Chat Details

Former Shell Oil head John Hofmeister 09-18-08

This chat will begin at 2:30 p.m. on Thursday, September 18, 2008.

John Hofmeister, former president of the Shell Oil Co. and now founder and CEO of Citizens for Affordable Energy, joins The Washington Times for a live chat Thursday at 2:30 p.m. You must be registered with www.WashingtonTimes.com to ask questions. To register, click the gray word "REGISTER" on the top right-hand corner of this page, then follow the instructions. Once you're registered, come back to this chat page and then click the orange "Ask a Question" link.

Transcript

1. • The Washington Times is pleased to welcome John Hofmeister, former president of the Shell Oil Co. and currently the founder and CEO of Citizens for Affordable Energy, for a live chat. Good afternoon, Mr. Hofmeister. Thank you for being with us today. by Jeffrey Lea
   • Answer: Nice to be with you. by
3. • If oil prices are dropping, why is gasoline so expensive? by Washihngton, DC
   • Answer: Crude oil prices have dropped because the world is experiencing less demand for crude. It is called "demand destruction" due to economic slowdowns around the world, esp. in Europe and U.S. However there is a short term shortage of gasoline, diesel and aviation fuel because 17 refineries along the gulf coast are off line due to Hurricane Gustav and Ike. In about 4-6 weeks the refineries should be back to normal and producing steady supplies. However until they are much of the country is experiencing shortages of product, leading to the high prices. by
4. • Based on all of your business experience, which presidential candidate is best suited to handle the economic issues facing this country? by Washington, DC
   • Answer: In my opinion Presidents have not been very good economists. If they were we would not cycle through boom and bust the way we have over the past decades. There is a fair debate about how "hands on" or "hands off" the Government should be on the economy. Too much regulation stifles growth; too little leads to unfettered abuse. We've probably had too little regulation in the past few years and are suffering from it. The key issue for the next President is to strive to get the balance right between government interference and economic enterprise. I'm on record as non-partisan in this election and am still an undecided voter. I'm asking myself the same question you are and don't have an answer yet. by
5. • How long have you been studying alternatives to oil dependence, and what are the top two or three things that individuals can do to help move away from this? by Alexandria, VA
   • Answer: Today about 250 million autos, tens of millions of trucks and thousands of airplanes in the USA depend entirely on oil products to operate. Almost everything that will be built over the next five to ten years will also need oil products, although bio-fuel will start to replace some oil products. To shift away from oil dependence we need totally different technologies for our mobility than we use today, such as electric cars and hydrogen fuel cell vehicles. Compressed natural gas is also a hydrocarbon and comes from the same places as oil, so I don't count CNG as an alternative to oil. It will take quite some time to make the shift to new technologies, not only in terms of the time that it takes to produce new vehicles and the infrastructure to fuel them with electricity or hydrogen (or CNG), but we also need to keep feeding the current fleet for decades to come because those cars will still be around. by
6. • Does today's situation still warrant odd-even gas rationing, as you recommended on Monday? by D. Dickson
   • Answer: Most of the refineries that were shut down, some 17 in total, still do not have electric power. That's a week without production. It will take another week to ten days to start up, once they get power, provided they do not have any damage. Some of the refineries had damage as well, so that must be repaired before start up. Given the shortages of production, prices are spiking at both wholesale and retail levels. Odd/even purchasing requirements would smooth out the supply and distribution such that more product is available on a daily basis and it would lead to more stability in prices. My recommendation is driven by price spiking and the opportunity to avoid it by smoothing out the demand side. by
7. • You mentioned in a recent article that the government should consider rationing gas by using odd-even license-plate sales dates. If that wasn't necessary after hurricanes Katrina and Rita, why now? by Herndon, VA
   • Answer: We should have done it after Katrina and Rita also. I asked the Government to consider it and was told "no." I'm asking again for two reasons: the insecurity of not knowing whether gas is available causes people to top up, which leads to more shortages. Second, the anticipated shortages leads to price spikes. If we had temporary odd/even purchases in about 20 states, which are supplied from the Gulf Coast, we could better avoid spot shortages and price spikes. And people would feel more secure about their next purchase because we wouldn't all be topping up at the same time. by
