OTC 20975

OTC 20975 Sustaining Ocean Offshore Value Creation Demands Responsive Governments, Responsible Companies, Respectful NGOs and Informed Publics John D. Hofmeister, Citizens for Affordable Energy Copyright 2010, Offshore Technology Conference This paper was prepared for presentation at the 2010 Offshore Technology Conference held in Houston, Texas, USA, 3–6 May 2010. This paper was selected for presentation by an OTC program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been reviewed by the Offshore Technology Conference and are subject to correction by the author(s). The material does not necessarily reflect any position of the Offshore Technology Conference, its officers, or members. Electronic reproduction, distribution, or storage of any part of this paper without the written consent of the Offshore Technology Conference is prohibited. Permission to reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of OTC copyright. Abstract The outer continental shelf, indeed the oceans, are the next and last earthbound frontier to sustain economies, societies and governments with the food, water, energy, minerals, natural materials, transportation and recreation that the world’s billions of people need and deserve. Yet, developed and produced unwisely or irresponsibly, exploited without reservation and regulation, or arbitrarily declared off limits, such actions will lead to disastrous outcomes and dire consequences for mankind and society. Common rights to develop, honest and transparent operations, protective and enabling regulations, respectful inquiry and advocacy of public interest and universal commitment to sustainability establishes a mutually beneficial framework that creates a sound platform for centuries of value creation. Unfortunately we’re not off to a good start. For centuries the oceans have been taken for granted. Lack of knowledge and limited minds have led people to see the “limitless resources” of the seas as inexhaustible opportunity, ripe for exploitation, to the regret of contemporary society. The oceans cannot serve as toilet and food source, resource bank and dumping ground, recreation center and burial site. There are too many people, too much opportunity, and too high risk to let anyone exploit any part of the ocean without proper constraints and oversight. The requirements and demands of the world’s people mandate the optimal development of offshore resources. In the first instance there is food, water and energy. Later there will be more. Everyone connected to offshore opportunities needs to appreciate and accept a tri-partite balance of government regulation, company investment and production, and public interest activism. Each responsible set of entities must subscribe to a set of requirements that promote sound value creation, governmental oversight and respectful public engagement. Absent a framework for offshore development the world and its people will suffer the consequences of inadequate resources, economic underdevelopment and fractious interaction among a spectrum of special interests. There are Four Mores that must be promulgated: the world needs more resources, especially energy, to support economic growth, more technology to use resources more efficiently, more environmental protection to support development, and more infrastructure to support sustainable growth. The global offshore will deliver centuries of value provided the construct is viable. Introduction The Offshore Technology Conference is synonymous with responsible, productive, and effective value creation for energy companies. For decades science and technology have met practical solutions to produce techniques, products and services for the development of offshore resources to fuel the world’s economies. It is assumed that this will continue into the future as long as the combination of all three are commercially viable and energy demand can be met with affordably produced energy from offshore. The potential for human capacity to imagine, design, develop, produce and implement offshore energy solutions is beyond description. Extrapolating from the past across the totality of offshore development, it is safely argued that virtually no problem thus far encountered has not been matched by a viable solution. Thus value creation for companies and shareholders has continued to grow over the past four decades. There is every promise of more, as witnessed by the displays and presentations at this 2010 Offshore Technology Conference. Yet ominous and foreboding to the future of offshore energy development are growing concerns from governments, non- governmental organizations, scientists and naturalists, and, even the public, that the future must provide constraints and restraints to the manner and methods by which the oceans around the world are used, exploited, developed and managed. 2 OTC 20975 The oceans are the last and greatest frontier on Earth for water, food and resources. As more ocean-based nations learn and appreciate the implications of this fact, future development must be considered in that evolving context. The worst outcome for the industry and society would be prohibitive bans on future development, not unlike the economically foolish but politically driven pre-emptive bans on offshore energy development in the United States over 85 percent of the outer continental shelf for most of the past thirty years. The best outcome would be internationally coordinated development of the offshore utilizing an agreed template, or framework, for the short, medium and long term future development of water, food, commercial and other resource extraction. Such a framework would integrate sustainable development with nature’s own restorative ways, commercial opportunity across a wide range of business interests from industrial development to sports and recreation, education of policymakers and society generally, and peaceful dispute resolution among competing nations. Anything less would likely result in sub-optimal development, egregious exploitation, natural degradation and both domestic and international conflict. The offshore future can evolve to “win-win” outcomes for all nations or devolve toward “lose- lose” consequences for all who are, or, if not managed, who used to be, associated with it. The Wider Context For centuries the oceans have been taken largely for granted. They provided opportunity, mystery and fear for societies throughout our ancient, middle, and modernizing periods. Vast and