Shell Oil president discusses new fuels, energy security

MIT News Office

By Deborah Halber

Shell Oil isn't just about oil anymore. The multinational company has invested $1 billion in wind over the last decade, owns companies working on solar and hydrogen technologies and will soon announce the acquisition of an entity that uses municipal waste to produce biofuel.

"With these, we could go a very long way toward meeting energy security requirements," according to John Hofmeister, president of Shell Oil Company. But conservation has to take hold "in our hearts, minds and behavior of who we are as a people. We have to teach our young people that energy is a precious commodity. We're doing a disservice to young people, because instead of teaching about energy, we're allowing ignorance to reign."

Hofmeister spoke on "Energy Security ... What Does It Take?" at the fall 2006 Hoyt C. Hottel Lecture in Chemical Engineering held at MIT on Nov. 3. The Hottel lecture, named for a former faculty member, is sponsored by the Department of Chemical Engineering and focuses on energy issues.

Hofmeister, who was named president of Houston-based Shell Oil in March 2005, said he represents "an industry some would say has all but zero credibility." Yet Shell, he said, is exploring new technologies to find untapped and unconventional oil and gas reserves, investing in alternative sources such as wind and solar and not simply "listening to its cash registers go ka-ching."

Consumers accuse Shell and other major oil companies of price gouging, a characterization Hofmeister feels is unfair in the current era of limited supply. Meanwhile, he said, the company goes "tin cup in hand" to beg legislators for more access to untapped domestic oil and gas reserves to make the United States less reliant on foreign oil.

Unlike others in the petroleum industry, Shell believes that global warming is a real issue, he said.

Even though Shell invests around 5 percent of its total budget in alternative energy sources, Hofmeister warned it will take 20-25 years before these fledgling technologies meet even 10-15 percent of the country's energy needs. The alternatives to fossil fuels are still based on "immature technologies" that markets are not quite ready for, he said.

Meanwhile, "I do believe energy security is at a point of national crisis," Hofmeister said, although Shell does not "subscribe to the theory" (based on work by geophysicist Marion King Hubbert) that world oil production will peak in 10-15 years.

More than 112 billion barrels of oil and gas--"more oil and gas than to be had in the entire Middle East"--can be tapped from federal lands on the outer continental shelf, offshore Alaska and from the Gulf of Mexico, he said. And while finding future oil in other places will be more technically difficult, technology will change the game. "Technology will help us not have to face this issue which peak oil suggests," Hofmeister said.

Even so, untapped reservoirs will not be enough to meet America's future needs, so Shell is pursuing unconventional sources in Canada.

The trillions of barrels of untapped oil and gas around the world present a "carbon management issue" that Shell would "at least like the opportunity to try" to address, he said. For instance, electrical utilities are committing to clean, efficient gas-turbine technology, but natural gas supplies are low compared with increasing demand. Meeting this demand for additional liquified gas would mean building regasification terminals that no one wants in their back yard, he pointed out.

Shell is working on creating a biofuels infrastructure in select markets in the Midwest to make ethanol available at the pump to vehicles that can use blends of biofuels. Although the United States plans to produce 7 billion gallons annually of ethanol by 2010, we would need to produce 15 billion gallons to meet even 10 percent of the country's transportation fuel needs, Hofmeister said.

"We think there needs to be more regulatory push and more market pull" for alternative sources to take hold, he said.

Shell would like to see a national framework of carbon management principles, Hofmeister said, and wants to be included in the debate "to help think through what different policy alternatives would be like."

The Peak Oil Crisis: Exxon & Peak Oil

Falls Church News-Press

By Tom Whipple

Every now and again, a senior oil company executive speaks optimistically to some august gathering about all the oil that is left. This time the honor fell to Stephen Pryor, president of ExxonMobil Refining. Speaking to a conference in Houston, Mr. Pryor stridently asserted that "energy resources are adequate to sustain growth— we are not peak oil people." At the mention of the bogeyman, "peak oil," the reporter covering the speech, or at least his editor, felt impelled to add a few words of explanation: "proponents of peak oil argue that the world has already tapped most of the easy-to-find deposits and that the drop in supplies combined with ever-growing demand point toward inevitably higher prices that will eventually hamper global economic growth." Actually, the reporter did a nice job in capturing the essence of peak oil.

The speaker then backs up his assertion by saying that the world has thus far produced 1 trillion barrels of oil and that there are still 4 trillion left. The average listener is left with the impression that oil shortages are centuries or at worst lifetimes away.

Of course, based on what we currently know about he earth's oil resources, the "4 trillion barrels left" is really a stretch bordering on irresponsible. The first 2 trillion are supposed to be reserves of conventional oil. This number is based on a badly flawed US Geologic Survey study produced a few years back that attempted to estimate the world's remaining conventional oil resources.

The major flaw was the authors' assumption that existing and not-yet-discovered fields would eventually turn out to contain much more oil than originally estimated. While it was true many decades ago that the ultimate size of newly discovered oil fields was often seriously underestimated, modern geologic techniques have markedly reduced initial overestimates.

