least double and even beyond that as the future unfolds. So, the prospect of unconventional oil and gas is very promising, but if we are successful, is that enough to meet energy security needs? The answer is no.

We are a consumptive society that loves economic prosperity and we think we need more. What else do we need? Natural gas. We have chosen natural gas as a nation as the preferred future source of electricity generation because it is clean, because it is efficient and because natural gas is so transportable. But we have some bad news.

The projected construction of electrical generating stations over the course of the next 10 years, counting what was put in place the last 10 years, suggests that we will have an inverted supply-demand relationship later this decade – which means the supply will not keep up with the demand.

And we all know what that means. That usually means higher prices. For natural gas to go higher priced means that it’s scarce and it means we need more of it. Where do we get more of it? The projections are that the known conventional natural gas fields, many of which are in decline, cannot keep up with the growth and demand.

The good news is we have an alternative source of natural gas, called liquefied natural gas.

Liquefied natural gas comes from stranded gas fields, which means gas fields that are not in a market, such as the Northwest Shelf of Australia, or Nigeria where there is a very, very small market for natural gas, or the Middle East where there’s vast, vast quantities of natural gas which can be cooled to their liquid state, shipped by ship, taken to a port or a coastline location and re-gasified from liquid to gas form.

We could augment in the view of the industry some 20 percent of the nation’s demand for natural gas through liquefied natural gas sources.

But now we have some bad news. The bad news is getting a re-gasification terminal sited and permitted is a major challenge. Shell has current re-gasification terminal access in Elba Island, Georgia, and Cove Point, Maryland, and two facilities in Mexico (one in Baja and one in Alta Mira), but that’s hardly enough to dent the 20 percent supply requirement.

We’re working on re-gas terminals – one in the Long Island Sound and one in the Gulf of Mexico – which have both run into major opposition. Why? Because it represents industrial infrastructure that local residents would rather not have in their backyard. In some places it’s called “NIMBY” – Not In My Backyard.

So, working with local officials, working with local stakeholders, we seek to build understanding to realize that liquefied natural gas terminals are, in fact, a proven factor in the economies of Japan, of Korea and China where there has never been an incident in the 40 years of liquefied natural gas marketing, storage and production and transport.

But building that understanding takes time and, ultimately, someone will make a decision whether we can go forward or not. But the agonizing process of siting those terminals makes it very difficult when there are nations around the world who welcome the terminals with open arms as a source of new power.

And so in the case of Long Island Sound, where the nation’s highest electricity rates are present, this represents a billion cubic feet a day of new gas supply to the region, which could have a tremendous impact on available resources.

But the question for the local people in that region (but not just that region but also the West Coast of the United States and the Gulf Coast) is, in a post-industrial world where information management is the key industry of the future, can we accept industrial infrastructure representing the past in order to supply our energy needs?

But, let’s say we’re successful with the liquefied natural gas. Is that enough to now meet our energy security requirements? We think not.

There is an ample amount of coal in this country. In fact, there’s more coal in the United States than in the whole rest of the world. Coal, however, has a reputation for being dirty. And there are many people who say, “Avoid coal. It is too dirty.” They are thinking not only in terms of CO2 emissions, but other kinds of emissions as well.

But there’s some good news, and the good news is: technology has moved on. And there is now coal gasification technology, which changes the game entirely in the use of coal in the production of electricity. It is called, “clean coal.” Now there are some who say clean coal is basically an oxymoron, and we understand that logic.

But on the other hand, if you get into the technology of coal gasification and try to understand it for what it is; you can begin to see that maybe dirty coal can actually be called clean coal and let me try and describe it. Now please bear with me. This is a political scientist trying to describe a technical process and I may slip up a bit.

But, think of pulverized coal going into a furnace and from that furnace comes heat, which creates steam, which turns turbines. That’s a traditional pulverized coal electricity-generating plant where much of the emissions go right out the smoke stack with some scrubbers and some other technologies to try to manage the emissions somehow.