unexplored, teeming with food and other products, covering the majority of the surface of the Earth, tempestuous and tranquil, like people generally, the oceans have fascinated as they have frightened. With expanding populations and knowledge, they present manageable opportunity across a wide range of human, sovereign, commercial, scientific and social interests. Unfortunately lack of knowledge and limited minds have led many people to see the oceans as inexhaustible opportunity for seizing limitless resources, ripe for exploitation by first movers where might makes right and the strongest and smartest win. Nations have lost their native ability to rule themselves because of the transportation surface that oceans provide. Food producers have exploited cod, tuna, sardines, shellfish, coral, seaweed and other species to worrying levels of potentially unsustainable exploitation. Natural resource developers have used a range of methodologies to pursue their commercial interests, from devastating to sustainable. Major metropolitan areas have chosen the oceans as the recipient of their otherwise unmanageable wastes, both physical and liquid. The oceans have been battleground for surface and subsurface combat, centuries of piracy, and serve as graveyards to uncountable people who lost their lives in horrific storms, accidents and brutal, savage methods of warfare. Finally the oceans are more frequently viewed as the waste treatment center for gaseous waste emissions, including carbon dioxide, which many fear may permanently alter the pH levels of the seas for centuries to come, if not otherwise managed or captured. So for all of our historic fascination with the oceans, human and commercial development leading to fears of devastation have raised concerns, even alarm levels, about the future management and protection of this last earthly frontier of major resource opportunity. The oceans cannot serve as toilet and food source, resource bank and dumping ground, recreation center and burial site on the back of growing populations ad infinitum. There is a growing body of consensus among nations and across developed societies, in particular, that there must be limits because too many people, too much development, and too many risks are allowing unlimited exploitation of both sovereign and international waters. Their expectations increasingly require appropriate constraints and oversight to ocean management. The future for off shore energy development is part of those risks and it must manage the way forward effectively and sustainably if the industry expects to continue to create value. Nowhere does rising interest in these contradictions manifest itself more than in the Arctic Circle among Inupiat and other local native subsistence people in the face of Arctic onshore and especially offshore development of energy. People who have sustained themselves for many thousands of years, living off of the land and water, without agriculture or modern tools or conveniences, are perplexed, confused, doubtful and at the same time hopeful about the future prospects for their lifestyles, ancient customs, economic and social survival. During my last several years serving as President of Shell Oil Company I had the opportunity to encounter both the promise and the setback of Arctic Ocean potential developments and to discuss the future with elders, leaders and young people among the native villages of the North Slope of Alaska. They are not simple people and their ways do not require significant commercial development. While there are generational differences in expectations and career considerations, there remain nonetheless profound commitments to maintaining traditional life paths. Off shore energy development has meant nothing to them for centuries. For them to want to change their views and embrace such development in the future requires considerable understanding of the implications and consequences. Deep concerns about modern interference in the ways of nature, particularly as regards marine mammals, fish and shellfish and the food chain that supports them, worries about climate change, fears of uncontrolled pollution, sea bed devastation, frozen water oil spills, and the risks of life-threatening work on off-shore rigs are tempered, but not reconciled, with economic opportunity, jobs for future generations, inevitable adaptations to increased modernization and convenience and sustainable lives. There are obvious lessons learned from on-shore developments that both encourage and concern village leaders. They can see the improvements that have occurred in the past forty years. The infrastructure and lifestyle advantages of modern living are well received; education opportunities and closer links through modern communication systems are appreciated; access to travel and exposure to other parts of the nation and world are attractive. Likewise they can list the troubles that have emerged on the back of those improvements. Challenges such as arctic land, water and air pollution, perceived relative deprivation when most jobs and the best paying jobs are rarely held by native people, increased alcoholism OTC 20975 3 and drug abuse, youth obesity, family stress, and the departure of young people for careers elsewhere. There is a pervasive worry that forces beyond them are creating a loss of control over their destiny, which has never occurred in their history. The barometer for off-shore development on the North Slope is calibrated by the attitudes, mind-sets, beliefs and concerns of the whaling captains. This group of distinguished local leaders set the future promise for local society by virtue of their skill, expertise and leadership during and between the whaling seasons. Prosperity is determined by the success of the Spring and Fall harvests. Risking lives and reputations in the course of their work, the whaling captains influence and impact the outcomes of village after village. If they believe that whaling is incompatible with off-shore development, the local people will do everything in their power to prohibit such activity. I know first-hand how much power they have. My knowledge and experience, my corporate position and influence with federal, state and local elected officials, together with those of my former Alaska-based and corporate colleagues from Houston and The Hague, were subordinate to the near term concerns and objections of these local leaders. Shell’s billions, its reputation and practice of sustainable offshore