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Growing global energy demand: a defining moment for Louisiana

Speech given by Marvin Odum, Upstream Americas Director, Royal Dutch Shell plc, at The Louisiana Mid-Continent Oil & Gas Association Annual Meeting in New Orleans, Louisiana, on January 25, 2012.
Marvin Odum

Shell Oil Company President Marvin Odum will discuss Shell’s history in the state of Louisiana, its continuing commitment to the state and its perspective on the economic, regulatory and national political dynamics currently at play.  Against this backdrop, he will also talk about the incredible opportunity before the industry and the state of Louisiana as the global demand for energy continues to grow and as businesses, individuals and policymakers alike work to meet this growing demand in ways that avoid unnecessary tradeoffs. This is a turning point for the state, not the first and not the last, but one that will have an enormously positive impact for years to come.

Growing global energy demand: a defining moment for Louisiana

Thanks and good morning.  It’s a pleasure, as always to be back in Louisiana.

It’s where I started my career, right out of college in 1982, living Uptown on State Street, and I always enjoy coming back here.

I consider it an honor to have a chance to speak to you today and I look forward to questions you might have for me.

You may not know this, but other institutions were founded, like you, in 1923, but most of them have fallen by the wayside.  The USSR and its experimental calendar of five-day weeks, for example.  Also the original Yankee Stadium and the New York Moderation League, created in 1923 to repeal prohibition.

The Louisiana Mid-Continent Oil and Gas Association has outlasted them all, and rightly so.  Because you are important to an industry that is vital to Louisiana, to the country, and for that matter, the world.

Shell, Louisiana and the industry

Certainly you are important to Shell.  Shell has more roots in Louisiana than just about any place else in the U.S., with the possible exception of Houston.

In 1954 our New Orleans office was in the building right next door to where we are this morning, connected to this hotel.

We hosted receptions in the International Room.  The Petroleum Club on the third floor was the place to see and be seen in those early offshore days.

We were thrilled to be right in the thick of things, and we still are.

Today, every part of our business operates in this state:

  • We’re a major producer in the Gulf of Mexico
  • We produce natural gas in the northern part of the state
  • Our pipelines run through the state
  • We have refineries, chemical plants, terminals and Shell gas stations all over
  • We distribute marine fuels and lubricants out of the Port of New Orleans
  • We even process asphalt in St. Rose.

We also have valuable links with Louisiana State University (LSU) and its engineering schools.  LSU is a talent pipeline for us – the entire state is really.  Through our relationships with the University and with organizations like this one, we’ve undertaken innovative projects from coastal revitalization to advocacy of fresh ideas on policy.

So Louisiana is, and always has been, a great place for Shell to do business.  And every year our sponsorship of Jazz Fest is Shell’s ‘thank you’ to New Orleans and Louisiana – a signal of our belief in the future of this great city.

Louisiana knows a thing or two about our industry.  It appreciates its great wealth in mineral and natural resources.  And that’s wealth in terms of dollars, jobs, individual income and stability.

You understand, like we do, that to meet tomorrow’s energy demand, we’re going to need to do more of what we’re doing today, not less.

More exploration, more production, more investment in new technologies that make it safer and more efficient.

Louisiana’s role in meeting the needs of 9 billion people

You’ve all heard the numbers.  The world’s energy demand is expected to double by 2050.  By then, the population is projected to exceed 9 billion – three times what it was just 50 years ago.

Our scenario planners tell us that by that time, we could be facing a gap between energy supply and demand equal to the size of the industry’s entire output in 2000.  I always have to stop and think about what this really means!

We describe this gap, this challenge of meeting future demand, as a zone of uncertainty. 

That’s because we don’t yet have clear answers to some tough questions.

Will we have enough energy?  Will it be sustainable?  Will the average person be able to afford it?  What geopolitical factors will influence the security of our supply?  And what happens if we can’t reliably access the energy we need?

