And now let me turn to tonight’s topic and our distinguish guest and we are very grateful to have him with us. Tonight John Hofmeister was named president of Houston-based Shell Oil Company in March 2005. In this position, he heads the US country leadership team which includes the leaders of all Shell businesses operating in the United States. Mr. Hofmeister to be became president after serving his group Human Resource director of the Shell group base in Hague at Netherlands. And John Hofmeister has said that he believes that to ensure US energy for the future. The energy industry must address the delicate balance among energy production, consumption, and increased supply. He calls for a fuller rate of energy resources, conventional oil and gas including access to resources presently off limits in off shore waters and on federal lands as well as unconventional oil and gas from oil shell and oil sands. In addition, he encourages development of clean fossil fuels and alternative and renewable energy sources. Please join me in welcoming President John Hofmeister. Now Mr. Hofmeister, you’ve been going around the country and you area talking about energy security. What do you mean by energy and how do you see it? Well, energy security really starts with availability, knowing it’s there. Um…our economy is predicated on the availability of energy. Everything we do, our lifestyle, our economic value creation comes from how we use energy. And the second criteria is affordability, that energy has to be affordable if we gonna use it. If our economy is gonna be strong and people are going to be able to make choices and how they live their life in addition to how the economy operates. The energy supply has to be affordable as well as available and it has to be affordable and available not just for this generation. But for generations to come and the way we define is as many generations as we can possibly imagine with our human lines. So that’s a pretty straightforward definition and it meant with better get on energy act together. Now would you place a kind or percentage in terms of domestic production as suppose to energy from sources outside the United States when you think about energy security? When I was child long time ago, we produced ninety percent of our energy in this country if we are speaking about oil and gas. Today we produce about thirty-five percent. Now, our economy has grown, our population has grown, our natural resource base is actually much larger than people realized. We are the only oil importing nation which by public policy prohibits the development of domestic natural resources. So, every other oil importing nation around the world is also allowing access to its domestic resources if they have them and for some reason we chose not to. So if you, to answer your question more specifically I don’t know that there is a perfect percentage. I would not advocate a hundred percent oil independence because I think that’s impractical. It’s possibly doable but it’s impractical. The volumes are huge. We, we consume in this country everyday twenty-one million barrels. Now most people don’t know what twenty- one million barrels looks like. It’s hard to imagine. So, break it down a little bit. Break it down into gallons. How many gallons is that? That is ladies and gentleman ten thousand gallons a second. Ten thousand gallons is a swimming pool full of oil, consume by this nation everyday, seven days a week. And over the course of conversation here which will be about an hour, we will consume nearly a billion gallons of oil. That’s a lot and...and it’s everyday and so energy security when sixty-five percent of what we consuming is coming from abroad and that pipe line is never assured, is never guaranteed and it’s expensive. It’s expensive in the sense that what’s’ today’s oil price seventy-eight or seventy-nine dollars of barrel is certainly doesn’t cost seventy-eight or seventy-nine dollars of barrel to produce that oil. That oil is coming in a premium through the global trading system which is traded by traders all over the world base upon the assumptions that China, India, Europe, US, Brazil whatever will be demanding more oil and would not like to see supplies disrupted so it bids the price up in the meantime we have an almost billions of barrels in this country going undeveloped. It’s estimated by the American Petroleum Institute that a hundred and ten billion barrels of non conventional oil and gas is available to us and either the other continental shell with this country or on federal lands which we are not allowed to touch, a hundred and ten billion barrels. Now that’s not enough to deliver energy security but would be enough to help bridges us to more forms of alternative energy by developing needs domestic resources without relying entirely on international supply. Should the percentage be fifty-fifty, should it be sixty-forty reverse. I don’t know it was ninety-ten. I’m not advocating a ninety-ten split but I am advocating that the tension that we have felt in this nation over the last three of four years and particularly the last two years, the confrontational debate over prices and profits has really been about the scarcity of supply, because the nation is consuming more oil and gas every day and other forms and energy as well and the demand keeps growing up. And we can talk about the demand side a little bit later perhaps but the demand nonetheless keeps going up as a head of the company with fourteen thousand branded Shell station across the nation and six million