John Shell)

8/6/2019 John Shell)

1/4

www

It would be fair to say that John Hofmeister is not the kind of opaque

bossyoufindtuckedaway inan ivorytower,seeminglyimperviousto

the critical energy issues affecting the lives of ordinary Americans

today, and tomorrow. To reinforce that view, this head of Shell Oil the lucrative US arm of Anglo-Dutch super-major Royal Dutch Shell

has been out on the road for the past 15 months beating the drum

about energy security, gasoline prices, biofuels, climate change, and much

more. And the audience? Well, its included just about everyone from the

companysstakeholdersandgovernmentofficialstoenvironmentalorgani-

zations and the public. Its a 50-city tour that has whisked Hofmeister and

some250 ShellOilleadersfromSeattletoMiamiandeverywhereinbetween.

Yougetthe impressionthat itsbeenan adventurethat thisamiableoilmanhas

revelledin.

WhenO&Gcaught up with himat ShellOil HQ inHouston, Texas, his city

count was looking like this: 46 down, just four to go. So with the tour on the

homestretchthislookedlikean opportunemomenttotiehim downtoa one-

on-oneinterviewandget aprogressreport.Withan unexpected20-minutevoid

inhis diary,heobliged.Introductionsoutof theway,and Istart byquizzinghim

astowhy hesbeentrekkingalloverthecountrytalkingenergy?He pausesfor

amomentbeforerevealinghismotives:Obviouslywe havebeenfacinga major

dilemmaover thepriceof petrolandthe concernexpressedby Americansabout

it,aswellasabouttheprofitsthatcompaniesaremaking.Whenwelookat the

pricelevelsandtheprofitsin theclearlightof ourownbusinessrationaleit all

makessenseto usas amajoroilcompany.However,it doesntmakesenseto

ourstakeholders,so ratherthan havingan ongoingsustainedconflictover the

issue,we decidedto govisitthemto discussprices,profits,suppliesand de-

mand.Butthese meetingswerenot justabouteducation;Hofmeisterand his

teamwere inlisteningmodetoo.

20 w ww .ngoilgas.com

An oil chief passionate about alternative

forms of energy cynics would argue that

this proclamation is an oxymoron. John

Hofmeister, President of Shell Oil Company

would beg to differ, however. In an exclusiveinterview with O&G, he talks about Shells

investments in green fuels, future energy

security, and how Americas strict drilling

restrictions are creating an unnecessary

over-reliance on foreign imports.

By Julian Rogers

COVER STORY

FUTURE

VISION


2/4

stance,therearemore thanone trillionbarrelsof knownunconv

servesinthe Coloradooil shaleregion equivalenttothe world

reserves. As the head of an American oil company I would likchangeourUSpolicysothatwe coulddevelopmoreof theOuter

Shelf,to developmoreresourcesonfederallandswhicharecurr

its,and developtheArcticregionaround theBeaufortSea and

Sea.I thinkthereisa lotmoreoiland gastobe responsiblydeve

countryso weshouldgeton anddo it.

But does Hofmeister forecast there being a U-turn in po

pipelineanytime soon?I dontsee evidenceof itin thecurren

thatisin Congress,he respondswitha shrugof resignationi

Ifanything, Isee morerestrictions being placedon futureacc

tunities rather than a relaxation. He adds: While we are gre

ciative of the trading partnerships that we have around the

comingat averyhighprice.

Sowiththisstance it appears thatthe costlyoiland gasi

keepflowingintheUS forthetimebeing.However,beingrelia

eignoilandgasfromcountriessomerunbydespoticregime

governments couldleave theUS vulnerable.

