Shell's Odum proposes outlook-based approach in US energy strategy

Projections of large future energy demand growth may actually be underestimates, making it all the more urgent for governments to adopt regulatory policies that are less prescriptive and more outcome-based, Shell Oil Co. Pres. Marvin E. Odum said.

Many experts predict that global energy demand could double by 2050, he said in a July 28 US Chamber of Commerce luncheon address. “The fact is, in a business-as-usual case, it could triple,” Odum continued. “This could leave a gap between supply and demand equal to the size of the energy industry’s entire global output in 2000.”

Shell planners consider this gap a “zone of uncertainty” that will require an enormous expansion of supplies coupled with extraordinary, unprecedented moderation in demand, he said.

“As long as this zone of uncertainty exists, the energy policy decisions we make will define whether we will face a period of extraordinary opportunity for policymakers, businesses like ours, and 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,” Odum maintained.

He said the US energy regulatory system feels more focused on prescriptive and methodical solutions instead of setting the kind of outcome-based goals that made the US manned space flight program a success, and then challenging businesses to determine how to reach them.

New global consumers
Odum said experts predict the world’s population will reach 9 billion by midcentury. “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,” he said.

“Globally, we will have more people expressing more demand for everything from food to utilities and cars,” he said. “The current recessions should not be an excuse to ignore the impacts of this enormous global hunger for perhaps twice as much energy as today by the middle of this century.”

An outcome-based regulatory system would challenge Shell and its competitors to find a way to produce more energy, make it more efficient, make it burn cleaner, and make it more affordable for people, Odum explained.

Some experts estimate that with the right policies and regulations, the US and Canada could provide around 90% of America’s liquid fuel needs by 2030, he said. “Regardless of the right number, the point is that North American energy resources can have huge impacts on our energy security and on our economy,” he said. “Greater access to domestic energy resources in areas that are currently off limits would create 500,000 jobs by 2025.”

Odum indicated that oil and gas producers have seen debilitating red tape in US areas that theoretically are open to production, however. Shell has participated in federal lease sales off Alaska’s coast since 2005 and paid more than $2 billion for hundreds of tracts, he said. It spent another $1.5 billion to prepare an exploration program that meets and exceeds environmental regulatory requirements, he added.

‘Frustrating, disappointing’
“But despite our most intense efforts, we have yet to drill a single well in Alaska,” he said. “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 over 400 exploration wells around the world. This is frustrating and disappointing, and it undermines confidence in the American regulatory system.”

Speaking to reporters after his address, Odum said that he is cautiously optimistic, “with a heavy emphasis on cautiously,” that Shell will be able to start drilling its Beaufort and Chukchi Sea prospects in 2012. The Obama administration’s formation of a working group to coordinate federal regulations in Alaska is an encouraging sign, he said. “There’s still time before some of the leases expire if we start drilling next year,” he said.

He told his luncheon audience that Shell received the first deepwater exploration plan approval for its Cardomom project southwest of New Orleans after US Sec. of the Interior Ken Salazar lifted the moratorium he imposed following the 2010 Macondo well accident and oil leak into the gulf. “We just announced a multibillion dollar investment in this project, and it will produce significant volumes of secure oil production for this country,” Odum said.

Environmental organizations sued Interior, charging that its US Bureau of Ocean Energy Management, Regulation, and Enforcement did not conduct appropriate environmental reviews when it issued a permit for the well, however. “We are not named in the suit, although it is our well, but we have an interest in how it is resolved, as does every energy consumer in this country,” said Odum. “It has the potential to virtually halt exploration in the gulf, serving as a back-door moratorium.”

Shell and other gulf producers, along with most of the Gulf Coast states and other groups, have petitioned the court to be allowed to join the suit, he noted. “We’re doing this in support of the regulator as it defends its decision to issue the permits,” he said. “In fact, we prefer, want, and need healthy working relationships with regulators like DOI to help develop regulations that are both appropriate and defensible in court. We know that legal challenges will happen, and the last thing an over-burdened system needs is legal challenges that could have been avoided.”

 DOI has advised Shell that it can proceed with drilling the Cardomom prospect’s Appomattox well, Odum said to reporters afterward. “The government has told us to go ahead,” he said.

Contact Nick Snow at nicks@pennwell.com.

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