John Hofmeister: Shell Oil-ex a Stain on Oil and Gas

“In terms of affordability, availability and scalability – methanol and ethanol are the best prospects to [displace oil in transportation] quickly.”

– John Hofmeister, quoted in “Q&A: He Ran Shell Oil Co. – and He Thinks We Use Too Much Crude,” Houston Chronicle, September 19, 2014.

“Retired Shell Oil President John Hofmeister will say practically anything to get quoted in the news media, presumably in the hope of raising his public profile.” (John Donovan, 2016)

It was with some relief that I learned about the passing of an 1) oil executive who never should have been one; 2) mega-promoter who shamed his profession with vitriolic messaging; and 3) thorn in the side of free-market energy education.

Background

John Hofmeister (1948–2021) combined flawed views on energy with ultra-political correctness. How Royal Dutch Shell could have promoted its human resources director (1997–2005) to run Shell Oil Company (2005–2008) is a story of how one contra-capitalist act leads to another.

An accounting scandal at Royal Dutch Shell in 2005 required restatements and $350 million in settlements. Wounded in the public eye, and Royal Dutch Shell plucked Hofmeister to head Shell Oil USA in Houston for, basically, a PR campaign.

Was Hofmeister an engineer or geologist? No, he was a political science major (BA, MA) at Kansas State. The parent must have thought that the thousands of oil and gas finders and refinery workers would do just fine with a glad-hander and social pontificator at the top.

Once at Shell USA, Hofmeister toured 50 cities with fellow Shell executives to “mend the company’s reputation and gather views on energy that he used to guide the company.” They met with “15,000 business, community and civic leaders, policymakers, and academics to discuss what must be done to ensure affordable, available energy for the future.”

As if Shell’s problem was public relations and not its internal performance. As if placating a bunch of third parties with different agendas was the key for successfully producing, refining, and retailing oil.

Shades of Enron when in his last years as CEO Ken Lay worked externally on company imaging and internally on employee morale.

PR Machine

Out of office, Hofmeister self-funded a so-called grassroots organization, Citizens for Affordable Energy to promote, in its words, “sound U.S. energy security solutions for the nation, including a range of affordable energy supplies, efficiency improvements, essential infrastructure, sustainable environmental policies and public education on energy issues.”

And he published the maliciously titled Why We Hate the Oil Companies: Straight from an Energy Insider (2010). “We” “Hate” … John, are you speaking for yourself?

According to Reuter’s: “Hofmeister, who spent more than a decade at Shell, became an industry critic and advocate for alternative fuels.” A fellow Shell executive said: “He was the first one to step out of the box and take positions on climate change and other issues.”

In 2008, Hofmeister predicted that oil and gas supply would not keep up with demand in seven years (2015). The shale boom ended that scare, but Hofmeister in 2016 predicted

We cannot ever produce enough oil, in my opinion, to satisfy global demand five or 10 years out. We have to start using natural gas and more biofuels as a source of transportation fuel.

Other quotations (from 2010) follow:

Given the current trajectory of an aging infrastructure, decades of restrictions on drilling, failure to tackle the obstacles that prevent both more nuclear plant and clean coal plant projects, frittering at the edges of renewable energy, and avoidance of other energy “hard choices,” within the decade the nation faces an unprecedented energy abyss.

By 2020, there will be inadequate supplies of liquid fuels and electricity taking the nation toward inevitable gas lines, brown-outs, black-outs and extraordinary high prices. The energy abyss will stick around for up to a full decade with all of the national insecurity, economic decline, joblessness and social malaise that accompanies energy shortages in third world countries.”

And the worst of the worst? A “Federal Energy Resources Board” to solve the big energy issues for us all. In Hofmeister’s words (Why We Hate…” p. 198):

[T]he nation should … implement deliberate, sound energy supply strategies based on the sources the Federal Energy Resources Board recommends, considering availability, affordability, and environmental sustainability…. A comprehensive and coherent energy supply plan would be created to take into account the nation’s short-, medium-, and long-term energy and environmental future, defined in the years and decades of energy time. [1]

Conclusion

“The two greatest enemies of free enterprise in the United States,” Milton Friedman once opined, “have been … my fellow intellectuals and … the business corporations of this country.” John Hofmeister was certainly that and more.