For instance, we have witnessed how Venezuelas leftis

HugoChvez,forced ExxonMobiland ConocoPhillips,tocede c

crativeoperationsas partof anationalizationsweep ofthe oila

tor.AsimilarscenarioaffectedShelland BPin Russia.I thinkit

Iam notthefirstpersontosaythis,thatwe areina periodof

sourcenationalism,Hofmeisterwarns.This isto beexpected

ditions between the exporting andimporting nations are wha

Heexpands:In otherwords,the exportingnationsare appropr

in their sovereign national borders, trying to optimize their

www

Whenitcomesto supplieshe hasfoundithardto

avoidthe deepsense offear amongstthe publicthat oil

andgasreservesaregoingto dryupsoon.Herecountsan

exampletoillustratethepoint:Inone cityawomencame

uptomeand saidthatshewasa grandmother.Shesaid

thatsheknewoilandgaswouldbethereforaslongas

sheneededitbutshe wasworriedthatit wouldnotbe

thereforher grandchildren,resultingin alowerqualityof

lifeforthem. Ithinkthis iswrong.WhatHofmeistertold

theanxiousgrandmotherwas whathe reiteratesduring

ourconversation:Oiland gasisnotgoingtorunout inthe

nearfuture.However,he concedesthatwe havepassed

thetippingpointof cheapand available energy. Andhe

fullyappreciatespeoplesconcerns whenstories(some

would call it scaremongering) keep cropping up in the

mediaabouthowtheworldsfuelgaugeis lurchingheav-

ilytowardsthedreadedE.

One trusted authority the International Energy

Agency(IEA) haspredictedthatoilproductioncould

peakassoonas 2012andthatwe couldneed 125mil-

lionbarrelsperday(bpd)by2025levelsarecurrently

hovering around the 85 million (bpd), just one million

above worldwide consumption levels. Adding to the

strain are the new economic tigers like China, India,

Braziland Russia. Infact, China and India are forecast

toaccountfor45 percentoftheincreaseinglobalener-

gy demand by 2030. You could look at the situation

fromanegativepointofviewbutItendto lookatitpos-itively, Hofmeister remarks. He says the National

PetroleumCouncils442-page reportinto thefuture of

global energy, published in the summer, is a seminal

piece of work foranyone looking fora balanced view

ofthe situation.The studywas commissioned in2005

byUS EnergySecretarySamuelBodman.

Opponentshave slammedthe decisionto allowthe

NPC,chaired by formerExxonMobilCEOLee Raymond,

to overseethis importantstudy, citing that it was akin

toaskingthe tobaccoindustrytoforecastlungcancer.The NPCrebuffsthis

criticism,pointingto thefact thatthe 18-monthinvestigationinvolved350

experts manyofthemfromoutside theoilandgas industry.Whetheror

not the NPC was the right organisation to author the report, Hofmeister

urgeseveryoneshouldtaketimeouttoreadit.I thinkitgivesa verycom-

fortingviewof theworldssupplyofenergy.Itdoes bringupthe demandis-

suesbutit alsoshowsthetechnologyopportunities.Mostofall, itsaysthat

thebigissuesoftheoiland gasindustry,andtheenergyindustryofthefu-

ture,willprobablybe abovegroundwithgeopoliticalissuesratherthan the

availabilityof resources.

Hands offAtthispointtheconversationedgestowardsthevastoiland gasreserves

yetto beexploitedin theUS. Ofcourse,muchofthe offshoresuppliesareoff

limits,causingto usrelymoreand moreonexpensiveforeignimportsto feed

ourthirstforthe blackstuff.Indeed,morethat60 percentofAmericasdailyoil


In at the deep endThe Shell Exploration & Production Company (SEPCo) is

the largest of the Shell E&P operating units, accounting

for 15 percent of Shells worldwide oil and gas production.

The Gulf of Mexico is one of its key regions, as John

Hofmeister explains.

I think the best way to describe our deepwater drilling in

the Gulf of Mexico is to look at our Perdido project (a multi-

billion dollar investment 200 miles south of Freeport that willbreak several water depth records). This project is testimony

to the risks that we are willing to take in terms of the financial

bet on what could be a hugely prolific set of oil reservoirs

that we should be able to tap for many years into the future.

