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Arkansas Democrat-Gazette: Shell chief: …Shell is proud of the job it’s done in Nigeria

Headline: Finding resources key

BY BILL W. HORNADAY
Posted on Wednesday, October 4, 2006

As president of Shell Oil Co., John Hofmeister is a natural target for some of the most oftenasked questions in the energy industry:

Why are fuel pump prices so up or down ? And how is the oil industry spending some of the record profits it has recently reaped to make energy more affordable for average Americans ?

During a Tuesday address at the University of Arkansas ’ Clinton School of Public Service, Hofmeister set out to answer those questions, as well as explain how vital it is for government and industry to help energy producers meet growing U. S. demand in an increasingly competitive global market.

“You may find it remarkable to hear someone like me say this, but prices have been pushed to what we in the industry consider to be ridiculous levels,” Hofmeister said. “Not necessarily because oil reached $ 60 or $ 70 a barrel, but because it’s driven at a psychological level rather than supply and demand.

“ So what are we doing about it ? We’re asking public policymakers to let us go where the energy is… to go where there’s more oil and natural gas, as well as explore unconventional sources such as liquefied natural gas and coal.

“ We need that access to increase supplies. Without it, we will not be able to keep up with demand.”

For now, Americans are enjoying their lowest gasoline prices in nearly a year.

As recently as August, the average price for unleaded fuel nationally hung just below $ 3 a gallon, according to AAA, formerly the American Automobile Association.

Prices averaged about $ 2. 31 nationwide Tuesday and approximately $ 2. 16 in Arkansas, AAA figures indicate.

But exactly how long that may last is anyone’s guess.

At present, the world consumes nearly as much oil as energy companies produce — about 85 million barrels a day, Hofmeister said. The slide from surplus to equilibrium has been proceeding since the 1990 s, caused by strong economic growth not only in China, but in North America, South America and western Europe, he said.

Such trends have depleted the 8 million to 12 million barrels of reserves once maintained by the Organization of Petroleum Exporting Countries, drawing ever tighter the global supply chain, Hofmeister said.

“As a result, the global trade system has put a premium on the continuous supply of oil,” he said.

Two areas that Hofmeister said hold the greatest sway over pricing are the vulnerability of pipelines in southern Iraq that supply up to 2 million barrels of oil a day and Iran’s threat to cut exports as a response to threats against its nuclear ambitions.

An Arkansas-based energy economist says he would add turmoil in Nigeria and recent anti-U. S. rhetoric by Venezuelan ruler Hugo Chavez to that list.

Shell has substantial operations in Nigeria that date to the 1950 s.

But attacks by militants who claim residents have seen little of the country’s oil wealth have cut the normal output of 2. 6 million barrels a day by 25 percent.

Nigeria is Africa’s largest oil exporter and the fifth-largest U. S. supplier.

“The situation between militants and the government in Nigeria can flare up at just about any time,” said James Williams, who owns WTRG Economics near Russellville.

Hofmeister defended Shell’s practices in Nigeria, including its position in a case in which a Nigerian court earlier this year ordered it to pay $ 1. 5 billion in pollution damages.

Shell is appealing the ruling, he said, arguing that it unfairly singles out the company and doesn’t reflect what it has done to protect Nigeria’s environment and help its citizens. In some cases, Shell has not been allowed to clean up some areas and the company also has concerns about how much money the government will direct to local tribes, he said. “Shell is proud of the job it’s done in Nigeria and developing the resources that it’s been allowed to by the Nigerian government,” Hofmeister said.

Although imports account for roughly two-thirds of the total U. S. supply — figures based on July data from the Energy Information Administration — oil independence for the United States is not the answer, he said.

“If it’s only us, then other nations will respond and break down what has evolved as a global system,” Hofmeister said.

For a short-term solution, Shell is pushing for access to at least 112 billion barrels of oil reserves known to exist on federal land — enough to power 60 million homes and 60 million automobiles for the next 30 years, he said.

At the same time, a long-term solution to the energy crunch includes working to develop new technologies, such as the extraction of more oil and gas from existing wells, tapping oil shale deposits in Colorado and the oil sands of Alberta, Canada.

Other strategies include exploring the efficient use of biofuels to produce energy, as well as nontraditional sources such as liquefied natural gas, solar and wind technology and hydrogenbased fuels.

Developing a culture of conservation also plays a key role.

“It’s going to take much more than telling people to lower their thermostat or lay off the gas pedal,” he said. “It’s got to start in the schools and be passed through the generations that we cannot afford to waste energy.” Information for this article was contributed by The Associated Press and Reuters.

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