Can Oil Supplies Grow Fast Enough to Keep Prices in Check?
I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil and currently the head of Citizens for Affordable Energy, a non-profit group whose aim is to promote sound U.S. energy security solutions for the nation. In the first part of this interview Mr. Hofmeister spoke of A Difficult Decade Ahead For Oil Prices and Supplies. In this installment, he sets forth his vision of a sound energy policy for America.
The Hofmeister Energy Plan
Mr. Hofmeister’s plan consists of the following elements:
- Set a national objective in the United States to get back to the production level of the 1970s and 80s of 10 million barrels a day;
- Reduce our imports by 5 million barrels a day by using natural gas as an alternative to the internal combustion engine oil products:
- Use compressed natural gas for trucking to displace 2 million barrels a day of imported oil, and,
- Convert natural gas to methanol for flex fuel engines to reduce imports by another 3 million barrels a day;
- Continue the journey toward more higher efficiency automobiles and continue the journey to more electrified vehicles as well, both batteries and hydrogen fuel cells.
Mr. Hofmeister’s plan would require U.S. oil production to increase from around 6 million barrels per day up to 10 million bpd, and for natural gas production to increase from 60 billion cubic feet per day (bcfd) to 90 million bcfd.
I shared with Mr. Hofmeister my skepticism that oil supplies could expand fast enough to meet growing demand, and that the consequence would be higher oil prices which would result in stagnant growth. (See more: The Long Recession)
In his reply, he noted that on the current trajectory this is probably correct, but then he laid out what he feels would be a logical and comprehensive energy plan for America. His reply in full follows:
JH: If we stay on the current trajectory under current plan expectations, and if the United States maintains its current off-limits position on offshore access, on the Arctic, and on Colorado oil shale in the Piceance Basin, and its continued diminishing of access to federal lands, then I think you are absolutely right.
On the other hand – as I have often done – I paint a scenario of not only significant economic prosperity, but actually significantly increased domestic supplies of energy in the United States along the following lines: If we could ever get past the perversity of the partisanship that we see in the Congress, if we could ever get past the aspirational headlines put forward by politicians — with actually no plan behind the aspirational headlines — if we could ever stop misleading the American people into what we are not doing, by suggesting we are doing what we are not doing, I believe we could lead a bonanza of domestic natural resource production which could fuel an economy even if prices in the short term remain high.
And what that looks like is the following, and it addresses the transportation dilemma of cost and availability that I would otherwise see in this decade: And what it would consist of is setting a national objective in the United States to get back to the production level of the 1970s and 80s of 10 million barrels a day. We are currently at 6, we’re up from 5 four or five years ago, now we are at 6. We should set a national goal of a 10 million barrel a day production target that we could achieve in the next 10 to 12 years if we were serious about it.
Number 2, reduce our imports by 5 million barrels a day by using natural gas as an alternative to the internal combustion engine oil products – current system. And that is to start using compressed natural gas for trucking to displace 2 million barrels a day of imported oil. That would take 14 or so bcf (billion cubic feet) of additional natural gas. The other 3 million barrels of imports could be eliminated by virtue of converting natural gas to methanol for flex fuel engines to the tune of about 16 bcf per day. That’s 30 additional bcf, up from 60 to 90. So 10 million barrels oil is a goal; 90 bcf is a production target for natural gas, where 30 bcf would be converted to either CNG or methanol to displace imported oil.
Meanwhile, continue the journey toward more higher efficiency automobiles and continue the journey to more electrified vehicles as well, both batteries and hydrogen fuel cells. And I think we could go a long way in the next 10 to 12 years and beyond, particular beyond the next 10 to 12 years for electrified vehicles to bring a rational sense of well being to the transportation system of the country with more affordable prices because of the use of natural gas and less imports, and because of the increased electrification and less demand for oil. But that would take rational, thoughtful, pragmatic planning, which is 180 degrees from anything we have seen from a public policy standpoint, at least in my career.
Mr. Hofmeister has been helping to shape content for the launch of Total Energy USA as a member of the Executive Committee. Total Energy USA is the groundbreaking conference and exposition that addresses the greatest uncertainty in the energy industry today — the cross-fertilization of energy sectors and technologies. More information about Total Energy USA, November 27-29 in Houston, Texas at www.TotalEnergyUSA.com