Nigerian Tribune: Finding alternative source of energy

John Hofmeister, President, Shell Oil Co.

By John Hofmeister
Wed. 25th July, 2007

Before I start, I would like to raise some pertinent questions; why am I representing an industry that some would say has zero credibility; selling a product that you don’t want to taste, touch, smell or even see; pushing on policymakers to open up access to the Gulf of Mexico or other outer continental shelf locations, which essentially irritates virtually everyone that we talk about it; pushing alternative fuels, new technologies, like coal gasification and other technologies that will take years to penetrate the market; promoting the notion of conservation or energy efficiency, which, if we are really good at it, will take decades to make a difference; and finally, trying to promote the notion of how do we manage greenhouse gases in a way that we have a sustainable atmosphere, not only in this country or dispute whether there’s even problem? Why?”

Well, there are two main reason. I believe in the brand that we represent. And secondly, I really do represent what I consider the myths of big oil. Bringing conventional oil and gas means continuing to exploit the Gulf of Mexico, continuing to develop the resources that are there, prolific as they are, but needing the access to go do it. We have recently seen an announcement in the power tertiary region of the Gulf of Mexico, where Chevron and Devon made a big announcement recently. And we’re very pleased that they made that discovery, called Greet white and Stones. But the conventional oil and gas, the easy stuff, as we call it in the industry, is running out. It is more difficult to find prolific reserves, in this country, of what we consider conventional oil and gas. And so we’ve come to a conclusion that that’s not enough. So what will be enough?We can start by developing the oil shale of Colorado. The estimates are that more than a trillion barrels of oil and gas sit within the basin in Colorado, which was once a sea. And so there are a trillion barrels of immature oil and gas in rock, called shale, that can be developed. We know, in the 1970s, there were efforts made to mine and extract and use retort methodology to heat the rock, to take out the oil and gas. That was given up on in the 1980s, or mostly given up on. Shell , however, stayed. We stayed in Colarado to try to test a different technology for developing the oil shale. We’re still testing that technology, but we’re getting close and closer to financial investment decision, hopefully by 2010, where we use an in-site technology where we would drill holes rather than mine huge quarries. And so if we develop the oil shale and we have the conventional oil and gas, is that enough to provide energy security? Shell doesn’t think so. We think not.We need some additional supplies of energy.This nation has abundant coal. We believe that technology has moved coal to the point that coal can be developed in what people are now calling clean coal. IGCC technology is what it’s called.

That’s a technology in which it’s an integrated gas combined cycle gasification of coal, which instead of using pulverized coal that is burned, would rather gasify coal powder in a gasifier that explodes the molecules, resulting in a far more efficient use of the coal. And with the appropriate membrane technology associated with the gasifier it, we can capture the emissions.One of those emissions is natural gas. The natural gas moves to a gas turbine. The gas turbine creates electricity. Another emission is natural gas liquids, which can be used as a clean diesel fuel – no sulfur – because the sulfur is also captured and the sulfur can be managed.And what about the CO2? The CO2 can be captured as well. And that CO2 can then be managed. Rather than simply emitted into atmosphere, that CO2 could be captured and sequestered.If we develop that and utilities put that to work, is that enough? Not yet. We don’t think so. We use prolific amounts of natural gas in this country, but, the demand for natural gas is, over the next 10 years, going to exceed the supply of natural gas. But that supply of natural gas is at risk for two main demand purposes. One of those demands is American industry. American industry needs natural gas in its production processes as a fuel source. It is a clean, efficient use of fuel in the factories of America, particularly petrochemicals, fertilizers, and other agricultural industries; but also most other industries such as steel, et cetera, use massive amounts of natural gas – and power generation.