The technical challenge is first of all operating in more than

8000 feet of water and controlling wells drilled to more than

18,000 feet below the ocean's surface. We believe we have

the technology, and we have the where-with-all, financial and

human capital to be able to capitalize on this. But it is an

example of how far we must go these days, given that we

have limited access to easier to obtain oil, to develop these

kinds of assets.

In addition to the technology that allows us to discover

this oil and to produce it, the technology that allows us to

safeguard the environment has changed too. We have the

ability to develop these sub-sea capabilities in

environmentally responsible ways. Its the shut off valves and

the kind of piping and assembly processes that have moved

very far in terms of protecting the environment which a lot

of people dont know about. This is why some people still

worry about offshore drilling as an environmentally hazardous

thing to do. Well the fact of the matter is that the Gulf of

Mexico is proof that we can drill, produce and safeguard the

environment all at the same time.

consumption comes from abroad. This means that just

eightandahalfofthe 21millionbarrelsofoilconsumedin

theUS everyday isextracted fromdomestic resources.

Hofmeisterwasteslittletimeinlayingthefingerofblame

squarelyatthe doorofthe policymakers:Weareproba-

blytheonly oil-importingnationthatbylaw andby regu-

lationprohibitstheproductionof ourown domesticenergy

resources.Ifwe wereproducingmoredomesticenergyit

wouldalleviatesomeof thepressurethat iscurrentlyon

thepriceof oil,andwe would beinvestingin jobsandan

infrastructurein theUnited Statesinsteadof exportingour

oildollarstootherpartsof theworld.Hofmeisteralsoar-

guesthatif theUS doesnotstart liftingrestrictionsthen

thepriceof oilisonlygoingto risefurther.Ifthe UScon-

tinuestorelyon importedproducts,andatthe sametime

otherimportingnationsrelyonthosesamesources,then

weareseeinganeverendingescalationinthepriceofoil.

One potential goldmine for oil and natural gas is

theOuterContinentalShelf,butfrustratinglyfor theen-

ergy companies just 15 percent can be drilled due to

publicpolicy.Theyare alsodenied accessto exploring

hundredsofmillionsof acresoffederalland. Combined,

theOuterContinentalShelfandthefederallandcould

behousingasmuchas110billionbarrelsofoiland nat-

uralgas, includingcolossalamountsof unconventionaloil

and gas supplies that have yet to be exploited. For in-

22,000EMPLOYEES

50

OPERATIONS IN

STATES

14,000GAS STATIONS

1953

DRILLED ITS FIRST

SOUTH TEXAS WELL IN

SHELL OILIN NUMBERS

1.3 billionPROVED RESERVES OF

BARRELS OF OILEQUIVALENT


3/4

sources while the oil importing nations are trying to sustain economic

growth sotheyneedmoreenergyand thereis anaturaltensionthere.

Where now?Allthisworry withsupplies,coupledwithsoaringpricesat thepumps,

begsthequestionasto whenwillweallbe poweringour carsandhomes

with renewable sources. The oil giants will tell you that they have been

ploughingfundsintothe R&Dof alternativefuelsforyears.Indeed,Shell

hasbeeninvestigatingandmanufacturingbiofuelsforthe past30years,

saysHofmeister.Altogetherthecompany hasspent around$1 billiondur-

ingthelastfiveyearson researchanddevelopmentofrenewableand al-

ternativeenergy.

