Oil Watchdog

Fuel made from orange rinds, wood chips and switchgrass may become
part of Shell gasoline in ten to 20 years, beefing up supply and
possibly lowering prices, the company’s president said last week at the
company’s facility here.

"Shell as a company has bet its biofuel future on future
generation biofuels. We are investing in cellulosic biofuel," which is
made from sources like paper and wood chips, said John Hofmeister,
president of Houston-based Shell Oil, during a visit to California.
Shell is also researching algae as a potential alternative fuel, he
said.

Future generation biofuels are newly developed fuels made from
organic sources. Corn ethanol, currently an additive in gasoline, is
considered the present generation.

Hofmeister’s company has a partnership with Montreal-based
Iogen Corp., which may build a plant in Iowa to research the
possibilities of this renewable fuel, he said. He said it’s "possible that in ten to 20 years there will be large quantities of ethanol from Shell for the market," saying while it’s also possible this would lower prices, it wasn’t certain.

The president of Shell came to the Bay Area last week to speak
at the World Affairs Council. The visit was the 46th stop of a 50-city tour to discuss energy issues face-to-face with the public.

Gas prices in California are consistently above the national
average. For example, a gallon of regular unleaded gasoline is
currently going for $3.07 in California, 31 cents more than the
national average of $2.76, according to AAA of Northern California. In Oakland, it’s currently $3.17.

Asked why the state’s gas prices are higher, Hofmeister said,
"The California market is robust. It’s a strain to fully supply this market because there are potential unplanned outages of the supply of unsure duration. Refineries are running flat out, so if there’s an outage, it makes an impact."

In September, consumer Jeremy Williams of Pleasanton told
MediaNews in an interview that "market manipulation" was the reason for high gas prices, saying, "They (oil companies) should have reserves so that if there’s a problem at the refinery, they can make up for it."

When informed of Williams’ comment, Hofmeister said, "In terms
of specification of manufactured product, there is not sufficient
supply to rebuild inventory levels, even though that’s our objective. There’s not enough production capacity to put gas in tanks and let it sit there."

Hofmeister said the state also has a higher gas tax and
stricter emissions standards, so it costs more to make California
gasoline — and it’s more difficult to bring in outside supply.

However, Severin Borenstein of the UC Berkeley Energy Institute
told MediaNews in April that these elements add only about 38 cents a
gallon in extra costs to California gasoline, while at the time gas in
the state was selling for 60 cents more per gallon than the national
average.

In response, Hofmeister said, "I don’t know where he gets his
information. The ultimate decision is made on the street level by local
dealers." He said wholesale gas profit is counted in pennies per gallon
and in retail single-digit pennies, "which in good times could get into
double digits."

Hofmeister acknowledged that the price charged by oil companies
such as Shell to retailers would ultimately figure into the price paid
by consumers.

Jamie Court, president of the Foundation for Taxpayer and
Consumer Rights, said gasoline costs are high in part because oil
companies withhold supply from the market to drive prices up.

Responding to Court’s remark, Hofmeister said, "Jamie Court
doesn’t work for Shell. He is inaccurate in his representation of how
Shell works. Why would we withhold product when we have incredible
demand? Why would we alienate customers?"