customers a day, we have to provide assurance to those fourteen thousands stations that they are gonna get deliveries everyday. Part of that ten thousand gallons a second that we have to assure the deliveries because their livelihood were at stake and their customers livelihoods are at stake. So, this security of supply issue I think is a very biggest share for the country and we hardly ever talk about it. Well, now, talking about…talking about it, you are engaged in a….in a fifty city tour. You’re the…you call it dialogue with Americans which is kind of unusual. Can you tell us about it what’s the motivation behind it and what...where do you findings on this fifty city tour? What give rise to it, ah…I obviously came here about two-and–a-half years ago. I’m an American But I was living outside the US for about a decade. And I came back to this country not as a lifetime oil company person but a somebody who join Shell in 97 who work in Hauge for the first eight years of my Shell career and then came to the US ah…never having work in the oil industry in the US. And I worked another companies, telecommunications, aerospace, originally equipment companies, and I know what it takes to the kind of stake holder relations that are necessary to earn the daily license to operate and was somewhat shocked having been outside the country for a decade. At the fundamental and animosity which seemed to exists between consumers, elected officials, other stake holders, and energy companies. And trying to understand that a bit, a situation only got worse, it got worse because of the hurricane season of 2005 in which could Katrina and Rita were two of seven, not just two storms but two of seven storms which shut down production on the gulf of Mexico in the summer of 2005. The consequence of the summer of 2005 and the devastation of both Katrina and Rita in particular meant that the nation lost twenty-five percent of its normal supply of oil and gas by weather and it didn’t loss it overnight, it loss it for weeks and months. We want weeks and months without the twenty-five percent of supply because a month after Katrina shot everything down with a shut a whole bunch more down and while we were getting things back up from Katrina really came true Texas, is Texas and West Louisiana whereas Katrina went through East Louisiana, Mississippi ,and Alabama. So that whole gulf cost was basically shot down at one point or another in the summer of 2005. What did American consumers do, they kept buying gasoline. The price was the rationalization of the market place, we saw about a one percent decreased in demand with a twenty-five percent loss of supply. Think of it in terms of your water supply after what’s twenty-five percent of the water supplies was wiped out. We know that there would be a government’s lead response o immediately changed the allocation of water and who got to use it and who didn’t. In the case of energy, oil and gas in this case, there was no effort from government at any level to allocate supply. The markets simply absorbed the shortage with consequence was priced. What happen then, well what happen then as…as company leader we are motivating and recognizing our employees who under the most dark conditions imaginable. No electricity, some lost there homes, actually a couple of hundred loss there homes, they come to work everyday to try to restore America’s energy supply. So, we’re…we’re recognizing them, we are rewarding them for their great effort to bring energy back to normal. Meanwhile, elected officials are accusing as of collusion and price gauging. That summer I got forty-eight letters from attorney’s general claiming that from forty-eight different states, claiming that we would under be investigated for price gauging violations and then we got senate hearings. We had the senate energy and commerce committee hearing where it was time to lambast the oil companies. We then had later the Senate Judiciary Committee where we had to testify as to whether, you know, under oath as to what we did or did not do to collude and conspire to withhold supply to the American people. I mean that’s not the kind of business relationship you want with your stake holder community. It hasn’t gotten much better ladies and gentleman, not yet anyway. The gallop hole of the 25 leading industries of the nation which was publish about three weeks ago published in ranking order published the 25, the ranking 25 industries, oil and gas was dead last. We’re 25 out of 25 in the favorability rating of the American people. Being 25/25 is bad enough, but when you look up and you see in 24th place is the federal government. You know you’re having a bad time of it and so what do we have to do? So we go back to the 50-city tour. My staff and I got together and said look, we can’t live this way. We can’t live in a world of animosity and a world of stake holder invective. What do we gonna do about this? Well, there was this one suggestion, let’s do image advertising. Let’s promote ourselves with advertising. Well, all you have to do is turn on the Sunday morning talk shows and you see that there’s image advertising galore. And I don’t remember anybody ever coming to work to talk to me at least to tell me what a great ad they saw on Sunday morning television and how it made them think more positively about company A, B, or C. And they’re very expensive ads. So we talked about other forms of, can we use our gas stations to try to invite people to think about issues? We have 14,000 of them. And when you realize that a gasoline purchase