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Former Shell head proposes ‘energy Fed’ Citing banking chaos in US before creation of Federal Reserve System, John Hofmeister calls for nonpolitical governance of energy Kristen Nelson Petroleum News
John Hofmeister says he learned a lot about why the United States has no energy policy when he was president of Shell in the U.S. from 2005-08. Upon retirement from Shell, Hofmeister determined to do something about that, founding Houston-based Citizens for Affordable Energy, the beginning of a campaign to change how the U.S. manages its energy policy.
At the Resource Development Council for Alaska’s 37th annual meeting luncheon in Anchorage June 22, Hofmeister set out what he believes American needs to do — and why change is necessary.
And the “energy Fed”?
Hofmeister believes the nation’s energy policy needs to be under the control of an independent regulatory authority, an authority like that provided for banking by the Federal Reserve System, established by an act of Congress in 1913 after the American monetary system collapsed, first in 1907 and again in 1912.
The issue of a national bank had been kicked down the road since the founding of the nation, he said, but after the second collapse of the monetary system in 1912, Congress and the president turned management of the nation’s monetary system over to an independent regulatory authority which was empowered to make decisions about the money supply and interest rates.
Hofmeister argued that energy is as important as the banking system, and deserves the same treatment.
High gasoline prices hurt Reasons for a change in energy governance include high gasoline prices which Hofmeister said are hurting the nation’s economy, biting into the disposable income of more than half of the U.S. — those living on less than $50,000 a year.
And while people in Washington, D.C., may have ideas on how to fix the energy problem, “translating ideas into action seems to be paralyzed, particularly at the federal level.”
Higher economic growth demands more energy, he said, with full employment requiring 20 million barrels a day of crude oil.
“We’re down to around 18 million barrels a day now because of the recession,” he said.
Hofmeister said the U.S. has to get back to where it was in oil production — 10 million bpd. We were as low as 5 million, he said, but have gotten back up to 6 million bpd thanks to private landowners in the Midwest who are willing to make mineral rights available for development in formations including the Bakken, Marcellus, Utica, Fayetteville, Barnett and Eagle Ford.
We have more oil than we’ll need in a lifetime, he said, and “we know where it is,” but in areas like Alaska “you’re prohibited from natural resource development.”
So we need to develop oil where we know it is, but that only gets us to 10 million bpd, half of what it needs in a full employment economy.
CNG, methanol part of solution The next thing we can do is listen to Boone Pickens who talks about compressed natural gas for trucking, Hofmeister said.
“We can displace 2 million barrels of oil a day, stop buying it from abroad by using natural gas for trucking.”
It would take infrastructure, distribution and logistics, but it can be done, he said, and as well as displacing 2 million bpd of imported oil it represents a market for 12 billion cubic feet of natural gas.
But while CNG works for trucking, the size of required tanks means it wouldn’t work for cars.
“So let’s turn that natural gas into a liquid fuel,” methanol, Hofmeister said.
Using 18 bcf of natural gas production for methanol would eliminate another 3 million bpd of imported oil.
With 10 million bpd of crude oil production, 2 million bpd equivalent of CNG for trucking and 3 million bpd equivalent of methanol for cars, “we’re at 15 million barrels a day equivalent of what we need in a full employment economy, making us less dependent upon imported oil.”
And with improved technology in vehicles, over time the U.S. would use 2 million bpd less oil, providing the equivalent of 17 million bpd out of 20.
The rest of the 20 million bpd is available on the continent, Hofmeister said.
These changes would provide a full employment economy because of the jobs that would be created by a 40 percent increase in oil production and a 50 percent increase in natural gas production, including the work to build needed infrastructure.
It would be close to a trillion dollars a year of capital investment “and not one penny of government money,” he said.
Capital sits idle Hofmeister said trillions of dollars of capital “sit idle in this economy because no one has faith that it’s going anywhere; nobody has confidence in the decisions that are being taken because mostly no decisions are being taken.”
Why?
There are three barriers to needed action, he said.
“The first barrier is the perversity of partisanship that seems to drive our elected officials,” Hofmeister said, calling it “nothing more than the arrogance of power.”
That perversity of partisanship has taken over, he said, particularly at the federal level.
The second barrier to action is “the political-time mentality that trumps all energy-time thinking.”
“Political-time mentality is the amount of time between now and the next election,” Hofmeister said. But changes in energy production don’t happen between now and the next election: It might take to 2022 or 2024 to get to more energy self-sufficiency.
“But we need consistent application of policy, commitment to a direction and the enablers to allow that to occur over an extended period that could run over five elections or more.”
Too many hands “The size, structure and function” of government at the federal level is the third barrier, Hofmeister said.
There are 13 cabinet-level agencies, he said, plus the president, involved in governing energy and the environment; 26 committees between the House and the Senate; and 800 federal judges.
Between them, “is it any wonder that on a political-time priority in an environment of maximum perversity of partisanship, nothing happens?” he asked.
Three things can be done to fix this, starting with a government reform putting energy policy under the control of an independent regulatory authority, as was done with the country’s monetary system in 1913 with the passage of the Federal Reserve Act.
“Isn’t energy as important to this nation as the monetary system?” Hofmeister asked. “Isn’t affordable energy as critical to the economic success of this nation?”
Energy, both for transportation and for heating and cooling, is essential to how people live their lives, he said.
“Now it’s becoming unaffordable. In a few years it will become unavailable ... because China has discovered the joy of transportation fuel and what it does for its citizens,” he said.
Hofmeister said there “won’t be enough oil globally for China to optimize, for India to optimize, for the U.S. to optimize — unless we do something very different. And it’s the governance of energy that has got to be different.”
Creation of an “independent regulatory commission” is needed, he said, one which would: set the parameter over a 50-year period of what energy the U.S. will use and how much of what — hydrocarbons, nuclear, alternative, renewable; ensure we use energy efficiently, “which means making some technology choices”; protect the environment; and “make sure we have the infrastructure in place” to carry energy from where it is produced to where it is consumed.
Role of citizenry The second fix Hofmeister proposes is letting citizens know what they’re facing on the energy front, which is why he founded Citizens for Affordable Energy, “to create an army of volunteers across this nation” who would “go out and tell the story, the story of the energy future, the story of potential prosperity” so that we don’t end of as “a third-world country that is energy poor because of decisions not made.”
The third fix is to activate that informed citizenry, Hofmeister said.
“This citizenry is so, so powerful when it gets its mind to do something in a particular direction,” he said.
Activating the citizenry isn’t simple, but $5 a gallon gasoline and gas lines will motivate people, Hofmeister said.
And then there’s the power generation system in this country — the “most technologically advanced power generation system in the world, (but) also the oldest power generation system in the world: and no plan to update it, no plan to upgrade it.”
As with energy, there’s an absence of a plan, “a vacuum of leadership on power generation,” he said.
He said this country is on “the cusp of prosperity” but needs changes to make that happen.
“It’s all over to us, ladies and gentlemen,” Hofmeister told the Resource Development Council audience. “Because they’re not going to do it — the people in Washington are not going to do it,” he said, calling for “information, activation and the appropriate government reforms.”
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