Former Shell chief calls for overhaul of U.S. energy approach

The former president of Shell Oil called for an independent regulatory body to oversee energy production and policy, saying the existing government system is broken.

Without major changes, John Hofmeister told an audience at the World LNG Fuels Conference Tuesday, attempts to develop an infrastructure to speed the use of natural gas as a transportation fuel will be, at best, small steps forward.

“We’re going to move forward incrementally, when the system needs a major overhaul,” he said in an interview after his talk.

Hofmeister created an advocacy group, Citizens for Affordable Energy, after leaving Shell — the Houston-based U.S. arm of Royal Dutch Shell, which is headquartered in The Hague.

He suggested an independent energy regulator could be modeled on the Federal Reserve, created in 1913 after an economic crisis.

So far, the idea hasn’t gained traction in Washington D.C., he admitted.

“They tell me it is dead on arrival, which encourages me,” he said.

Hofmeister’s assessment of U.S. energy policy was decidedly downbeat, coming between panels of speakers who offered their own prescriptions for getting around the hurdles they say have kept the bounty of natural gas in the United States from reaching its full potential.

Natural gas has drawn increasing interest as a transportation fuel in the midst of the shale production boom, but it has been difficult to translate that into widespread use in the United States. About 0.1 percent of all vehicles on the road are powered by natural gas and about 0.2 percent of the medium- and heavy-duty truck fleet.

If things go on as they are, that could reach 3 percent by the end of the decade, said Tom Inglesby, a partner at McKinsey & Co. He predicted a concerted effort could boost the share to 10 percent or even 20 percent.

Mike Juden, senior practice expert at McKinsey, said natural gas vehicles have a large market share in Asia — especially in Pakistan and Iran. Penetration is lower in Europe and South America but still higher than in the United States, which he attributed to favorable policies in other nations such as government subsidies for converting engines.

Juden and Inglesby both suggested that for at least the near future, the growth of natural gas-powered vehicles in the United States is likely to be greatest in commercial  trucks, buses and fleet vehicles, where the payback is quicker.

For heavy-duty trucks, the payback — the time it takes for the fuel savings to pay for the cost of conversion — is less than three years, Juden said. At today’s prices, liquefied natural gas is about $1 to $1.50 less for an amount containing the same amount of energy as a  gallon of diesel.

For a passenger car, the payback is six to 10 years, Juden said.

But Inglesby said the environmental benefits ultimately will have a bigger influence on companies’ decisions about entering the market. Natural gas-powered vehicles have lower emissions than those using diesel.

Still, he said, many companies are waiting for someone else to make the first move.

“It does create the chicken-and-egg dilemma,” Inglesby said.

And Hofmeister suggested that, beyond that dilemma, the country suffers from a lack of energy leadership.

He said partisan politics and the tendency of politicians to make decisions based on the election cycle hampers energy policy.

“In this industry, to build pipelines, to build facilities, to build storage, you need to think about not two years or four years, you need to think 10 years or 20 years,” he said.

He also said the size and complexity of the federal system has made it “unworkable, dysfunctional and unfixable in its current form,” noting that 13 cabinet-level agencies address energy policy.

Add the federal judiciary, all 50 state governors and tens of thousands of county and city officials, he said, “and is it any wonder we have made so little progress?”

But not everyone was so disheartened.

Samuel Thomas, chairman, president and CEO of Ohio-based manufacturing firm Chart Industries, noted that President Obama changed his opinion of natural gas during his first term in office.

“No, we don’t have incentives,” he said. “But we don’t have disincentives.”