President of Shell, Panelists See Energy Security in Alternatives

September 21, 2006

AUSTIN, Texas—John Hofmeister, president of Shell Oil Company, told an audience at The University of Texas at Austin that the time for debate over the science of climate change is past.

Citing a “linkage” between greenhouse gases and climate change, Hofmeister called for a national strategy to reduce carbon dioxide emissions. “The nation needs a public policy,” he said. “We'll adjust.”

Though he supports a national policy, Hofmeister believes a newly passed California law requiring the state to reduce greenhouse emissions by 25 percent by 2020 goes too far.

Hofmeister spoke during an international energy security symposium co-hosted Sept. 20 by the university’s Jackson School of Geosciences and the Lyndon B. Johnson School of Public Affairs.

He cited weaknesses in the U.S. oil supply chain as a threat to energy security.

“We are as vulnerable today as we were a year ago,” said Hofmeister, referring to supply disruptions from Hurricanes Katrina and Rita, which knocked out 30 percent of crude oil and gas production in the Gulf of Mexico, causing a spike in energy costs.

The problem, he said, is that oil is produced just barely fast enough to meet global demand. “Each day, the world produces about 85 million barrels of oil and consumes about 84 million barrels,” he said. “That doesn’t leave much extra for unexpected problems or disasters.”

Hofmeister said that no new public policies have been enacted to address U.S. energy security since Katrina. He offered five solutions:

• Open more federal lands to oil and gas drilling, such as parts of the U.S. Outer Continental Shelf.
• Use unconventional fossil fuels, such as oil shales and oil sands.
• Develop more efficient ways to use fossil fuels, such as coal gasification.
• Diversify the energy supply to include alternatives to fossil fuels, such as wind and solar energy.
• Promote a culture of conservation, finding “energy-efficient solutions for transportation, buildings, homes and factories that reduce consumption without compromising economic development.”

Like BP, Hofmeister said, Shell is exploring alternatives to fossil fuels, such as biofuels, solar, wind and hydrogen. When oil sold for around $10 a barrel in 1998, investment in these alternatives was not economical. Today’s much higher oil prices, he noted, have made alternative fuel projects viable.

“We have an obligation,” Hofmeister concluded, “to pass on to future generations the energy security we’ve known for most of the last century.”

Global Resource Assessment

Hofmeister’s talk was followed by panels on the global sources of energy and public policy as it relates to energy security.

William L. Fisher, former dean of the Jackson School and the Leonidas T. Barrow Centennial Chair in Mineral Resources, laid out the statistical case for a global transition to a hydrogen economy by mid-century.

The intermediate phase to hydrogen is a methane economy, explained Fisher. Dependence on oil will decline over the next 30 years as natural gas becomes increasingly prominent as a source of fuel and hydrogen for fuel cells. Around mid-century, methane will peak and give way to hydrogen as the dominant energy source.

In the near-term, Fisher foresees adequate petroleum reserves to meet global demand for oil. Despite expanding demand, new capacity will come online from a combination of existing conventional and non-conventional hydrocarbon reserves, new discoveries, and reserves that become recoverable due to technological innovations.

“We have adequate resources to carry demand for oil into the methane economy, and to sustain us into development of a hydrogen economy,” said Fisher.

Nuclear Success

Sheldon Landsberger, coordinator of the university’s Nuclear and Radiation Engineering program and a professor in the College of Engineering, forecast increased global and national reliance on nuclear energy.

The U.S. currently generates 20 percent of its electricity from nuclear power plants compared to 16 percent globally, said Landsberger. He credited the U.S. Nuclear Regulatory Commission for marshalling dramatic improvements in safety over the past 15 years.

Equally significant has been support from environmentalists like Patrick Moore, co-founder of Greenpeace, who praised nuclear energy in a recent Washington Post op-ed as “the only large-scale, cost-effective energy source that can reduce [greenhouse gas] emissions while continuing to satisfy a growing demand for power.”

“When one of the leading anti-nuclear groups issues a pro-nuclear endorsement,” said Landsberger, “you know things have changed. Even Al Gore himself said that perhaps we should be thinking about nuclear development.”

