### WRITTEN TESTIMONY OF

#### JOHN HOFMEISTER

**President**

**Shell Oil Company**

## before the

## HOUSE COMMITTEE ON SCIENCE AND TECHNOLOGY

## SUBCOMMITTEE ON ENERGY AND ENVIRONMENT

**Hearing on "Energizing Houston: Sustainability, Technological
Innovation and Growth in the Energy Capitol of the World"**

**February 29, 2008**

**10:30 a.m.**

**James A. Baker III Institute for Public Policy**

**Rice University**

## 

Good morning Chairman Lampson, Ranking Member Inglis, members of the
House Science Subcommittee on Energy and Environment and other members
of the U.S. House of Representatives joining this hearing. My name is
John Hofmeister. I am the president of Shell Oil Company. I appreciate
the opportunity to speak today as part of the field hearing the
subcommittee is holding here in the energy capital of the world,
Houston, Texas.

My remarks today will focus on the short-term, medium-term and long-term
energy needs in the United States, how Shell anticipates the mix of the
energy supply changing in the coming years and the evolving contribution
Shell will make to meeting America's energy needs for decades to come.

Shell has been a part of the Houston energy industry since the
mid-1960s. In the greater Houston metropolitan area, more than 13,000
Shell and Motiva employees go to work every day to bring energy to
millions of Americans. Their work includes service at nearly 500 retail
stations and 44 Jiffy Lube locations. As one of Houston's largest
employers, Shell is a stalwart of this community.

Houston is a vibrant city, with a rapidly expanding economy and
population fueled by energy. The energy market in Houston reflects the
worldwide energy market in many respects. We recognize the challenge
here -- and around the world -- of providing enough energy to meet
rising demand in an environmentally and socially responsible manner. We
are committed to managing the impact of our exploration and production
and conserving energy where we can.

America has a strong and growing demand for energy. Every second of
every day, the United States consumes 10,000 gallons of oil -- enough to
fill a swimming pool. We use 20 railcars of coal a minute and enough
cubic feet of natural gas each day to build a tower to the moon and back
25 times. We are balanced on a razor's edge of growing demand and
tightening supply.

Shell wants to help provide abundant, affordable energy as far into the
future as we can imagine. We consider abundant, affordable energy a
cornerstone of America's energy security. But we recognize that
achieving this goal will require aggressive short-term, medium-term and
long-term plans.

**Short term:**

First, I would like to outline the short-term U.S. energy needs and the
steps Shell recommends for the next decade. In the short term, the
United States will remain a fossil-fuel-based economy because, very
simply, we cannot attain the commercial scale and infrastructure needed
to meet energy needs through alternative energies. We won't have the
pipeline system to pump ethanol. We won't have the transmission lines to
bring hundreds of gigawatts of wind from remote windy plains and
mountains to cities. That kind of scale and infrastructure won't be
available for decades to come. Largely for this reason, the
International Energy Agency estimates that under a "business-as-usual"
scenario, alternative energy will account for only 8 percent of U.S.
energy use in five years.

In the short term then, we need more oil and gas now to meet growing
demand. We can meet that demand in two primary ways. First, we can
responsibly develop the more than 100 billion barrels of technically
recoverable oil and gas in this country that are currently off limits to
development due to federal policy. Unless we intend to increase our
reliance on foreign oil, we must have increased access to America's own
energy resources both onshore and on the Outer Continental Shelf. Shell
is committed to developing any resources in an environmentally sound and
responsible manner.

Second, we can increase the supply of natural gas to our country by
using liquefied natural gas technology that allows us to store and ship
gas safely in a liquid state. As a nation, we must put aside our
resistance to building the infrastructure necessary to receive LNG,
especially on the East and West Coasts.

In addition to these two important avenues, we must continue researching
environmentally sensitive and commercially feasible ways of developing
unconventional oil and gas resources, including the trillion barrels of
oil that remain trapped in shale in Colorado, Wyoming and Utah.

**Medium term:**

Shell anticipates that in the medium term -- between the next 10 to 25
years -- oil and gas will remain the primary energy sources, but
biofuels and wind will play greater roles in meeting energy demands.

Shell is one of the world's largest distributors of biofuels and one of
the first companies to invest in second-generation biofuels that use
cellulosic materials that do not compete with food crops.

However, we are very concerned about the provisions of the Energy
Independence and Security Act of 2007 that mandate a more than five-fold
increase in the amount of alternative fuels, such as ethanol, from 7.5
billion gallons a year in 2012 to 36 billion gallons a year in 2022 to
the nation's energy supply.

Wind offers another solution to carbon dioxide emission challenges and
to increasing our energy diversity. In this country, Shell WindEnergy
now has interest in or operates eight wind farms in six states. Wind
technology, however, is often limited by lack of transmission systems to
move the wind energy from remote hills and potential offshore wind farms
to connect with the electric grid. We need sound federal and state
policies that support new transmission systems to enable this technology
to be adopted more widely.

Also during the medium term, Shell believes that our nation must move to
clean coal technology -- using our most abundant natural resource to
generate electricity in a way that allows us to manage carbon dioxide
emissions. However, the introduction of this technology is hampered by
the need for large, upfront capital investments. Public policy is needed
to create the enablers to stimulate the production of clean coal
technology and associated carbon capture and storage.

**Long term:**

Over the long term, spanning 25 years and beyond, Shell anticipates that
the U.S. economy will continue to depend on oil and gas with an
ever-growing contribution from alternative fuels. We will see a strong
growth of the clean fuels mentioned in the medium term, but we will, in
the long term, see more alternative fuels that are in their infancy now
become commercially viable components of the overall energy mix.
Hydrogen is an example.

Hydrogen is the world's most plentiful element and is part of the Shell
portfolio of future low-carbon fuels. As a fuel, hydrogen offers the
potential to substantially reduce emissions, reduce our reliance on
fossil fuels and increase America's energy security. There are obstacles
to be overcome, but we think hydrogen could become a commercially viable
transport fuel in the coming years. Shell is developing hydrogen supply
chains, which, in the longer term, may rely increasingly on renewable
sources of energy. We partner with car manufacturers and local and
national governments to coordinate the construction of hydrogen fueling
stations in areas where fuel cell vehicles are being introduced. In the
United States, those include the Los Angeles and New York City metro
areas. Since 2004, Shell has operated an integrated gasoline/hydrogen
station in Washington, D.C., not far from Capitol Hill. Last year, we
opened a hydrogen station in White Plains, New York, and plan to
open our first hydrogen station in Los Angeles this spring. It will
probably take a couple of decades to make hydrogen a commercially
available option. However, for our grandchildren's children, it may
become the standard fuel of choice.

Clearly, Shell believes that alternative energies will play an
increasing role in the energy mix. We are planning for it. We invest a
significant portion of our profits into developing energy technologies.
We believe our commitment to technology and innovation distinguishes us
from many of our competitors.

But we must approach our energy challenges realistically. Because of the
extensive lead time and financial commitment required to bring new
technologies to market, fossil fuels will remain at the core of global
economies for the foreseeable future. Shell does not see that as an
"either-or" proposition. It is a "both-and" proposition. The balance
between conventionals and alternatives will be established by what is
possible in the future. We will need all of these energy sources, and
others, to fuel the world.

As a nation, we face tough choices to balance our energy needs, our
economic well-being, our quality of life and our respect for the
environment. At Shell, we are firmly committed to bringing energy
security to America -- and specifically to the citizens of Houston.

Thank you.