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GLENN BECK

The Future of Oil

Aired August 8, 2008 - 19:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


GLENN BECK, CNN HEADLINE NEWS, HOST: It has become the number one issue on the minds of voters.
UNIDENTIFIED MALE: Gas prices suck.

BECK: America`s energy crisis. While our presidential candidates pander with short term fixes and Congress keeps itself busy playing the blame game, we`re looking for real answers. Tonight you`ll get the straight dope for one of the ultimate insiders.

JOHN HOFMEISTER, FMR. HEAD OF SHELL OIL: U.S. oil and gas production has fallen steadily for the last 35 years. Why? Because government policies place domestic oil and gas resources off limits.

BECK: Former head of Shell oil and currently energy activist John Hofmeister helps us sort through all the bull crap and our energy problems to find the solutions. Honest questions for a full hour.

Hello, America. You know, I think you and I are an awful a lot alike. I`m just so sick of it. I`m sick of feeling like I`m the only guy out there, and I know you feel exactly the same thing, trying to defend the country, trying to just do the right thing, not caring about the stupid donkey or elephant but caring about America and voting that first. When it comes to energy, I don`t know what the solutions are, I want a clean planet, I want a healthy planet, you do too. But I also don`t want to lose our place in the world. I don`t want to.

Wear a sweater and check my tire pressure. That is not an energy plan. That`s insanity. That`s how America solves problem. Well, I met a guy a couple of months ago, he`s the former president of Shell oil. He`s the founder and CEO of Citizens for affordable energy. His name is John Hofmeister and he`s here with me now for a full hour. And John, I have done some checking on you with some people, some friends of mine down in Houston, Texas.

And they said there are some evil oil executives but there`s a couple of them that they love their country. They`ll shoot straight and you are one of them. I think you were called a prince of the oil industry and that`s not really good because I know some of the princes in the oil industry, they chop your hands off. So I just want to have an hour with you where you just be as brutally honest as you possibly can. Just tell America what the real deal is.

First I have to ask you, why the heck should anyone trust you, you`re in oil.

HOFMEISTER: Well, I`m from the oil industry, but I would not say that I`m of the oil industry. I spent 10 years at Shell, before that I had many years of G.E. and multiple businesses. And then I spent some five years in the telecom business and five years in the aerospace business.

BECK: OK.

HOFMEISTER: So 10 years in the oil and gas business.

BECK: OK. Let me start with this because I think this needs to be the framework. This needs to be the umbrella because everybody`s like, oh, yes, I hate oil, we got to get off oil. They forget that oil took us from little house on the prairie to today. Partial list of what oil is directly responsible for? When you say we`re not going to have anymore oil or we`re going to get off oil, what goes away or what is affected?

HOFMEISTER: Well, if we get completely off oil, say goodbye to makeup, say goodbye to bottled water and all the plastic bottles that are used to -

BECK: All plastics would be gone?

HOFMEISTER: Plastics would all be gone. The backyard sandbox, the backyard gymnasium that people use with plastic now. The Christmas ornaments that people put on their houses, the blowup Halloween kind of things that you see outside of your house on Halloween.

BECK: Yes. Those could go away.

HOFMEISTER: Say goodbye to artificial Christmas trees. You know, say goodbye to everyday utensils in the kitchen. Say goodbye to all kinds of, you know, the things that people use and just take for granted.

BECK: Right. It`s all the way down to our clothing.

HOFMEISTER: It`s clothing. The clothing that you wear, much of our synthetic clothes and so it`s a way of life in the petrochemical business. There`s also fertilizers, agri-business -

BECK: Right.

HOFMEISTER: -- with pesticides, herbicides, they would all go away.

BECK: There`s really and there`s nothing and I`m not talking about transportation. There`s really nothing that isn`t touched by oil.

HOFMEISTER: Very little is not touched by oil.

BECK: OK. So to -

HOFMEISTER: Except the food we eat, fortunately.

BECK: Yes. Right. So by getting rid of oil, it`s a total - if I may quote Barack Obama, and I think this is the truest statement I have ever read, but people really should listen to it. "Breaking our oil addiction is one of the greatest challenges our generation will ever face." I think it`s the world will ever face. "It will take nothing less than a complete transformation of our economy." True or false.

HOFMEISTER: First of all, I don`t agree with the word addiction.

BECK: OK.

HOFMEISTER: Addiction would suggest that we just have been completely compelled by it. The fact is we have chosen it. We have chosen it and it has created the world`s greatest economy. It has created the world`s leading country because of the infrastructure that has been built, the natural resources that have been put to work and we will continue to need it for decades to come. You can`t fly a plane on wind power or solar power, not yet. And you can`t really replace the trucking system in this country nor can you replace what the Department of Defense needs -

BECK: Right.

