Mexico’s energy future: an
era of investment, innovation
and imagination
Mexican Petroleum Conference
Cancun, Mexico
Marvin Odum
Upstream Americas Director, Royal Dutch Shell plc
President, Shell Oil Company
June 7, 2013
Marvin Odum Address to Mexican Petroleum Congress
Marvin E. Odum became Director of the Upstream Americas
business in 2009. He continues as President of Shell Oil
Company.
Marvin earned a bachelor’s degree in mechanical engineering
from The University of Texas at Austin and a master’s degree in
business administration from the University of Houston. He began
his Shell career as an engineer in 1982, and has since served in
a number of management positions of increasing responsibility in
both technical and commercial aspects of energy.
Prior to his most recent appointment and in addition to his role as
Shell Oil President, he was Executive Vice President for the
Americas for Shell Exploration & Production. He was named Shell
Oil President in 2008 and had served as Executive Vice President
since 2005, with responsibility for Shell exploration and
production businesses in the western hemisphere.
Marvin is a member of the Council on Foreign Relations and holds
positions of board leadership and participation in the Business
Roundtable and the American Petroleum Institute. He is on the
executive committee of the World Business Council for Sustainable
Development. In addition, he is a member of the Dean’s Council
of the John F. Kennedy School of Government at Harvard
University and the Advisory Board of the Cockrell School of
Engineering at The University of Texas at Austin. He is also
involved with several charities in the Houston area.
Marvin, a US citizen, was born in 1958. He is married to
Mariloli, and they have three children.
Marvin Odum Address to Mexican Petroleum Congress
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.
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.
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
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.
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.
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.
And it’s that future I’d like to offer a few
thoughts on today. But first, a bit of
context…
I very much look forward to the possibility of
exploring other partnering opportunities with
Pemex in the months and years to come.
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
Marvin Odum Address to Mexican Petroleum Congress
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 largescale 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.
“...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”.
Marvin Odum Address to Mexican Petroleum Congress
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
“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”.
Marvin Odum Address to Mexican Petroleum Congress
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 highlydeveloped 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.
“I’m imagining a
Mexico that will help
lead”.
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
“Intelligent urban planning
sources. Gas-fired power can keep the
could transform the entire
electricity flowing when the sun doesn’t
global transport system
shine and the wind doesn’t blow, in part
over the next 50 years”.
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.
Conclusion
A policy climate that attracts investment -- farsighted government actions based on
innovative public-private innovation -- a view
Marvin Odum Address to Mexican Petroleum Congress
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.
Marvin Odum Address to Mexican Petroleum Congress
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 Do the research, Matthias Bichsel
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For information about Shell, including downloadable versions of these speeches and other publications, please
visit www.shell.com.
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