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By Robert Rapier on Oct 22, 2012 with 14 responses

Hofmeister: An Energy Plan for America

Can Oil Supplies Grow Fast Enough to Keep Prices in Check?

I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil and currently the head of Citizens for Affordable Energy, a non-profit group whose aim is to promote sound U.S. energy security solutions for the nation. In the first part of this interview Mr. Hofmeister spoke of A Difficult Decade Ahead For Oil Prices and Supplies. In this installment, he sets forth his vision of a sound energy policy for America.

The Hofmeister Energy Plan

Mr. Hofmeister’s plan consists of the following elements:

  • Set a national objective in the United States to get back to the production level of the 1970s and 80s of 10 million barrels a day;
  • Reduce our imports by 5 million barrels a day by using natural gas as an alternative to the internal combustion engine oil products:
    • Use compressed natural gas for trucking to displace 2 million barrels a day of imported oil, and,
    • Convert natural gas to methanol for flex fuel engines to reduce imports by another 3 million barrels a day;
  • Continue the journey toward more higher efficiency automobiles and continue the journey to more electrified vehicles as well, both batteries and hydrogen fuel cells.

Mr. Hofmeister’s plan would require U.S. oil production to increase from around 6 million barrels per day up to 10 million bpd, and for natural gas production to increase from 60 billion cubic feet per day (bcfd) to 90 million bcfd.

I shared with Mr. Hofmeister my skepticism that oil supplies could expand fast enough to meet growing demand, and that the consequence would be higher oil prices which would result in stagnant growth. (See more: The Long Recession)

In his reply, he noted that on the current trajectory this is probably correct, but then he laid out what he feels would be a logical and comprehensive energy plan for America. His reply in full follows:

JH: If we stay on the current trajectory under current plan expectations, and if the United States maintains its current off-limits position on offshore access, on the Arctic, and on Colorado oil shale in the Piceance Basin, and its continued diminishing of access to federal lands, then I think you are absolutely right.

On the other hand – as I have often done – I paint a scenario of not only significant economic prosperity, but actually significantly increased domestic supplies of energy in the United States along the following lines: If we could ever get past the perversity of the partisanship that we see in the Congress, if we could ever get past the aspirational headlines put forward by politicians — with actually no plan behind the aspirational headlines — if we could ever stop misleading the American people into what we are not doing, by suggesting we are doing what we are not doing, I believe we could lead a bonanza of domestic natural resource production which could fuel an economy even if prices in the short term remain high.

And what that looks like is the following, and it addresses the transportation dilemma of cost and availability that I would otherwise see in this decade: And what it would consist of is setting a national objective in the United States to get back to the production level of the 1970s and 80s of 10 million barrels a day. We are currently at 6, we’re up from 5 four or five years ago, now we are at 6. We should set a national goal of a 10 million barrel a day production target that we could achieve in the next 10 to 12 years if we were serious about it.

Number 2, reduce our imports by 5 million barrels a day by using natural gas as an alternative to the internal combustion engine oil products – current system. And that is to start using compressed natural gas for trucking to displace 2 million barrels a day of imported oil. That would take 14 or so bcf (billion cubic feet) of additional natural gas. The other 3 million barrels of imports could be eliminated by virtue of converting natural gas to methanol for flex fuel engines to the tune of about 16 bcf per day. That’s 30 additional bcf, up from 60 to 90. So 10 million barrels oil is a goal; 90 bcf is a production target for natural gas, where 30 bcf would be converted to either CNG or methanol to displace imported oil.

Meanwhile, continue the journey toward more higher efficiency automobiles and continue the journey to more electrified vehicles as well, both batteries and hydrogen fuel cells. And I think we could go a long way in the next 10 to 12 years and beyond, particular beyond the next 10 to 12 years for electrified vehicles to bring a rational sense of well being to the transportation system of the country with more affordable prices because of the use of natural gas and less imports, and because of the increased electrification and less demand for oil. But that would take rational, thoughtful, pragmatic planning, which is 180 degrees from anything we have seen from a public policy standpoint, at least in my career.

Mr. Hofmeister has been helping to shape content for the launch of Total Energy USA as a member of the Executive Committee. Total Energy USA is the groundbreaking conference and exposition that addresses the greatest uncertainty in the energy industry today — the cross-fertilization of energy sectors and technologies. More information about Total Energy USA, November 27-29 in Houston, Texas at www.TotalEnergyUSA.com

Link to Original Article: Hofmeister: An Energy Plan for America

By Robert Rapier

  1. By Jerry Unruh on October 22, 2012 at 10:30 am

    No mention of climate change!

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    • By Robert Rapier on October 22, 2012 at 2:16 pm

      Jerry, we did discuss climate change. I asked him a straightforward question on it. I will have that answer in a future edition of the interview.

