Developing domestic gas resources could boost gross domestic product by 5% a year for the next 40 years, creating more jobs and powering the economy, says a former Shell Oil Co. chief.
John Hofmeister is a man on a mission.
When he retired in 2008 as CEO of Shell Oil Co., Hofmeister might have taken a more leisurely path. Instead, he kept both feet in the industry, founding Citizens for Affordable Energy. He rallies the faithful and champions issues near and dear to his heart without regard to party or affiliation. He doesn't believe it's the politicians, the corporations or the environmentalists, the Republicans or the Democrats, the Red States or the Blue that are most to blame for any one issue: the deficits, the lack of infrastructure, the poor job creation.
One thing Hofmeister does believe: the natural gas and oil industry can solve most of the nation's ills. And he is on a mission to convince everyone of his cause. On Monday he shared his message with a standing-room-only crowd at the 92nd Annual Gas Processors Association Convention in San Antonio. Speaking at times in a whisper, and at other times almost in a roar, the former energy executive had almost the entire audience of 2,700 representing 583 companies on its feet by the time he was done an hour later.
"You know what it takes to keep the lights on, to keep the beer cold and have hot showers in the morning," he told the crowd. Not everyone understands what "energy" actually does. "There's so much misinformation," and such "a perversity of partisanship" that it's difficult to get anyone to listen or to get anything done.
"We know what it takes to produce 70 Bcf/d, where we are now. Why stop there? Let's set a target of a minimum of 100 Bcf/d. What would that mean to you? It's a realistic number, given the trillions of cubic feet that we know are available to us..."
Need higher prices to produce more gas? No problem, said Hofmeister.
"Imagine a world that craves natural gas. Let's start with the transportation vehicle market here at home." If the United States were able to eliminate 5 million b/d of imported oil and replace it with U.S.-grown natural gas, "we kiss OPEC goodbye [and say], 'with all due respect, you have extorted enough money from American pocketbooks...'"
Natural gas then would constitute "roughly one-third of the transport fuel that we would use everyday in this country," with 12-13 Bcf/d used for compressed natural gas (CNG) and liquefied natural gas (LNG) for trucking and trains.
"Don't stop there," Hofmeister said. "LNG and CNG would be a whole new market nationwide that doesn't exist today. There are 250 million vehicles out there on the highways today. Over the course of the coming years they can be replaced as they retire with vehicles with flex-fuel engines, which can accept alcohol made from natural gas just as well as oil.
"We can produce methanol and [build] infrastructure to replace imported oil," he said. "Sedans, SUVs can be fueled with methanol rather than gasoline, or mixed with gasoline at affordable prices." Methanol wholesale now runs about $1.00/gallon, he said. "Even if you need twice as much as gasoline to displace, it's still half of today's costs."
Hofmeister didn't mention it in his speech but last week he joined the Fuel Freedom Foundation Advisory Board, which is "dedicated to breaking America's oil addiction by opening the fuel market to allow replacement fuels like ethanol, methanol, natural gas and electric vehicles to fairly compete with gasoline at the pump." The board includes former Central Intelligence Agency Director Jim Woolsey, former Rockefeller Foundation President Peter Goldmark and Co-Director of the Institute for the Analysis of Global Security Gal Luft.
"We can't sustain our transportation needs in the current situation, demand is growing on a global scale, while supply is becoming more and more expensive, and this trend will not stop," said Hofmeister. "Do we have enough oil to meet demand? Yes. However, not cheap oil. The price of oil, and therefore gas, will continue to grow at crippling rates, because we don't have enough cheap oil to meet demand inexpensively."
The U.S. transportation is only one big new market for natural gas. "We need new markets to export LNG too," he said. "Keep in mind that we are not the only country with ample natural gas resources...It remains to be seen how the market develops, how many nations get into the LNG export marketplace...
"Let's just produce more natural gas because we have it, because we can, because it's American productivity going to work. American workers [would be] going to their jobs, buying more things in this economy."
Congress has to "plot a map" for hydrocarbons from the Gulf Coast to the Northeast, which would "provide 5% higher gross domestic product [GDP] every year for the next 40 years," Hofmeister said. It's doable, he said, but everyone has to agree on a common goal: prosperity for all.
In the 1970s and '80s, he noted, the United States was producing 10 million b/d of oil. "Let's reset that as a target." With the oil production gains made in the Permian, Eagle Ford and Bakken shales, the United States recently has been able to increase output to 7 million b/d from 5 million b/d. "Why stop there? We know where the oil is. We know we have more than we'll ever need. Let's set a target to 10 million b/d.
"The country needs 18 million b/d. When we get to 10, we'll still need 8.5, but that's a 40% increase from where we are. That will require a lot of infrastructure, a lot of people, a lot of capital...We can do this. Why don't we?"
Many in the audience were from Texas and Oklahoma, where the natural gas and oil industry is burned into the fabric of the culture.
"When we see cement trucks and construction crews and drilling rigs, frack rigs, and we see footers being laid, see people arriving with cameras, we know what that is. That's what prosperity looks like. We know prosperity means jobs. We know that jobs mean benefits. Benefits mean protection for families, and money going back into the economy...We know what happens with new, emerging gas plays..."
In his travels beyond the energy-producing states, Hofmeister said it's a much different story, with "decaying infrastructure, nearly dried out inner cities, abandoned schools, abandoned homes." And he wonders what has happened to the American dream.
Corporations have trillions on their balance sheets but they aren't spending. Banks have trillions to lend but they aren't lending. It's not the Democrats' fault. It's not the Republicans' fault. It's everybody's fault, Hofmeister has concluded.
"Yet here we sit in the United States of America with more hydrocarbon natural resources than this nation will ever use or need while we import at an extorted oil price more than half of the oil that we consume every day...What kind of economy is this that enables pockets of prosperity and disables uniform prosperity?...We are sitting in the dying days of the most marvelous days of energy systems that the world has ever known from coast to coast," he said of the United States, calling it "the largest, most complex, most amazing energy system that the world ever saw...And it's dying..."
U.S. coal plants are on average 40 years old. Nuclear power plants are about 35 years old on average, he told the audience. Meanwhile, the power grid is "diminishing in key parts of the nation on age and a lack of replacement. Storage tanks are being decommissioned rotting because they are so old. Transformers are tilting at staying up or going down...We are letting our core systems decay to the point that we now have the world's oldest energy system...
"Imagine, that in the world's largest economy, the most famous democracy, the oldest energy system is without a clue as to what comes next." Following "decades of prosperity, the country's wondering if we can ever taste it again. Absolutely! We can taste it again. We have that capability right now..."
The United States, he said, "suffers from a problem of our making, a problem which for too long has been tolerated" for being politically correct. "One example is to understand the problems and pity poor Gov. [Andrew] Cuomo in New York State. He is poised to decide to frack or not to frack, particularly in southwestern New York, where landowners are saying, 'how about some of that what northwestern Pennsylvania is getting? We want to increase our land values, pick up royalties along the way...'
"Poor Gov. Cuomo is quivering because here comes Yoko Ono and Celebrities Against Fracking. My goodness, we suffer ignorance, ladies and gentlemen. We suffer from a massive lack of information, misinformation, distortions...The lack of information is the real enemy of the people. And we are the people."