Consumer preferences for higher-mileage vehicles could slow oil and gasoline demand in coming years and lessen the urgency to build significant numbers of new refineries in the United States, Shell Oil Company President John Hofmeister told Knight-Ridder.
Shell Oil Company is the US arm of Royal Dutch Shell, and responsible for oil and natural gas production, product refining and marketing and petrochemical manufacturing.
Hofmeister told Knight Ridder Newspapers that efforts by President Bush and Congress to provide incentives to build new refineries are welcome, but a key assumption—that the demand for gasoline will continue to increase—could be flawed. Hofmeister said the growing consumer demand for cars and trucks that get better gas mileage could change the outlook for future gasoline use.
“I would submit the likelihood of consumption patterns changing is higher, rather than lower,” Hofmeister said, suggesting the change would take some of the pressure off the need to build new refineries.
Yesterday, Republican leaders in the House of Representatives twisted arms to narrowly pass legislation supported by President Bush to simplify the process of expanding refineries or constructing new ones. (Earlier post.)
[...] But Hofmeister questions the long-term demand forecasts, pointing to the recent bout of record-high oil and gasoline prices that he thinks could mark a turning point.
“That really shifts the attention of the automotive industry to look for more fuel-efficient alternatives,” Hofmeister said.
It might be easy to dismiss Hofmeister’s comments as self-serving; if production does not increase, but demand does, then gasoline prices will continue to rise. However, the higher prices rise, the greater the likelihood of radical changes in consumer behavior.
If, on the other hand, new refineries are built, but due to constraints in oil supply prices continue to rise anyway, and demand correspondingly drops, then the oil companies would once again be moved to consolidation—i.e., cutting out some of the excess capacity that they had just invested in to build.
From the company’s point of view, in other words, investing in new refineries only makes sense if (a) demand continues to grow unabated and (b) supplies of low-cost oil to feed those refineries will be plentiful. Shell may have its opinions about (a), but it has data about (b).
Not that Shell or any other company would pass up a low-risk deal—which is what the House bill is trying to serve up.