      RR

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  2. By Bob Rohatensky on October 22, 2012 at 11:39 am

    Why don’t we hear more about CNG for rail? I would think the capital investment to convert from diesel to CNG locomotives would be minuscule compared to converting a significant number of highway tractors. The capital investment of refuelling infrastructure for locomotives would also be much smaller and maybe as simple as CNG fuel cars that would be swapped.

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    • By FG on October 22, 2012 at 5:18 pm

      LNG would work even better for rail (and safer than CNG in many respects).

      Railroads are the ultimate captive fleets, where everything is under a unified control from the rolling stock to the filling stations, the routes, maintenance, routing planning, etc. So managing the technical difficulties of LNG should be quite feasible in such a ‘closed’ and well controlled environment.

      It’s also works for captive road fleets and for long haul trucking. Royal Dutch Shell is making fairly serious moves in this direction.

      http://www.upi.com/Business_News/Energy-Resources/2012/06/08/Shell-to-offer-LNG-truck-refueling/UPI-70221339177161/

       

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  3. By mac on October 22, 2012 at 6:15 pm

     

    “Why don’t we hear more about CNG for rail?”

    ________________________________

    Below is a photo link to an experimental train in India already running on CNG.  This train was developed by India National Railways. 

    http://www.hindustantimes.com/photos-news/Photos-India/indiacngtrain/Article4.aspx

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    The Indians are also interested in importing a Russian developed LNG locomotive, possibly purchasing as many as as 300 GTEL (gas turbine electric trains) from the Russians.  These gas turbine engines use LNG as a fuel, but are not directly connected to the wheels.  Instead, the gas turbines act as electrical generators to produce electricity for electric traction motors that actually drive the train’s wheels,  very  similar to the way present day diesel-electric hybrid locomotives operate.  The Russians claim fuel savings of about 30% over present diesel locomotives.

    One interesting feature is that these LNG locomotives can be used as emergency power generating equipment if necessary.  The Russian National Railway may order as many as 200 over time and the Indians are talking about ordering possibly 300 locomotives after a 2-3 year initial trial period.

    http://indrus.in/articles/2012/09/06/russian_lng-powered_trains_on_the_way_17463.html

     

     

     

     

     

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  4. By Incredulous on October 22, 2012 at 7:14 pm

    Tossing out the #’s for how to solve the energy crisis is a good start, but these proposed increases are absolutely ludicrous.  An over 60% increase in petroleum production?  A 50% increase in natural gas production? How?  By what miracle?  The dubious proposition that there’s another 4M bbl/day of production locked up in public lands just there for the taking? 

    And short of nationalizing the petroleum and natural gas industry, there’s no real way to ensure that the production remains stateside in a global market. 

    I suggest that Mr. Hofmeister do a little surfing on Google Earth, because they are absolutely fracking the Mick out of the Dakotas to get that 1MM bbl/day boost – and a very temporary boost based on the typical fracked well production curve. 

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  5. By mac on October 22, 2012 at 9:08 pm

    Here are some CNG (videos) locomotives in motion:

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    Burlington Northern

    “The BN SD40-2 #7149 was a natural gas locomotive developed for the Burlington Northern by Energy Conversions Inc. The successful demonstration locomotive operated on a commercial coal haul between Wyoming and Wisconsin from 1991-1996. The engine took the idea of natural gas rail out of the concept phase and into reality.”

    Here is a You-Tube video of the locomotive in action…..

    http://www.youtube.com/watch?v=jDHsdk-4KhY

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    Below is a video link to the Napa Valley Wine Train, supposedly the first to run on 100% compressed natural gas in the U.S., in contrast to dual fuel engines that run on a mixture of diesel fuel and natural gas.  The second car, behind the locomotive, is undoubtedly the tender carrying the CNG.

    http://www.youtube.com/watch?v=LhfA1D__Nns

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    Also, here are some other CNG/LNG train news articles that might be of interest:

     

    Canadian National Railway Tests Natural Gas Locomotives

    Sept 12, 2012

    http://www.google.com/hostednews/afp/article/ALeqM5gRW-W68_VHej7MPn6jSt9irRBZHg?docId=CNG.bf797516729d03f0b198bbc21b62cc01.c51

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    In 2005, Sweden instituted service on a train that ran on just bio-gas alone , on a 175 km run from Vastervik to Linjoping.

    http://www.eltis.org/index.php?ID1=5&id=60&news_id=2943

    And finally, since 2008 there has been a natural gas train in operation in Peru powered by GE manufactured natural gas engines. One official in the Peruvian government has suggested that all trains in Peru be converted to CNG.

     

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    • By Bob Rohatensky on October 23, 2012 at 10:15 am

      Those are great links. I guess what I meant more was that when I hear energy plans like the one above or from T. Boone Pickens, they have this idea that they will wave a magic wand and a million independent truck owner/operators and small trucking companies are going to replace or convert their trucks to CNG and then hunt for a place to refuel. That is just slightly less silly than saying we can replace all the passenger vehicles with gas or electric within our lifetimes.

