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The Boston Globe: Shell executive sees gas supplies tightening

Saturday October 28, 2006

Taking a page from US Senator Hillary Rodham Clinton’s 2000 campaign “listening tour” across New York, Shell Oil Co. has launched a two-year, 50-city tour by senior executives aimed at improving communications — and defusing hostility to Big Oil and its recent record-breaking profits.

Shell, which recently bought Texaco stations across Massachusetts, controls about 10 percent of the Bay State gasoline market. Shell president John Hofmeister came through Cambridge this week and spoke with the Globe’s Peter J. Howe before a speech at Harvard Business School.

Q Where’s the price of gasoline headed?

A One thing we can say is, it’s likely to change, one way or the other. But the industry’s learned a hard lesson: We don’t get into these predictions. We’d be wrong. We’ve been wrong in this business many times. Many of us thought back in 1998 and 1999 that under-$10-a-barrel oil was here to stay. Boy, were we dead wrong.

One thing I can say, though, is that coming into this season, after last year’s hurricanes, we planned for more inventory to cope with the possibility of plant shutdowns. We also incentivized dealers to keep their tanks full. As a consequence, we have a short-term surplus of supply, which is affecting prices.

Q How much longer can that excess supply keep dampening prices?

A We’re pretty much getting to the end of it and back to more of a living hand-to-mouth situation in terms of supply. When you get to a hand-to-mouth situation, you can see a lot more volatility in prices. Demand is higher than a year ago, and once that’s worked off, we could see the same supply-demand tensions we saw a year ago.

Q Are higher gas prices curbing long-term demand?

A What we see over the next 20 years is demand rising from 85 million barrels a day to around 120 million barrels. Shell is spending $19 billion this year and $21 billion next year to get more oil and gas.

Today 4.5 percent of the world’s people, who live in this country, use 25 percent of the oil supply. If the rest of the world wants that kind of well-being , that’s going to put tremendous pressure on supply.

Q Isn’t the world running out of oil?

A We’re going to have an extraordinary challenge meeting the demand of the future if we don’t drill somewhere. I agree with the premise that we’ve moved on from the easy oil environment. We’ve moved on to simply more technically challenging basins and more harsh climactic conditions. That can mean more outer continental shelf drilling. We’re also looking at sources like the oil sands in western Canada or shale in Colorado or what they call heavy oil in Venezuela. These are trillion-barrel reserves. We look at the unconventional sources as an opportunity.

Q Shell’s also very active in liquefied natural gas projects and proposing an LNG facility 11 miles off Long Island. How do you overcome the widespread opposition to LNG?

A I know that LNG sites are controversial, but they’ve existed safely around the world for 40 years. There are countries like Japan and Korea that are entirely dependent on LNG for their gas supply. Given the demand curve for the future, and what we know about the availability of supply , supply will not keep up with demand for natural gas in the future. What we see as the ideal is that by about 2020, 20 percent of the US gas supply would come through LNG. That compares to about 2 or 3 percent now.

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