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Contra Costa Times: CEO says biofuel on way to Shell

By Janis Mara
STAFF WRITER

Article Launched: 10/17/2007 03:02:37 AM PDT

MARTINEZ — Fuel made from orange rinds, wood chips and switchgrass may become part of Shell gasoline in 10 to 20 years, beefing up supply and possibly lowering prices, the company’s president said last week at the company’s facility here.

“Shell as a company has bet its biofuel future on future-generation biofuels. We are investing in cellulosic biofuel,” which is made from sources such as paper and wood chips, John Hofmeister, president of Houston-based Shell Oil, said during a visit to California. Shell is also researching algae as a potential alternative fuel, he said.

Future-generation biofuels are newly developed fuels made from organic sources. Corn ethanol, currently an additive in gasoline, is considered the present generation.

Hofmeister’s company has a partnership with Montreal-based Iogen Corp., which may build a plant in Iowa to research the possibilities of this renewable fuel, he said. He said it’s “possible that in 10 to 20 years there will be large quantities of ethanol from Shell for the market,” adding that although it’s possible this would lower prices, it isn’t certain.

The president of Shell came to the Bay Area last week to speak at the World Affairs Council. The visit was the 46th stop of a 50-city tour to discuss energy issues face-to-face with the public.

Gas prices in California are consistently higher than the national average. For example, a gallon of regular unleaded gasoline is going for $3.07 in California, 31 cents more than the national average of $2.76, according to AAA of Northern California. In Oakland, it’s $3.17.
Asked why the state’s gas prices are higher, Hofmeister said, “The California market is robust. It’s a strain to fully supply this market because there are potential unplanned outages of the supply of unsure duration. Refineries are running flat out, so if there’s an outage, it makes an impact.”

In September, consumer Jeremy Williams of Pleasanton told MediaNews that “market manipulation” was the reason for high gas prices, saying, “They (oil companies) should have reserves so that if there’s a problem at the refinery, they can make up for it.”

When informed of Williams’ comment, Hofmeister said, “In terms of specification of manufactured product, there is not sufficient supply to rebuild inventory levels, even though that’s our objective. There’s not enough production capacity to put gas in tanks and let it sit there.”

Hofmeister said the state also has a higher gas tax and stricter emissions standards, so it costs more to make California gasoline and it’s more difficult to bring in outside supply.

However, Severin Borenstein of the UC Berkeley Energy Institute told MediaNews in April that these elements add only about 38 cents a gallon of extra costs to California gasoline when gas in the state was selling for 60 cents more per gallon than the national average.

In response, Hofmeister said, “I don’t know where he gets his information. The ultimate decision is made on the street level by local dealers.” He said wholesale gas profit is counted in pennies per gallon, and in retail, single-digit pennies, “which in good times could get into double digits.”

Hofmeister acknowledged that the price charged by oil companies such as Shell to retailers would ultimately figure into the price paid by consumers.

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights, said gasoline costs are high, in part, because oil companies withhold supply from the market to drive prices up.

Responding to Court’s remark, Hofmeister said, “Jamie Court doesn’t work for Shell. He is inaccurate in his representation of how Shell works. Why would we withhold product when we have incredible demand? Why would we alienate customers?”

http://www.contracostatimes.com/business/ci_7201944

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