But, largely an inefficient burn, which produces a lot of CO2. Coal gasification is a totally different process.

Think of taking that pulverized coal, which is like little pebbles of coal, and reduce those pebbles to the consistency of talcum powder. Talcum powder – that dry, that very fine substance -- and introduce that coal-like talcum powder into a gasifier – and a Shell gasifier runs at about 2,500 degrees Fahrenheit. That’s hot.

Add more than 1,000 pounds of pressure per square inch. That’s a lot of pressure. And what happens to the talcum powder? Well, the molecules making up that talcum powder simply explode in the most efficient destruction of those molecules known to man.

That efficient explosion separates the molecules into their component parts, some of which become syn gas (synthetic gas), where you combine hydrogen and nitrogen, and the syn gas can then be put into an integrated gas combined cycle turbine to make electricity.

What about the other elements – the CO2? With the technology of the gasifier, you can capture the CO2. By capturing the CO2, you then have an ability to manage the CO2. Carbon sequestration is one form of managing CO2. The technology is developing – it’s not proven yet – but it’s developing to where we can take the CO2 from stationary IGCC power plants and bury it and bury it permanently, if the technology works.

Or manage it in other ways. For example, in The Netherlands where they have huge, huge tracts of glass houses, which grow vegetables and flowers and plants all year long, the CO2 is introduced into the atmosphere of the glass houses, accelerating the growth of the vegetation - producing more food.

The plants then (through osmosis) produce oxygen: a nice combination of nature where CO2 and plant synthesis become oxygen producing. So there are ways of managing the CO2. You can also manage the sulfur; you can manage the other emissions from the coal.

That’s why it’s called “clean coal.” The technology has moved on. So there’s tremendous opportunity in this country to advance coal gasification as a future power source, utilizing in sophisticated ways this great natural resource that we have.

So now we have conventional oil and gas, unconventional oil and gas, liquefied natural gas, coal gasification -- does that meet our energy requirements of the future? Not yet. There’s more.

There’s a whole new world of biofuels. Shell is fundamentally a fuels provider, an energy provider.

We’re not particular to the type of energy as long as it’s economic and technologically possible and as long as it meets environmental requirements. So, biofuel represents another huge opportunity for the development of mobility fuels, transport fuels to support our way of life in the future.

Shell’s particular interest in biofuels is in second-generation ethanol, often called cellulosic ethanol. Cellulosic ethanol is ethanol produced from biomass rather than from food product. Corn-based ethanol is currently what’s distributed as ethanol and Shell’s very active in the distribution of corn-based ethanol.

But, our view is that the future success of biofuels (particularly ethanol which is required in vast, vast quantities) is better from cellulosic ethanol (which is the breakdown of plant fiber, the cellulose in the fiber of plants) such as the corn stalk instead of the corn kernel, such as woodchips instead of soy beans, or municipal waste such as paper and cardboard – all of which is cellulosic in its structure.

So, the opportunity is out there for the enzymatic research to move forward and future production plants to be established.

Now, the President announced in his State of the Union address a very ambitious timetable for 35 billion gallons of ethanol per year. We’re not sure how to do that yet. We’re still in the laboratories working on the enzymes. That’s a very aggressive goal.

But, nonetheless, we work forward in that direction because we do believe biofuels do represent an alternative fuel source. Our recommendation is we get to 10 percent of the fuel supply through biofuels and then see where we are. To immediately jump to a higher number, we just don’t know how to do that, yet. Not that we aren’t interested; we just don’t know how to do it, yet.

But, if we do the biofuels, is there more? Yes, there’s even more. There’s wind, there’s solar – and Shell, in particular, likes wind because, ladies and gentlemen, we live in a country with a lot of wind. There’s several ways to interpret that, as well.

But, we’re active in wind farms from Maui all the way to Storm Mountain, West Virginia. We have wind farms in seven states; we’re producing around the world about 350 megawatts a day of CO2-free electricity from wind farms in which Shell has an interest – and we think there’s room for a lot more.

In regard to solar, Shell has been in the solar business for about a decade.

