Mexico’s energy future: an era of investment, innovation and imagination
Jun 7, 2013
Speech by Marvin Odum, Unconventional Resources Director of Royal Dutch Shell plc, at the Mexican Petroleum Conference in Cancun, Mexico on June 7, 2013.
The development of energy and other opportunities in Mexico has led the Organization for Economic Cooperation and Development to describe this as “Mexico’s moment”. In this address to the 2013 Mexican Petroleum Conference, Marvin Odum says that, with the right combination of factors, this could not only be a defining moment but indeed could be Mexico’s“era”. Marvin delves into the global consequences of a changing world population and the effects on the energy demands. He then focuses on the importance of investment, innovation and collaboration, as well as the imagination Mexico needs to define its place in the energy future.
Mexico’s energy future: an era of investment, innovation and imagination
Good morning, and thank you very much for the opportunity to join you today.
I especially want to thank our host, Emilio Lozoya – someone I value highly as a colleague and a business partner, and respect as a competitor.
Emilio’s reputation as a highly determined and courageous business leader extends well beyond Mexico, and Shell looks forward to new opportunities to work with Pemex as Emilio leads that vital brand forward.
Our relationships with Mexico and Pemex are strong and growing. We’ve been involved in Mexico since 1954. With Pemex, we formed the Deer Park Refining 50-50 partnership, which celebrates its 20th anniversary this year
Our mutual commitment to that project was cemented a decade ago with a billion dollars of new capital to improve its global competitiveness and to make its operations more efficient and more sustainable.
Today the Deer Park partnership runs America’s sixth largest refinery, just south of my hometown of Houston. This refinery imported 68 million barrels of Maya and Olmeca crude from Mexico in 2011, and sent back 17 million barrels of refined product in return.
I very much look forward to the possibility of exploring other partnering opportunities with Pemex in the months and years to come.
I’m also proud to say our team in Mexico – led by Alberto de la Fuente – is staffed 100% with Mexican talent.
We’ve opened a sourcing office here in Mexico. It’s one of only four Shell sourcing offices in the world, set up to certify suppliers to meet our global demand for skills, products and services. The suppliers we’re developing here will be critical sources of local content for any future investment by private investors in Mexico.
This is a vibrant nation with enormous potential. The OECD describes this as “Mexico’s moment”.
I’d like to think of it not just Mexico’s moment, but as Mexico’s era.
The reality of a changing world
One way to think of the recipe for any country – to manage the risks and capture the opportunities of the coming decades is in terms of three key ingredients: investment, innovation, and imagination.
And it’s that future I’d like to offer a few thoughts on today. But first, a bit of context…
I’m prepared to make very few confident predictions in life. But one is inescapable: the number of people in the world will grow.
Dramatically. By 2050 our children will share this planet with more than 9 billion people. Every day the world is home to nearly 200,000 more people. Every week for the next 30 years the world will add the equivalent of a city the size of León.
That means more demand for the essentials of life: food, water, energy – resources that are already stressed today.
And beyond the essentials, roughly a billion people in developing parts of the world are entering the market for the cars, washing machines, refrigerators and computers they see in the developed world.
All of this growing demand for our resources is happening on a planet that’s not getting any bigger.
How society will deal with this tension between growth and resources – the “stress nexus” as we call it – is anybody’s guess: It depends on how national and regional policies will evolve, how markets will respond, how technologies will develop, how consumers will behave.
Looking ahead: Shell’s New Lens Scenarios
But companies like Shell don’t like to leave questions like this purely to guesswork. So for the last 40 years, we have developed scenarios to help us plan for the future. We use scenarios to improve our understanding of global trends – economic trends, political trends, social trends, environmental trends.
And we examine what those trends could mean for the energy system. Scenarios help us think more strategically by giving us a better sense of challenges and opportunities that could lie just over the horizon.
Our most recent scenario work, published just this year, produced two divergent views of how the future could unfold. On your chairs today, you found a card with a link to the scenarios website. There, you will find the work on scenarios available for download. Printed copies are also available at our expo booth.
In one of these scenarios, political and economic power structures around the world remain relatively static. Central governments maintain tight control over policies and planning. There is not a lot of economic mobility, innovation, or growth. But there is stability and, ironically, a more co-ordinated global effort to reduce greenhouse emissions.
That’s because of policies to tap abundant natural gas reserves combined with large- scale public investment in carbon capture and storage projects.
In the other scenario, dynamic and diffuse market and political forces dominate. The economy grows for everyone, but in turbulent, uncontrolled ways that make coordinated policies on energy and climate more difficult.
Demand for energy – any energy – skyrockets. Growth in the use of cheap, available, but dirty coal continues. Only later, around mid-century, does the climate crisis finally force a dramatic shift into alternative energies, like solar.
That’s the 60-second version of a scenarios discussion that our experts could spend hours detailing. We will be hosting a presentation on the Shell Scenarios in Mexico City on July 9, and we’d love for you to join us then for an opportunity to go into much more detail.
But for now, I hope this summary offers a glimpse at how corporations, industry associations, NGOs, media, think tanks, national governments – for that matter, all of us in this room – need to be thinking about the future.
And there are few countries with as much of a stake in that future as Mexico.
The Mexico era
Mexico is among the ten largest oil producers in the world. This country has made important structural changes to improve economic performance and strengthen its resilience to external shocks. It is a strong partner to the United States and to Canada.