HOFMEISTER: -- to look at national security overnight.

BECK: Do you believe that anybody is telling us the truth, any of these candidates, and we`re going get into this deeply, but are you hearing the truth from anyone, that Americans can turn to and go, OK, I can pretty much trust that guy, he understands it, he gets it, and he`s telling us the truth?

HOFMEISTER: Well, I think people use truth as they see it.

BECK: Sure.

HOFMEISTER: I think there`s a tremendous lack of information on the part of the American people about oil and gas and hydrocarbons in general but also all energy in general.

BECK: The biggest thing you hear as a former oil executive that you see on TV in your life, would somebody please correct it, what is it?

HOFMEISTER: The myth that we are running out of oil.

BECK: You don`t believe in peak oil?

HOFMEISTER: I do not believe in peak oil.

BECK: OK.

HOFMEISTER: Other than one day it will happen because we have chosen other technologies and we won`t need to produce more oil.

BECK: Right.

HOFMEISTER: And we have not achieve peak oil yet. The capital infusion that`s going on in the industry worldwide right now is going to raise production levels from today`s 85 million barrels a day to somewhere around 110 to 115 million barrels a day sometime in the next 20 years. To say that today is at peak oil is I think a misnomer.

BECK: I asked listeners and viewers to write in and tell me the one thing that you really want to know. First, average profit margin for a company like Shell?

HOFMEISTER: About 7.5% return on sales, single digit.

BECK: OK. To me, that doesn`t sound like a crazy profit margin, I happen to know, like hedge funds are I think 93 percent profit margin and nobody`s talking about the evil hedge funds. Where does that put you on the food chain? Exxon, I think was 10 percent. Where does that put you?

HOFMEISTER: Dead smack in the middle of the average return on sales for manufacturing companies in the U.S..

BECK: Who`s above you?

HOFMEISTER: Pharmaceuticals in the high teens, information technology in the middle teens, the banking and financial industry was in the high 20s before the recent meltdown.

BECK: Right.

HOFMEISTER: And so they`re now suffering of course.

BECK: Right.

HOFMEISTER: But a lot of other entertainment companies are at a higher return on sales.

BECK: Right. But they will say that, well those companies, you`re providing the life blood for the economy. You`ve got to do, I mean you just can`t take it. We can`t live without it.

HOFMEISTER: Right.

BECK: And somehow or another you shouldn`t make profit like the drug companies.

HOFMEISTER: Well, the numbers are huge because the revenues are huge, the business is huge. I mean, in my time at Shell, for the year 2007, Shell put almost what, over $25 billion into capital investment. Paid some $18 billion in taxes. Return to shareholders over $14 billion and it`s profit was about $27 billion in 2007. These are big, big numbers which many people have difficulty getting their head around.

BECK: Yes.

HOFMESITER: But that money all goes to work for more energy in the future. Not just oil and gas, in the case of Shell, because Shell is very active in a variety of alternative forms of energy and so it`s a whole way, a business model that`s built on decades, not political cycles.

BECK: OK. I don`t want to make this a commercial for Shell, but I happen to be. G.M. is letting me borrow their new hydrogen car for the next week. There`s only 10 of them in the country.

HOFMEISTER: Right.

BECK: I`ve driven it once. They`re going to let me drive it for a week. And it`s an amazing car. From what I understand Shell is partnering with them and maybe this is you that did it, you`re going to put hydrogen stations in all the gas stations. I asked the guys at G.M., really? You`re going to do that? Has shell thought about when the environmentalists come and say, you can`t zap water, we need water. How much of a role does the environmental movement and everything else that just seemingly just will not accept any answer? How much of a role do they play?

HOFMEISTER: Well, what really happens which is a problem and this is where I said I`d sharpen my tongue.

BECK: OK.

HOFMEISTER: Environmentalists can often turn into ideologists. Ideologists who believe their own logic and perpetuate their own logic without thinking about the consequences on real people, can shut down American economic progress very quickly.

In recent years, trying to open up Alaska in the offshore region, every effort has been shut down by legal cases, filed by a variety of environmental groups trying to prohibit the development of hydrocarbons off the coast of Alaska. We`re not talking Anwar, we`re talking of the coast, in the (Bovert Sea, in the (Chuckee Sea). Every effort has been shut down and several environmental groups told me personally, we will do everything within our power to make sure you never develop hydrocarbons in the Arctic.

My response is then you take responsibility for the low income people and middle income people in this country that are being hurt by high energy prices because of your actions.

