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$5 for Gasoline is on its way. Alternative energy companies will be the biggest

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benefactors of $5 gasoline. Only way to keep gasoline from rising even further than $5 would be to have alternative energy to offset the use of Oil.

Hofmeister: Gas will cost $5 a gallon by 2012

Posted by:
Jay Kernis - Senior Producer

ONLY ON THE BLOG: $5 for a gallon of gas, really? energy-dependent United States?...where is affordable energy?

Answering today's five OFF-SET questions is John Hofmeister, the former president of Shell Oil.

He founded and is now CEO of the non-profit grassroots organization, Citizens for Affordable Energy.

Hofmeister was named President of Houston-based Shell Oil Company in March 2005, heading the U.S. Country Leadership Team, which included the leaders of all Shell businesses operating in the United States. He became President after serving as Group Human Resource Director of the Shell Group, based in The Hague, The Netherlands.

He retired from Shell in 2008.  Hofmeister also held key leadership positions at General Electric, Nortel and AlliedSignal (now Honeywell International).

Hofmeister is scheduled to appear on Parker Spitzer on Tuesday, Dec. 28, 2010.

You recently made headlines by predicting that Americans will pay $5 for a gallon of gasoline by 2012. What will cause prices to reach that amount?

The issues that gave rise to high priced gasoline in 2007 and 2008 are repeating themselves, except the world demands even more oil in the next several years than before.  Asian growth is continuing, e.g. 17 million new cars per year just in China, and will demand more oil.  U.S. economic recovery has brought demand back to where it was before.  Economic growth means even more demand.  But the U.S. Government is prohibiting expansion of U.S. domestic crude oil production which puts upward pressure on global crude oil prices.

Who decides the price at the pump? Individual gas station owners, the oil companies, oil suppliers or some shadowy group of powerful people in an undisclosed location?

Price at the pump is decided by local station owners, not the major oil companies.  The oil companies sell gasoline/diesel at wholesale prices to retailers, which reflect the crude oil price movements up or down.  The retailers need to have enough cash on hand to pay for the next wholesale delivery. 

So when crude prices rise, retailers raise their prices in expectation of higher wholesale prices.  When crude prices drop back down, retailers try to hold their prices up as long as they can because their margins are generally poor.  So prices rise quickly and drift down more slowly at the corner retailer.

The government has lifted the moratorium on drilling in the Gulf of Mexico. Do you think there should be new drilling there?

The moratorium is now lifted in name only.  No deepwater drilling permits have been granted or resumed.  Rigs are leaving the Gulf of Mexico in search of work elsewhere.  No other country has stopped offshore drilling, only the U.S.  The less we drill in the Gulf of Mexico the more dependent we become on crude oil from other countries.  We are then also at the mercy of global crude prices, where we are contributing less, not more production.

Who is holding back the country's ability to become more energy self-sufficient–energy companies? Congress?

Eight Presidents and nineteen Congresses have promised Americans energy independence in the past 38 years.  None have delivered.  Politics is holding back energy self-sufficiency.  Two year/four year election cycles induce “flavor of the day” political decisions on energy. 

We have failed to have a coherent multi-decade energy plan for decades.  There is no indication that there will be such a plan any time in the future, without changing how we govern energy.  As long as politics dominates, America is at the mercy of short term decisions made in election cycles.

Do you think Americans will pay $5 a gallon?

If we stay on our present course there is no question but that prices will rise to the $5.00 gallon level by 2012 in my opinion.  Americans will be angry and intolerant of the elected officials who failed to do their jobs to enable the energy companies to produce more affordable energy.  They will be more likely to vote out the incumbents who caused the problems than they will be tolerant of higher gas prices.