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Florida Times-Union: Oil company president comes out of his Shell

Executive weighs in on energy security, pump prices and the effects of hurricanes.

By TIMOTHY J. GIBBONS, The Times-Union

Despite jokes about the reception usually given to oil company executives, Shell Oil Co. President John Hofmeister was widely applauded during a lunchtime address to Cornerstone, the economic development arm of the Jacksonville Regional Chamber of Commerce.

Before the lunch, Hofmeister, who is touring 50 cities to talk about the future of the nation’s energy supply, sat down with the Times-Union to share his thoughts.

Q. Why are you in Jacksonville?

The reason we’re meeting with newspapers, elected officials … is our interest in increasing the dialogue between companies like Shell and stakeholders at all levels on the issue of energy security. We call this a national dialogue on energy security.

Q. Why are you concerned about energy security?

We’re a supplier, a producer. Our job is to find new resources and develop those resources for the market. We’re having more and more difficulty with public policy getting access to produce more supplies. The irony of today’s high crude price is it is driven by import demand, not just from the Untied States, but from other countries that don’t have oil resources, such as China or India. At the same time, the U.S. is a producing nation which denies its oil companies the ability to produce more. … Eighty-five percent of the outer continental shelf is banned from exploring and drilling while we pay these high import prices.

Q. Gas prices are hitting the same sort of record levels they did after [Hurricane] Katrina. Does that concern you?

That’s one reason we’re here. We’ve been visiting people to try to build understanding and listen to the views of local people. … While the crude price has been relatively stable, if high, the finished product price has been more volatile. [That stems in part from issues that occur when refineries were shut down for maintenance.] When those facilities are shut down, there is no production. We generally build inventory in advance of shutdown. With labor shortages, most of our turnarounds took 50 percent more time.

Q. What led to labor shortages?

A confluence of hurricane-related reasons. The vast rebuilding along the whole Gulf Coast has just sucked up the labor. By the end of the turnaround season we were at a 16-year low in finished product inventory. But the demand is unrelenting.

Q. Does that surprise you at all? Gas prices going up, you’d expect that demand would ease up.

We love our mobility. It’s obvious we’re not yet at a price point where people are going to park their cars and drive less. What I worry about as a supplier is the social injustice of how this heavy price falls most greatly on those who can least afford it.

Q. Many people would say oil company executives, if you care about social injustice, there’s other ways you can deal with it other than more drilling. In light of Shell’s $7 billion in first quarter profits, are there other ways?

If we were to make less profit, there would be less money for capital investment in new production. The most just thing we can do is reinvest our profit in the future. If we did not, the pump price would go ever higher.

Q. You talk about this being a good time to invest, but say the incentives given to invest are not as high as you’d like them to be. Why ask the government to do more?

We know from nearly 100 years of history that refining is a volatile history. Through more of its history than not, it has not been a positive contributor in terms of its profitability. The incentives simply provide assurance that through good times and through bad times there are certain fundamental economics you can count on so you can live through the bad times.

Q. If there is another active hurricane season, do you see retail prices hitting $4 a gallon?

It all comes down to supply and demand. If – this is a big if – in the aftermath of a hurricane, people stayed home, and drove less, you would not see the panic pull on the wholesale supply. That immediately has an impact on prices way up the cost. In the immediate post-hurricane aftermath, there’s no scarcity of fuel. What often happens after hurricanes if everyone is driving everywhere.

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