operations, its technology and know-how, its promise of social and educational investments, its years of relationship development paled against the unwillingness by the whaling captains to accept Shell’s promises and commitments during vital leasing and development opportunities in 2006-2008. Shell learned powerful lessons, which it is now incorporating into its future business and development plans for Arctic oil exploration and development. There are inevitably sound ways to proceed. Getting the cooperation of the whaling captains is vital to their successful implementation. Challenges in the Arctic by local people also brought with them the full spectrum of professional naysayers, plaintiff law firms and global and national non-governmental organizations, opposed to off-shore arctic development. Through the federal court and the court of public opinion these formidable and well-rehearsed objectors must be taken seriously, regardless of how radical and ideological they may be. On multiple occasions I have confronted plaintiff attorneys with the fact that their personal greed and avarice stands between affordable energy, social justice and a growing economy and America’s loss of international competitiveness. They blow it off in favor of creating a new revenue stream for themselves and their partners. As well I have confronted the environmental NGOs with the absolute reality that whatever efforts they may take against development of North American arctic natural resources, they are no match for and are incapable of stopping arctic development off of Russia and elsewhere. I’ve explained to them that while they are busy prohibiting companies with world class technology and commitment to sustainable development from developing natural resources, they risk development of such resources by others who may not have the same capabilities or commitments. So for all of their protestations and worries, they create the very conditions they are attempting to prohibit by their lack of standing and insensitivity to what the world will ultimately need and do. So it is elsewhere for different industries and in different parts of the world. Commercial whalers and fishers, mineral extraction companies, waste management firms, cruise ships, sportsmen, navies, marine transport companies, wind and wave energy farms, floating LNG and re-gasification plants, desalination plants, developed and traditional peoples around the world all face competing interests as regards the off-shore and use of the oceans. As we look ahead we could face decades of increasing uncertainty, higher costs, and eventual set-back. On the other hand we might identify a way forward that brings competing interests of nations, companies, special interests and the public together to manage development of ocean resources compatibly and sustainably. With the microcosm of the North Slope off-shore example, what are those considerations that must be taken into account if oil and gas companies, as well as others, are determined to sustain off-shore value creation? Opportunity and Risk The oceans and offshore continental shelves are first and foremost top of mind for nations because their sovereignty and national security are at risk. Military capability and national defense occupy top priority on both the opportunity and risk sides of the off-shore ledger. If a nation is not safe, well-protected by its navy or marine defenses, there is not much else to talk about regarding the development of off-shore assets. Few companies would risk off-shore development that is not within the protection of nations who provide the permits to operate in the off-shore. Most other commercial activities also depend upon the safety and security of protected shores. Territoriality has dominated society from time immemorial. Protecting and defending what we perceive as our own is a fundamental priority among people and nations. Threat to that territory is met with appropriate response. While violent military protection is not the only tactic, it is perhaps the most noticeable and perhaps ultimately the most prevalent. While there are nations of laws, where such laws are respected, such is not the case universally. Therefore military superiority in the face of territorial threat is part and parcel of offshore opportunity and risk. Likewise in the wider oceans, beyond sovereign claim, protections are primarily military in nature. Navies of great nations operate around the world in the interest of their own national security and priorities. From China to America, from the UK to Argentina, from Japan to Australia, from Russia to India, navies fly their flags across international waters to remind and warn others that their interests are their interests and they are to be taken seriously, or face the consequences. With sovereignty at the top of the pecking order, resource development and extraction is next in line. From food to energy and minerals to precious metals the sea and its sub-surface are home to inestimable resources. Are there limits to growth and development? As we now see with regard to the world’s fisheries, indeed there are. The lessons learned are painful, some countries have taken actions and set boundaries, but unfortunately they are not fully embedded in the global community. Exploitation continues and is likely to lead to ever greater regrets around the world as stocks of various fish species drop below sustainable reproduction levels. We can all see that the inability of the world’s nations to agree on a formula for fishing is a foreboding and perhaps ominous pre-curser to the challenges that we also face with regard to energy and other 4 OTC 20975 resource extraction opportunities. The same could be said for piracy. A curse across time, ocean-based criminal behavior unfortunately has promoted its own rewards for its perpetrators. We can’t seem to rid ourselves of the threat and the reality. In the same vein the challenges of managing man’s wastes: physical, liquid and gaseous are hardly resolved. Many countries allow their river systems to carry inestimable volumes of physical waste to the sea for dumping, or channel it through ports for transfer to barges for off-shore dumps. Likewise liquid wastes roll down rivers and into the world’s oceans with limited or little remediation, except in those countries that have established laws, regulations and enforcement to prevent such disposal from happening. The consequence is deterioration of the quality of water, its impa