Alternative fuels have lost some of their luster in the US, lately, for understandable reasons. Oil production here is booming based on shale resources that keep expanding, while the market for ethanol, our most successful alternative fuel, has stalled at the long-anticipated "blend wall", resulting in ethanol plant closures and bankruptcy filings. More advanced cellulosic biofuel is still only available in minute quantities, and last year's sales of electric vehicles will displace less than 24 million gallons per year of gasoline--around 0.02% of US gasoline demand. With all this in mind, it seemed like an excellent time to speak with former Shell Oil Company President John Hofmeister, who recently joined the advisory board of the Fuel Freedom Foundation, a group dedicated to expanding fuel diversity.
I don't conduct many interviews for Energy Outlook, but I wouldn't have missed the opportunity to discuss energy with Mr. Hofmeister. Given the focus of Fuel Freedom Foundation, which arranged the call, I started by asking him what kind of changes he expects in the US fuel mix over the next 10 years. Mr. Hofmeister replied that his outreach efforts at Fuel Freedom, together with Citizens for Affordable Energy, which he founded after retiring as head of Shell's US operations, are intended to "make sure something has changed 10 years out. Left to our own devices, not much will change." With plans and "enablers of change" from government, he sees an opportunity to "transform the nation in 10 years." He went on to describe what that transformation might include, in the form of further decreases in our dependence on imported oil and more "inward investment". He also clarified that he includes domestic oil in his list of alternatives.
When I asked him about the barriers impeding the fuel diversity that he advocates, he immediately mentioned the interest groups that spring up, pro and con, whether concerning oil, natural gas, the lifecycle and materials for advanced vehicle batteries, or infrastructure for hydrogen fuel cell vehicles. He would like to see federal and state governments enable change and "tell the interest groups to back off." He observed that despite the shale revolution, "we still rely on imports and can't agree on creating new markets for natural gas" or to build the Keystone XL pipeline. These disagreements stifle development. Together with federal regulation of hydraulic fracturing, this results in "government as disabler", not enabler of change.
We had a lively conversation about some of the specific fuels that would make up the more diverse mix Mr. Hofmeister would like to see in the marketplace, such as methanol, ethanol, natural gas and electricity. I expressed some of my own concerns about the energy-equivalent cost of methanol and the safety risks involved in its use on the service station forecourt. He replied that with expanded supply based on abundant US natural gas, the price of methanol could fall significantly from today's level of $1.60/gal. (equivalent to wholesale gasoline at $3.25/gal.) That's certainly conceivable, because at a typical 70% conversion efficiency, the natural gas feedstock to produce a gallon of methanol would only cost about $0.37 at recent industrial gas prices. He also envisioned fuels like this being dispensed in a closed system, to maximize safety.
We discussed natural gas as a bridge fuel for vehicles and whether it might be hard to get off this bridge, later. In response he pointed to what he called the "EV lifestyle"--the improved convenience and driveability already experienced by EV owners who don't need extended driving ranges--and seemed to agree with my own view of electrification as a given in the long-run. He also suggested that this transition could be promoted by a coherent and comprehensive plan. Earlier, he had pointed out that the administration's "all of the above" approach was just a concept, not a plan, because it lacks the targets, milestones and accountability necessary for a real plan--a point on which an ex-CEO and current strategist were bound to agree.
I couldn't end the interview without asking Mr. Hofmeister whether the tremendous recent turnaround in US oil production had led him to alter his idea, expressed in various talks and in his book, "Why We Hate the Oil Companies," for the US to establish an energy equivalent of the Federal Reserve Bank. "I'm convinced it's the way to go," he said. "There's too much politics in energy policy now." He believes an "Energy Reserve Board" would stimulate the economy with investments focused on short, medium and long-term goals. "What energy needs is consistency."
My half-hour conversation with him validated my view that John Hofmeister isn't your typical oil guy. His ideas are grounded in the scale and complexity of the energy industry, but not bound by its conventional wisdom. Although I didn't agree with all of them--particularly concerning the degree of government intervention necessary--his responses to my questions were forthright and reflected long and careful analysis, along with a strong sense of the benefits available to the US from a more rational and planned approach to our national energy endowment and opportunities.