The usual answer to the "we have 2 trillion barrels left" assertions is to ask, "OK just where is it?" If there are really 2 trillion barrels of conventional (the kind that comes out of a well) out there, why are we only finding 4 or 5 billion new barrels a year while consuming 31 billion barrels?

This question is always answered with an evasive reply or silence, for there is no answer. The earth has been surveyed time and again with increasing sophisticated geological surveying equipment. The widely-touted 2 trillion barrels left is growing less and less likely with each passing year.

To throw in shale and tar sands as major sources of oil is also becoming less and less likely. We have yet to figure out how to get the "oil" out of shale in an economical and environmentally acceptable fashion. The latest proposal is to lower some flavor of a microwave oven down wells into the shale beds in order to melt out the "oil" using radio frequency energy. It just might work someday, but odds are it will be a very long time before we see millions of barrels a day poring out of the Rockies.

The Alberta tar sands are currently producing about 1 million barrels a day (b/d) of the world's 85 million (b/d) of oil production. As North America runs short on natural gas to cook the tar out of the sands and water to move the mess to processing plants, very large increases in production from the tar sands seems less and less likely no matter what the price of oil.

If Canadians can stomach the environmental mess that exploiting the tar sands is making, they might get another million or two barrels b/d out of the project, but the tens of millions of production per day needed to replace depletion of conventional oil seems highly unlikely.

Someday soon it will be obvious to all that the "4 trillion barrels" of reserve exist only in the minds of Exxon speechwriters and not in the ground. To keep repeating this fable may be good for Exxon's stock and the morale of its employees, but it certainly is not helping America prepare for oil depletion.

The second theme of the "there is plenty of oil" speech is more subtle and in effect negates the primary argument. Immediately after asserting that we at Exxon "are not peak oil people," Pryor went on say "however, access to these (resources) will require large investment and governments will have to allow access." Or put another way, as long as energy companies are given access to oil fields and have an incentive to invest in new technologies, we can meet the world's needs.

In other words, Exxon says there is plenty of oil underground, but unless they are allowed to drill for it, bring it to the surface, and sell it at an acceptable profit, all bets are off. The world might just get its peak production despite those 3 trillion barrels of reserves just waiting to be exploited.

With this caveat, Exxon is getting a little closer to admitting to reality and the proximity of peak oil. Most of the remaining oil is in: Saudi Arabia, Iran, Iraq, Kuwait United Arab Emirates, Angola, Nigeria, Libya, Algeria, Sudan, Russia, Kazakhstan, Azerbaijan and Venezuela. Only nine percent or so of the world's remaining conventional oil is in nice safe places like the Gulf of Mexico, Canada, and the North Sea, where there are no civil wars, corruption, or nationalistic governments bent to tossing out the International Oil Companies.

Now why should we really care if Exxon runs around making speeches and buying newspaper ads proclaiming there is plenty of oil left? Other oil companies are doing the same though not quite as stridently, while a few are becoming much more cautious. Well, here is the problem.

It seems that a year or so ago the US Government, Energy Secretary Bodman to be specific, became concerned about all the peak oil talk that was starting to float around in the media so the government decided to conduct the most comprehensive, thorough, definitive study of the future of energy resources every performed.

To carry out this task, they turned to the National Petroleum Council, which was set up in 1946 to advise the government on matters pertaining to petroleum. The study is due out in the second quarter of 2007 and is to answer what may be the most important question of the 21st Century— "What does the future hold for oil and natural gas supply?"

An elaborate hierarchy of committees, subcommittees and task groups has been formed. Some 200 researchers are said to be working away on this complex and incredibly important problem. When all the research is done and all the conclusions are reached, the results will be forwarded up the hierarchy to the Chairman of the study who turns out to be none other than Lee Raymond, recently retired CEO of, you guessed it, ExxonMobil and implacable foe of the concept of peak oil. It is going to be an interesting year.

In the meantime, disingenuous speeches by senior US oil company officials resulting in headlines like "Exxon Sees Plenty of Oil to Meet Increasing Demands" are not helping the situation.

Peak oil and global warming

Daily Reckoning

...Global warming is the other side of the coin of Peak Oil. That is, in the process of rapidly depleting the Earth's supply of fossil fuels, mankind is also playing a life-threatening experiment with the Earth's atmosphere...

By Byron King

- The intellectual content of the Association For The Study Of Peak Oil And Gas (ASPO) conference was truly like taking a drink of water from a fire hydrant. I mean it. There was so much there that I was learning something new with almost every presentation.

- The first evening of the ASPO conference kicked off with three lectures on the subject of global warming (GW). Why global warming? Because it is what you get when you burn up lots of fossil, carbon-based fuels and load the atmosphere with excess levels of carbon dioxide (CO2).

- GW is the other side of the coin of Peak Oil. That is, in the process of rapidly depleting the Earth's supply of fossil fuels, mankind is also playing a life-threatening experiment with the Earth's atmosphere. Life-threatening? You had better believe it. If you are not worried, get worried.

- Dartmouth professor and climatologist Cameron Wake gave a presentation about the current buildup of CO2 in the atmosphere. Wake's research includes reviewing more than a century of very accurate, chemical measurements of atmospheric CO2, a period that covers the vast majority of the industrial era.