BECK: I want to talk to you. We`re going to take a break here but when we come back and ask you how bad is this? Have you ever seen - what`s coming? Have you ever seen it like this and what is it going to mean for the average Americans, I don`t think they have a clue of what`s coming this winter. It`s going to be very, very bad, right or wrong?

HOFMEISTER: Very bad.

BECK: Yes. Very bad. OK. We`ll get more on this and so much more with the former head of Shell Oil and energy activist John Hofmeister who I believe believes in global warming. We`ll talk to him next.

(COMMERCIAL BREAK)

BECK: Just that alone, 56 percent increase in diesel oil changes everything. Tell me how - tell me what the country looks like this winter, what people are going to be feeling. Tell me what it looks like in 10 years from now if we continue down this path, what we look like 20 years from now?

HOFMEISTER: We have a very serious problem, not just in this country but worldwide, with what`s called the middle of the barrel production. Out of the middle of the barrel, take 42 gallon crude oil barrel. The bottom of the barrel makes asphalt, marine fuel oil. The top of the barrel makes gasoline and petro chemicals. The middle of the barrel makes diesel, aviation fuel and heating oil. That middle part of the barrel is in such demand from the developing world, from Europe, from the U.S.. That`s why diesel is so expensive. We can`t get enough of the supply of the middle of the barrel without getting more crude barrels. When people say, no more -

BECK: So you can`t use - it`s almost like cream, milk where it all kinds of separates.

HOFMEISTER: That`s right.

BECK: And you can only use the top.

HOFMEISTER: The absolute max in very thick crude oil is perhaps 50 percent of the barrel under the right refining technology could be turned into middle distillates. But more often with lighter crudes, it`s a third or less. So if we don`t get more barrels, crude barrels, we don`t get more diesel.

BECK: So when they say light, sweet or heavy crude, heavy is what you want if you want --

HOFMEISTER: Heavy will give you more middle of the barrel.

BECK: Diesel?

HOFMEISTER: That`s right.

BECK: OK. Is it true that - is it true that the oil companies were subsidizing some of the cost of gasoline here recently by jacking up the price of jet a fuel because they knew there was more - they weren`t going to be hammered and called evil by the airlines as much as they would by the people. So you were losing money on gasoline and kind of shifting the money over to jet a, true or false?

HOFMEISTER: It`s true. It`s true that the industry was giving up margin on gasoline, because there was too much of it. We have no shortage of gasoline, the industry is looking for storage tanks for gasoline. But we can`t make enough aviation fuel or diesel because the demand is so high.

BECK: So, if you`re looking for storage tanks, how come gasoline is so expensive?

HOFMEISTER: It`s expensive but the industry is not able to pass through the full cost of the increase in the crude oil. So relatively margin is dropping.

BECK: Got it.

HOFMESITER: You saw that in the recent quarterly reports for most of the industry.

BECK: The ones that I read, sure.

HOFMEISTER: The downstream reports were pretty awful. Crude oil -

BECK: Right.

HOFMEISTER: Kept up the upstream so profits were in general were high. But yes, there is a higher price margin for diesel and for aviation fuel now because demand is so significant. Unless that demand drops off -

BECK: Which it won`t.

HOFMEISTER: -- the airlines have two problems, one it`s not just the price but getting enough of it to keep the planes in the air. There have been many cases where airlines are really struggling and chasing. We call it chasing barrels trying to get the product where it`s needed to fill up their airplanes.

BECK: You know, I talked to David Neeleman, the president of JetBlue, I think - do you know him?

HOFMEISTER: No, I don`t no.

BECK: A brilliant man. And he`s been talking to me about this for years, because he says JetBlue, it`s like we are headed for real trouble. And he`s really a visionary. I mean, he`s the guy that put the TVs in the back of the seats and we have the, you know, the kiosks, you know, in the airport and everything else. He couldn`t get anybody to move, he couldn`t get anybody to see over the horizon. So look over the horizon for me and tell me what happens to America five, 10, 20, 25 years from now if we don`t do anything.

HOFMEISTER: In the next zero to 10 years, we have no choice but to increase hydrocarbon production. And anybody who says we don`t doesn`t understand the American economy or how the infrastructure works. We cannot wean ourselves off of the use of oil over the next zero to 10 years.

BECK: We can`t wear three sweaters at a time?

HOFMEISTER: There is no substitute for hydrocarbons in the next zero to 10 years.

BECK: OK.

HOFMEISTER: And anybody who resists drilling says we should just see economic growth go into decline because that`s what they`re really saying.

BECK: Right.