Each question poses real challenges, but also, big opportunities – especially here in Louisiana.

In one of the worst overall economic climates in a generation, Louisiana ranks third – behind only Texas and Florida – in job growth.

I saw Governor Jindal on Fox News a few weeks ago talking about the 45,000 jobs and the $10 billion in private capital investments in Louisiana every year for the last three years in a row. 

Southern Business & Development magazine names Louisiana the “Best State in the South” for economic development. 

A lot of this growth is driven by the oil and gas industry including, I’m proud to say, Shell.

Louisiana is home to our Deepwater business.  In the Gulf, our Perdido platform, which started production in March 2010, and the Mars B project, where we aim to start production by 2015, are just two pillars of that business.

About a week ago, I was talking to a group of people that included members of the National Academies, a few Nobel Prize winners, and many scientists and otherwise experts in their fields. 

I know what you are thinking.  I should have been listening, not talking!

Many of the people there were from areas outside of energy – medicine, government policy and others.

I described Perdido to them this way:  “The upstream infrastructure of our business is the biggest, least visible and probably most misunderstood part of what we do. 

“For example, one of our newest upstream production platforms in the Gulf of Mexico is one we call Perdido, roughly 400 miles into the Gulf of Mexico from where we sit today.

“When you think of Perdido, think of a huge cork, a multi-billion dollar cork, made of steel, nearly as tall as the Eiffel Tower, weighing as much as 10,000 large family cars, floating on the surface in 8,000 feet of water.

“Think of that cork holding a large crew of professionals, operating miles of piping, thousands of valves, hundreds of electronic safety sensors.
“Think of that cork tethered to the sea floor and a network of wellheads and equipment linked to more than 100 miles of oil and gas pipelines, along-side species of marine life that no human had ever seen before our remotely operated underwater vehicles snapped their photos.

“Perdido has the capacity to pump roughly 100 kboe/d.  To put that in perspective, it’s enough to meet the energy needs of about 2.2 million American households every day.

“But there are 130 million homes in America.  And more than 250 million cars on our roads.  And more than six million businesses, large and small.

“So imagine the number of Perdido’s required to keep our economy running and to maintain our lifestyles, secure our future and create jobs.”

I hope that it gave them some insight into the capabilities of this industry.

And Mars B, when it comes online, will be no less spectacular.

Coming ashore, I know many of you are familiar with our Haynesville gas development.  Here’s a quick update:

  • We’ve drilled more than 350 vertical and horizontal wells to date
  • Since 2008 we’ve lowered drilling costs by ~50 percent
  • Completion costs have been lowered ~45 percent and cycle times have been cut by 60 percent.

And for the state, we see even more opportunity in the technology that turns natural gas into liquid products – like fuels and lubricants – helping not only with the economic challenges of gas development, but also with a critical liquid fuel need and security of supply for the U.S.
Ensuring continued growth in natural gas will take the hard work of thousands of skilled workers and technical experts, and a community of supporting contractors and suppliers. 

You have that kind of community.

Commitment and a coherent approach

Of course, growing global energy demand also means there’s going to be more competition for energy resources.

And if the last several years have shown us anything, it’s that people are looking for ways to make their dollars go farther.

This is why we see safety, efficiency and sustainability as key to our business.  Not only do these things represent the right things to do, they enable our growth.

We don’t see them as constraints, we see them as part of the value of our brand. 

Last summer, for example, we released our onshore gas principles to establish how we will operate in the booming natural gas market.

These principles confirm that we will:

  • Design, construct and operate our wells and facilities in a safe and responsible way
  • That we will continue to protect groundwater and reduce water in our operations
  • That we will protect air quality and control fugitive emissions
  • And that we will engage with communities on the social and economic impacts of our operations, helping them take advantage of the huge economic benefits these developments can deliver.

Nobody said we had to do this.  We said that we could, and more importantly that we should.  And we know it is important to be very transparent about how we do things.  It’s our best defense from critics.

