Are We Headed for Blackouts?
By M.A Haines
John Hofmeister
Founder and Chief Executive
Citizens for Affordable Energy
Washington, D.C.& Former President, Shell Oil Company
Houston, Texas
John Hofmeister is a key member of the United States Energy Security Council, a bipartisan group which includes former Secretary of State George P. Shultz and two former secretaries of defense.
Hofmeister also has held executive leadership positions in General Electric, Nortel and AlliedSignal (now Honeywell International).
Hofmeister serves as the Chairman of the National Urban League and is a member of the U.S. Department of Energy’s Hydrogen and Fuel Cell Technical Advisory Committe. He is an Advisor to Liberty Power of Fort Lauderdale, Fl, the nation’s largest minority owned power company. Hofmeister also serves on the boards of the National Energy Security Council, Washington, D.C.; the Foreign Policy Association, New York; Strategic Partners, LLC; the Gas Technology Institute and the Center for Houston’s Future. He also is a past Chairman and serves as a Director of the Greater Houston Partnership. Hofmeister is active in education serving on the Energy Advisory Board at the University of Houston. He is also a Director of the Texas Education Reform Committee.For this Intown interview we sat down in his River Oaks hi rise and here are some highlights from that interview.
What were your biggest challenges at Shell?
Shell was trying to determine appropriate levels of investment for the U.S. and needed to articulate and define with the work of the upstream business including what were the potential investments in shale oil and shale gas and what role would the Arctic and Gulf of Mexico play. Shell had come off a decade of weak investments in the US relative to its long history. There was uncertainty with the political climate here and natural resource availability was challenge number one.
Number two was trying to deal with the politics of energy in a period of rapidly rising oil prices. It was about trying to keep the company on an even keel relative to the politics of the Republicans and the Democrats without the company or the industry suffering badly as a consequence of rising prices. It was also making sure the company could do its best under whatever conditions it had to operate but having worked in the Hague and in London previously I had been involved in the staffing of Shell senior positions in the U.S. for quite some time and we had assembled a super team.
What is the one thing you would attribute to your success?
Enabling people to do their best. I am not a command and control leader. Instead creating the enablers whether it’s self confidence, whether it’s transparent communication or conflict resolution and helping people be productive so that they can do their best. Having chosen good people you don’t want to get in their way. You want them to do what they know how to do. i have been pretty good at that over the years. Get out of the way and let people perform ,but don’t completely lose touch either. You don’t want “whales” out there doing their own thing like just happened at JPMorganChase and not in the interest of the company.
Back in 2006, you stated that oil and gas is no longer enough for the nation’s energy security. What if anything has changed?
Nothing has changed and everything has changed. There are 10 sources of energy that include oil,coal,natural gas nuclear or uranium, biomass,wind,solar, geothermal, hydropower, and hydrogen and we should be pursuing all ten sources. Let’s go after all of them because we are going to need them all. Some are in the early curve in terms of the technology. With wind, solar, and biofuels we really haven’t cracked the technological maturity curve to say they are efficient or commercial. We have a long way to go, but we can keep working on it. Geothermal and hydrogen the same thing.
Meanwhile everything has changed with respect to oil and gas domestically. The change of technology we knew about in 2006 but had not yet mastered has opened up all kinds of new quantities of oil,natural gas, and natural gas liquids for the good of the nation if we are allowed to produce them. However, i am very worried about what the government is doing about coal. I think there is a mindless effort underway by some in the US government to stop coal from being
an energy source in the future without even trying to use the technology to clean up coal and that will cost Americans a lot over time so we have to get coal right and it hasn’t had the proper discussion. This has been largely driven by special interests who simply don’t like coal and the money they are pouring into candidates to try and stop coal from being an energy source for the future without any democratic process involved, I think is dead wrong and eventually they will have their comeuppance because we can’t not have coal in our energy portfolio. Is there not a large contingent that still wants coal and thinks it is viable? Certainly, the United
Mine Workers and the AFL- CIO and don’t forget who is the head of the AFL-CIO, Rich Trumka who comes from the Coal Miners Union. he has been flabbergasted by the White House’s opposition to enabling coal companies to do what they do which is to mine coal and employ coal miners. he is as frustrated as I am as an energy expert at the intransigence and what I call mindlessness regarding the future of coal.
Do the recent shale discoveries deserve the hype or should there be environmental concerns that temper the enthusiasm?
We know how to master the environmental issues technologically in the shale fields. No question about that. The issue is whether regulations will catch and punish those who violate regulations and deny them the rights to have future permits. It is only those who will violate the best practice and regulations that exist who will spoil it for everyone else. just as a surgeon knows how to invade the body the oil companies know how to invade the earth in what is called horizontal drilling. They know what they’re doing, they know how to do it and they know the implications and consequences of what they do and they are prepared for the worst. However, when people are lazy or trying to cut costs to save a buck they violate those rules or best standards and that’s when we get methane leaks or lousy cement jobs that lead to future methane leaks. That’s when we get poor water management control that leads to pollutants on the ground or sub surface. That is what leads to fluids leaking in the groundwater.
What other investments in alternative energy did you make at Shell?
