Shell Oil president says U.S. policies hinder energy security

The United States should reconsider its policies on tapping North American petroleum as a matter of "energy security," according to Shell Oil President John Hofmeister, who for the past year has been on a nationwide tour designed to make just that point.

By August, Hofmeister had visited more than 40 cities where, typically, he talks to political and civic leaders, as well as residents in town hall meetings.

At a session in early August he addressed the Albany Executives Association in Albany, N.Y.

Here are excerpts from his address:

Some people believe that there’s a conspiracy among big oil companies to hold back production or to hold back product. If there was a conspiracy to do such, we should be put in jail because it would be violating anti-trust laws. We do not conspire. I do not talk to other oil companies; they do not talk to me. Our job with our tens of thousands of employees is to supply the market. The question people often ask in the cities that we visited in the last 12 months - and Albany happens to be the 41st city we’ve visited in the last 12 months - the question we often get, “Are we running out of gas and oil? Is there really a shortage of gas and oil in this country?”

The answer is there is no shortage of natural resources in this country. There is currently a knife-edge relationship between supply and demand because of the restrictions that we have in this country based on public policy in terms of crude oil and natural gas production, restrictions where we’re only allowed to access 15 percent of the Outer Continental Shelf. Eighty-five percent of the Outer Continental Shelf is off limits to the oil and gas companies – not allowed to explore, not allowed to produce.

And when it comes to finished product production, we actually have been adding capacity to the nation. Shell, for example, has added the equivalent of three new refineries in the last decade. You often hear the media report that not a single new refinery has been built in 36 years. That’s true if you define it as a green field startup. But, it’s not true if you think about brown field additions. So, Shell is not the only company that has been adding on to our refinery structure; we’ve added on the equivalent of three new refineries, and we’ve been proposing to add on a 300,000-barrel-a-day expansion to [Shell’s] Port Arthur [Texas] facility...

So, there is not a lack of interest or a lack of desire to add refining capacity, but the challenges, the difficulties of getting the permits and the licenses and the crude supply. What’s been holding back the Port Arthur expansion has been the crude supply, because we’re not just looking at a crude supply to meet next year, the following year, the following year. This is refinery expansion of multi-billions of dollars where you want to know you have a steady crude supply for the next 30 years. Why else would you make the investment? You don’t invest billions to run out of crude in five or 10 years. So, you really need to know where the crude is coming from.

...The issue is when it comes to natural resources, we know in this country where there are 110 billion barrels of inaccessible crude oil and natural gas that is unavailable to us – 110 billion barrels. We know where it is. We know how to get it out of the ground. But it is off limits by public policy. In order to meet demand, we import. We bring oil in from other parts of the world. We have wonderful trading partners from around the world and they support our market regularly. But, at the same time, we have transferred more than $1.5 trillion (and Thomas Friedman makes this point over and over). We’ve transferred over $1.5 trillion in the last few years to parts of the world that are now using that money to develop their own capabilities, their own infrastructures, instead of investing that money in this country with new oil production, new natural gas production. That money is leaving the country rather than being reinvested in the country because of the purchase of exports.

But are we running out? Is that insecurity real? Well, we have 110 billion barrels that we know of and there are a whole lot of areas we haven’t explored yet in this country. In addition, there’s something called unconventional oil. Shell’s active in the Alberta oil sands, currently producing 150,000 barrels a day with expansion plans to get up to 300,000 barrels a day; we could ultimately get up to a million barrels a day over some period of time. The unconventional oil sands of Alberta represent an excess of a trillion barrels of known resource. A trillion barrels of known resource is more than most of the oil in the Middle East, which is conventional oil and gas. But if the trillion barrels in Alberta were not enough, in the oil shale of Colorado, Utah, Wyoming, there’s another trillion barrels of resource. Shell is currently in a research project in Colorado looking at different methods of extracting that oil from oil shale without using mining technology. In other words, using drilling and heating technologies to try to bring the molecules out as liquid and gas without mining it with excavation and trucks and retorts and so forth, but it will still take some time before we’ve perfected the technology. We aren’t running out of oil and gas with a trillion barrels of known resource in Canada, a trillion barrels in Colorado and Utah and Wyoming plus the billions of barrels that we know about in this country – there’s plenty of oil and gas. Getting it to market is a matter of changing our current public policy.

...There’s more to energy than fossil fuel. There is, for example, ethanol or biofuel. Shell’s been in the biofuel business for 30-some-odd years – that’s not new to us. We do have to make choices between ethanol from food-based product or ethanol from biomass-based non-food product such as woodchips, straw or cornstalks instead of corn kernels. Shell prefers cellulosic ethanol, which is plant-based, rather than food-based ethanol, but here we run into a bit of an issue, and that is an issue of timing and technology. We know how to make corn ethanol, but there isn’t enough corn to make a serious dent in the motor fuel requirements of the nation.

Here’s a couple of statistics you might want to keep in mind. I’ve been talking for about 20 minutes, 25 minutes – in that period of time, ladies and gentlemen, this nation has used 10,000 gallons of oil a second. Not a minute, but a second, in the time I’ve been speaking. So, in the time I’ve been speaking, this nation has just consumed two million gallons of oil. In an hour, almost four million gallons of oil. In a day, almost 860 million gallons of oil. So, when it comes to ethanol – ethanol making a material difference in motor transport fuels – corn-based ethanol at 5 to 10 percent of the fuel supply hardly makes a material difference, which says, “Where’s it going to come from?” And that’s where we go back to cellulosic, where with time (and time may be 10 to 20 years with technology and with manufacturing process improvement) we can, perhaps, bring material amounts of ethanol to market. But what about in the meantime? Our economy needs 10,000 gallons a second just to maintain itself – not to take any growth into account. Where’s that coming from? More imports or domestic resources? That’s a question for public policy.

[Editor’s note: The complete text of Hofmeister’s talk in Albany, N.Y., is available at the oil company’s Web site, www.shell.com.]