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Shell’s new president planning for future

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Shell’s new president planning for future

Nation’s energy crisis, gas prices priorities

Sunday, August 03, 2008

By Kimberly Quillen

The new head of Shell Oil Co. sees heightened oil and gas production, increased reliance on alternative forms of energy and conservation as ways of resolving the nation’s energy crisis.

Marvin Odum also expects New Orleans, the city in which he started his career, to continue to play an important role in meeting the country’s energy needs.

Odum, 49, succeeded the retiring John Hofmeister as president of Shell Oil, the U.S. holding company for Royal Dutch Shell, in June.

In an interview in New Orleans last week, Odum said one of his top priorities will be addressing the energy crisis and the resulting run-up in retail gasoline prices.

“We cannot miss this opportunity to get a real energy strategy for the United States,” Odum said. “It’s impacting people. It’s on the top of the agenda. I think what happens in the next few years will be very important.”

— Finding solutions —

The problem, according to Odum, is one of supply and demand. Global energy demand is accelerating at the same time conventional supplies of oil are in decline.

“We’re at the point now where, with geopolitical disruptions, those (supply and demand) lines sometimes cross,” he said. “That’s what drives prices. It’s just a plain and simple supply and demand market equation.”

Opening up more access to conventional oil and gas would be a step toward bolstering energy supplies, Odum said. Some lawmakers are pushing Congress to lift a ban on offshore drilling in portions of the Outer Continental Shelf.

“That’s the type of thing that will get more production,” Odum said. And “it can be done in a way that does protect the environment.”

Critics of offshore drilling have raised concerns about its impact on the environment, but Odum maintains that drilling can be done safely to prevent spills and contamination even during storms as powerful as Katrina and Rita.

“We didn’t spill a drop of oil” during those storms, he said. “Industry needs to do a better job of helping people understand that they don’t need to be worried.”

Jump-starting production by lifting the ban will not provide immediate relief, because it could take as many as 10 years for energy companies to identify new sources of oil and bring them online, Odum said.

Still, production could get up and running fairly quickly in areas near existing platforms, said John Felmy, chief economist of the American Petroleum Institute.

And the futures market on which oil is traded and priced could react swiftly to a rollback of the ban on offshore drilling.

“If the market suddenly came to the conclusion that the U.S. is changing its policy . . . you might see impacts on the futures market fairly quickly,” Felmy said.

Odum also sees increased reliance on alternative forms of energy — wind, solar and biofuels in particular — as a long-term approach to reducing the nation’s dependence on oil.

Many of the leading forms of alternative energy are still heavily subsidized. But with the right government policy, it is possible that by the middle of the century, 35 to 40 percent of the world’s fuel mix would come from alternative fuels, Odum said.

“We see the full suite of alternative energies being a big part of the future,” Odum said. And “as world demand continues to rise, there’s a case that can be made that says even with all those (alternative) fuels, we still can’t keep up.”

Felmy agrees.

“We’re going to need all forms of energy,” Felmy said. “It’s all going to play a role.”

But while alternative fuels will reduce the nation’s dependence on oil, they will not provide relief at the gas pump.

“These alternatives (generate) electricity . . . they will have no impact on the (gasoline) market because we don’t have electric cars,” Felmy said.

The only immediate way to relieve the country’s dependence on oil, Odum said, is to take steps as a nation to use less energy.

— Louisiana key player —

Louisiana and the Gulf Coast will continue to play an important role in the nation’s energy system, said Odum, a native Houstonian who spent the first four years of his career working as an engineer for Shell in New Orleans.

Some 25 percent of the nation’s domestic energy production comes from the Gulf of Mexico, and Odum expects the Gulf to be a hotbed of exploration activity for years to come.

After Katrina, Shell made a very public commitment to New Orleans when it reopened its offices in the heart of the city’s business district and moved 1,000 employees back from a post-storm deployment in Houston.

“We made the distinct choice to come back” after Katrina, Odum said. “We’ve chosen to be here and develop a workforce here. People said (we) wouldn’t be able to get the people here, but we have.”

Eric Smith, clinical professor of finance and associate director of the Entergy-Tulane Energy Institute at Tulane University, said Shell’s decision to maintain a strong presence in New Orleans even as other energy companies moved jobs to Houston has been important.

“Shell carries a lot of weight,” Smith said. “Will (the company’s presence) attract another big company? Probably not.” But smaller spinoff companies tend to take root around major energy companies like Shell with the intention of exploring territories the larger corporation does not go after.

Shell’s presence also gives local energy service and energy supply companies an incentive to stay in New Orleans, Smith said.

But Shell’s decision to remain in the city is not just a goodwill gesture. Because of its location, the city has a base of geologists and reservoir engineers who are experts on the Gulf’s geology.

“It’s in Shell’s interest to keep the geophysicists and geologists close to the territory they know best,” Smith said. “To take one of these guys out of Louisiana and plunk them down in Colorado” would not make sense.

“We have a tremendous wealth of experience and ability in this state,” said Larry Wall, spokesman for the Louisiana Mid-Continent Oil & Gas Association, a group that represents the state’s energy industry. “There are supply companies and service companies that can be a major asset for companies working in the Gulf. The infrastructure is here. The people are here.”

That said, the pull of Houston, which is increasingly becoming the global headquarters of the energy industry, is hard for many companies in the oil and gas sector to resist.

“Houston has sort of evolved into this machine for doing the oil and gas business,” Smith said.

Odum expects there to continue to be a shuffling of energy sector jobs between the two cities.

“(I think you’ll) continue to see some back and forth between here and Houston,” he said.

But Odum said he plans to maintain Shell’s presence in the Crescent City.

“We’ve found it to be an advantage, because we look different than other energy companies,” he said. “We think we made a very good decision.”

Kim Quillen can be reached at [email protected] or 504.826.3416.

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