An augmentation of that supply chain can come from liquefied natural gas. There are vast deposits of gas in different parts of the world called stranded gas, such as off the coast of Australia, or such as Nigeria and Qatar and other parts of the Middle East. This gas can be liquefied and brought by ship to this country and re-gasified. However, there is an issue with sitting liquefied natural gas terminals. There’s a problem in this country called NIMBY, not in my backyard. And the people who don’t want a re-gasification terminal. Near them have rights to protest and to protect what they consider to be their environment, their security, and their neighborhood. This is an issue that we have to face to for liquefied natural gas to come into this country. But we believe it’s possible, we believe it’s doable. It’s already happening.Will this be enough? No, we don’t think so. We think there’s more that needs to be done. There’s the whole field of alternative fuels that need to be worked on.What is second – generation ethanol? It’s cellulosic ethanol. And that second – generation, we believe, is an excellent way to extend the fuels market of this country. We’re already putting ethanol in cars, as you know. There are some states that have a 5 percent, up to a 10 percent, mandate to put ethanol in gasoline. It stretches the gasoline supply.

There are some who advocate E85, which is 85 percent ethanol. But here’s the issue we face in the ethanol development phase of this new alternative fuel industry: should it come from corn and sugar? Or should ethanol come from cellulosic matter, such as the cornstalk, as the President has referred to as switch grass, or other forms of biomass, such as woodchips?The issue with corn-based and sugar-based ethanol is that if we are already being blamed for high food prices. And corn-based ethanol affects the food chain. Sugar-based ethanol affects the food chain as well. The consequence of that will be felt by all of us in our pocket books. Thus, the concentration of our investment dollars on a second-generation ethanol or cellulosic ethanol. Will that be enough? Well, let me just cover the E85 for a moment. To get E85 to market, two things have to happen. One of those is the fleet of automobiles in this country has to be large enough to create a market. Today, about 2 percent of America’s cars can be use E85.Now we know the automakers are trying to build flex-fuel automobiles as fast they can, but then we run into second problem. That is, there isn’t a supply of ethanol; to satisfy a large market of E85 requirements. So while we can talk about E85, the reality is there’ s no market and there’s no supply.

But in addition to that, an infrastructure would have to be built to distribute and sell thatethanol. We cannot put E85 ethanol into our regular gas station storage tank because the alcohol will eat right through the fiberglass storage tank or it will corrode the pipes.But before we invest millions or hundreds of millions in an infrastructure, we need to find out if the market will accept it. One of the reasons the market may or may not accept ethanol is that it gets 75 percent of the mileage that gasoline gets. In other words, it has 25 percent less miles per gallon than we see with gasoline. Will customers pay the same price to get 25 percent less if ethanol is priced at the price of gasoline? Throughout most of this year, ethanol has cost more than gasoline.Is that enough? Not yet. Early mention was made of the Benning Road hydrogen station. Shell is pleased to have a partnership with General Motors working on hydrogen fuel cell vehicles. It can become a commercial reality, probably not next year or the year after. But within five to 10 years we should be seeing commercially available hydrogen fuel cell vehicles on America’s highway.

Is that enough? No. Three more areas to touch on, to make all of this real and to deliver U.S. energy security.First and foremost of the remaining three, we must recognize that energy efficiency is a field of endeavor that we must pursue.Four and half percent using 25 percent of the world’s oil and gas is simply a formula that has to change. And so, energy efficiency and ideas coming from Department of energy are very useful, but I think we have to go farther. I think we have to go into the culture of America to make a change felt. Our homes, our offices, our factories, our vehicles to be designed with efficiency in mind as a priority, because that last 50 years of enjoyable mobility that we’ve had in this country are not to be repeated in the next 50 years if we don’t do something very different. And energy efficiency is one of those differences that must change.The fact that we are having such a debate when other countries have a straightforward direction that they are following is due to the fact that I don’t think we fully understand, as Americans, where energy comes from, how hard it is to produce it, and how challenging it is to sustain that level of production.

We have developed an economic capability in this country and desire for economic growth that, again, is predicated on energy. But yet we’re not teaching ourselves how precious, how important and how challenging and difficult energy is to produce and to bring to the American people.The combination of conventional oil and gas, unconventional oil and gas, liquefied natural gas, coal gasification, alternative fuels, such as ethanol, wind, hydrogen and solar – which I didn’t mention, but which we are investigating in, in terms of new technology called copper indium dieseline technology – coupled with greenhouse gas management, energy efficiency at the core of how we behave and how we think, and an education of our nation’s population that are growing up and learning about this precious commodity, all those together, we believe, will deliver energy efficiency and energy security to this country.

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