HOFMEISTER: And we should make our let our low income citizens and our middle income citizens pay a severe price for somebody else`s ideology. So, that`s number one. Number two, I believe in alternatives and work very hard on alternative technologies, but, Glenn, it`s 10 to 20 years, that`s middle term, medium term before it makes a difference.

BECK: I was trying - I looked at something, I don`t have it anymore in front of me. But I looked this up the other day, when oil was discovered and combustion engine was invented, the first car was kind of put together and hey, look, we can use this to the time that there was the first assembly line, was I don`t remember, that was 30, 40 years and then that still wasn`t everybody driving a car.

HOFMEISTER: That`s right.

BECK: If you have this new, the hydrogen car, if it would come out today, it would still take a very long time before everything is going to flip over.

HOFMEISTER: Well, in addition, the automakers have long-term plans. They have to gear their factories and their capital investments to their technology platforms. They`ve already got the next two or three years set, with the knowledge of - I mean, these are knowledgeable experts and they know what they`re going to do over the next two or three years. It takes somewhere between 15 to 20 years to turn a fleet.

So today`s cars will be on the road and what were going to be sold in the next year, two, three years. And volume will increase because cars do wear out. It will be mostly internal combustion engines. So more flex fuel engines, undoubtedly which biofuels are good for. But it`s going to be a long time. Ad so politicians running for office on a two-year or four- year cycle can make all the promises they want but it`s not going to change the reality that we have to deal with every day of the week, every month of the year.

BECK: Were you part of the Dick Cheney, you know, the secret evil oil company pact? Were you on that?

HOFMEISTER: My predecessor - I wasn`t in the job back then, but my predecessor was not.

BECK: OK. I want to ask you if some of the rumors were true on that and get your thoughts of on it. Coming up in just a second with ex-oil executive John Hofmeister, formerly of Shell. Back in just a second.

(COMMERCIAL BREAK)

BECK: Back to former Shell oil president John Hofmeister. John, let me ask you if you know that this is true. It`s my understanding that that secret Dick Cheney were in the bunker in the basement of a 7-11, you know, plotting the demise of the western world. That the number one thing that they came back and said we need to do is nuclear energy. Do you know that to be true or false?

HOFMEISTER: No, I don`t. I wasn`t part of it. It wouldn`t surprise me.

BECK: Yes.

HOFMEISTER: Because we do need to do nuclear energy.

BECK: Right. But you`re not a green, I mean you`re a green guy, but you don`t believe in global warming.

HOFMEISTER: Well, I`m not a climatologist, so I can`t verify in my own mind whether there is or there isn`t. I`m old enough. I`m 60 years old. I`ve seen periods in the 1950s where the summers were awful, droughts were awful.

BECK: Sure.

HOFMEISTER: I have seen periods in the late 1970s when it was bitterly cold. And people thought, oh my, a new ice age is coming. So who am I? I`m not an expert in those areas. I would say this. When we use 10,000 gallons of oil a second, that`s 25 percent of the world`s consumption. So 40,000 gallons of oil a second. When we use a train car load of coal every three seconds, that`s 1,200 car loads an hour that we use. These are man- made CO2 elements going into the atmosphere and nobody wants to put their head on top of a smokestack or on the head of a tail pipe.

BECK: Right.

HOFMEISTER: I think that the atmosphere is finite because space maybe infinite. But the atmosphere is finite. We`re pouring this man-made C02 into the atmosphere. I do believe government has a role to play in capping or reducing emissions.

BECK: I think we should have fixed the hole in the ozone layer. I mean, it would have been like a chimney. No, I`m kidding.

HOFMEISTER: So we have learned to manage physical waste, we have learned to manage liquid waste, I think we should learn to manage gaseous waste.

BECK: OK. With that being said, you`re not a fan of nuclear energy?

HOFMEISTER: Well, nuclear energy. I`m not a fan of instantaneous movement to nuclear energy.

BECK: What does that mean?

HOFMEISTER: Because we haven`t figured out how to deal with the waste. I`m a big believer, if you can`t deal with your waste, you better not do it.

BECK: Giant mountain, giant mountain. I mean, every bit of waste that this country has made since like 1956 can fit into a room the size of a high school gymnasium.

HOFMEISTER: You`re absolutely correct. I`ve heard that myself from the head of (Exalan). The reality is we can`t get through the politics of dealing with our waste.

BECK: But that`s the problem, isn`t it? That`s the problem.

HOFMEISTER: Think about this. 300 and however many Americans are being held hostage by two senators from one state and that is a very small populated state? How does democracy work when the advantage of nuclear power is prevented from taking place because two senators in one low population state following Senate rules put a hold on the Yucca mountain decision and the nation is hamstrung in the development of nuclear power.