8. • As the former head of a major oil company, you must have a great grasp on the oil-dependence issue. What type of conversations or meetings have you had with Sens. McCain and Obama, and who do you believe is better prepared to address your vision of the oil industry's best practices? by New York, NY
   • Answer: It's really hard for either one of them to know what they need to know about energy since neither person ever really worked in energy. So they need to surround themselves with expert talent who can advise them. I have met both Senators and am impressed by each of them. I've explained to their campaign staffs my need to remain non-partisan and I've contributed equal amounts of money to each candidate as a sign of support for the American political process. The good news is they both have good advisers. However I do not believe either one of them are yet addressing energy issues in the short, medium and long term balance that's required. Good politics is inconsistent with good energy policy. Political time is measured in 2, 4, and 6 year increments.....the time of each person's electoral cycle in the House, the White House and the Senate. Good energy policy has to be built upon decades long commitments so that the rules of the game are clear, investors are confident that they will not be played off-sides, and consumers are confident that supplies will be adequate for them, their children and future generations. I hope our next President will do everything in his power to de-politicize energy solutions in his time in office. It is the best way out of the mess we are in. by
9. • In what range do you think the price of oil will settle in the next few months and 10 years from now? by D. Dickson
   • Answer: It's hard to say. I never imagined we'd hit $145 in 2008. When I testified in Congress last May and was asked what did I think the price of oil should be, all things considered, I said at the time I thought $65 was a fair price, given my assessment of global demand and available supply. We may get there but only if there is less geo-political tension around the world. The bombing of the pipelines in Georgia recently is a reminder of how vulnerable oil supplies are. Fortunately the bombing did no damage and was perhaps a deliberate message of what could happen. The inability of international oil companies to get access in sovereign states where the national oil company enjoys a monopoly is also a barrier to new production, which keeps prices higher than they need to be. Based on the known supplies of hydrocarbons around the world and the inflation of recent years, I still believe that $65 should be a fair price. But it is not a "free market" in any traditional sense as is made clear by my points above. So the answer to your question is really "it's anyone's guess." by
10. • What are your thoughts on the offshore legislation in the House? Does it have a chance in the Senate? by D. Dickson
    • Answer: First of all it is good to see Congress finally get to a point of support for offshore drilling. After thirty years of moratoria, which have hurt America and its citizens badly by failing to develop our own resources and transferring wealth offshore for decades, maybe we can get back to helping ourselves. However the bill as shaped has some problems. By restricting the first 50 miles we forego most of the hydrocarbons in the offshore. By taking away the States' opportunity for revenue sharing, we take away their incentive to support drilling off their coasts. By limiting drilling to 100 miles off the coast, we don't know how much hydrocarbon is out there because the industry has been prohibited from shooting the seismic that would be necessary to identify the resources. So we don't know much about what's beyond 100 miles. By taking away the depreciation allowance from the oil companies, we raise their taxes which makes investments more expensive for them in the U.S., when they have opportunities elsewhere. So while I support the effort to get more domestic energy production opportunity, I'm have my doubts that this bill will do much more than allow the political debate to rage throughout the election cycle. Political debate on energy should cease. We should de-politicize the solutions and do what's best for our Country and its Citizens by getting sound policy not riddled with political calculations. by
11. • What economic data points do you follow on a regular basis? by Detroit, MI
    • Answer: Oil price, consumer price index, unemployment number, stock market performance, economic growth, price of corn/wheat and the stock market indices around the world. by
12. • The word "rationing" suggests that the gasoline supply is inadequate. Is there a shortage of gas now? by 20037
    • Answer: With 17 refineries out of commission due to Hurricanes Gustav and Ike, we're living off inventory. That can keep us going at full throttle for up to two weeks. However our experience is that after hurricanes, fears of shortages lead to people topping up putting greater pressure on the supply side when there is no new supply on line until the refineries are back in operation. We can help with some imports and that is happening. But demand is the real issue. If there are no limits on demand, the industry cannot keep up the supply with so many outages. Today we're not short. In the next couple of weeks we could be seriously short. If we do not manage the demand we will see prices spike. What's better - some restrictions on supply so everybody is somewhat inconvenienced but knows there is enough gas?, or we let prices decide who can buy and who can't? I'm sick of high prices and spiking due to shortages. Demand management in the face of refinery outages strikes me as a more practical solution and is fair to everyone, even if a bit inconveniencing. by
