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The Herald-Sun: Shell Oil president says supply and demand set costs

BY GREGORY PHILLIPS : The Herald-Sun
[email protected]
Oct 19, 2006 : 9:15 pm ET

DURHAM — Amid a 50-city tour to claw back some credibility for his much-maligned industry, Shell Oil’s president visited Durham Thursday to explain why Americans need to know more about how they get their energy.

“We the industry have trained people to be entitled to low-cost gasoline, never having explained how difficult it is to keep that low-cost gasoline in supply,” John Hofmeister told more than 100 students, faculty and other observers at Duke University’s Nicholas School of the Environment and Earth Sciences.

The high gas prices that squeezed consumers this summer resulted from market forces set in motion by last year’s hurricanes, Hofmeister said.

“High prices was the only means by which the markets controlled the purchase of gasoline,” he said. “The prices went up because there was more demand than there was supply.”

Hofmeister was made president last year after leading Shell’s human resources division. He said the future of U.S. energy is reflected in Shell’s efforts to access to oil reserves in protected offshore areas and on federal lands, as well as its investment in alternative fuels such as liquid gas, bio-fuels, wind energy, solar power, hydrogen fuel cells and so-called clean coal. However, while Shell posted $23 billion in profits last year, only $230 million went into alternative fuel research.

“You can’t spend more on technology if you haven’t developed the technology yet,” Hofmeister said, adding most markets aren’t ready for alternative fuels yet because those fuels remain too expensive.

Shell is spending $21 billion this year on developing more energy, Hofmeister pointed out, with most going on the escalating costs of accessing and extracting oil. In addition, the company is paying a dividend to shareholders so it can hold on to their liquid assets.

“We don’t think we are squandering our profits,” he said.

Hofmeister claimed technology will move civilization away from oil before it runs out, but that there’s no silver bullet, quick fix to the growing U.S. demand for energy in the meantime. He admitted politicians and the public are unwilling to listen to ideas from oil companies because they have, as he put it, “zero credibility.”

Americans need to be more educated about where their energy comes from, Hofmeister reckons — an impetus behind his tour.

“We teach little bits and pieces, not a holistic story of energy, so nobody really understands it,” he said.

Bill Schlesinger, Nicholas School dean, called Hofmeister’s view of the oil supply too optimistic, “particularly at prices people will want to pay. I would have much preferred for him to talk about transition to a sustainable energy future,” he said. Schlesinger did add the talk was a wonderful opportunity for students to hear an oil company perspective as opposed to the grass roots environmental view they usually get.

“This makes our kids think and refine their arguments,” he said.

Admitting it was difficult to divine Hofmeister’s true intent, graduate student Kathryn Eggers applauded Hofmeister’s attempt to educate the public nonetheless.

“I think it is a valid effort to make and something that’s needed in more than 50 cities,” she said.

Schoolteacher Tim Ahmadieh of Cary said he was left with questions about gas prices.

“You wonder are the prices real, or are they totally inflated because they know they can get away with it,” he said.

Still, Ahmadieh said he didn’t find anything outrageous in Hofmeister’s comments.

“He at least seemed sincere,” Ahmadieh said, “let’s put it that way.”
 

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