Conservation & Efficiency

Conservation represents another critical element in the path toward energy security, contended David Allen, director of the Center for Energy and Environmental Resources and the Melvin H. Gertz Regents Chair in Chemical Engineering.

Historically, the world has taken decades to change its fuel dependencies. As societies slowly shift from dependence on hydrocarbons, said Allen, “Energy efficiency and conservation offer some of the most effective solutions for reducing energy demand and the environmental impacts of energy use.”

Allen believes that large improvements can come from changes in consumer behavior. He noted that between the first Arab oil embargo of 1973 and the mid-1980s, energy use per dollar of GDP in the U.S. declined by a third. Since then, energy use has only declined slightly.

“I would use this as evidence,” said Allen, “that we can do better at efficiency and conservation.” To that end, Allen would like to see The University of Texas at Austin become a national center for energy education.

Reducing Greenhouse Gases

Ian Duncan, associate director for environmental programs at the Bureau of Economic Geology, explained another tool that could both enhance U.S. energy security and reduce greenhouse gas emissions: carbon sequestration. Carbon sequestration is the capture and storage of carbon dioxide (CO2) and other greenhouse gases that would otherwise be emitted to the atmosphere.

Worldwide efforts to pioneer sequestration have focused on taking point-source emissions from coal-fired power plants, which emit CO2 in high enough concentrations to warrant large-scale capture.

Carbon sequestration could enhance U.S. energy security, since development of clean-coal technologies could encourage use of the abundant resource and lessen U.S. dependence on foreign sources of oil and gas. The U.S. has large coal reserves, said Duncan, with 50 percent more potential BTUs stored in coal than the Middle East has stored in oil.

Geologically and industrially, Texas appears ideally situated to help reduce greenhouse gases through clean-coal technologies. Its industrial plants are responsible for about 1 gigaton of the 24 gigatons of CO2 emitted worldwide, said Duncan. At the same time, its geological structures are among the world’s best for sequestering CO2.

“Texas is a huge part of the problem but we can also be a big part of the solution,” he said.

Duncan and colleagues at the Bureau of Economic Geology are leading the first research-oriented carbon sequestration program in the world. The Bureau of Economic Geology also leads the State of Texas bid to develop FutureGen, a $1 billion public-private partnership sponsored by the U.S. Department of Energy that will use coal to generate electricity, produce hydrogen and capture and store carbon dioxide.

Implications for Policy

On the policy front, Charles Groat, director of the university’s Center for International Energy & Environmental Policy, sounded a cautionary note about efforts to change public perceptions about long-term energy and environmental issues.

He cited a case study where residents of coastal Louisiana were confronted with projections showing that climate-driven sea-level change could put all of Interstate Highway 10 under water. Despite the projections, people expressed more concern about poverty, losing regional businesses, and bad government than climate change.

“On the face of it, something that did not happen (sea-level change) did not have much impact,” said Groat. To arouse public awareness, “the immediacy level is critical,” said Groat.

He believes efforts at radical change to shift to non-hydrocarbon sources of energy may be well intentioned but are not well informed because “we are with fossil fuels” for the foreseeable future.

Groat thinks that moves toward reducing CO2 will need to rely not so much on switches to non-CO2-emitting technologies as on reducing the generation of CO2 from current methods of energy production.

Eugene Gholz, assistant professor at the LBJ School, advocated a U.S. policy shift toward increased taxes on imported oil for economic security reasons. Gholz believes such an investment could lessen demand for imported oil, with revenues used to spur investments in alternative energy supplies.

He acknowledged that politically the idea of raising these taxes “is a non-starter, but it’s the idea we ought to talk about.”

Michael Webber, associate director for program development at the Center for International Energy & Environmental Policy, regaled the audience by debunking energy myths that relate to public policy.

“Everyone says it’s China’s fault,” said Webber, referring to the widely touted belief that increased Chinese demand is behind rising oil prices. “Chinese demand for oil has gone up three million barrels a day,” acknowledged Webber. “What we’re not told is ours has gone up by three million barrels a day too. Somehow that gets left out.”

Webber expressed belief in the power of markets to rectify the U.S. energy situation, but he thinks it will not “happen by accident, and we need political leadership,” and a more informed public.

For more information about the Jackson School contact J.B. Bird at jbird@jsg.utexas.edu, 512-232-9623.