Thecompanystressesthatthisfigureis stillasmallfractionof thetotal

spend because the technologiesare nascent and therefore risky. And an

awfullotof R&Dneeds togo intoan alternativeenergysource beforemass

productioncanbegin.Itisimportanttonotethatwehavebeenatthis(al-

ternativeenergy)formostofa decade,in additiontoourcorebusinessof

oil,gasand petro-chemicals,saysHofmeister.As wellasworkingon bio-

fuels,in whichweare afairlysizeableinvestor,wehave anumberof ethanol

opportunitiestoo.Corn andsugar-basedethanolcompeteswiththe food

industryand inflatespricesso Shellis producing so-calledsecond-gener-

ation(cellulosic)ethanol.Governmenttargetshavebeen setso that7.5 bil-

lion gallons of ethanol a year needs to be produced by 2012, rising to a

whopping35billionby 2017.Thereinlies ahuge challenge.

Butwhat elseis Shellpioneering?Well,theenergygiant isworkingon

second-generationsolartechnologiesas wellas itsburgeoningwindbusi-

ness.We aremovingvery closeto ourfirst gigawattofwind, Hofmeister

enthuses.Weare workingin fivestateswithsevenwindfarms.We arealsobuildinga newwindfarmas wespeakinWestVirginia.Whenitcomesto

other technologies we are active in partnerships with a number of auto-

motivecompanieson hydrogenfuelcelltechnology.Ourroleis tofigureout

thesupplyside andlogisticsof distributinghydrogenacross abig country

like the United States, says Hofmeister, who is part of the Hydrogen

TechnologyAdvisoryTaskForcethat supportsthe DOEsworkon hydrogen

fuelcellvehicles.So whileShelland itsrivalshavestarted theballrolling

onthesealternativefuels,thereis stilla long waytogo before we are all

filling up our cars on hydrogen or ethanol, especially when you consider

thatmotoristsinthe USburnaround160 billiongallonsofgasolinea year.

Asidefromoiland gas,thereis onefossilfuelthatmanypeopleover-

lookprimarilybecauseit hasa badreputationfor beingdirtyanda high

pollutant.Thatfueliscoal somethingthatthe UShas moreofthanany-

whereelseinthe worldcombinedand somethingthatShellseesgreatpo-

tentialinfor thefuture. Andnewtechnology iscleaning upitsimagetoo.

Coal gasification enables the efficient capture of CO2 for sequestration,

making possible the production of low-CO2 electricity or liquids. In fact,

Shellisinvolvedina turnkeyprojectin Queensland,Australia,to createlow-

emission electricity that combines coal gasification with carbon capture

and storage.Shellis thepreferred providerof thegasificationtechnology

andis currentlyprovidingdrillingand CO2storageexpertise.Up to420,000

tonnes of CO2 annually (around 70 percent of the demonstrationplant's

CO2emissions)couldbe capturedandstored.

Hofmeisterelaborates:We essentiallysold allour coalassetsbut we

heldonto coalgasificationtechnology. Sonowwe areveryactiveincoal


Alongside conventional

energy sources, Shell

is investing heavily in

renewables and

alternative fuels too


4/4

fectivelyandthe systemestablishedfairly,then itisthe mosteffectiveway of

drivingemissionslower,Hofmeisterexplains.Webelieveit isa systemwhere

marketscan operatewithina regulatoryframeworktocreateeconomicvalue

andat thesame timereduce emissions.

Black goldWhileinvestinginalternativefuelsand cappingemissionsis highonthe

listofpriorities,thesimplefactisthatforthemajorityofthepopulationthecost

ofgasolineis theirnumberone concern. Forsometimenowmotoristshave

beenfeelingthepinchat thepumps,asthe priceofa barrelofoil hitsrecord

highs.Whatthe consumerfindshardtofathomishow theoilmajorskeepan-

nouncingrecordprofitsbut theprice ofgasolinekeeps rising.RoyalDutchShell

recentlyannouncedthirdquarterprofitsofUK6.4billionthesortof dizzying

figuresthatleadsthe publicto perceivethatthe industryis beinggreedyand

thattheyarebeingrippedoff.Hofmeisterhas beenatpainstopointoutto his

audiencesthatcontrary topopularbelief,the oilmajorsdont likehighoil prices

asit causesinflationinthe supplychain.Healso saysthatalmostall ofitsprofits

areploughedbackintothebusiness.