is something that you wanna get done with as fast as possible because you’re putting a product in your tank that you don’t want to see, touch, taste, or smell and you’re standing in the hot or the cold or the wind or the rain or whatever, it’s a quick experience as fast as you can. And so people don’t wanna stand there and talk about energy security while they’re buying a tank of gas. So then we though about what else can we do and we thought well why not go talk to the people who buy our products. Go talk to the officials who are elected or appointed, who set public policy. Go talk to media across the country about what it is that they are concerned about that they think their readers are concerned about and we started out thinking about visiting a few cities but when we look at the US, and if you look at a map, you see this huge, huge market places out there from New York to Los Angeles, from Miami to Seattle, San Francisco to Washington D.C. and you say “My God, there’s a lot of people out there. So we decided so in a year’s time, a year and three months or so, maybe we can do 50 coz we have a lot of other things that we have to do as well. So we embark on a 50-city energy dialogue. We are now at city 46. We’ve been across the country back and forth many times. In the course of time we’ve meet ten of thousands of individual people. We have tomorrow evening a town hall at the J.W. Marriot where we will host the town hall where I won’t be speaking but we will be responding to questions but I have a staff here of Shell folks because in the course of this we have taken 250 Shell leaders out on the road with us to these 46 cities. And it’s shoulder to shoulder. So people who come to our town hall, don’t sit down, we don’t have chairs. We stand up. We talk. We have three big questions in the room about the future of energy. On the supply side, what is does the US portfolio look like in 10 years and we listen to the responses. It helps us think about our future business. Second question is what does a company like Shell do to get more oil? Well, many people say that’s the wrong question. We don’t want more oil. We want less oil. But it gets the dialogue going. And the third question about what can consumer, government and companies do to affect the demand side of energy and all of those three questions get a huge dialogue going. And we record, we don’t record, we take notes. We don’t wanna get people’s voices on tapes because they might not like that but we take notes of what people saying and we created a website which has all that information on it from 45 cities. And the purpose of the dialogue is that it doesn’t stop. Because the problems that we have today are the consequence of the convenience of market forces playing out over a century which has made us almost completely reliant on fossil fuel, gas, oil, and coal in which market forces have played the role to create such a market share of hydrocarbons that if somebody wants to bring a new form of energy into the market, it’s very, very difficult. We’re very good at oil, gas, and coal. And we have great car structures, we have great efficiencies, we have all kind great capabilities over a hundred years of experience but at the same time we know that that’s not enough. There isn’t going to be enough hydrocarbon alone to make the difference. There have to be investments in other forms of energy and what are they. Well, this where we need a bit more government market cooperation. And so what we’re really trying to get to through this whole dialogue is convince enough people across the country that we can’t just allow market forces to decide our future. Because it is not just the supply of energy we have to deals with. It’s also the release of carbon emissions that we have to deal with. It’s also the type of efficiency in which we use the energy that we have to deal with. It’s also the type of efficiency in which we use the energy that we have to deal with. And companies who work in the hydrocarbon business solely under market conditions are unlikely to deal with CO2 because what’s the reward for that. Absent in government framework in dealing with the CO2 issue, nothings gonna be done. Currently we have a number of states trying to deal with the greenhouse gas issue. California being one of them and we were participants in a dialogue around AB 32 for example. But state by state approach we think is too limited. It’s too fragmented. It could be totally incoherent like the gasoline supplies, totally incoherent in this country because every state can demand a different kind of gasoline which is one of the reason you have so much volatility in California, you demand a certain specific on your gasoline which doesn’t work in other sta – it is isn’t called for in other states. And you’re not the only state that does that. So you’re gasoline is specially formulated just for California but yet we could probably have more clean air nationally we had standardize type of fuels and more supply, so less volatility and price. But at any rate, the point is that the energy dialogue is intended to get us to a point nationally where we could have a substantive, intelligent conversation about all the alternatives, about green house gas management, about efficiency, and about education on energy and we thinks, you know, if we can play a part in helping to make that happen, it will be a success. You talked about government framework, do you have in mind particular government to achieve those objectives. First, let’s start with a coherent nationally lead