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In for the long haul John Hofmeister presents the big picture of Shell’s strategy in Alaska By Alan Bailey Petroleum News
Audible gasps are still circulating around the oil industry in response to the magnitude of Shell’s bidding in the Feb. 6 Chukchi Sea lease sale.
“Internally we use words like ‘well thought-through’ to describe the lease sale,” John Hofmeister, president of Shell Oil Co., told participants in the Alaska’s Energy Challenge summit meeting in Anchorage Feb. 19. “Externally I’ll stretch it and say it was a bold move by Shell.”
Hofmeister said “the richness of the base” seen through seismic data from the Chukchi Sea had informed Shell’s bidding and that the company wanted to demonstrate its commitment to Alaska as a strategic region for the company.
“We felt that it was important for Shell to demonstrate its commitment through this $2 billion offering for the 275 leases on which we were high bidder … a commitment to the United States, a commitment to the State of Alaska,” Hofmeister said. More energy Hofmeister sees Shell’s foray into Alaska’s Beaufort and Chukchi seas as part of a drive to bolster energy supplies. Nations are increasingly taking steps to protect and develop their own natural resources, while at the same time the cost of energy is moving beyond the reach of some people, he said.
“It is socially unjust and economically unjust to make energy so expensive that the only people who can afford it are the well-to-do and that everybody else doesn’t matter. In a democracy that won’t work,” Hofmeister said. “… This is where affordability has to meet political reality and it is Shell’s view that we can afford more energy at lower cost if we increase supply.”
But the United States, with 5 percent of the world’s population, consumes 25 percent of the world’s energy, Hofmeister said. U.S. oil consumption is running at 10,000 gallons per second. The nation uses a hundred tons of coal every three seconds and 60 billion cubic feet of natural gas every day, he said.
“If you stacked those (gas) cubes on top of each other, 60 billion would be 25 round trips to the moon every day,” Hofmeister said.
Shell believes that manmade carbon dioxide emissions have become a serious problem, Hofmeister said. The company has reduced its own carbon dioxide footprint and for several decades has been involved in alternative energies such as wind, solar and biofuels.
“Now we’re working very hard on hydrogen as a fuel source, but these changes will come slowly,” Hofmeister said.
And meeting new federal mandates for biofuel use will prove extremely challenging, given the immaturity of the available biofuel technologies, he said. The technology does not yet exist for creating ethanol from cellulose material, while production of ethanol from corn or sugar competes with food supplies.
“There’s a huge social issue over how much food source should be used for fuel,” Hofmeister said. “… That’s not just a U.S. issue. It’s a global issue, particularly when dealing with issues of poverty in society, and food and famine in society.”
But an American lifestyle predicated on mobility and comfort depends on energy. And the world in general needs increasing amounts of energy.
“As the world continues to develop economically that economic growth is sustained only with more energy,” Hofmeister said. “At the current knowledge of man, much of that energy is hydrocarbon-based.
“… The journey towards alternative energies has begun … but to replace those 10,000 gallons a second, looking forward, it’s necessary to look for new sources.” Returned to Alaska So, after an absence of a few years, Shell has returned to Alaska.
“We left Alaska at a period of global retrenchment in the late 1990s, but we never gave away our Alaska information, on the basis that there would come a time when we could look forward to re-entry to Alaska,” Hofmeister said.
Shell’s interest in the Alaska outer continental shelf in the Beaufort and Chukchi seas represents a continuation of decades of offshore exploration and development around the world, Hofmeister said. The company has, for example, operated in Arctic and sub-Arctic conditions off the Norwegian coast and has operated throughout the North Sea without any oil spills. Shell has been operating off Sakhalin Island in sub-Arctic conditions and has also gained experience in the Arctic and sub-Arctic of Canada.
Deepwater developments in the Gulf of Mexico are pushing the technology envelope.
“Those deepwater developments are technologically among the most challenging scientific and technological efforts in the world,” Hofmeister said. “We talk about going into space. How about talking about going to reservoirs 28,000 to 35,000 feet below the surface of the Earth in 8,000 feet of water?” Sacred trust When in the summer of 2005 five hurricanes, including hurricane Katrina, in the Gulf of Mexico closed down hundreds of offshore platforms, no oil was spilled, Hofmeister said. In fact, Shell regards the safeguarding of the environment of the Gulf of Mexico as a “sacred trust” between the people who live along the gulf coast and companies like Shell, he said.
“So, we can bring these lessons to bear as we operate in the outer continental shelf of Alaska,” Hofmeister said. “… But it’s right and proper for Alaskans to say ‘Show me; don’t tell me.’ That’s the challenge that we embrace, to show Alaskans that that sacred trust can be built and can be managed and can be exercised over the decades to come. What Shell brings to Alaska is decades of technical capabilities and the financial capability to be able to pay for the types of equipment and types of technology which are robust under all conditions.”
One part of the company’s business plan will have to address respect for the sea, the life of the sea and the people of the sea, Hofmeister said.
“I had the benefit as a young person growing up in Lancaster County, Pennsylvania, to live among the Pennsylvania Dutch Amish,” Hofmeister said. “And I grew up knowing respect for tradition is part of life. … It is that combination of modernity living alongside tradition which enables everyone to be successful.”
Shell sees opportunities in the Chukchi and Beaufort seas for supplying both Alaska and the nation with energy in the decades to come. But success in the company’s ventures critically depends on Shell earning the trust of officials in all levels of government and of non-government organizations, as well as of the company’s employees.
“We can only be successful if we earn and keep the trust of the people of Alaska, which is how we set out on this Alaska re-entry journey several years ago,” Hofmeister said.
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