But of course, meeting the energy challenge and safely capturing the value to businesses and communities that our industry can provide depends on more than the commitments of companies like mine and many of yours.

It depends as well on a coherent approach from government.  In the wake of the BP Macondo tragedy, we lost that coherent approach with a moratorium followed by permitting delays and regulatory uncertainty.

Many of us have been dealing with this.  We’ve lost lots of ground and Gulf Coast employment has suffered.  But I think I can fairly say now that it is improving. 

By our estimates, before Macondo, drilling plan approval averaged about 50 days.  After Macondo, it went to more than 200 days, to everyone’s consternation.

But we may have turned a corner.  We started seeing real improvement in December, with the average permit wait down to a little over 100 days.

This is a heartening trend that we want to encourage and keep it moving in the right direction, dropping back to where it should be.

We do think we will get there, and we are working hard to make up for what we have lost.

Shell has always had confidence.  We picked up an additional rig during the period when no rigs were working and since have added another which means six floating rigs for us in the Gulf.

I know many of you are familiar with the Back to Work Coalition. 

Shell is a member, and through this coalition, we are working with regulators to further streamline the plan evaluation process.  That will give operators the assurances we need to make business decisions.

It will mean approved plans mature into drilling permits in a more predictable way.

We are grateful for Secretary Angelle’s leadership on this, attending hearings, holding meetings, and generally working tirelessly with BOEM and BSEE(*) over the past year, seeking an end to what many of us have considered the “permitorium” that followed the drilling moratorium.

We understand that the Secretary has taken a prominent role in the Outer Continental Shelf (OCS) Governors Coalition, which now includes seven coastal state governors.

This new coalition of governors understands that OCS development will provide significant jobs and economic growth.

Let me say how much I appreciate the challenges that have confronted BOEM and BSEE since their inception.

Their people have worked hard, under tremendous pressure, and made real progress.

But I can see the agencies will need more resources, both in numbers and expertise, to handle the volume of applications they receive, and importantly, so that they can deliver permits able to withstand the now inevitable legal challenges.
Bottom line:  the federal government should fund BOEM and BSEE properly and support efficient, predictable permitting to develop state and national resources.

Conclusion

Let me close by underscoring the fact that our industry is about the economy.  Yes, it is about healthy revenue…jobs…strong local communities…and a brighter future for our kids.

But it is also much more than that.

For this country and for the world, our business is about supporting a growing global population, lifting whole societies out of poverty, fueling the infrastructure – factories, transportation, agriculture, businesses – that the future will depend on.

At Shell, we see energy at the heart of enormous global challenges; for example, the integrated nature of water, food and energy.

Now, we could let the need for those three resources just compete with each other, or we could work with governments, partners from other industry sectors and customers to innovate smarter ways to optimize the supply and use of water, food and energy.

We are proud of our leadership and growth in oil and gas, finding it, developing it safely and delivering it to market. 

And we are also proud of our role in paving the way for innovative energy solutions of the future. 

  •  Biofuels, for example
  • Techniques for capturing and sequestering carbon
  • Energy efficiency solutions for our customers
  • And, perhaps someday, even hydrogen fuel on a commercial scale.

In the 1950’s when the offshore industry first took off in Louisiana, our challenges were much different.  But our industry’s importance to New Orleans and Louisiana continues.  There may no longer be a Petroleum Club on the third floor of a historic New Orleans hotel, and there may not be the frontier-town atmosphere driving the growth in our industry like there was back then, but I’m glad to know that there are still organizations like LMOGA.  And there are still individuals like those of you gathered here today.

Together, you are doing what needs to be done to enable this vital industry, to help us create value for our communities, and to open doors to energy solutions for tomorrow.

This conference is about working to do even more of that.  And I’m glad to be part of it.

Thank you very much.

(*) Bureau of Ocean Energy Management; Bureau of Safety and Environmental Enforcement