A Glimpse into the Mind of John Hofmeister If you didn’t know who John Hofmeister is, you might believe he’s a roving political figurehead and not a former energy CEO. And while the topic of energy seems like a convoluted issue to most, for Hofmeister, understanding energy is as simple as understanding that proper nutrition is good for your body; he often compares being an intelligent energy consumer to being a healthful consumer of food.
Traveling around the country, the former Royal Dutch Shell, U.S. Business, CEO talks to groups about the importance of energy and its role within the political realm. His commonsense fervor toward energy slaps you upside the head in a “wise up” kind of way. He enthusiastically reminds consumers that it is important to know the ins and outs of supply and demand as well as the availability or lack of availability of energy and how to keep it affordable, sustainable and available.
He warns that consumers’ lack of knowledge about energy and how it affects their day-to-day lives is not only detrimental but elicits unintended consequences we as a society are not ready to face. He stresses the importance of learning the basics. For Hofmeister, energy isn’t a hard lesson. In fact, it is a lesson we don’t focus on but we should. In a one-on-one interview, ICOSA had the distinct honor and opportunity to learn more about Hofmeister’s perspectives on the energy sector and its impact on citizens across America.
ICOSA: How do you think leaders in the oil and gas industry can be more transparent about what is going on in the industry so that citizens can have more informed conversations around fossil fuel development?
Hofmeister: We have to explain energy from the consumers’ perspective and that’s not generally what companies do; they tend to explain energy from the engineering and natural resources perspective. While it is completely logical to approach a technology industry from a technology standpoint—that’s not where consumers’ heads are.
We must dramatically shift how we talk about energy and think of who the ultimate consumers of energy are and the implications on their consumption of energy, which means affordability, availability and sustainability. Everyone assumes that we have enough energy; everyone hopes that energy is affordable, and everyone prays that energy is sustainable. Well, we can do all three with a sound energy policy that enables the production of more energy from all sources.
It’s very clear that in elections going back, really, all the way to Richard Nixon, who was the first to promise energy independence, that politicians have basically manipulated misinformation, disinformation or lack of information of the average voter to try to get what they want from an energy priority standpoint. That’s not good enough; public officials should not manipulate voters. Voters should have the freedom of choice to choose people who they hold accountable for energy. But they won’t do that if they are not well informed. Consumers have to be convinced before they vote for people who have a rational balanced approach to energy.
ICOSA: The energy industry continues to be demonized. How can leaders within the energy industry get their message out front to halt some of the blatant misinformation perpetuated by the media, environmentalists and politicians to scare the American public?
Hofmeister: I think you have to go back to the consumer. If you compare industries like the food industry, the information technology industry and the financial services industry, any consumer product industry focuses on advertising and public awareness of what they do with the consumer first. Energy is exactly the opposite—it doesn’t focus on the consumer because it is selling to a wholesale marketplace, or it is producing oil that goes into a global trading market. The industry believes that by going into a global trading market, there’s no customer there. They don’t think about the person who’s ultimately buying the refined product. You have to continuously think about what the implications of your product is as it relates to the ultimate end user—that to me is how you build your communications. The oil and gas industry in particular, but also the electricity generation industry, tends not to focus on the consumer.
People will wait outside, in line, overnight for a new Apple product. Nobody, however, is about to wait outside, in line, overnight for a tank of gas unless they’re desperate or unless gas is in short supply. People just take it for granted, but they still need more information about how hard it is to get that gasoline to market.
ICOSA: Consumers have an ideological fear that’s been constructed by media, environmentalists and politicians. And as outlets that exist based on consumer and constituent satisfaction, the output of topics and information can in most cases be skewed for ratings and favorability numbers. With politicians spending more time trying to be re-elected, it seems as though they are nurturing ideology with bad regulatory policies instead of educating their constituents and holding more productive town hall type meetings to quell un-needed public fear. What are your thoughts on this?
Hofmeister: First, I think we have to recognize that the free market for energy disappeared a long time ago. There is no such thing as a free market for energy; it’s completely regulated by the government, and that’s something that consumers need to know. They’re completely governed as to what they can sell, where they can find it, where they can produce it and how they can produce it.
The U.S. government, not the manufacturers, sets the specifications for gasoline; the government sets the implications for distribution, and whether we have pipelines or not is a government decision. So the public needs to understand who is really running the show. It’s not the oil companies—the oil companies are trying to do the best they can to serve their customers through a publicly regulated process.
