December 29, 2010

NEW YORK — Americans will pay $5 for a gallon of gasoline by 2012, thanks to growing global demand for oil, tighter supplies and inadequate responses by the U.S. government, the former president of Shell Oil said. Appearing on Platts Energy Week, John Hofmeister also predicted little or no new drilling in deep waters of the Gulf of Mexico for the next two years as Washington continues to respond to the BP oil spill with tighter regulation of the oil and gas industry.

“If we stay on our current course, within a decade we’re into energy shortages in this country big time,” said Hofmeister, who retired from Shell in 2008 and now heads a grass-roots group called Citizens for Affordable Energy.

“Blackouts, brownouts, gas lines, rationing–that’s my projection based upon the current inability to make to make decisions,” Hofmeister said. “The politically driven choices that are being made, which are nonchoices, essentially frittering at the edges of renewable energy, stifling production in hydrocarbon energy–that’s a sure path for not enough energy for American consumers. When American consumers are short or prices are so high–$5 a gallon for gasoline, for example, by 2012–that’s going to set a new tone. It’s going to be panic time for politicians. They’re suddenly going to get the sense that we better do something.”

Hofmeister, whose interview was taped December 1 during a Platts Global Energy Outlook Forum in New York, said he expected the result of the November elections will worsen political gridlock in Washington. Voters gave Republicans control of the House of Representatives and more seats in the Senate in the Congress that convenes in January.

John Hofmeister Former Shell President Interview on $5 gasoline

“The 112th [Congress] has potential for compromise, but we’ll see. I’m predicting actually a worse outcome over the next two years, which takes us to 2012 with higher gasoline prices, uncertainty as to the future of hydrocarbons, more regulation on the hydrocarbon industry based on who the administration is today,” he said. “And what I fear the most is that by 2012 prices will be so high that we’ll have a backlash from the electorate, and we’ll go into reverse and will go back to as hydrocarbon-only type of future with maybe some nuclear, instead of moving on into the 21st century.”

Hofmeister said U.S. oil production will suffer from government response to the BP oil spill. “I’m expecting no new drilling for two more years at least, maybe one or two token wells,” he said.

The government response will persuade oil companies to increasingly look outside the US for drilling options, he added. “What the administration doesn’t understand about the industry is how it plans its capital budgets,” he said. “It plans a capital budget on a three-year cycle. If the Gulf of Mexico is uncertain, which it is because nobody knows when they can drill again, then that money will be reallocated elsewhere around the world.”