I spoke earlier about the opportunity for a Mexico “era” and the three key ingredients in a recipe for any country’s success: investment, innovation and imagination.
Investment is the obvious one.
Shell alone invests more than $30 billion every year to meet the growing demand for energy.
The energy industry globally will spend untold trillions over the next four decades to find, develop and produce ever more challenging sources of energy – from traditional oil and gas, to shale gas, to liquids from shales, to advanced biofuels, hydrogen, wind and solar.
Mexico is jostling with countries around the world for a share of that capital. In this hemisphere alone, it joins a fierce competition for capital with Brazil, Colombia, Uruguay, French Guiana, Argentina and others.
Of course, Mexico already has some competitive advantages through free trade agreements, its strategic location, competitive exchange rate, labor costs and quality manufacturing.
But its advantage will only increase as it attracts more investment with stable and attractive fiscal and regulatory frameworks.
A recent World Bank study suggests Mexico needs the equivalent of around five or six additional Pemexes over the next 10 to 15 years to leverage even just its potential deep-water resources.
The study says investment in deep-water delivers 1.6 times its value in terms of expansion of the supply base, labor development and supporting services. For onshore investments – including unconventional, complex, capital intensive basins – the factor is around 1.4.
Analysis we’ve commissioned suggests attracting more capital into the energy sector could increase Mexico’s economic growth rate by as much as 5 or 6 percentage points.
And beyond economic growth, we have seen – in countries ranging from Norway to Malaysia – what else happens when countries earn investment in the energy sector: technology booms, an increase in specialised, high paying jobs, transfer of knowledge into and across the economy, higher industrial safety standards, new levels of transparency and trust in government.
The potential benefits for Mexico could extend even further, fuelling Mexico’s continuing progress in the fight against poverty and inequality, its desire to protect its environment, its potential to be a regional manufacturing powerhouse -- in short, to realising “Mexico’s era”.
But return on investment will go only so far without innovation to go with it.
The race is on to create new techniques to find, produce and commercialise more -- and more difficult -- sources of energy: energy locked in shale, in sand, under ice, in ultra-deep waters.
But it’s just as important to look at innovation in how companies, governments and societies work together.
As a global company, with partnerships in almost every corner of the world, Shell has the ability – I’d even say the obligation – to join up imaginative ideas across boundaries -- intellectual and political boundaries as well as geographic boundaries.
Let me use our experience with China as one example. China is focused on developing a safer, cleaner, secure energy future that can fuel their economic growth and support the needs of nearly a quarter of the world’s people.
China knows that will require a team effort. It has reached out in innovative ways to build relationships with global energy companies. So we are developing tight gas resources with China National Petroleum Corporation, helping to expand supplies of this cleaner-burning fuel. Together we are exploring for gas in the Sichuan Province and working on a coal-bed methane project in the Shanxi Province.
At the same time, CNPC is also an equity partner in our Groundbirch gas project in Canada. China gets access to Canada’s surplus of energy, CNPC gets access to international technology and growth opportunities, Canada gets access to a vital energy market, and we create value for our shareholders.
By working with China and its energy companies on international projects, we not only create new investment opportunities, but also promote a global energy infrastructure based on shared best practices and smart technologies. Everyone wins.
And there are dozens of other innovative examples with countries and national energy companies around the world. I see a huge opportunity for Mexico and Pemex to lengthen the list of examples, working with IOCs and other governments to be part of the solution to our future energy challenge.
Which brings me to the role of imagination.
Imagination in this context simply means thinking creatively about what the future scenarios might bring to Mexico. Risks? Opportunities? Or both? Will Mexico find itself chasing solutions to the energy challenge? Or will it lead those solutions?
I’m imagining a Mexico that will help lead.
I can see a Mexico that attracts international investment with a sophisticated domestic industry, a network of international partnerships, a talented, skilled and highly-developed workforce, a commitment to a sustainable and efficient energy system.
It’s not hard – with a little imagination – to see at least a few broad actions that all of us – in public and private roles – can take now to get us firmly on the road toward a more sustainable energy system.
For example, taking advantage of the world’s 250-year supply of natural gas resources to reduce coal consumption.
Natural gas should play a major role in fostering a cleaner and more sustainable energy system. It’s clean, it’s abundant, and it can be deployed for everything from electrical power to home use to transport. There is so much of it now available in North America that this continent could become a net exporter of energy in just a few decades.
As a source of electrical power, natural gas produces about half the CO2 emissions of coal. The shale gas revolution in the USA has already reduced CO2 emissions there more than anyone could have predicted just a few years ago.
Natural gas is also a natural ally to renewables. Solar power and wind need a back-up because they are intermittent sources. Gas-fired power can keep the electricity flowing when the sun doesn’t shine and the wind doesn’t blow, in part because gas-fired power plants can be turned on and off quickly.
Another example of imaginative leadership lies in promoting smarter urban planning to reduce energy demand, especially in transportation.
Intelligent urban planning could transform the entire global transport system over the next 50 years. It can do so by providing an infrastructure for vehicles increasingly powered by electricity, hydrogen and natural gas.
And more efficient, more sustainable, more livable cities deliver benefits beyond just reducing demand for energy. They are healthier, safer, more attractive to talented workers and more equitable.
A policy climate that attracts investment -- far-sighted government actions based on innovative public-private innovation -- a view of the future inspired by creative imagination.
These are the ingredients for leadership as I see it. These are my modest contributions to the vital conversations you have been having here this week.
Thank you very much again for the opportunity to share them.