BECK: So actually, you`re not against nuclear power, you`re not against, you know, the waste thing, you`re just saying nobody`s going to let us do it.

HOFMEISTER: Right. You can`t store nuclear waste forever at a nuclear power plant.

BECK: Right.

HOFMEISTER: There`s going to be an incidents one of these days which is going to say, how did this happen? I used to live just 13 miles from Three-mile Island. I care about what happens when incidents go bad.

BECK: But he used to be a woman. See that`s what happens when you live that close to a nuclear power plant.

HOFMEISTER: If we can figure out the waste, then we can rebuild the uranium industry. We can rebuild the human capability.

BECK: Right. Hang on, we`ll come right back. Weekend politics coming up.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA, (D) PRESUMPTIVE PRESIDENTIAL NOMINEE: If I am president, I will immediately direct the full resources of the federal government and the full energy of the private sector working with state and local governments to achieve a single overarching goal. In ten years, we will eliminate the need for oil from the entire Middle East and Venezuela. In ten years time. Ten years is how long it`s going to take.

(END VIDEO CLIP)

GLENN BECK, HEADLINE NEWS ANCHOR: Back with former Shell oil president and founder of Citizens for Affordable Energy John Hofmeister. How realistic is that?

JOHN HOFMEISTER, FOUNDER, CITIZENS FOR AFFORDABLE ENERGY: If we could move rapidly to develop the offshore continental shelf, develop resources on federal land --

BECK: He`s not going to do that.

HOFMEISTER: Then it`s not very reasonable. In addition to alienate valuable trading partners in a particular part of the country who buy a lot of exports from America, I think that`s problematic.

BECK: What do you mean by that?

HOFMEISTER: Saudi Arabia, Kuwait; these are some valuable trading partners who have taken us through tough times and have helped us --

BECK: Trading partners, I mean do we have a run on camels and machetes? These are not good guys.

HOFMEISTER: They come on jet engines in Evansdale, Ohio are sent to the Middle East. Think of how many other products we`re putting into the Middle East made in America because of the trading partnerships. International trade is very important. You don`t isolate yourself from the rest of the world.

BECK: I don`t want to isolate myself from the -- well, no, I wouldn`t mind. You know these big cheese platters that you put the big glass thing over, I wouldn`t mind putting that over the Middle East. We can`t isolate ourselves from the Middle East.

I just think that we get into bed with some really nefarious people over oil. And I would love to be -- is it -- was it Shell that there`s this -- I`m going to show you my oil knowledge here. There`s some kind of dome thing off in the gulf, maybe it was at Shell or one of the companies found this big, I don`t know, dome and found an awful lot of natural gas and oil in there. And then all of a sudden, everything is shut off. You can`t use that, you can`t drill for it, you can`t suck it up.

HOFMEISTER: I think that`s off the coast of Florida, so it`s in an excluded zone.

BECK: But it`s there, I would rather take it from there than get it from the Middle East. Venezuela?

HOFMEISTER: Let me tell you where I think Senator Obama is staying good things to the American people. Because I do think in this ten-year period we should do everything we can to bring new technology to bear to make use of technology more efficiently.

BECK: But he`s not talking about -- I am totally in on the new technology, I believe in the free market system. I believe in America. And America is the country. Correct me if I`m wrong.

Anybody wants to buy a sophisticated drill, anything that everybody -- the whole world can`t make them, they come to us because we can make them, right?

HOFMEISTER: Yes.

BECK: Okay, so I believe we can do anything when we set our mind to it, but nobody is actually uncuffing the American people. And what these guys are going to do, you know this guy`s going to get into office. I have heard John McCain start talking this kind of stuff about, well, we have got to tax the oil companies. There`s the John McCain ad that I heard about, the evil oil companies.

HOFMEISTER: I heard it too. It`s unfortunate.

It`s unfortunate that political rhetoric is setting energy policy.

BECK: But they`re buying into it, John. They`re thinking that this is an evil company. And like we said at the beginning, there are bad guys in every industry. There are good guys and bad guys. But this is an important piece of fuel.

HOFMEISTER: What really irritates me is the hundreds of thousands of people who work hard every day in the energy industry are being vilified by their own elected officials. I think that`s dead wrong. That`s insulting hundreds of thousands of hard working skilled engineers, technologists and many other people.

But the problem is even bigger than that. The lack of information on the part of Americans enables them to buy some of these statements as though they`re real. This is political rhetoric time and we`re going to hear a lot more over the next 90 days or so.

But the reality is, if Americans don`t know what they don`t know, they`re going to end up with choices that they won`t like.

BECK: Then give me a couple of things here because this is what you`re hearing from the politicians. Some of them I`m going to nationalize the oil industry. But I`m going to seize the profits.