We just recently, in fact in 2006, we decided to shift our technology in solar photovoltaic cell production away from silicone and thus we sold our silicone-based photovoltaic cell production activities to another company called “Solar World,” so that we could invest in new technology, which, instead of using silicone as the basis on which sunlight is converted into electricity, uses a product called copper indium diselenide, which is a substrate sprayed on glass, which is much more efficient, in our view.

Certainly in the laboratory it produces a lot more electricity than silicone; it is lighter and, we believe, over time, less expensive.

The problem with solar electricity has been the price break at which it can be commercial, largely because of the cost of silicone (which is often very high). Why is that? Because silicone competes with computer chips and the computer business, of course, is a huge market for silicone.

The photovoltaic business is very small relative to computer chips, so the demand for silicone, driven by computer manufacturing, is a challenge, which is why it helped us to decide to shift to a different technology. We’re still at the building of the plant stage so it’s a ways to go before we can say, “This is a great solution and commercially viable,” but we’re going to give it a go.

There’s one more technical area that I think has huge promise for not only the mobility but also the power generation needs in the future and that’s something called the hydrogen fuel cell.

To us the hydrogen fuel cell represents a future promise (the cynics would say, “always will be a future promise”); but, realistically, we believe we are at the point of breakthrough on hydrogen fuel cell technology.

Today, in Washington, D.C., at a Shall station on Benning Road, three miles from the Capitol, there is a hydrogen storage station and a hydrogen pump which will put hydrogen fuel into several General Motors hydrogen fuel cell vans, which will be used to escort members of Congress and members of their staff around Washington to demonstrate the ethics and the viability of hydrogen cell fuel vehicles.

They’re too expensive to be commercial now and they only get about 100 miles to a tankful of hydrogen, which is not enough to satisfy the average consumer, who would like to have more like 300 miles worth of mobility in their tank at any given time. So, we have some work to do to get the hydrogen storage from 100 miles per tankful to 300 miles per tankful.

And we’re working with National Labs and General Motors and other companies to try to achieve that, and also getting the cost of the fuel cell down by volume, production and some other technology work that’s going on, and also creating the hydrogen highway – in other words, where do you buy hydrogen if you have a hydrogen fuel cell vehicle?

Right now you’d have trouble – you’d have to go all the way to Washington to get it. That’s a long commute.

But we are working in the state of California with the Schwarzenegger administration to build a hydrogen highway between Los Angeles and San Francisco, and working with governors and officials between Washington and New York City to build a hydrogen highway between Washington and New York City, which is putting hydrogen stations in Shell stations, so that we can have a logistical supply chain for the hydrogen fuel cell vehicle as and when it’s ready. How soon will it be ready?

Well, you heard I’m on the Hydrogen Fuel Cell Task Force of the Department of Energy; our view as a Task Force with the companies that are represented and the experts at the Department of Energy is that through the course of this decade we will have hundreds of hydrogen fuel cell vehicles.

By the middle of the next decade we will have thousands; by 2020 we will have tens of thousands; by 2025 hundreds of thousands of hydrogen fuel cell vehicles and in the 2030’s we could have millions of hydrogen fuel cell vehicles. So it does look promising and we will continue to work on it.

So now we have hydrogen fuel cell vehicles; we have wind; we have solar; we have biofuels; we have liquefied natural gas, coal gasification, unconventional oil and gas, conventional oil and gas. Are we ready to declare energy security yet? No. There really are three more important aspects, in Shell’s view, of what will constitute energy security in the United States.

First among the remaining three is educating ourselves about energy and, in particular, future generations, because the tipping point has been passed of easy conventional oil, moving to more challenging conventional and unconventional oil sources and other technologies.

It’s Shell’s view that it is time to put education of energy into the higher priority, whether it’s today’s consumers or tomorrow’s consumers, knowing where that energy comes from, knowing how precious it is, knowing how important it is to use it wisely.

Not just understanding the technology of energy, but the social implications of energy, the political implications of energy, we believe are important for today’s generation and future generations to better understand.

