Former Shell Oil President John Hofmeister says that despite the current catastrophe in the Gulf of Mexico with BP oil spill, the U.S. should continue to produce petroleum domestically to keep gas prices from soaring.
Hofmeister, who stepped down from his position at Shell in 2008 after leading the company for more than three years, said that although there are "occasional slipups," the U.S. can successfully produce oil, and the world market demands that it continue to do so.
"If global demand is going to rise and we're not going to see any increase in conventional oil, and the unconventional oil which will come along behind it to supply world demand, it's only going to be more costly," Hofmeister told Henry and Aaron when he sat down with Tech Ticker Friday morning.
Gas Station Owners Just Trying to Make a Profit
Consumers, who cringe when the cost of fueling their cars rises, question why the prices at the pump don't dip when the cost of crude oil falls. Hofmeister explains that this discrepancy is the result of the business model of most gas stations. He estimates that only 2% to 3% of all stations in this country are owned by oil companies. The vast majority are operated by independent small business owners who make only pennies off of every gallon sold. As a result, they rely on retailing and convenience stores to turn a profit.
"When they have a chance, as retail operators, to kind of go light on reducing the price, relative to the crude oil price, they do that because maybe they can actually get some profit out of the gasoline," Hofmeister says in the accompanying clip.
When the cost of crude rises, stations immediately raise prices to insure that they will have enough cash available to pay for the more expensive oil deliveries in the days and weeks ahead.
Prediction: Oil Going Back to $100 a Barrel
Hofmeister predicts that, if the world economy recovers at all, the cost of oil will surpass $100 a barrel either at the end of this year or during the first half of 2011. Furthermore, he foresees prices staying in the triple digits until an alternative source of energy begins to replace liquid fuel.
"I think over the next 5 to 10 years we will peak in the production of what's called conventional or easy oil," he says. "We will not in anyway peak relative to the resources left in the earth. But the resources left in the earth will be higher risk and higher cost to produce, which will increase the cost basis on which ultimately gas prices are set."
After retiring from Shell, Hofmeister wrote a book titled "Why We Hate the Oil Companies: Straight Talk from an Energy Insider." In the book, which was released last week, he argues that the energy industry, special interest groups and the federal government are to blame for today's high energy costs and the nation's unsustainable reliance on oil.
He says that those in the position to make progress -- policy makers and business leaders -- keep the public misinformed and choose political power over change and the environment.