Shell Oil Exec Touts Alternative Energy

"I am unhappy that the price of crude oil has fallen, but probably not for the reason you think," said David Sexton, president of Shell Oil, during his Heavy Duty Dialogue address.

Sexton said high prices push people to save energy and increase use of alternative energy sources, something that's vital to the future.

"When you have high prices for a commodity like oil, it makes people want to change, it makes it a hot topic in Washington. And our company, and many other energy companies, are tremendously concerned that it is no longer the topic of choice, simply because the price is going down by so much."

While the world is currently in a global recession, Sexton said, eventually it will recover, and demand for energy will rise. The U.S. government, he says, predicts energy demand will rise 45 percent by 2030. If we don't take steps as a global society to increase energy efficiency and use more alternatives to oil, "we will be back where we were in the summer of 2008," with skyrocketing oil and fuel prices.

"The challenge is not simply producing more oil and gas," Sexton said. "The challenge is doing it in a sustainable way Let me reduce that to five words: More energy, less carbon dioxide."

It's not that he thinks we will run out of oil, Sexton says, as the "peak oil" scenarios have it. "We do believe that all the 'easy oil,' the oil that's drilled conventionally, is beginning to plateau." Yes, there is oil in places like Colorado, trapped in oil shale, or Canada, where there are oil sands, or deep beneath the ocean floor, he said. But they are more difficult, and more expensive, and more time-consuming to tap into. For instance, he said, the industry is currently drilling in places that are 4-5 miles deep of water. And then sometimes you have to drill 4 or 5 miles deep into the ocean floor. "It's extraordinarily expensive and complicated. And sometimes it takes 10 years. So even though demand right now is down and prices are low, we cannot wait until the next price increases to take steps" to increase oil production.

Sexton also said many parts of the U.S. that have "extraordinary potential are being denied to our industry," including offshore Alaska, where there may be 85 billion barrels of oil. One of the things the Bush administration did, he said, was to lift a 16-year moratorium on offshore drilling, but the Obama administration is already thinking of reinstating it.

"If we do not have the access that our industry needs to supply the energy that you, your industry, your family needs, that will cause one thing to happen - it's classic supply and demand."

Shell, Sexton said, supports solar power and biofuels development, making diesel fuel out of natural gas, and is one of the largest supporters of wind power in the world. "If we don't have all these, the world that you know will suffer."

Shell, he said, is also a big supporter of diesel fuel. "We believe it is a key element to less CO2. Diesel fuel has a lot more energy in a molecule than gasoline, so you get better mileage, lower emissions." It's widely used in cars in Europe he said, and says it's unfortunate that the U.S. is well behind the rest of the world in diesel acceptance.

There are also alternative ways to produce diesel, other than the traditional refining of crude oil, Sexton says. For instance, you can make diesel fuel out of natural gas, and this is a technology that has been around for some time. This can be used in existing diesel engines and fuel distribution infrastructure and yet reduces emissions substantially. In Germany Shell has invested in the first biomass to liquids facility, he said, "which starts out with wood chips, and make diesel fuel that looks and smells just like what you put in a truck," but with fewer emissions.

"We're committed to improving diesel fuel technology," Sexton said, "and outside the U.S. have introduced a differentiated diesel fuel, which further improves mileage." Shell is looking for fleets to help test this new technology in the U.S.

Shell is expanding its 100-year-old refinery in Port Arthur, Texas, and when it comes on line later this year, it will largely increase the amount of diesel fuel going into the marketplace, Sexton said.

As the world looks to increase its supply of energy, Sexton said, it's important for the industry to keep in mind what he called the three A's: accessibility of energy, affordability of energy, and acceptability of energy. The first two are fairly self-explanatory. The third, acceptability, has to do with the NIMBY principle - Not In My Back Yard. "People want us to expand refineries, grow crops for biofuels, build wind farms, but they don't want it in their back yard," Sexton explained. Nuclear energy is another example - it is used throughout the world, but it generally not viewed as acceptable in this country.

The current decline in energy use could spell disaster for future supplies, Sexton said. Energy consumption worldwide is predicted to drop by 800,000 barrels a day this year, he said, "almost a full percentage point decline that was not predicted last year or even six months ago," he said. "The world uses about 85 million barrels of oil every single day. So 800,000 barrels a day may not seem like much, but that drives investment and supply going forward."

He also pointed out the global nature of the business.

Last year, he said, for the first time, the amount of energy used in the developing world was equal to the amount used in the developed world. "We believe by 2030 people in the developed world will only use 41 percent of the energy."

During the Q&A session, Sexton was asked about refining capacity, which is often pointed to as a problem in this country. He pointed out that actually, a large part of the gasoline used on the East coast comes from Europe. "We are already importing 20 to 25 percent of our gasoline and diesel fuel," said. "The industry has invested heavily in expanding refineries and have been for quite some time," he said. "But I also have to remind you that the refining business is a profit making venture, and it's not a utility. .We want a return on our investment, so we moderate our investment to some degree where we think long term prices will take us."

In the U.S., he notes, there are currently 1.4 cars for each person. In Europe, there are only .3 cars per person. And in China, you're looking at .01 cars per person - there are only 10 cars for every 1,000 Chinese.

"If you're building refinery today and you had a 1.4, .3 or .01 per person market, which market would YOU build a refinery in?" he asked. Obviously the greatest potential for growth is in China.

"It's also a little difficult to appreciate, my business is a global business. Even though the U.S. may produce more oil, there's no guarantee that it actually would be consumed here."

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