      If you want to fix a stalled economy, create a diesel surplus. It’s not gasoline prices that cause R.R.’s “Long Recession” it’s transport, manufacturing and construction costs which are all directly affected by the price of diesel.

      The catch 22 of actually doing something like moving rail off of diesel is that it could actually be done in a relatively short period of time, which would create a glut of diesel in North America, which would probably trigger a economic upturn, which would use up the surplus capacity and not a lot would have actually changed. :-)

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  6. By Michael Pawluk on October 22, 2012 at 11:37 pm

    Mr. Hofmeister seems to be echoing Romney and Pickens, believing government policies are preventing drilling on federal lands.  My question is, if all of this oil is right here in the U.S. for the taking, why did oilman Bush not go after it during his 8 years in office?  Why has it suddenly become Obama’s policies that have prevented this?  I’m growing tired of the rhetoric.

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  7. By Delmar Jackson on October 23, 2012 at 8:23 am

    Why haven’t we heard about the safety and low cost of thorium reactors?

    http://www.youtube.com/watch?v=RDzDk44bzyU

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  8. By mac on October 23, 2012 at 3:57 pm

    Royal Dutch Shell invests $300 million in Canadian LNG refueling Network

    http://www.forbes.com/sites/christopherhelman/2012/06/13/shell-investing-300m-to-fuel-lng-powered-trucks/

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    The problem is not who owns and/or controls the the fuel supply,  The point is that we need to diversify our fuel options, to include CNG/LNG, electrical energy, bio-fuels, synthetic fuels, etc..

    The fact that the oil companies have enough money to buy as many ethanol refineries as suits their hearts…. is irrelevant.  If the Oil Companies want to buy up all the Nat Gas interests, that’s not a real problem either.

    Somebody has to own and manage these assets and provide us with energy.

    The problem is that in the West, we are entirely dependent on OIL.

    98 % U.S. and 97% in Europe.

    We need to diversify…….. even if our present day oil companies end up owning the assets and making the profits.

    WE HAVE SIMPLY PUT ALL OUR EGGS IN ONE BASKET — The Oil Basket.

    That’s not a very good Wall Street strategy,  and not a very good energy strategy for the critical transportation sector, either.

    No one on Wall Street is foolhardy enough to ever suggest that anyone invest their entire life savings in a single stock, yet this is the exact path we have taken with oil.

    Once again, it doesn’t really matter who owns the assets.

    It’s the fact that we need to diversify our transportation fuel options, whether present day oil companies end up controlling those options or not.

    When the OIl companies grow up and realize that they can make just as much money from alternatives to oil as oil itself, then perhaps things will change.

     

     

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  9. By Jim Takchess on October 25, 2012 at 5:16 pm
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  10. By nevi on November 2, 2012 at 4:21 am

    http://newcleantricity.yolasite.com/

    Interesting..I sent Mr H a note some years ago, but I think he’s more focused on his books and seminars etc. Onward we go to more bankruptcies. The louder illusions of recovery do eventually awaken to the whispers of bankruptcy.

    The greatest debaters, prolific speakers and philosophers that make you feel all fuzzy on energy subjects do all have one thing in common. ‘Absence of solution’. It’s the results of biggie summits and such..Powerful ‘statistical’ data supports the very lucent- sounding projects..The failed investments are amazing, but whats a few billions among friends?

    2013 will mark the beginnings of a new looming economics crisis which will be more ‘the real thing’ than 2008. It’s a strange world really..It is the nature of people to fall off the cliff first, and many do follow a few over it ..willingly too.

     

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  11. By David Nadel on January 3, 2013 at 12:21 pm

    I share John’s interest in Methanol from stranded natural gas (and possibly coal as well) but the infrastructure of sufficient methanol must be built and strategically through the (3) marketing regions in the US (West of the Rockies, East of the Rockies and the Rocky Mountains). One 3000 ton/day methanol train produces 22,000 bbls/day of methanol (CAPEX = $400 Million). By my math, replacing one third of the 9 million barrels of gasoline consumtion per day would equate to 136 methanol trains, of course some maybe already existing. In order to market to the pacific coast, skid mounted plants would need to be floated to Prudoe Bay and piped to Valdez. I have no doubt we can produce the gas. Being able to get it into liquid form increases the value of the gas.
    One item about CNG and LNG in over the road trucks, Hazardous Cargo (HC) routes preclude transport though most suburban and all urban areas. LNG vehicle cylinders allow for short term storage – only a couple days.
    Lastly, there has been a lot of discussion of exporting LNG. The Methanol numbers above only add up to about $50-60 Billion (plus and additional pipeline in Alaska), which is very practical. The CAPEX numbers for LNG liquifaction are much higher and the market demand half way around the world is tenuous at best. The market for transport fuel is here, the CAPEX is lower – I would give the nod to Methanol.
    I guess the next thing for Mr. H to do is to approach John Mullaly (sp?) at Ford. Ford Motor pushed for Methanol in the early 90′s.
    Please refer to “Beyond Oil & Gas – The Methanol Economy”, George Olah.

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