Shell Oil Chief Says Fuel Regulation Won’t Help
By Virgil Larson, Omaha World-Herald, Neb.
Feb. 17–U.S. energy security will best be won by letting markets, rather than government regulation, determine what fuels are used, the head of Shell Oil in this country said Friday.
That includes ethanol, John Hofmeister said. Requiring its use rather than making it compete with gasoline would be bad economic policy, Hofmeister said in an interview after speaking to an Omaha business group.
Hofmeister left no doubt that he thinks energy security — defined as “available, affordable energy . . . for every generation we can ever imagine” — will depend heavily on oil if market forces are allowed to operate.
Though the “age of easy oil” has passed, the country has a plentiful supply, though it may be difficult to recover because of remoteness and politics in an “age of more challenging oil,” he said.
Hofmeister is president of Houston-based Shell Oil Co., the U.S. arm of Royal Dutch Shell.
Shell itself has bet on ethanol development through investments in three companies, one Canadian, one German and a third he would not name. They are in “pilot” production of cellulose-based ethanol, Hofmeister said. Cellulose ethanol is produced from things like switch grass and crop residue.
Shell is not involved in producing corn-based ethanol, he said, though it blends it with gasoline and distributes it.
The ethanol industry is overbuilt, Hofmeister said. “I’m hoping the market for ethanol will develop rather than government regulations for ethanol. The worst of all worlds would be if regulations require ethanol when it is non-economical with gasoline.”
A 51-cents-a-gallon federal subsidy to manufacturers is the “only thing that makes it (ethanol) economical” when crude oil is in the $40 range, he said. A recent Purdue University study showed ethanol competitive with gasoline when crude oil is above $50 a barrel, Hofmeister said.
Crude oil closed at $59.35 on the New York Mercantile Exchange Friday.
Of alternative energy sources overall, Hofmeister said, “I think they will all be successful, depending on their relationship to the price of oil.”
Shell has interests in developing solar power, wind-driven generation of electricity and “clean coal” technology that turns coal into gas. It has no involvement in nuclear power, Hofmeister said.
Wind is a niche product that is unlikely to develop into a dominant source of energy, he said. But in addition to it being a “welcome addition” to energy production, it has the added benefit of being a revenue generator for rural areas where windmill farms can be built, he said.
He sees coal gasification, whose future he called “bright,” as being used at electric power plants where gas can be fed directly to the boilers. Gas from coal was unlikely to replace natural gas or liquified natural gas, Hofmeister said.
A gasification plant in North Dakota’s coal fields ships gas via pipeline for use in major urban areas.
Hofmeister used coal gasification as an example of where public policy changes may be needed to prod development. An incentive to power utilities to build coal gas-fired generation plants might be to allow rate increases in advance of construction.
He also pointed to the difficulty of finding coastal areas where people will allow terminals for landing liquified natural gas brought by ship from plentiful supplies in Australia, Russia and Nigeria.
More in line with its oil-business roots, Shell has been involved in development of the Colorado oil-shale industry for 20 years and also is recovering crude from oil sands in the western Canada province of Alberta.
Speaking to the Greater Omaha Chamber of Commerce’s Go! economic development group, Hofmeister said the United States has a plentiful supply of oil on the offshore continental shelf and in federally protected areas. But public policy changes are required to allow oil companies to go after much of it, he said.
“The public will decide ultimately whether or not we will have access,” he said when asked in an interview whether it was not an uphill battle against public opinion to win drilling rights in such areas. “We’ll do whatever the public tells us to do.”
Hofmeister and other oil executives are traveling across the country to get the industry’s message out. Omaha was the 26th of 50 stops.
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Copyright (c) 2007, Omaha World-Herald, Neb.
Distributed by McClatchy-Tribune Business News.
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