- As one might expect, CO2 levels have increased dramatically over the past century as coal, oil, and natural gas have been burned in immense quantity and scope. Recent figures for CO2 releases, including the breakneck industrialization of China and India, yield charts that accelerate upward on a skyrocketing trajectory.

- Wake also made reference to Antarctic ice core measurements, in ice strata dating back about 420,000 years, analyzed by Russian, European, and US scientists. The bottom line is that CO2 levels have increased dramatically in the past century, to levels experienced, by comparison, only during the warmest interglacial periods during the past half million years.

- This has contributed to a consistent pattern of surface warming, on land as well as at sea, in the form of ocean warming. There have been measurable alterations to climates across the world, to include a measurable increase in the rate of ice melting in Greenland and Antarctica. So no, dear readers, "climate change" is not just some Internet conspiracy. It is empirically demonstrable.

- Wake's research on the climate of New England and the Canadian Maritimes has demonstrated relationships between increased CO2 and increased temperatures, and an increased occurrence of "extreme weather" events, such as longer droughts and more intense periods of rainfall and snowfall when the droughts break. This has ominous implications for agriculture, forestry, flood management, emergency planning, and general public safety.

- Harvard geology professor and former MacArthur Fellowship recipient Dan Schrag picked up where Wake left off. Schrag, a geochemist by training, noted that CO2 levels are rapidly increasing due to man-made causes, to levels that the Earth has not experienced in almost 30 million years, meaning since Eocene times.

- Back then, there were no ice sheets at all in the polar regions of the Earth, and fern trees and critters like alligators actually thrived where now there is only ice. Sea level was more than 200 feet higher than it is today, what with immense amounts of water presently locked up in ice sheets, and the "thermal shrinking" of the world's oceans at the current, relatively cooler temperatures.

- The immense problem with all of this is that mankind is fundamentally altering the character of the Earth's atmosphere in the course of a mere century or so, and changing an atmospheric system that has otherwise taken hundreds of thousands, if not millions, of years to evolve.

- This constitutes an irreversible experiment with the Earth's atmosphere, and on a planetary scale. "Yes," said Schrag, "science is uncertain about a lot of what is happening. But most of what we do not know about these rapid changes in conditions is dangerous."

- Just a few feet of rise in sea level, which could occur in as little as 20 years if the Greenland ice sheets melted, would convert vast tracts of the world's coastal areas into uninhabitable tidal zones. And Schrag believes that the ice of Greenland will eventually melt, probably sooner than later. Unless you are rather elderly, you will probably live to see it. Things could, of course, be worse, depending on how a great number of related and dynamic natural systems play out.

- Schrag noted that GW and climate change make up more than just an environmental issue. It is a critical economic and national security issue. It is of such importance as to be beyond a partisan issue, and Schrag believes that GW and climate change will (or at least certainly should) become major issues in the 2008 presidential election.

- Yet this is one issue that is now barely on the radar screen of the world's policymakers, but is simultaneously an overarching issue that transcends what are otherwise considered the issues of supreme national interest of nations across the world.

- Is there a solution to the GW problem? Certainly not in any short-term sense, and probably not in the medium term. There is far too much economic and political momentum for mankind to stop, let alone to reverse, the trends toward using more and more fossil fuels going forward (other than Peak Oil, of course). And much of the CO2 that has already entered the atmosphere has not even begun to reveal itself in observable changes to climate patterns.

- A quick rundown of Schrag's proposed policy solutions carbon-based fossil fuel with carbon-neutral, if not carbon-free, energy sources. Energy production will have to trend rapidly toward renewable energy, with nuclear power included in the mix.

- Another presentation in the GW theme of the first evening of the ASPO conference, by an energy economist named Charles Komanoff, focused on how to make markets work to address carbon emission issues.

- Komanoff went through a series of mathematical explanations that were remarkable in demonstrating how relatively low-cost some of the policy solutions might really be. With a "carbon tax" on all fossil fuels (coal, oil, natural gas) at the equivalent of about $1 per gallon of gasoline, it is possible to envision a stunning amount of change in energy usage patterns, and in the increased use of carbon-mitigating technology such as wind power and photovoltaic systems.

- Yes, changing energy technology will cost a lot of money. But then, mankind burns a lot of carbon, so a carbon tax will also raise a lot of revenue and alter a lot of behaviour at the margin.

- Komanoff was careful to emphasize that carbon taxes are, in essence, "use taxes," that force people who add carbon to the atmosphere to pay for the deed. Thus, the people who are using the most carbon-based energy, and thereby contributing the most to GW and by implication drowning the world's coastlines with Greenland and Antarctic ice melt, will be the ones who pay for it.

- And any revenues raised by government entities through carbon taxes should be offset, according to Komanoff, with tax reductions elsewhere, such as in reduced payroll taxes.

- Well, I sure wish that it were that simple, but all of you who are reading this probably know that it is not. Global warming and climate change is empirically demonstrable, and a serious issue that will both literally and figuratively alter the world for the rest of all of our lives. No one will outlive it. And you cannot buy your way out of it.