It was a robust time for Shell in terms of alternatives. One of the ones I am particularly proud of is the range of investments that took place in bio fuels. We would test and see what was possible with different kinds of biomass.We did not test corn because we did not want to get into food for fuel. Whether it was super enzymes for different grasses or algae or different municipal wastes, there were a number of biomass projects that we pursued. I hope that those have paid off. Secondly, the wind and solar business. Solar went through a rough time and we sold that business in order to turn that investment into a better technology in partnership with another solar company.. It was sad to close the business ,but we were able to sell it as a going concern. Wind was very successful. Many of the west Texas wind farms as well as Kansas, Colorado, and Iowa were major investments and were successful. Likewise, Shell had interests in hydrogen for fuel cells and the mobility of cars with fuel cell technology or stationary fuel cells.
You were critical of the Obama Administration during the BP spill? How do you feel about their energy policies?
I was critical of the administration, BP and the Coast Guard. In my mind the administration politicized the spill to figure out how to maximize their political gains from that horrible spill and
minimize the fact that they really didn’t know what they were doing. When they shut down the Gulf of Mexico as a moratorium against drilling, against the best advice of experts, it was a completely political move to make it look like they were doing something. When they said we needed to revise all the deepwater regulations despite the fact that all deepwater rigs without exception had passed inspection after the Macando well explosion, it was again government overreach.
Interruption
Weren’t people scared and wasn’t it something akin to grounding airplanes after 9/11?
How long did airplanes stay out of the air?
I am not sure. It seemed like quite a long time before anyone was flying again.
JH Three days was all it was before they were allowed back in the sky. When an airplane crashes and a hundred or more people are killed we don’t ground all the flights of that model of plane. It was a complete overreaction in my opinion to shut it down for six months and lay off tens of thousands of people. These were people from Louisiana and Texas and in the minds of the administration they did not vote for the president so who cares. I say it cynically but I quite believe it to be true. With respect to the administration’s policy overall keep in mind I am a registered democrat, there are very few of us in the oil patch. I don’t think the Obama administration has an energy policy. up until late 2011 all the president talked about was wind,solar and biofuels. finally, in October 2011 he mentioned natural gas as part of the future.
He bad mouthed big energy every chance he got and he clearly wants to raise taxes on the hydrocarbon industry and he has gotten himself and his administration in the way of every major opportunity to expand domestic access, particularly offshore and on federal lands. This Administration’s approach costs Americans money at the gas pump. In fact Americans will pay more for gasoline and diesel this year than in any other year in our nation’s history because of the Obama Administration’s out and out deliberate refusal to focus on domestic energy production. We’re forced to be reliant on imports at whatever prices are because they refused to open up more access to new sources on federal lands and offshore. Fortunately, the President has not tried to stop development on private lands under state permits. The feds have done nothing to expand oil and gas access in new regions and the Gulf of Mexico is producing less now than it did at the time of the Macondo incident because of the moratorium.
By not supporting more drilling are we not supporting alternatives?
I think in terms of promoting alternatives what really needs to be done is to bend the technology curve towards commercialization and that takes enormous research and development.
What they have done instead is use tax policy and give aways or loan guarantees to expand production of inefficient products that we know don’t meet the technology test in terms of commercialization. I t makes it look like they are doing something and it’s payback time to people who invested in their campaign. we have an absurd situation involving biofuels, for example. Oil companies are forced to pay fines today to the EPA for not delivering the biofuels required by law when those biofuels actually don’t exist and can’t be produced in those quantities that the law mandates. The laws of nature won’t allow such production of advanced biofuels and we are working against the laws of nature to produce biofuels the the law prescribes and the EPA penalizes the industry for not distributing what cannot be produced. This is mindlessness run amuck in Washington DC. Rather than admit the law is wrong, they simply say it’s the law and big oil isn’t meeting the terms of the law and since they have plenty of money let them pay the fine for something that doesn’t exist.
Are you satisfied that it is safe to resume deepwater drilling in the Gulf and in other places?
As long as we drill in deep water or shallow water or onshore for that matter there will be risk. But the problem is not the industry. The regulations were working and people were following the regulations as was proven by the inspections shortly after the spill. Even now the new regulations were made based upon advice of the industry because they are really the only ones who know what is happening out there. government doesn’t have the scientific expertise and things were working fine except for several bad judgments made on one rig. That is not to condemn all of BP. BP has many great people and a history of successful operations, but in this case and a couple of others the company has unfortunately tolerated bad judgements that have resulted unfortunately in deaths and environmental damage.
Do you believe there are long term effects from this spill like we are now seeing?
I think the BP disaster has stigmatized the entire industry and put the entire industry under scrutiny which for the most part is not a problem because the industry is used to scrutiny and also having a robust risk management processes which can withstand the scrutiny. It’s when companies cut corners and get lazy or don’t follow the rules and best practices that we have trouble. It would be unfortunate if society would let us produce less product and raising the price
of fuel further because of this stigma. Hopefully, good judgment will prevail not this stigma.
In your book you stated that we could import half as much oil by opening up more domestic drilling using more biofuels and driving higher mileage autos. Is anyone listening?