13. • Aside from an alternative to oil dependence, what could the United States government have done to avoid these high gas prices? by Washington, DC
    • Answer: The industry has been asking Congress and the President for years to lift the ban on offshore production and the ban on production on federal lands. But it has not been successful Public policy has created the situation where we have gone from producing 90% of our own oil needs to about 30%. The difference comes from imports. Energy has been a political football, tossed back and forth by politicians, for most of our post 1970's history. But it is not enough just to drill for more oil. We need a comprehensive energy strategy that deals with the short, medium and long term needs of the country on supplies, technology, infrastructure and environment. Absent such a plan we live on "political time", which is 2, 4 and 6 year increments. We don't solve our problems because we politicize them. We teach people to hate the energy companies; the energy companies expect to be hated and they avoid talking to the people. This has to change. Energy companies have to engage the public in energy dialogue to educate them and their elected officials more than in the past. Consumers and elected officials have to engage the companies. We need to de-politicize solutions and get on with them. by
14. • As the head of Shell Oil, what kind of projections did you and your staff do to foresee the ups and downs of the market? In other words, did you know that the United States would eventually end up in this type of economic situation with the price of gas? by Baltimore, MD
    • Answer: The situation we're in has been predicted over and over again in my congressional testimony during my time in my job as president of Shell Oil. I testified five times in 2.5 years. I guess I did a lousy job because it doesn't seem like anyone heard me. I wasn't the only one saying what I was saying. If we politicize energy, we get what we got. We need to de-politicize it and demand non-partisan solutions from our elected officials. They work for us, not the other way around. We're lousy bosses of our elected representatives when we let them get away with more than three decades of politics over energy. My new company is dedicated to changing the formula. If all our citizens are engaged on energy, we will have Affordable Energy. We will put out information for everyone to see, take the myths away, take the blinders off, call it as we see it in non-partisan reality, and let the nation's electors decide what they need to tell the elected to do. by
15. • Is Citizens for Affordable Energy promoting alternative energy sources, such as biofuels and wind and solar energy, to help lessen the demand for oil? by 20037
    • Answer: We're focusing on four priorities, called the "Four Mores" over the short, medium and long term future. 1) More energy from all sources of supply. We need more hydrocarbons in the short term to meet daily needs. We need many more alternatives in the medium term to start displacing hydrocarbons. We need new investments over the long term to rely on new technologies and nuclear energy in the future. 2) We need incentives to invest in more new technology to increase the efficient use of energy. But using less we preserve more for the future. We need to address efficiency in transport, construction, appliances, lighting, etc. We also waste too much energy with our bad habits today. 3) We need more environmental stewardship to govern the release of gaseous wastes into the atmosphere. Just as we have managed physical waste and liquid waste, we need to turn our attention and technology to managing gaseous waste, including CO2. I don't profess to know anything about climate change or global warming because I'm not a climatologist. However, neither you or me wants to stick our head over a smokestack or the end of a car's tailpipe. Yet we put all that waste into a finite atmosphere. It's time than mankind worldwide stopped filling the atmosphere with so much man made wastes. 4) We need more physical and legal infrastructure to get energy from where it is produced to where it is consumed. We can't grow our economy without more energy. We fight infrastructure as a society wherever it is proposed. That's not a good thing. The Four Mores planned out over short term of 0-10 years, medium term of 10-20 years and long term of 25+ years would put this country on a sound energy platform for the next century. We need to turn energy into a politically neutral subject in order to get this done. If elected officials who run for office every 2, 4 or 6 years use energy for political advantage, we will never solve our energy future. by
16. • Would you please tell us why oil prices went up so dramatically and now are dropping so quickly. by Washington, D.C.
