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Orlando Sentinel: Oil companies not gouging, executive says

Mark Chediak | Sentinel Staff Writer
 
John Hofmeister, 58, president of Shell Oil Co. (the U.S. subsidiary of Royal Dutch Shell ), who was in town recently to address the Orlando Regional Chamber of Commerce. He spoke with staff writer Mark Chediak.

Question: Consumers are paying more for gas while big oil companies like Shell have recently raked in billions in record profits. Do you think consumers are justified in being upset with big oil’s gains?

Answer: I think consumers are naturally upset at the rapid change in price levels, and the upset is probably due to the fact that they may not understand what’s really going on.

This is not oil companies attempting to price gouge consumers for the sake of profitability. What’s going on is that the supply of product has simply not kept up with the demand. And pricing becomes a natural mechanism with which to ration available product.

Q: Do you think $3 gas is here to stay? And what’s been driving up the price of oil? Will it eventually go down?

A: $3 gas is a market reflection. If supply increased and demand decreased, we probably would see prices drop. If demand doesn’t decrease and supply doesn’t increase, we could see prices rise. Our job as an oil company is to increase supply.

Q: Do you agree with the President that the U.S. is addicted to oil from the Middle East? If so, why? If not, why not?

A: The American economy, just like the global economy, is predicated on oil and gas as a major source of energy. That has been developing over a hundred years. I don’t think that’s an addiction. I think that is just reality. I think that alternative energies are being developed, which will change that game. But that takes a lot of time and a lot of technology.

Q: In earlier public statements you’ve said that Shell is concerned that greenhouse gas emissions are leading to changes in the global climate. What responsibility do you think Shell should take to address this concern?

A: I think every project that we have in the world that deals with carbon molecules needs an environmental impact plan. And we do that already, so that we manage the CO2 footprint that we create when we produce more oil and gas. I believe we have to manage CO2 emissions to lower levels. Shell is committed to that. It’s part and parcel of every project that we embrace, that we manage the C02 emissions.

I think the world and the country need a global cap and trade system on CO2. I think that would be a natural way of bringing CO2 into manageable levels. I think we should all agree that the debate is over and let’s get on with solutions.

Q: The U.S. Senate recently passed a bill forbidding offshore oil and gas drilling within 125 miles of Florida until 2022. Do you support this buffer and how do you view it in light of your public calls for more domestic exploration in places like the eastern Gulf of Mexico?

A: At the end of the day, we support whatever policymakers decide. We believe that our job is to articulate our views in the process of setting policy. But it is not our job to set policy.

Q: You’ve said earlier that you think drilling in the eastern Gulf of Mexico is important as far as increasing supply. Can you elaborate on why that is important?

A: I think that restricting access to possible deposits of oil and gas is only going to prolong high prices. If people are really concerned about high prices and want more supplies, then we have to have more access to oil and gas. If we are denied access to oil and gas, that’s OK, we’ll live with that, we’ll go somewhere else where we can get access. But then people should not be as frustrated by high prices as they are.

Q: What do you say to those who are concerned about the potential harm to the environment from an offshore environmental accident or a deep-sea spill that could hurt Florida’s multibillion-dollar tourism industry?

A: We are as deeply concerned about the possible implications of a spill as any other person I know of. Therefore, we apply our best technology. We apply strict standards. We apply the rules and regulations that government calls for and we manage that vigorously. I think the proof is in the pudding. And what we saw with Katrina and Rita and the other hurricanes a year ago was no spillage in the Gulf of Mexico of crude oil.

Q: Do you think the federal government should raise its fuel economy standards to promote more fuel-efficient vehicles?

A: What Shell calls for is a culture of conservation. We believe that it’s not just fuel economy in vehicles that needs to be addressed. We believe it’s fuel economy in buildings, homes, factories.

Q: We’ve talked here about supply and demand, and Shell obviously is looking to increase its supplies. But at the same time, by decreasing demand through conservation and other means, we can also address this challenge. What is Shell’s proposal as far as managing the supply side as well as the demand side?

A: As I said in my remarks today, I think we need both. We need to address the supply side by increasing supply, and I think we need to decrease the demand side by decreasing demand. Shell takes a long-term view on the economy. We believe that our profitability is based on long-term affordable energy. If we produce unaffordable energy, people won’t buy it. And that will have economic consequences. By producing more supply, we relieve the pressure on the prices. Or if people use less, it would relieve pressure on prices. We think that’s good for the economy. We think our business model is robust for a different balance of supply and demand that we see today.

Q: Do you think that Shell can turn alternative fuels like hydrogen and biodiesel into a significant profit-making business?

A: We’re testing that now. We’ve put $1 billion into alternative fuels and energy in the last five years. We expect to put another billion or more into alternative energies in the next five years. Our goal is to develop one, if not two, profitable material businesses for the Shell portfolio from these investments. If we didn’t think it was commercially viable, we wouldn’t do it. We have exited some alternative fuels already. For example, we were in forestry. We decided we can’t make a go of it in forestry so we sold out. We’re currently investing in biofuels in tens of millions of dollars. We are investing in wind, solar and in hydrogen in the tens of millions of dollars. We think that one or more of these is going to be a viable business.

Q: You’ve made statements calling for more energy efficiency as a way to address energy concerns. Can you talk about ways the company and you in your personal life have tried to be more energy efficient?

A: At Shell, we measure our energy efficiency rigorously. So, we look at year over year energy usage in our refineries, in our offshore platforms. And we look at our flaring. We look at all of the CO2 emissions that we create. We look at all of our environmental emissions. We set targets and goals to try to reduce our emissions year over year. Shell has already achieved below its 1990 emission level. So we set a goal some years ago to emit less than our 1990 level of emissions by 2004. We achieved that early.

On a personal level, I look at how does my job consume energy, and I expect all Shell employees to look at how do their jobs consume energy. I don’t leave my computer on at night, for example. I don’t leave my lights on at night. I make sure they are turned off. If I’m not in my office, I turn off my lights. So I think all of us need a mind-set towards using energy efficiently.

Q: What kind of car do you drive?

A Volkswagen Phaeton. It gets about 23 miles to the gallon. Not great, but OK.

Q: Have you ever owned an SUV?

A: No.

Q: Would you consider buying a hybrid?

A: Yes, if I didn’t have to wait six or eight months for it.

Q: One final question, why do you think so much criticism has been aimed at the oil companies recently? What do you think is behind it? Is it simply a misunderstanding of what’s going on in the market?

A: People are angry at the myth of big oil. There really is no such thing as big oil. Shell consists of tens of thousands of everyday people who get up out of bed every morning to do their jobs. That’s not big oil. That’s little people doing their jobs.

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