Obama right now is talking about, I`m going to give every family $1,000 just for the next five years and that money is going to come from your obscene profits. What does that do as an ex-CEO, if that would happen, what would your company do?

HOFMEISTER: I can guarantee you the company would follow the law, whatever the law is. But I can also guarantee you higher prices because taxing the oil companies and taking money away from the oil companies, meaning they cannot invest in new energy, is going to result in less supply.

We saw that happen in the `80s, less supply, it took us to high oil prices. Then there was a collapse that when the price controls were removed, the wind fall profits were overturned, then the price collapsed and everybody was happy.

We still didn`t have a national energy policy. We still don`t have a national energy policy and that`s what wrong with America. Thirty years of prohibiting offshore drilling is not an energy policy. It`s a depravation policy.

BECK: Here`s another thing I don`t understand. Russia is going out and buying up everything they can. China is buying up almost all of Africa. They`re everywhere. These countries are buying up every carbon unit they can possibly find.

Meanwhile we`re sitting here twiddling our thumbs and I don`t understand one thing. These environmentalists would rather have us buy our fuel and our oil from any other country because they care about the planet. Are you less responsible with our oceans and ANWR than China would be?

HOFMEISTER: Well, that`s the argument I made to environmentalists about the Arctic. If U.S. companies are not allowed to drill in the Arctic with the environmental standards, then the Chinese, the Russians and others will who do not have the same commitment to environmental stewardship that American companies do.

BECK: Come on. Do you think Putin is going to care you`re an environmentalist? You come in and you, "Hey say you just spilled," -- shoot you in the head.

HOFMEISTER: It`s a country that allows their nuclear subs to just rot in the Arctic Ocean. I would hate to see what standards they would deploy on the use of sub sea equipment where the U.S. companies take it as a religion that they will not violate nature.

BECK: Well, because they know you`re going to be crazy. They`ll be crucified if they do it.

HOFMEISTER: Right.

BECK: There`s some -- there`s responsibility because we`ll hold you responsible if you wreck our beaches and kill our animals.

HOFMEISTER: But for plaintiffs` attorneys, this is a whole new line of business. Global warming is a whole new line of business for plaintiffs` attorneys when it`s just a get rich quick scheme for plaintiffs` attorneys because they don`t care about the outcome.

BECK: There`s a pictures of -- we need to show the pictures of just outside of the ANWR. What`s the name of place where we`re actually drilling right down a couple of miles away or a few miles away from ANWR.

HOFMEISTER: Well, it`s the North Slope.

BECK: They take a picture of a bear walking on a pipe and the caribou everywhere. How is it that we are still arguing about the ANWR? It is a waste land. It`s not -- it`s not the beautiful pictures. It`s a waste land and are you going to destroy the waste land? How many caribou are you -- how do you sleep at night with the caribou that you have killed?

HOFMEISTER: There`s Marine Mammals Protection Act and there are all kinds of other wildlife preservation acts which will not be violated because nobody wants to break the law.

The actual land that would be needed to develop ANWR would be equivalent of a postage stamp on the front page of the "New York Times". So if ANWR is equal to the front page of the "New York Times" a postage stamp is the amount of land that would be touched by oil companies drilling for gas and oil in the ANWR.

But the ANWR has become a symbolic no go for the various factions in Congress that have decided that partisan politics is in the best interests of the nation instead of solving energy policy. When I testified in May, I talked about the politics of partisan paralysis. Partisan paralysis is the reason Americans are paying so darn much for their gasoline.

BECK: By the way, there`s the ANWR, not the little pictures of the beautiful flowers, that`s what you`re talking about. Oh, you can`t destroy that. Not that. The other part.

Tell me the story behind the 68 -- this is a new one. I love this one; that you have leases on 68 million acres and you`re doing nothing with it.

HOFMEISTER: Well, that`s a bit of misinformation and I think this is where Americans need to understand the whole truth. And the whole truth is, on 68 million acres of land where thousands of leases have been granted by Minerals Management Services or Bureau of Land Management, any company management that was not pursuing every possible hydrocarbon at these prices ought to be fired by their shareholders.

BECK: Right.

HOFMEISTER: So every company as a priority list of how to address their leases because they know they have to give up those leases after a certain period. You pay for the lease, you pay a bonus to the government to get the lease then you pay an annual rent on the lease.

And if you don`t develop it in a certain period of time you have to give it back so you have wasted your shareholder`s money. So everybody goes like gangbusters to develop everything they can as fast as they can but there`s a lot of that acreage has no gas and has no oil so there nothing developed.