energy strategy for the nation. We haven’t has an energy strategy. I’m not a lifetime oil person but I have been studying politics and political science my whole life, I cannot remember in my lifetime at least an energy strategy like we’ve had a space strategy or we’ve had a civil rights strategy. We’ve had other strategies as a nation. When the nation put it’s mind to something. It gets it done. We had a lot of energy policies. Those policies have largely been tactical responses to specific situations and because there is not a coherent strategy, it changes the energy policies change continuously. So we had an energy bill in 2005. Congress change in 2006. We have energy bill going through congress in 2007 which are undoing the energy bill of 2005. That’s not an energy strategy. That’s a lot of tactics around certain energy possibilities. So the coherency of a national energy strategy starts with the types of supply that are available and possible including the short term, medium term, and long term possibilities. It deals with the demand side which could largely approached the efficiency of automobiles, the efficiency of appliances, the efficiency of lighting. All of the efficiencies of building constructions, the carbon issues, the greenhouse gas issues. So all of these things I think need to be taken into account simultaneously. The government should not choose winners, government should really which technologies are winners. Government should really be an enabler so that many possibilities can be considered. In the case of the energy security strategy, then that takes you to some specific frame works of regulation for example, on green house gases. Green house gases shall advocate the trade system where the nation would cap at some level green house gas emissions and then create a credit trading system which could be use so that emitters will have – will be force to buy credits, that’s real money out of their pocket by not meeting the emission levels that their allowed to meet. They have to buy credits to meet their overall requirements so they have to pay out and those who are doing better who are decreasing their emissions would get a benefit, so they would have a surplus of credits they could sell to those who have to buy them and that trading system like any commodity trading system creates people who make money of trading itself. It would have to be government lead for it to be workable but it would create a market. And that market could actually help drive down the mission of green house gases. Some people call for a carbon tax. Shell’s view on the carbon tax is yeah, that’s a tool that’s out there but for a carbon tax to be meaningful which is designed to change human behavior, it would have to be so enormous in size that I personally don’t think it would ever get elected or get voted on and those who would vote on it would find themselves looking for new jobs in the next round of elections because the current John Dingle I think he is a great asset to America, he is promoting a carbon tax right now and he said it would probably be the toughest fight of hid life because he knows that most people are just unwilling to raise the gas tax putting a carbon tax on top of the gas tax which is really what it is would have a significant effect on the price of energy that people pay in particular gasoline and their tank. So I think the carbon trade system enables the corporation to do what they do best and that is to make big decisions to drive efficiencies and economies of scale only in this case it would be in terms of carbon emissions and I also don’t look at the consumers of the nation to solve the problem. Consumers don’t move quickly. Consumers deal with choices that are available to them to make their lifestyle the way they want to live and jiggling thermostat or lightening up on accelerator pedals or crushing people into small cars is probably not gonna be very popular with consumers. So rather companies create options which people will like and I think we can actually use less energy, reduce emission and continue a lifestyle of free choice that we all have come to know in this country. I believe you’re part of a group of CEOs of companies from different industries and NGOs focusing on climate change. Do you want to talk a little bit about that? United States Climate Action Partnership. Unites States Climate Action Partnership is 33 major companies at the CEO level along with six NGOs, important NGOs, not friends of industry by definition who have together in a consensus format. We started in January and we’re now one year – almost one year in and the purpose of this groups is to convince congress and the White House that we need legislation on a cap and trade system. The way we’re currently approaching it is through a set of principles where we have published principles, you can go to the US CAP website. You can see the principles that are published and these are principles that deal primarily with stationary source of energy and transportation energy. There are other issues that will come into the frame later but these two areas we believe that we can address transportation and stationary source energy through a cap and trade system, we can go a long way towards beginning the process of managing green house gases. We had a meeting in Washington yesterday. Thirty three CEOs and six NGOs and we made I think tremendous progress on approving the principles and now agreeing what we need to do to get to a plan, a plan of specifics which we can present to legislators.
member. 
