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The Orange County Register: Shell Oil president speaks in Irvine

John Hofmeister Ivine CA

John Hofmeister (above) is on a 50-city tour to redress ‘a communication shortcoming with the American people.’
Friday, September 15, 2006

IRVINE – Shell Oil Co.President John Hofmeister brought his 50-city U.S. tour to Orange County on Wednesday night, part of an effort to address what he called “a communication shortcoming with the American people.”

After last year’s Gulf Coast hurricanes launched gasoline prices on a course to unprecedented highs, oil companies reported that their profits had also set records. The circumstances provoked outrage among some Americans and led to government investigations of the oil industry, which so far haven’t turned up evidence of wrongdoing.

Shell’s leadership decided “to go out and talk to the American people about where does energy come from … how can we secure our energy future … what’s happening to the profits,” Hofmeister said.

At a dinner of the World Affairs Council of Orange County, Hofmeister spoke without notes and took questions from the audience. Beforehand, he sat for an interview with the Register, excerpted below:

Q. Gasoline prices in California are consistently higher than in most of the rest of the country. That’s partly because we have a shortage of refinery capacity here. Is there any solution in the offing?

A. Our job is to supply the markets from wherever we can find supplies. Refineries is one source. Imports is another source. Pipelines is another source. We’re working on a project now – early days and it’s another 10 to 12 years before this project would mature if we go forward with it – to develop the oil shale of Colorado. … The oil shale of Colorado could produce such prolific supplies of high-quality oil products that with a very light refining addition, we could pipe finished products from Colorado to Southern California. We wouldn’t need an additional refinery (in California).

(Note: In a Sept. 4 article, the San Francisco Chronicle reported that Shell’s project for developing Colorado’s oil shale “is stunningly complex. Instead of strip-mining the rock and then processing it, Shell plans to superheat huge underground areas for several years, gradually percolating oil out of the stone and pumping it to the surface.”)

Q. What is the timetable for deciding whether that scenario is feasible?

A.We’ve told the members of the Senate and the House that we’re not going to be able to make a decision to go forward until about 2010 because we’re testing the technology. Then if we’re successful in testing the technology and get the licenses that we need in order to operate, we’re probably looking at another five years of developing the oil shale, so we’re into the late next decade to see large quantities coming into the marketplace if it all goes forward.

Q. How big a quantity is there? How do these Colorado oil shales compare to Chevron’s recent find in the Gulf of Mexico or the oil sands of Alberta?

A. We’re delighted for Chevron at the oil find which they discovered, and their partners. They set a range of three to 15 billion (barrels). If it’s at the high end of the range, that’s about three years’ worth of U.S. oil supply. If you look at oil shale, there’s more than a trillion barrels – not billion, trillion – in Colorado, Utah, Wyoming and more than 1.3 trillion in the oil sands of Canada.

People tend to think of Saudi Arabia as a country with a lot of oil – they list reserves of 262 billion barrels. In Colorado and Alberta, the two added together are more than 2 trillion barrels, so it dwarfs the rest of the known world’s supply.

Q. California’s Proposition 87, which is on the November ballot, would raise $4 billion to fund development of alternative energy technologies by imposing fees on oil drilling. What’s Shell’s view on that?

A. It’s a bad idea because we don’t need public funds to develop renewable fuels or alternative fuels. Private investors are already doing it. Shell is putting tens of millions of dollars a year, already, into second- and third-generation ethanol and research and development and manufacturing, through other parties. … We’re putting money into wind and hydrogen and solar.

Here’s the rub for the oil companies if the proposition wins: It makes already expensive California operations more expensive … in which case, investment funds may go elsewhere. So as a consequence of higher taxes, California could actually see a diminishing amount of oil and gas production in the state.

Q. President George W. Bush said in his State of the Union address that “America is addicted to oil, which is often imported from unstable parts of the world.” Looking at California, what could be done here to ease the situation?

A. From a crude oil standpoint, somehow reaching an agreement on the outer continental shelf of California. I realize that if I were a politician running for office in California, I might not get very far on that platform in certain communities. However, there’s a huge abundance of gas and oil off the coast of California.

Q. Is there an argument you could make to persuade people to allow more offshore drilling?

A.I don’t know. This is a true dilemma and a dilemma in the fullest sense, in that people have to make choices. And if people choose to continue to use oil-based products with internal combustion engines, at what price will they finally say we really have to change either how we behave with our automobiles, or we have to give the oil companies access to more supplies.

Q. With the profits they’re making, are the oil companies (taking advantage of) the American people?

A.I can speak for Shell. Shell is putting virtually 100 percent of our profits back into the business. We’re not taking it home. We’re not sending it off somewhere to store it. We’re putting it right back into resource development, technological research, alternative energy. …This is what I think we need to do in a high-price environment is develop supplies.

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