Former Shell President's Plan to Curb High Gas Prices and America's Addiction to Middle East Oil

Since President Richard Nixon first proposed it 40 years ago, promises to make America energy independent have become a staple of political discourse. Typically though, politicians offer up vague, unrealistic plans instead of a comprehensive energy policy.

John Hofmeister thinks he has the latter. Hofmeister is something of a heretic – formerly the president of a major oil company (Shell), he now argues in favor of drastically cutting America's dependence on oil.  Monday evening, I had an opportunity to hear him offer his plan to wean America off oil imported from volatile global regions, like the Persian Gulf, by 2020. As he explained, the United States currently consumes 18 million barrels of oil per day (bpd), while producing only 7 million; figure in natural economic growth along with the recovery from the Great Recession, and this demand will likely rise to the 20 million bpd range by 2020.

Yet, Hofmeister contends near total oil independence is possible. Part of his plan relies on the use of natural gas as motor vehicle fuel (which drives demand for oil in the U.S.). For the trucking industry, this would mean using compressed natural gas (CNG) as fuel for the long-haul trucking fleet; for passenger cars, Hofmeister is promoting the conversion of natural gas - along with some coal and biomass as well - into methanol, which can be used in place of or in a blend with gasoline. “Flex fuel” vehicles currently in production could burn a methanol blend without any modification. Use of natural gas, he states, could displace 5 million bpd of crude oil demand by 2020. Another 2 million bpd would be displaced through increased fuel efficiency standards for cars and trucks sold in the United States.

He proposes increasing domestic production of crude oil from the current level of 7 million bpd to 10 million bpd, the historic peak production level in the United States. As Hofmeister contends, since the United States was able to produce 10 million bpd in the past, there is no reason why, with the advancements in drilling technology that have taken place during the past four decades, this level cannot again be achieved. Hofmeister was quick to note he wasn't endorsing the idea of “drill, baby, drill” anywhere and everywhere as some politicians have advocated; rather, drilling decisions need to be made after careful analysis of potential reserves – which is actually the best-practice standard in the industry today.  These three steps would meet a net American demand for crude oil of 17 million bpd; by importing another 2-3 million bpd solely from sources located in the Western hemisphere – primarily Canada and Mexico – the United States would reach the target level of 20 million bpd of crude oil, all without bringing in a drop from the Persian Gulf.

Hofmeister's proposals are controversial, even within the oil industry, and they are built upon a series of assumptions, but taken individually none of them are unrealistic. CNG is widely used as a motor vehicle fuel in some countries, like Pakistan, and is used in some city bus fleets in the U.S.; coal-to-liquid and gas-to-liquid processes to convert these substances into motor vehicle fuel are proven technologies, though admittedly not at the scale that Hofmeister proposes in his plan; the auto industry can certainly produce highly-fuel efficient vehicles, while the domestic oil industry is already projecting to add 500,000 bpd of supply to the market this year just from the Bakken oil reserve in North Dakota alone.

A plan of the scope Hofmeister is proposing, though, will require a high degree of coordination. It is here that he makes perhaps his most controversial suggestion: the creation of a single national energy authority modeled after the Federal Reserve. Hofmeister didn't hold back in his critique of current government energy policy, which he argued has become overly politicized. The president and Congress run on a two-year election cycle, far too short a time frame to do anything productive when it comes to energy; the states provide a hodge-podge of 50 different legislatures, each with their own agenda, while the roughly 800 judges at the federal level can render any energy policy moot with a single ruling.  Hofmeister contends that under this system, it is impossible to construct a comprehensive energy policy, especially one that will govern the construction of energy assets – like pipelines or power plants – that recoup their capital investments over a period of decades rather than years. To make matters worse, Hofmeister contends that for the past 50 years, politicians of both parties have used “fear” of energy shortages/expense for their own purposes, while the energy industry has hurt itself by not being transparent in their operations, two factors that give Americans a distorted view of the national energy picture.

Without energy, it is impossible to have a functioning modern country. The United States desperately needs an energy system that can meet the realities of the 21st century; John Hofmeister at least has laid down the framework for a workable system.