Fortunately, a lot of people are listening and the House of Representatives in 2011 and 2012 introduced six bills that would enable this to occur, but the White House has threatened to veto these bills and the Senate has refused to take up for debate any one of those bills. So part of our government is working for the people but the Senate and the White House are working on their re-elections. Meanwhile, we are shipping a half a trillion dollars a year of hard earned
American money to oil exporters and impoverishing ourselves by transferring wealth out of this country because of political intransigence in Washington DC. People need to hear that and realize they are being harmed by the people they elected to look out for them. In fact I have actually stepped up my advocacy to not just reduce imports in half, but in total except what we will import from Mexico and Canada. By converting natural gas to methane and mixing 85% methane with gasoline in flex fuel cars we could actually eliminate oil imports from outside North America over time. The cost of the flex fuel package in new cars is just over a hundred dollars. The savings on lower energy costs would pay for it in the first year of driving.
Can you explain why anyone would be opposed to that strategy?
There is a very sad phenomenon which explains it all. I call it perversity of partisanship between the political parties and that animosity is not about what is good for the American people, but what is good for my power base. Republicans and Democrats are both guilty of determining what is good for my power base many times at the expense of the good of the American people. Common sense approaches to increasing domestic natural resource production to eliminate foreign imports is just purely good for America and there should be no constraints other than environmental protections which we need. we should be enabled by the government’s authority but partisan perversity prevents it from happening. When Harry Reid refuses to take up a bill that comes across from John Boehner because the Speaker wants to make Obama a one term president he’s harming the people who elected him to serve. The party out of the White House always wants to make the President of the other party a one term President. There’s nothing new here about that. But the refusal to act is clearly dysfunctional and the same is true of the republicans. They can’t work together because they choose not to. That is perversity run amuck.
We have met the enemy as Pogo use to say and he is us.
What is the reason for this seemingly lack of caring for the greater good in this country by both parties?
The fact is that it is special interest money in politics. Whether it is super pacs, lobbyists on both sides of the aisle, the fact that this United States of America as a matter of public policy allows for legalized paid corruption of elected representatives via campaign contributions means that our legal system encourages the use of special interest money to influence votes. It means that people are going to pay money to their leaders for the policies they want. We would call this corruption in any other country. The more money they can pay the more this legitimate corruption is going to play out. and we only say it is not corruption because it is legal. Well who legalized it? I would submit that under our campaign finance system we are essentially creating the opportunity for the “corruptors” who write the laws to invite the behavior of the “corruptees”.. Until we go to a publicly funded electoral system we are stuck with the consequences of special interest money which is harming the nation every day. To be the President you need a billion dollars to run a campaign today. How ridiculous!. You are buying an election with a billion dollars. Whether you are a Democrat or a Republican you each need a billion dollars. For the Senate you need tens of millions and for the House millions of dollars. What kind of a corrupt system are we tolerating here? How can we do anything about it when the people getting the money write the laws? They are not about to kill their golden goose. To me this is the shaming of democracy by special interest money. Other democratic countries have laws that prohibit giving money to politicians. We should too.
Such corruption causes many of the problems and fails to fix any of the problems. There is always somebody willing to pay more to buy what they want and to stop the other guy from getting what he or she wants. You can tell I have a very strong feeling about this. Everywhere you go in politics it’s show me money if you want something done and it’s revolting.
You have said there are too many agencies overseeing the oil and gas industry and can this be fixed or is it hopeless?
When I glanced out the window of my office as president of Shell I had to consider dealing with a U.S. president, 13 cabinet level agencies, 26 congressional committees, potentially 800 federal judges, fifty governors, 50 state legislatures, 50 state court systems, and tens of thousands of regional and county governments, all with some governance or control over what the company was trying to do for energy in this country. There is so much governance it’s amazing anything can ever get done. We need a rationalization of all this governance. I think we should do for energy what we do for governing the monetary system of this country. the monetary system is governed by an independent regulatory agency, the Federal Reserve Bank as established by the federal reserve act of 1913. because it is run by an independent regulatory agency defined by law we know exactly what the Fed can do and how they go about doing it. We retain democratic control over the Fed because governors are presidential appointees, made with the advice and consent of the senate. We have an independent agency running an industry that works. it is not perfect , but we are the largest economy with the world’s only benchmark currency and that says it works. We need something similar in the energy industry so we can get the politics of the congress and the white house , the courts and state systems out of the governance over the energy industry so that we separate politics from energy.. We would still have the federal and state agencies to permit and license and govern the day to day activities of the industry, but in terms of where we are going and what big rules we need with respect to the future of energy, we should not be victimized by the short term politics of political time when we need solutions that take care of us in energy time. If we allow the future of supply, technology for efficiency, the future of our infrastructure, the future of our environmental protections to be in the hands of Congress and the white house we are lost. We could be the leader of the global energy system because there is nothing like this today in a democratic system. Our energy system is rapidly aging and we could face black outs and gas lines because of constraints on domestic production of natural resources. We can’t fix out problems because politics trumps energy every political cycle. The answer to our energy future is a change in the governing system to pull us out of the mess we are in.