Generally politicians escape accountability by artificially blaming oil companies for public policies, which they either did not create or refused to create, or which created public policies that harmed the consumer. We have to be brave enough as an industry to explain all of that so that politicians can’t get away with the manipulation and the demonization when the problem is not the companies—when the problem is the public policy failure. If politicians blame the oil companies for something, the oil companies can only do what they do based on public policy. It happens over and over again; politicians love to demonize the oil industry to move the accountability for problems away from themselves.
ICOSA: Why aren’t more company leaders speaking out and addressing these concerns?
Hofmeister: There are two problems: One, if politicians think they are being criticized by companies that are depending upon them for permits—they will withhold permits. They will punish the companies that criticize them. They will retaliate against the companies who need the public’s permission and who need the permits for speaking badly about the politician or the public policy that the politician supports. Number one, you don’t bite the hand that feeds you. I don’t know how you get around this problem easily, especially when the public doesn’t understand that politicians or public policy are the problem.
The second problem is that many of the leaders in oil and gas companies do not accept that it is their responsibility to inform the public of what they need to know, much less to engage politicians. There’s a phrase that’s expressed quietly among many energy companies when they run up against opposition, whether it’s consumers, environmentalists or politicians demonizing the industry; the under-the–breath, soft expression is, “Well, let them freeze in the dark.”
If you have a mindset that says because you are opposed, then your opponents can simply freeze in the dark, I propose that you’re not likely to go out and communicate openly and effectively with those people who are dependent upon your product down the road. Or if the price of gas gets skyrockets, instead of explaining that poor public policy has led to the high pricing, companies just don’t say anything. They try to explain their high prices based upon their cost systems which overwhelms consumers.
Most people understand supply and demand, whether it’s milk, whether it’s tickets to athletic events or whether it’s gasoline; supply and demand is supply and demand. If companies presented basic economic education for the public with respect to supply and demand, people might not be so antithetical to what the oil companies are trying to do.
ICOSA: You wrote a book called. Why We Hate The Oil Companies. What led you to write the book and to give it such a title?
Hofmeister: Believe it or not, I got the title from Tim Russert, the former moderator of Meet the Press. On my first Meet the Press interview, Russert interviewed me and two other oil company CEOs. His first question to three heads of oil companies was, “Do you know how much the American people don’t like you?” And that stuck with me. Then he presented the favorability numbers of the annual Gallup Poll on “How Americans Perceive the Oil Companies,” which is hard data. He demonstrated to the three of us live on television in front of millions of people how disliked the oil companies were.
Of course, when you go through decades of being demonized because the industry has done some terrible things to the environment, like the Exxon Valdez spill or BP’s Deepwater Horizon disaster or other oil spills, you don’t effectively engage the public on what happened and what you’re doing about what happened. Instead, you’re not transparent about it, which builds mistrust. There is a reluctance to engage, and it’s a reluctance companies will pay a price for.
The oil industry must move from being introverted to being more extroverted like any other consumer products company because oil and gas companies are ultimately consumer products companies. There must be a mindset shift in the boardroom and at the executive level that recognizes that they are in fact consumer product companies as well as technology companies.
ICOSA: One of the biggest challenges for the industry right now is hydraulic fracturing. The American people don’t know much about any of the upstream, midstream or downstream processes, yet they “know about fracking.” New York State is finalizing its comment period over its moratorium, and many of its residents can see the benefits just over the border in Bradford, Pennsylvania, but the issue continues to linger. How do consumers become better educated on the topic, and how do people within the industry resolve this issue on hydraulic fracturing?
Hofmeister: You really have to out-Hollywood, Hollywood. In 2010 you had Gasland, a movie about natural gas extraction and fracking, and now we have Promised Land with Matt Damon, a movie, where Hollywood gets to define the natural gas extraction issue. The industry has been so far behind in explaining itself to the public that now Hollywood gets to give their version of the facts—which are often created or invented for the purpose of selling movie tickets. Meanwhile, the reality of fracking hardly gets explained. But when it does get explained through a movie or documentary, I credit the film industry for going into communities with a premeditated storyline to explain the issue—whether it’s the farmers, the townspeople, seniors or the young people of the community.
Companies really are doing a good job explaining the case of fracking, but what they are not doing is explaining the case of fracking to the American people at large. Take Pennsylvania as an example. You often get people from the Philadelphia area to go to Pittsburgh or other communities in western Pennsylvania, who have never been talked to about fracking, to go and protest fracking. Often, the local residents like the economic opportunity that drilling represents, like the fact that their young people don’t have to move away to get good jobs and can live at home or stay in the community. But the Philadelphia folks show up to protest the fracking and make it out to be something that’s just plain awful. So when the news media covers the protests against fracking, it’s not the local residents in many cases that are protesting—it’s the visitors.