So, rather than just talk about it, we did something about it. We’ve created an educational website, which can download to school systems across the country education curricula (not produced by Shell but produced by academics under contract to Shell) teaching energy to middle school and high school students – where teachers don’t have to spend a dime to download a semester’s worth of education.

And school systems can simply adopt it. Again, it’s not selling Shell; it’s selling energy knowledge and information.

It’s a website called “Energize Your Future,” which is available now and tens of thousands of teachers have already downloaded information from that website. Educating hundreds of millions of people is quite a challenge. But there’s no time like the present to begin.

The second essential requirement is to tackle the issue of energy efficiency in totally different ways. Because we had 50 years experience of available, affordable, easy energy, we have learned to use energy inefficiently. We can (with technology) design more efficiency into everything that uses energy – from lighting to heating to mobility to how we live and how we work.

There are opportunities for energy efficiency everywhere we look. What Shell, therefore, calls for is a culture of conservation, in which energy efficiency is viewed as a priority in our hearts and in our minds.

You may say that’s too soft; but if we don’t believe it in our heart and we don’t believe it in our mind, we will never take the steps forward to either use market pull or technology push to try to make energy efficiency a way of life. CAFE standards, for example, in this country have been the same for about 20 years and we get the result of that, which is no more miles per gallon on average than 20 years ago.

We can do better than that. We can do better in our appliances, in our light bulbs, in the way we design buildings – there are some great steps being taken forward, but we should make that more a part of our future.

The White House and the Energy Department have terrific voluntary programs and initiatives that are being promoted. Why are they voluntary? Why isn’t there more of a mandatory call for that level of energy efficiency?

And finally, the last of the three items to ensure energy security in the future is the management of greenhouse gases. You may see on USA Today’s front page tomorrow, there is a report from international scientists on the issue of global warming. Shell is not an expert on the issue of global warming; we are not climatologists; we are not scientists that study this.

But, Shell believes that when the vast majority of the world’s scientists and the vast majority of the leaders of the world declare this an issue, who are we to say its not? So rather than debating it, our view is, let’s get on and do something about it.

So, last week, there was a Financial Times op-ed from my boss, the Global CEO of Shell, calling for governments to move forward with regulatory frameworks in which markets can operate to manage the release of emissions of greenhouse gases. There are marketing principles that can be used to reward those who emit less and cost those who emit more, more money.

Cap-and-trade systems exist in Europe. They could exist in this country; they could exist globally. The reality is the government regulatory framework that’s best is that which is global, because all countries participate in this.

But, rather than wait ultimately for the global solution, we would welcome a national solution. Currently, there are some seven states in the country that are working on or have agreed to regulatory frameworks for greenhouse gas emissions.

For a company like Shell, which works in 50 states, we would much rather have a single, national framework than to have 50 different frameworks in which we must operate. It simply makes sense. So, a call for a national framework of regulation in which markets can operate, we believe, is essential to get on top of the greenhouse gas emissions.

Let me go back to where I started. Eight-five millions of barrels of oil produced today; by 2020 or 2025 120,000 millions of barrels of oil – all of which are CO2 related. Coal gasification (if we started today) will take a long time to penetrate the electricity-generating marketplace, because we have not hundreds but thousands of power plants to deal with.

But, coal gasification starting now can make a difference in the future. But, in the meantime, a lot more carbon will be emitted into the atmosphere over the course of the next decades, while coal gasification gets put in place.

So the point being: the CO2 emissions of the atmosphere are growing continuously because economic progress and lifestyle make it so. And the solutions of non-CO2 energy are further out in the future.

So the point of all this, ladies and gentlemen, is we can have energy security for generations to come.

We can have the lifestyle we enjoy. We can have affordable and available energy by developing with public policy support our conventional oil and gas, our unconventional oil and gas, our liquefied natural gas, coal gasification, biofuels, wind, solar, hydrogen with efficiency education and greenhouse management combined.

Thank you.