BECK: You take it and you can look for oil. But if there`s no oil or gas there --

HOFMEISTER: You may as well look for oil and gas on the moon because there isn`t any in much of that acreage.

BECK: But you didn`t know it when you signed for the --

HOFMEISTER: No.

BECK: Ok. All right.

Real quick. People say we`ll never be able to pump a drop out for seven to ten years. I have heard that there are capped wells just off the coast of California and there are easier place where we could turn it around in months time, true or false.

HOFMEISTER: True. If you turn the industry loose. The coast of California is a perfect example. There is infrastructure already in place that could carry off new oil from new wells that could be drilled in a matter of months not years.

BECK: I heard that there was a big discovery in Russia, I think it was maybe somewhere near Turkey or something. They found this big, gigantic oil find, they found it back in June and I had to read this story like three times because it said they will be pumping oil from it in September this year.

HOFMEISTER: They must have had existing infrastructure because the infrastructure is usually the delay. You can find oil pretty quickly. You can put the engineering plans together if you`ve got infrastructure in place.

That`s why the oil industry continues to have interest in ANWR because the infrastructure is there. The Trans-Atlantic pipeline is there, it could bring oil quickly to the United States if ANWR was opened up and you don`t have to build new infrastructure.

But on the coast of California is a different example than the Middle Atlantic states. If the Middle Atlantic states were opened up for oil exploration and production, yes, it`s probably somewhere between five, seven years before you get any.

BECK: How fast on ANWR?

HOFMEISTER: ANWR would probably be two to three years to get some oil.

BECK: Back in just a second.

I want to look at alternative fuels and some solutions coming up next.

(COMMERCIAL BREAK)

BECK: Back with the former president of Shell Oil, energy activist John Hofmeister.

Let me start here. What is the most promising thing if we have drilling until technology catches up to us, if we dedicate ourselves, what should we be focusing on?

HOFMEISTER: Hydrogen and hydrogen fuel cell technology.

BECK: Do you believe, like I said to the guys at GM, you`re going to be fighting environmentalists who are saying you`re using too much water.

HOFMEISTER: I think because the waste of hydrogen is more water vapor, we put water back into the atmosphere and it turns into rain. Rain falls all over the earth. I think that hydrogen coming from water is the best solution because it gets rid of the internal combustion engine.

Here`s the problem with the internal combustion engine. It`s only fuel efficient and with ethanol it`s even less fuel efficient. So why would we invest tremendously in a whole generation of new vehicles for ethanol, bio- fuel, E-85, call it what you will, when we have a technology that displaces the internal combustion engine.

BECK: If you have ethanol like Brazil has ethanol, sugar ethanol. Or you`re not burning up your foods. That`s at least a little better than what we`re doing, isn`t it?

HOFMEISTER: Cellulistic ethanol can stretch the existing liquid fuel supply. I`m an advocate to move eventually off liquid fuels for vehicles because the internal combustion engine is only 20 percent efficient.

BECK: Shale oil, can we get oil from shale? How close are we to that technology?

HOFMEISTER: I think if we don`t get some legislation that enables the royalty system to be established it`s never going to happen.

BECK: Ok, wait a minute. Tell me the royalty situation. Because I heard a plan, I think it was your plan that you said if the government would just increase the royalty situation on oil drilling and bring it up to where the rest of the world is, a lot of problems solved.

HOFMEISTER: Here`s my plan and some of the oil industry will say I`m nuts and they won`t like me and they`ll say he doesn`t understand how the business works but that`s their opinion.

I believe that the way to get out of this conundrum in the best interest of the American people is to somewhat reduce the royalty rate on conventional oil and gas production.

BECK: What does that mean?

HOFMEISTER: That means going from 16 2/3 percent which is a tax on crude oil production to something higher. That higher rate can still be competitive globally.

BECK: What is the rest of the country?

HOFMEISTER: The rest of the world could be up to 50 percent. Because many parts of the world only grant oil companies a production sharing agreement which is so many dollars per barrel that they produce. They don`t have any of the -- the government keeps all the revenue from the oil and just pays the oil company a few dollars a barrel to produce it.

BECK: Holy cow.

HOFMEISTER: In our country t government gets 16 2/3 percent. The good law was passed in 2006 which shares future royalties with local states, the states that adjoin the Gulf of Mexico.

BECK: Why are we talking about the obscene profits? Why are we talking about raising your taxes when we should be talking about why isn`t this happening? Why are we not even competitive?

Our companies are under the highest tax or second highest tax on planet earth and they`re struggling which makes them go overseas and now you`re telling me that, of evil oil, the royalties are the lowest in the world?