Or, what about New York state … I’ve been in southwestern New York state and talked to a number of people there. They have been waiting for fracking to be approved because they want the economic option to have private landowners to be able to sell their mineral rights. But citizens from the New York metropolitan area or upstate New York, where there is no opportunity for fracking, are trying to shut it down, encumbering these locals who’ve been patiently waiting.
You end with outsiders, so to speak, making a case for fracking. I’ve invited the American Petroleum Institute to come and present to a number of groups, and the people there do a wonderful job. They have an excellent presentation that is completely understandable and puts everything into perspective. Why isn’t the industry using that information to make a movie? There are great actors who could create a movie that sells the benefits of fracking as it pertains to national security, to economic growth, to job creation—to all the things that it actually does deliver to communities.
It’s not that people love fracking; nobody loves fracking—including the frackers. It’s a dangerous, dirty process, but it leads to economic value creation. Steel-making is a dirty, dangerous process too, but think of all the things that come from that—cars and huge buildings—all because of steel. We must make fracking safe, just like steel-making became safe to realize the full benefits of it all. We can put up with the risks associated with the dirty and the dangerous part, which are mitigated by technologies, as well as the safety regulations and rules. The industry doesn’t think that way, and that’s why I’m out in the public trying to describe, in my own words and in my own views, what needs to be done. The industry can help itself a long way by out–Hollywood-ing Hollywood, and not trying to be the technicians that they are but getting their messaging out in front of people.
It’s hard to find Americans who want to fight job creation. But, they don’t think of fracking as job creation, they think of fracking as destroying the Earth. It doesn’t destroy the Earth. It’s such a small piece of what the Earth represents, and it can be done in such a way as not to harm or seriously damage it. If, for example, you went to a so-called dirty fracking site and then returned in two or three years, all you’d see is a pipe in the ground, because nature would have reclaimed the land—you wouldn’t know that there was ever a fracking site there. Same with coal mining and other harsh excavation-type activities; there is something called restoration, and it is part of the regulations. So it can be done, and should be done because we need the energy.
ICOSA: You retired as Royal Dutch Shell’s president of U. S. business and soon founded and became the CEO of Citizens for Affordable Energy. What led to this transition?
Hofmeister: My former company (Shell) had a retirement policy of 60 and out. So when I reached 60, I had six months to leave—and so six months later—I left.
When I thought about what was next I experienced the frustrations of trying to deal with the political process to create sound public policy on energy. I was engaging with thousands of people across the country in an outreach program, and I was flabbergasted by the lack of knowledge, awareness and information that the public had with respect to energy.
So I decided being relatively young at age 60, being healthy and being somewhat of an extrovert, that the American people deserved better, they deserved to know what they needed to know, not only to enable themselves to have a better future, especially when it comes to the future of energy, but also for their children and their grandchildren. After discussing it with my family, we concluded the best thing that we could do was spend the next period of our years trying to persuade as many people as possible to simply learn more about what affects their life every day.
Since starting the work I am booked solid and my time is no longer my own—my time is given to the people that I talk to. My wife and I started the nonprofit, Citizens for Affordable Energy, which is solely funded by voluntary contributions from consumers only. We do not accept any money from the oil and gas industry or any other energy company. We are constantly talking with people all over the country and sometimes outside the country about the future of energy and the environment. It’s not that difficult to engage people.
We believe to move forward we must address four basic energy priorities: (1) we need more energy from all sources; (2) we need more technology for efficiency; (3) we need more environmental protection so that all future generations have clean air, clean land and clean water; and (4) we need more infrastructure to move energy from where it’s produced to where it’s consumed. These parameters are what we call “The Four Mores” and they can guide Americans’ understanding of the future of energy and the environment, as well as serve as a foundation to create public policy.
Our mission is to educate many people as we can to support energy for the future because our energy systems are old. Furthermore, the reliance on existing supplies is not secure, so we need more secure supplies to promote affordability and availability, and we need environmental protections to provide sustainability. We’re not idealists, and we’re not ideologues—we’re practitioners, and we’re very pragmatic.