Weare tryingtochangethe conversationaboutpricesand profitsand

whetherthatisa goodorbadthing.Intheconversationsthatwehavehad

acrossthe countrythe focushas changedsignificantly, particularly when

wetalkaboutthe investmentsthatneed tobe madeinbringingmoreenergy

intotheworldin thefuture.Heslowshisspeech

toemphasisethemoney involved:When they

findoutthatthePerdidoproject[seeinat the

deependonpage23]intheGulfofMexicoisa

billon-dollarinvestment,or thattheoil sandsin

Alberta,Canada, representsa multi-billiondollarinvestment,theexpansionofourrefineryinPort

Arthurinvolvessome$7 billiondollars,theyre-

alizethatthisisbigmoney.Andifyoudontmake

alotof profityoudonthavethemoneytoinvest

infutureenergy supplies.Soby talkingaboutthe

investmentsidetomeetthedemandsideitreal-

lydoeschange thenatureof theconversation

fromoneof hostilitytoone ofunderstanding.

And thats the point: a look at the bigger

pictureisneededtogeta graspofwhatthisin-

dustryisallabout intermsof investments.And

whenit comesto costlyinvestmentsin keyup-

stream projects, Hofmeister sees a bright fu-

ture ahead for Shell Oil. We will continue to invest in the Gulf of Mexico

whereShellhas justhad avery successfulbidroundtoacquirenewleas-

estoexploreoverthenextdecade.In thelongertermwearestillresearch-

ing the opportunity for oil shale in Colorado while there is many, many

decades of opportunity to develop oil and gas offshore of Alaska.Thenthereisof coursethedownstreamrefineryexpansionbeingplannedaswell

asShellseffortsinrenewableenergyand biofuels somethingthat Ifound

Hofemiester isextremelypassionateabout duringour discussion.For the

immediate futureoilis stillking,althoughthere arenew pretendersvying

forthiscrown. Byusingtechnologyto developthesenew energyresources

HofmeistersaysthatAmericawilleventuallyconqueritsaddictionto the

blackstuff.

gasificationandwe havesomemajorprojectsunder-

way in China. Also, we have just signed our first US

contractto provideourtechnologyto amajorgas-to-

liquids project in the state of Ohio. All of these ini-

tiatives go some way to the curbing of greenhouse

gasemissionsan issuethatis onthe mindsof busi-

ness leaders today especially those running the

multinationalcorporations.

WhiletheUS waspreviouslythelargestproducerof

CO2,thechiefgreenhousegas,Chinahasnowovertaken

thisunenviable record.Hofmeister arguesthat emissions

andclimatechange isimportantto Americans, despite

thedoubtsthatothernationsmayharbor.Havingbeen

in46 UScitiesand spokentothousandsandthousandsof people,I cantell

youthattheAmericanpeopleareanxiousaboutclimatechangeandtheyare

ready for national leadership to take us in a direction as a nation towards

greenhousegasmanagement.I thinkthisisinperfectalignmentwithShell.

Hesaysdialogueiskeyifwe aretomoveforwardonthis:Wehavebeentalkingabout theneed fornationalleadershipon greenhousemanagement

forquitesometime.Ultimately,thisleadershipwillbeglobalbutithastobegin

somewhere.Itcanbegininthenationsthathavethebestopportunitytoman-

agegreenhousegasesand IwouldputtheUSinthatcategorybecauseof

oureconomicand technologicalsuccess butweneednationalleadershipto

cometogetheronwhat thepolicyframeworkwilllook like.Shellisa strong

proponenttoa capandtradesystemtoaidinthebattle.Ifthecapissetef-


We are probably

the only oil-importing nation

that by law and

by regulation

prohibits the

production of our

own domestic

energy resources

John Hofmeister

Documents

John Shell)