HOFMEISTER: Almost the lowest, they`re very competitive. They`re about at the bottom of the world.

So there`s an opportunity there, I think to get more revenue for the federal government, more revenue for state governments. Bring more oil to the American people, which the oil companies will make profit doing, so you can grow the oil business in the U.S. And you can lower prices because we`ll have more supply. It`s win-win-win.

Oil companies win with more production, the government wins with more revenue, consumers win with lower prices. I don`t know why we`re not doing it. We should be doing it.

BECK: Tell me T. Boone Pickens, he`s got all these ads up. I met T. Boone I think he`s a smart guy, he`s obviously a smart guy, he`s worth billions of dollars. He seems to have an interesting in plan, but --

HOFMEISTER: T. Boone`s plan is tactical in two dimensions; good tactics, more wind, we could use more wind. More development of natural gas supplies, we could use more natural gas supplies and more solar, but it`s not complete. It`s not comprehensive.

For example, who pays for the big infrastructure change that would be needed for compressed natural gas at service stations?

BECK: He believes the United States government, doesn`t he? HOFMEISTER: Well, I think he`s suggesting there should be incentives to promote the infrastructure, but now if you have a gasoline infrastructure, you have a bio-fuels infrastructure, now you have a compressed natural gas infrastructure.

These are small businessmen who own these gas stations. They are going to be really struggling to keep up. And here`s the other problem. You have to make the investment up front. The demand for the product, the volumes of the products come much later.

So you`re going to be seeing people go into debt to pay for these infrastructures. I can`t believe the government is going to pay for it completely. I just can`t imagine. If they put a tax on big oil, there will be higher cost gasoline.

BECK: They seem to have that printing press working pretty well.

HOFMEISTER: All of that confusion is why I`m an advocate of high general fuel cell vehicles. That`s one system for the nation that really would satisfy over a long period of time.

BECK: So many questions left. We`re going to just do rapid fire, kind of yes or no kind of things and get a short. We`ll do that here in just a second.

(COMMERCIAL BREAK)

BECK: Back with final thoughts from former president of Shell Oil and founder of Citizens for Affordable Energy. That`s citizensforaffordableenergy.org if you want to find out more of John Hofmeister.

Ok, John. We`re going to do some rapid fire here so answer in as short as you can because we have about two minutes here.

Number one thing you would do if you were president of the United States to fix this problem.

HOFMEISTER: I would get more hydrocarbon into the economy as quickly as possible.

BECK: Chuck Schumer says what`s shocking is that big oil is plowing these profits into stock buybacks instead of increasing production or investing in alternative energy.

HOFMEISTER: The highest capital expenditures in the history of the industry are taking place right now.

BECK: This is from Nancy Pelosi. The White House would have you believe if we could drill in these protected areas and the price of gasoline would come down. Would it or not?

HOFMEISTER: I believe it would come down rapidly as soon as the U.S. was serious about doing something.

BECK: Yes. So that`s really kind of a mindset. Isn`t that exactly what happened with Saudi Arabia before --

HOFMEISTER: Oil prices are a mindset. It`s all psychological.

BECK: This is from Rob Emanuel. He says releasing oil from the strategic petroleum reserve enforcing companies to drill would be a good place to start.

HOFMEISTER: Releasing oil from the strategic petroleum reserve, unless you released about 700 million barrels, which would really make a difference for a while. But a 70 million release is like three days` worth of production. That`s it.

BECK: Either candidate, one better than the other?

HOFMEISTER: I think both are learning a lot about energy and we have a ways to go to teach them more of what they need to know. That`s a politically safe statement because I want to be able to work with the next president, whoever it is.

BECK: Let me ask you this. Rex Tillerson, T. Boone Pickens, Hunt Ramsbottom, do you have to have a weird name to be in oil?

HOFMEISTER: Hofmeister? It helps.

BECK: How does the average -- we have a minute left -- that wants to know what is the best thing that they can do -- I know you`re going to say go to your Website. But what is the thing that they can do where they can look at all the information and know and see it unfiltered and be able to make a decision unbiased, not --

HOFMEISTER: Go to the National Petroleum Council`s report that was published last year. It is the best composite of all the energy information that anybody could ever know.

BECK: Where do you find it?

HOFMEISTER: You can find it -- you can just Google National Petroleum Council and look for the report called "Hard Choices."

BECK: And your organization also, you can sign up and be a part of your --

HOFMEISTER: Our Website is not mature yet. You can sign up, but we`re not asking for money and we`re not -- we don`t have a lot of information yet.

BECK: Thank you, sir. Appreciate it. Really appreciate it. Honest answers from John Hofmeister.

From New York, good night, America.

END

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