Appendix: Methanol Follies

As an advisory board member of the Fuel Freedom Foundation, Hofmiester found a nich as anti-oil. In an interview by Ryan Holeywell of the Houston Chronicle (“Ex-president of company says in film that America has an addiction to oil enabled by those with vested interests in gasoline”). Hofmeister’s pitch was described as follows:

The film’s premise is that America is addicted to oil, and that the addiction is fueled by corporations and policymakers with a vested interest in ensuring that gasoline remains the country’s transportation fuel of choice – even though there are viable alternatives, to blend with gasoline or substitute for it. They include ethanol – pure alcohol usually made from corn or sugarcane but also from non-food organic material; methanol, a fuel and chemical building block derived from natural gas and some renewable sources; compressed natural gas; and liquefied natural gas.

In the interview, Hofmeister reaffirms the film’s theme:

Today, when it comes to transportation, there are only three defined legal fuels [by EPA]: gasoline, diesel and ethanol. What we’re trying to promote is methanol as a legal fuel. Methanol sells wholesale for a little over $1 a gallon and can be blended with gasoline, so you’re looking at transportation fuel for under $2 per gallon.

Methanol? California tried that during Jerry Brown’s first go-around to abject failure. Recalls California energy expert Tom Tanton (via email to author):

Methanol for transportation was one of the early forays by government into energy market manipulation in California. ‘Alternative fueled’ vehicles seemed like such a good idea, just after the oil embargo, that government had to become involved, lest the market not solve the issue on its own. At least that was the thought of the power elite.

In any event, attempts to force feed methanol vehicles through financial incentives and coercion were too much too soon. Inevitably, issues of fuel system corrosion brought about by methanol’s affinity for water, inefficient methanol production techniques, lack of drivers’ acceptance (more frequent refueling owing to methanol’s lower energy density) and the effective resolution of the embargo all but eliminated the reasons for the programs.

And, at the time most methanol was made from natural gas which was in short supply. Of course, other alternatives quickly took methanol’s place as the favorite.

Tanton concludes:

Nearly forty years after the doomed methanol program, the central tenet lives on…government intervention and picking winners. You’d think by now, we’d have learned that the answer lies in less government intervention and a focus on actual performance metrics rather than specific technologies or fuels.

And with domestic oil and natural gas at all time highs, due to market innovations like hydrofracturing, the drive for alternative fuels seems like a solution in search of a problem…and THAT’s the problem.”

A Federal Energy Board? (Hofmeister’s Idea Is Old, Bad) April 4, 2013

John Hofmeister’s War on Oil (ethanol and methanol for the masses?) October 13, 2014

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[1] Hofmeister had a very romantic view of how an all-powerful energy board could both identify and implement the “right” energy policy. In his words:

[T]he nation should … implement deliberate, sound energy supply strategies based on the sources the Federal Energy Resources Board recommends, considering availability, affordability, and environmental sustainability…. A comprehensive and coherent energy supply plan would be created to take into account the nation’s short-, medium-, and long-term energy and environmental future, defined in the years and decades of energy time.

Hofmeister instructs his board to do just about everything:

• “more clean nuclear electricity production and … determine the nuclear waste management plan”
• “a clean coal strategy [including] coal gasification with carbon capture and sequestration.”
• “wind, solar, and biofuels in a thoughtful, planned manner.”

Hofmeister’s “supply-side energy management” is a half-century strategy (out to 2060), which he sees as balancing “continued affordability with environmental improvements.” He assumes, dangerously, that the federal energy plan will move toward “de-carbonizing our entire energy supply system.”

He concludes (romantically):