Wednesday, September 06, 2006

Thoughts from Shell

CleanTech Blog
August 28, 2006

Last week, Shell's US President John Hofmeister came to Cleveland as part of a US tour to offer Shell's perspectives on national energy security.

Hofmeister made some interesting comments at a private reception and at a luncheon at the City Club:

* World oil supply at 85 million barrels per day was barely exceeding world oil demand at 85 million barrels per day. Although he didn't say so explicitly, Hofmeister certainly implied that the 85 million barrel per day production level was going to be very difficult to increase -- certainly from existing production fields, and maybe even if all untapped opportunities were pursued. Is 85 million barrels per day as good as it gets? In other words, if you believe that "peak oil" production is rapidly approaching, his comments did little to dispel your belief.
* Oil prices are thus high for legitimate reasons, but oil prices are higher than Shell would like. Clearly, Shell feels the heat from the public and politicians for the huge profits that they are generating these days. Hofmeister claims that Shell would like to see oil prices in the $30-40/barrel range -- enough to earn good profits, but not so high that customers complain so loudly (or -- heaven forbid! -- start consuming less fuel).
* World oil demand growth is being driven by China and India...and US SUVs. He indicated that the shift to SUVs caught the experts by surprise. This was the first time I'd ever heard an oil company executive almost "blame" US automakers and the public for being so gluttonous. This thought was further embellished later by noting that...
* It is "immoral" that the US consumes so much energy, far in excess of its world share of population. Hofmeister got his facts wrong (he said the US represented 8% of world population, when it's more like 4%), but he was right to indicate that the US accounts for 25% of world energy demand. He said that the US really ought to change its habits of energy consumption -- but didn't go so far as to suggest that US policy-makers had an obligation to do anything about it. Hofmeister noted that high oil prices are already having a salubrious effect on demand ("A lot of people are parking their RVs"). OK, fair enough, but that alone won't cut our energy consumption by 80+%. Does he really think we'll significantly reduce our energy consumption to more in line with our population without someone making us do it via some kind of regulation? Yeah, right.
* Climate change is in fact happening, and that carbon emissions from energy consumption is a significant contributor. Well, it was encouraging for Hofmeister to not weasel on that one. Hopefully, eventually, that message will be heard and understood by all of his employees, his competitors and his customers. It amazes me that there are still so many Luddites who aren't there yet.
* Energy independence for the US is not only not achievable, it's not even a good idea. Hofmeister's point is that trade is global, and that it's not necessarily bad that the US imports at least some of its energy requirement. He did go on to say, however, that importing 62% of oil requirements is very bad for the US. Thank goodness he didn't use this observation as an excuse for punching holes in ANWR, at least partly because he sees that...
* There are lots of opportunities for unconventional oil production. While he noted Shell's involvement in the Alberta tar sands and the Orinoco reserves in Venezuela, Hofmeister went on at length about Shell's involvement in new technology development to recover oil from the massive (1+ trillion barrel) shale resource in the US Rocky Mountains. Shell's technology involves using downhole electric resistance heaters to "bake" the oil out of the rock in-situ. Theirs is not the only in-situ shale recovery technology under development -- see, for instance, Independent Energy Partners' geothermic fuel cell approach, which I believe has more economic merit -- but their active and public involvement in shale, and expectation that it is a viable resource at ~$30/barrel, is important to take seriously.
* With 100 years of operation in the Middle East, Shell would like to operate in Iraq, but is not present there because they will not put their employees in an unsecure situation, in a country with no rule of law. While Hofmeister steered clear of political views, his observation that "respect among and between peoples is currently lacking" was both a reserved understatement and a pretty clear signal that Shell is not optimistic about the situation there for the foreseeable future.
* Shell is committed to alternative energy, as they see themselves as an energy provider to humans for the indefinite future, rather than an oil and gas company. He noted Shell's activity in ethanol (mainly focused on second-generation "cellulosic" ethanol rather than first-generation corn/sugar based ethanol, which he didn't seem enthusiastic about), wind and solar energy as areas for growth. In particular, he defended Shell's recent decision to exit its active photovoltaics (PV) business in favor of R&D in copper indium diselenide (CIS) thin-film PV because of limited future economic/cost improvement potential in the now mature crystalline-silicon technology. I agree wholeheartedly.

All in all, an interesting and generally forward-looking set of comments for an oil company CEO to make.

No comments: