As part of the National Chamber Foundation CEO Leadership Series, Marvin Odum, president, Shell Oil Company and director, Upstream Americas, proposes clear and distinct roles for government and for businesses to work together to emerge from the world’s current economic situation. Odum makes the case for an outcome-based regulatory system, paired with a business climate that spurs innovation. By enabling tens of billions in investment opportunity, the U.S. can lift the economy, increase secure energy supplies and create much needed jobs.
Clear roles, Clear responsibilities, Clear results
I want to talk with you what I see as the clear and distinct roles for government and for businesses as we think about how we can work together to emerge from our current economic situation.
We all tend to use metaphors in talks like these. Today I’ll use three:
- an old arcade game
- the year 1948
- and the college graduating class of 2012.
Let’s start with the arcade game.
Most of you probably remember a game called “whack-a-mole.” A player holds a giant mallet and the object is to hit as many moles as you can while they pop-up from all over the game surface.
You never know where the next one’s going to come from or how fast it’s going to come. And sometimes lots of them pop up at once.
Unfortunately this feels a lot like parts of our regulatory system.
- Often overburdened…
- And, regardless of how valid the reason, often more concerned with batting down, rather than lifting up.
From my point of view, and from the perspective of my colleagues in other parts of the world, the American regulatory system is more focused on the prescriptive and the methodical…less focused on setting goal-oriented, outcome-based regulations -- and then challenging businesses to figure out how to get there.
This is a clear opportunity.
I know we are not alone in this, but in the energy business this is especially true.
Let me give you an example.
Everyone here knows that the world’s population is on the rise – to nine billion by mid-century.
At the same time, the number of people ascending from poverty and into the consumer class is rising at a very rapid rate -- hundreds of millions in the coming decades.
Globally, we will have more people expressing more demand for everything from food to utilities to cars.
The current recession shouldn’t be an excuse to ignore the impacts of this enormous global hunger for energy -- perhaps twice as much energy as today by the middle of this century.
An outcome-based regulatory system would say to energy companies, “Find a way to produce more energy. Make it more efficient. Make it cleaner burning. Make it more affordable for people.”
This summer there has been a lot of attention on NASA and our space program, particularly as the Space Shuttle Program came to a bitter-sweet end this month.
I don’t often quote Presidents, but we all recall that President Kennedy didn’t tell the space community how to get to the moon. He just said “get there.” (and come back!)
But today, regulators are in danger of letting process trump performance.
This often means putting up roadblocks, the consequences of which we won’t see for years to come.
As businesses we can do one of two things. We can complain or we can work collaboratively to change things.
Of course, we choose the latter.
Right now at Shell we are facing a situation in which a consortium of environmental groups is suing the Department of the Interior charging that the agency didn’t conduct the appropriate environmental reviews when it issued a permit for a new well in the Gulf of Mexico.
We are not named in the suit, but we have an interest in how it is resolved -- as does every energy consumer in this country.
This suit has the potential to virtually halt exploration in the Gulf, serving as a back-door moratorium.
We’ve petitioned the court to allow us to join the suit, as have most of the Gulf Coast states and others.
We’re doing this in support of the regulator as it defends its decision to issue the permits.
In fact, we prefer -- we want and we need healthy working relationships with agencies like DOI to help develop regulations that are both appropriate and defensible in court.
Because we know legal challenges will happen and the last thing an over-burdened system needs is legal challenges that could have been avoided.
Many of us here today may have different opinions on the drilling moratorium in the Gulf after last year’s oil spill.
But it was long and painful both in terms of jobs and economic losses.
The moratorium was lifted in October of last year, but it wasn’t until March of this year – six months later -- that the government issued its first post-moratorium offshore exploration plan approval.
It was granted to Shell for our Cardamom project, which is 225 miles southwest of New Orleans in 2700 feet of water.
We just announced a multi-billion dollar investment in the project and it will produce significant volumes of secure oil production to the US.
The rapid progress from the discovery of the deposit to the launch of these development plans represents the private sector’s ability to advance important, job-creating capital projects.
There are many more “Cardamoms” out there, with tens of billions in investment opportunity that can lift our economy, increase our supply of secure energy and create much needed jobs.
Turning from the future to the past, the second metaphor is the year 1948.
This was the year hydraulic fracturing (or fracking) was put to commercial use for the first time.
Since that time, countless innovations – some large, some small have helped us make every frack job more efficient and effective with less of an environmental impact.
I bring up fracking because this process and the technologies that have been developed around it are a huge part of what is spurring natural gas development all around the world, but especially in this country.
It has dramatically changed the energy outlook for the US.
Let me share a few numbers with you.
Technology and innovation have produced a tight and shale gas boom that has doubled our gas resource base in just the past three years.
It is estimated that the US now has enough natural gas resources to meet our demand for the next 100 years.
One study predicts that natural gas’ share of the US energy market will double -- from 20 percent to 40 percent by 2040.
By next year, Shell globally will produce more natural gas than oil. And that’s not by accident.
And despite the large amount of misinformation out there, we as an industry know how to develop this gas safely and responsibly.
I happen to believe that being transparent about what we do and how we do it is the best possible way to create an environment that is more favorable to this energy source -- energy that this country so desperately needs.
That’s why last month Shell released new onshore gas principles that establish how natural gas development can be done the right way in terms of how we:
- design, construct and operate our wells in a safe manner
- protect groundwater and reduce overall water use
- protect air quality
- reduce our overall operational footprint
- and, importantly, how we work with the communities to help them take full advantage of this economic stimulus that is happening within their reach.
Is there a place for strong regulation in this equation? Absolutely.
It is the regulator’s job to set the minimum standards and then enforce against them.
Our job as a business is to push for even better performance because we know where the opportunities are and we know what technology says we should be able to do.
We should hold ourselves to that standard even when there isn’t a law that says we have to.
- is plentiful
- is accessible
- and, because it is cleaner burning, it also represents a huge step forward from an environmental perspective.
Penn State conducted a study last year and found that additional development in the Marcellus shale could generate:
- more than $8 billion in economic value
- more than $1 billion in state and local tax revenue
- and more than 160,000 jobs.
This is all by 2015, and this is just in the state of Pennsylvania.
The natural gas this country has been blessed with is truly a bridge to a more stable and secure energy future.
This brings me to the third and final metaphor I mentioned at the beginning -- the college graduating class of 2012.
A little perspective on that new face you may see in your office next fall. It’s been said that, for them, ”Ctl-Alt-Delete” is as intuitive as “Stop, Drop and Roll” was when I was a kid.
They were still in grammar school, maybe just starting to become aware of the world around them, when September 11 changed it forever.
Of course a lot has been written about how this class is more socially conscious than others, more connected, more tech savvy.
But just like every other graduating class before them, they want the same thing: a job. They want the opportunity to build a life for themselves, while also making their mark on the world.
And while there is certainly room for their marks -- and a need for them -- we have to ask whether today’s business and policy climate gives them the opportunity.
Without change, the answer too often is “no.”
And fixing the regulatory environment is a big part of turning that around.
Linking this to energy, I mentioned earlier that global energy demand could double by the middle of this century. The fact is, in a business-as-usual case, it could triple.
This could leave a gap between supply and demand approximately equal to the size of the energy industry’s entire global output in 2000.
Our Shell scenario planners describe this gap as the “zone of uncertainty.”
To bridge this gap we will need to see an enormous expansion in energy supplies, coupled with extraordinary, unprecedented moderation in demand.
And as long as this zone of uncertainly exists, the decisions we make around energy use will define whether we will face a period of extraordinary opportunity for policy-makers, businesses like ours and for society at large … OR … a period of extreme hardship as price shocks and knee-jerk policy reactions impact our ability to produce and consume energy smartly.
Some have estimated that with the right policies and the right regulations, the US and Canada could provide around 90 percent of America’s liquid fuel needs by 2030.
Regardless of the right number, the point is that North America energy resources can have huge impacts on our energy security and on our economy.
Greater access to the domestic energy resources in areas that are currently off-limits would create more than 500,000 jobs by 2025.
But even in areas that are (in theory) open to production, we still face debilitating regulatory red-tape.
We’ve seen this at Shell in Alaska over the last several years.
We have participated in federal lease sales off the coast Alaska since 2005 and paid more than $2 billion for hundreds of leases.
We’ve also invested an additional $1.5 billion to prepare an exploration program that meets and exceeds current regulatory requirements in order to protect the surrounding environment.
Now a lease sale is, in effect, an invitation from the government. It says the government wants development.
But despite our most intense efforts, we have yet to drill a single well in Alaska.
We’ve been strung along by regulatory and legal barriers and some of these leases are now within four years of expiring.
By comparison, during this same time, Shell has received regulatory approval and drilled more than 400 exploration wells around the world.
This is frustrating and disappointing and it undermines confidence in the American regulatory system.
Again, we have to fix that, because whether we are talking about Alaska or the Gulf of Mexico or anywhere else, greater access to energy means a positive response to some of our greatest challenges – security, deficit, jobs.
It is not all doom and gloom and there are some encouraging signs. Recently the President created a cabinet-level inter-agency working group on energy development and permitting in Alaska.
This is an important step and recognition that the current regulatory apparatus was not up to the challenge of efficiently permitting a project such as this.
Two million Americans work within our industry and the jobs of another seven million women and men in this country are dependent on it. And we all depend on a working regulatory system.
Think about the multiplier effect of adding another half-million or million jobs, which we could clearly do with a supportive energy policy:
- Energy Security, when we need it most.
- Taxes and royalties for states in the billions of dollars.
- Revenue for the federal government as we’re looking to shrink our debt
- and capital investments -- huge capital investments.
Over the past five years, Shell alone has invested more than $20 billion in North American natural gas. The follow-on effect of this investment extends to industries from clothing and retail to hospitality and manufacturing as people buy the things they need to work in these jobs.
We don’t need government incentives or bailouts or stimulus to do this. We just need clearance.
So, back to the class of 2012 for a moment (and I can speak with some knowledge here as I have three kids that either recently have or soon will graduate), I can’t think of a better graduation message than this one: “We, business and government, are coming! We are joined-up and equally intent on delivering the jobs that we so desperately need.”