If you read the discussion on the environment in my book, you could probably come away from that chapter believing that I am a full-blown environmentalist, which I am, but I also recognize that we need energy. So it’s not how do we stop using energy, but really how do we make dirty processes cleaner, and how do we make dirty energy cleaner? I believe it’s possible because we have all the technology available to us to make it happen. And, I think it is important to have a secure nation with a strong potential for economic growth while we make sure that our environmental needs of the nation are also protected.
ICOSA: Beginning in 1919, the oil industry created the American Petroleum Institute, its governing body, to self-regulate and standardize the way oil companies do business. The group enforced advocacy, standardization and certifications to ensure the industry was held to an exceptional standard of business. How does the industry converge their views along with the views of the environmental movement?
Hofmeister: You listen to all sides. You don’t start with criticism—you start with openness, transparency, realism and pragmatism. You can’t start with ideology; if you make it religious zealotry where you cannot comprehend or you are unwilling to comprehend the views of others, nothing works. I’ve met environmentalists who are absolutely and fundamentally, with every fiber of their being, opposed to a hydrocarbon future. They’ve closed down their minds; they’ve just refused the beliefs of others and the needs of others. They have the right to be a zealot but because they are a zealot, they are on the fringe of our society.
All the surveys tell you that most of our society consists of centrists and pragmatists. I think it is dead wrong for politicians, because of a noisy, zealot-led minority, to make public policy that affects the top of the bell curve. That’s not what a democracy is. Citizens have the right to disagree, they have the right to protest, they have a right to their own point of view, but if they are going to try to stop the vast majority from enjoying the benefits of energy because of their zealotry and the elimination of hydrocarbons, that’s not good public policy. That’s not where the majority lives; it doesn’t deny them the right to protest, but it should not empower them to stop what society needs.
The United States has a unique problem that most other countries in the world do not have—we tend to have a binary view of the world—it’s either this way or that way. That binary view of the world gets in the way of rational conversation for the common good. Zealotry on either side doesn’t take us to the common good. We have to have the public involved because the public are the decision-makers of the future of the country. That’s where the industry has let itself down and has let society down by being too remote from the mainstream of political behavior and political knowledge and understanding.
ICOSA: You talk a lot about the future, but with no real energy policy and increasing regulations, where do you see the future of domestic energy development as it pertains to exploration and production, new technology and domestic energy independence?
Hofmeister: We’ve been muddling through for years, and we’ve been successful because we have been so reliant on foreign imports. We’ve basically exported the risk of producing energy for the United States by buying imported oil. We have totally enriched other parts of the world with our disposable dollars. When we import foreign oil into this country, jobs are created elsewhere in the world—not here. Because those jobs are created elsewhere in the world, we have promoted economic growth in other parts of the world while our own economy has suffered the loss of those reinvestment dollars.
We have an old infrastructure in this country, water systems, sewer systems, highways, bridges—you name it—our infrastructure is old. We have an energy system that’s the oldest in the world and we are not reinvesting in it. Instead, we’re still relying on foreign imports to get through the day. So while we’ve been muddling through for decades, we can and should make choices that demonstrate that a crumbling infrastructure and enriching other locales is not a good enough option.
Going forward I am promoting a reasonable, rational plan that extends beyond an election cycle. In that plan, we must change the governing structure of the industry, which is extremely convoluted. Today, the energy governance consists of 15 cabinet agencies in the executive branch, 40 committees in Congress, 735 federal judges, plus 50 governors; 50 state legislatures; 50 state court systems; and thousands of municipalities, counties and townships, which all set energy rules.
We have so much governance over energy that there is no free market left. I believe we need a new governance model for energy, which includes the creation of an independent regulatory commission that enables the energy system to be managed for the future, independent of politics, independent of who’s in office; in the same way that that independent regulatory commission called the Federal Reserve to manage our monetary system for the good of the nation, for the good of the economy and for the good of American consumers. We need an independent regulatory commission to manage energy for the good of the nation, for the good of the consumer and for the good of the economy because the politicians have proven that they can’t do it.
They can’t do it as politicians because they won’t—they won’t reach agreement, they won’t come to bipartisan conclusions, and they won’t operate from a consensus model. Currently they operate from a partisan party model, and that model doesn’t work. That’s sort of the last item to discuss here because—it gets pretty complex—you’re asking elected politicians to give up some of their authority to an independent regulatory agency as a result of their failure. Politicians don’t want to admit that they’ve failed, so it might take power blackouts to demonstrate that their failure is real.
The failure of the political process to provide for future energy security is real. When we realize this, then we might have the wherewithal and the pragmatism to solve the governance problem, which has created the impossibility for this nation to have a secure energy policy.