    • Answer: As recently as last May and June there were shortages world wide of diesel and aviation fuel. This is what drove the oil price so high. There is only so much diesel and aviation fuel, called middle distellates, in a barrel of oil. We didn't have enough crude barrels to meet the demand, so the price kept going up. By July and August the global slowdown started to impact the demands for diesel and aviation and suddenly we have more crude than we need. That is why the price rose so high and why it has dropped so quickly. Speculators play some role on both sides of the up's and down's but not as much as people may think. The core problem of high oil prices was the perception that we couldn't meet the demand for diesel and aviation, which was true. The reverse could happen again. If the economy stabilizes and grows, if we don't get more barrels, we're right back into it again. That's why we need to find more hydrocarbons in the short term. by
17. • In light of storms Katrina, Rita and Ike, what are your thoughts on adding more strategic reserves so that the prices of gas do not fluctuate as much? by Boston, MA
    • Answer: It's no problem to store as much crude oil as we choose because it can sit forever waiting to be refined. However once crude oil is refined, it deteriorates as finished product rather rapidly, especially gasoline. So storing lots of gasoline in the eventuality of a hurricane could result in sending deteriorated product into the supply chain. That would not be good for cars and trucks. by
18. • Please compare and contrast the energy policies of Sens. McCain and Obama. In terms of energy, who is the preferred candidate? by dc
    • Answer: As I read their policies, there are more similarities than differences. McCain seems to be stronger on drilling but Obama doesn't rule it out. Both are strong on alternatives. McCain seems to be strong on nuclear; Obama doesn't rule it out. Both are strong on the environment and controlling gaseous waste. Both promote Green and American jobs. For my part, I'm officially non-partisan and undecided. by
19. • How serious a problem is global warming, and if it is a problem, what should the oil industry to about it? by dc
    • Answer: Since I'm not a climatologist, I'm unqualified to discuss global warming. As a citizen and former energy executive I am seriously worried about the gaseous waste we emit into the atmosphere. The U.S. burns 10,000 gallons of oil per second; 1200 train car loads of coal per hour; 60 billion cubic feet of natural gas per day (which if piled atop one another in blocks would stretch to the moon and back about 25 times). That's a lot of CO2, man-made, going into the atmosphere. I believe we should control gaseous waste as we do physical and liquid waste. We'd all be better off and so would the atmosphere. So I'm a fan of regulating waste of every form. They said we couldn't afford landfills, they said we couldn't afford liquid waste management regulations. Guess what. We absorbed those costs and we're all better off. I believe the same is true for gaseous wastes. We can reduce them and store them underground and afford to pay for it. by
21. • The United States imports about 14 million barrels of oil and petroleum products each day. If ANWR and the offshore areas currently closed were open to production, how many barrels of oil could the U.S. be producing from those areas in three, five and 10 years? And for how long? by dc
    • Answer: Here's my solution: we can flip imports on its head if we choose to. In other words we can go from 14mbd of imports to 7 if we did the following. Keep in mind we use 21 million barrels per day. If we opened up more drilling we could produce 2-3 million more barrels per day in about 10 years. If we increase bio-fuels to 2 million barrels per day, we displace imports. If we use new efficient technology, we decrease oil use by 2 million barrels per day. If we open up Colorado/Utah/Wyoming oil shale for development, we increase production by another 1 million barrels per day. It's my view that all of this could be done in ten years and we could rely on imports from our neighbors, such as Mexico and Canada, Brazil and maybe we can also straighten out our strained relations with Venezuela. My point is we can fix the problem we made for ourselves if we have enlightened and de-politicized government policy. by
22. • Isn't the precipitous drop in oil prices in the last few weeks pretty much prima facie evidence that much of the run-up in oil prices during the spring was fueled by leveraged bets by hedge funds and major investment banks such as Lehman and Merrill Lynch, which are now liquidating their holdings to stave off further losses? by Silver Spring, Md.
    • Answer: In an earlier question I described the impact of the shortage of diesel and aviation fuels around the world as the primary reasons for the run up in oil prices. We didn't have enough crude barrels to produce the demands for these middle distellate products. Speculation may have played some role. But last week the Commodities Futures Trading Commission reported to Congress that their evidence shows that the big fund traders had largely gotten out of oil earlier in the year. I still believe it was largely a demand driven price increase and lasted until world wide growth slowed and now we have more supplies as a result of the slowdown, so the price is dropping. by
23. • You have had the ultimate insider's view to the world of energy finance. Aside from the plans that you and Boone Pickens propose that will take at least a decade to implement, what are your thoughts on things that can be done today to help with the energy issue? by Washington, DC
    • Answer: We need a comprehensive energy plan that addresses energy challenges on a short-, medium- and long-term basis. Energy initiatives take a long time by definition. The industry has been held back by short term political thinking for decades. However the only short term solution to prices, availability and environmental issues is to use less energy tomorrow than we use today and to repeat that formula over and over again. By reducing demand we will quickly impact prices, have more security and reduce gaseous waste. But for the past decades we have demanded more every year and it has now reached the breaking point where what gives is price. If we don't increase supply and don't reduce demand, the result is higher and higher prices. So my proposals are to increase supplies while improving efficiencies, addressing the environmental issues and increasing infrastructure, simultaneously. by
24. • Mr. Hofmeister, we're coming to the end of our time. We very much appreciate your taking the time to be with us this afternoon. Do you have any final words for our readers? by Jeffrey Lea
    • Answer: Thank you for the opportunity to connect with your readers. I hope you and they have a great day and more energy security in the future. by