The president of Shell Oil Company was in Iowa last week and in an interview with Radio Iowa answered some questions about the increase in gas prices. Oil companies are seeing billions of dollars in profits as gas prices skyrocket. Shell president John Hofmeister says the high profits aren’t based on the price at the pump.
Hoffmeister says it’s a complex situation where most of the oil profits are coming from the high price of crude oil. He says they have old oil fields where most of the cost of getting oil out of the ground have already been written off. So they are getting oil out of the ground at a low cost and getting oil prices that are "astronomical" compared to just nine years ago. Hoffmeister says the profits aren’t something the oil companies can put in the bank.
He says the profit is important to make as it’s becoming more expensive to find new oil, and the profits are all put back into finding new sources of oil. The short supply of gasoline is credited with the fluctuations in gas prices. Hoffmeister says the U.S. misjudged the needed supply and the impact and popularity of S-U-V’s and pickups that guzzle more gasoline. He says his company is moving to help the supply problem, and just broke ground for a new refinery.
Hoffmeister says it will end up being the nation’s largest refinery at over 600-thousand barrels a day. He says some of their competitors are also building new refineries, but he says it will still be two or three years before there’s a major boost in supply, and supplies will continue to be razor thin. Ethanol use in gasoline has been a boon to Iowa and farmers and Hoffmeister believes that boon will continue.
Hoffmeister says corn ethanol will be an important part of the future fuel supply, "I don’t think it’s a bubble." He says there may be ups and downs, but over the long term he believes ethanol is a good investment. Hoffmeister says cellulosic ethanol is another option, but he says cellulosic ethanol is still years away, because the technology is immature.