Shaping Our Energy Future: Challenges and Opportunities
Remarks to the Great Plains Energy Expo by API President and CEO Jack Gerard
November 11, 2008
I am honored and delighted to be a part of this second Great Plains Energy Expo – which is doing so much to focus attention on the energy challenges facing North Dakota and the nation. I want to thank my friend Senator Dorgan for being kind enough to invite me to this very worthwhile event.
Senator Dorgan has shown much leadership and vision in co-hosting the Great Plains Energy Expo, along with Bismarck State College and Kadrmas, Lee & Jackson. During his career in Congress, Senator Dorgan has been a true pioneer in promoting research into and development of the potentially vast oil resources of the Bakken Formation. And he has made many other important contributions to helping meet U.S. energy needs. His role will be even more important as the new regime takes office in Washington and we look to him for leadership.
I am also glad we could be joined by Dan Reicher (Director of Climate Change and Energy Initiatives at Google.org.) and hear his views on the challenges we face.
Most Americans recognize that energy cannot be considered apart from the U.S. economy. Energy means jobs, higher incomes, economic growth, and competitiveness in global markets. If we fail to see energy as an economic issue, we will have neither the energy we need nor the economy we require. That’s a reality I’ve focused on for a number of years heading up the American Chemistry Council and, before that, the National Mining Association.
The current worldwide financial crisis is uppermost in the minds of all Americans. But we cannot afford to neglect our energy challenges. Nor can we solve our financial problems by making our energy problems worse. You can’t strengthen the economy, if you weaken energy. The two are intrinsically linked.
The Great Plains Energy Expo is exploring how best to meet our energy needs in the decades ahead. As the leader of the U.S. oil and natural gas industry’s national trade association, I want to focus on the energy future of our nation and how oil and natural gas can help us to achieve that future. Energy is, for all of us, a never-ending learning experience.
It’s appropriate we are meeting here in North Dakota, which is playing such an important role in meeting our energy needs. The Bakken Formation has attracted national attention for its vast potential. Thirty years ago, estimates were that perhaps 100 million barrels of oil might be found. But, earlier this year, the U.S. Geological Survey revised its estimate, stating that the Bakken may contain up to 4.3 billion barrels of technically recoverable oil. If this potential bears out, it could provide enough oil to fuel 5 million cars for nearly 30 years.
In addition to helping meet a significant share of U.S. oil needs, Bakken means economic growth and jobs – the industry could need as many as 12,000 new workers here by 2010. Each drilling rig represents approximately 120 direct and indirect jobs. The average yearly wage for the oil and gas production industry here is more than 100 percent above the statewide average wage. During the campaign, President-elect Obama endorsed Bakken drilling as “an important development for North Dakota’s economy.” We certainly agree – and look forward to working with him and his administration on Bakken and other needed energy development.
North Dakota is also at the forefront of alternative fuels development. Thanks to Senator Dorgan’s leadership, the state is home to the National Center for Hydrogen Technology, at which cutting-edge hydrogen technology research and development is being undertaken. And the wind energy industry in North Dakota is making such strides that this state has been described as the “Saudi Arabia of wind.” These are energy initiatives with an economic pay-off in new jobs and a stronger, more diverse economy. When you consider the immense oil potential of the Bakken Formation and the alternative energy R&D underway here, you can appreciate how North Dakota, more than most states, is a bridge to our energy future.
This Great Plains Energy Expo could not be better timed. We are at an historic turning point for our country and its energy policies. Record high gasoline prices this year focused public attention on energy in the United States in a way not seen since the 1970s. Energy was a major issue all year in the presidential campaign. And public attitudes have changed dramatically on the need for domestic energy development.
But now the political campaigns are over. A new President and Congress are taking office. Elected officials, energy analysts, environmentalists, and consumers are seeking new energy approaches – and are rejecting the half-measures and quick-fixes that have failed so badly over the past several decades.
It’s time to get serious about energy. As President-elect Obama said last Tuesday evening, following his historic victory: “Let’s resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long.” The time is right for a fresh start on securing our nation’s energy future. This is our moment to get it right on energy.
Now more than ever -- in this time of financial crisis – our approach on energy must be reality-based. It needs to encourage development of all domestic energy sources: oil, natural gas, and alternatives like solar, wind and geothermal. Every respected energy study on future demand comes to the same conclusion about the next several decades: we need all the energy we can produce in an environmentally responsible manner. We cannot afford to focus on just one energy source, to the exclusions of others. Nor can we depend upon sources that are neither fully developed nor ready to compete in the energy marketplace.
It is hard to overstate the energy needs we must meet. The U.S. Energy Information Administration (EIA) estimates that sustaining a 3 percent rate of annual growth in the global economy to 2030 will require an expansion of crude oil the equivalent of the current combined consumption of the U.S. and China. The growth in demand for natural gas worldwide is expected to be even larger. Even with significant growth of alternatives and improvements in energy efficiency, oil and natural gas will meet more than half of the world’s energy demand in 2030 – or roughly the same as today.
EIA also projects that U.S. energy consumption will grow by 19 percent between 2006 and 2030. Although the share of non-fossil fuels is growing rapidly, oil and natural gas will continue to play leading roles through 2030. While oil and natural gas accounted for more than 60 percent of consumption in 2006, they are projected to provide more than half of consumption in 2030.
This is a challenge the U.S. oil and natural gas industry can meet – if government energy policies allow us to. We are the innovators; we know what it takes to find and produce the energy required. Unfortunately, Congress’ failure in the past to address our nation’s energy challenges in a meaningful, comprehensive way has amounted to a de facto industrial policy – one that drives American jobs overseas, weakens our economy and undermines our position in the global energy marketplace. This de facto policy not only fails to address our current energy problems, it makes solutions all the more difficult by imposing more taxes on our already heavily taxed industry and by denying it access to the domestic oil and gas resources we need to develop.
I believe Members of Congress don’t want to lose American jobs or weaken our economy – but that’s the result of the failure to enact a comprehensive policy that recognizes the interrelationships between energy and economic growth. My years at the American Chemistry Council underscored this reality. There was intense competition in the United States for our domestic natural gas supplies. Those on the losing end – like the chemistry business and other energy-intensive sectors – were being priced out of the U.S. market. It happened because our manufacturers compete globally and could not readily pass along higher energy costs. Instead, our production and jobs went to where affordable natural gas could be found in the world. So over the past several years, significant amounts of U.S. chemical production and lots of high-paying American jobs headed to regions such as the Middle East, where natural gas costs a fraction of what it does in the U.S. In the chemistry business, we lost more than more than 118,000 jobs since 2000. In manufacturing overall – made up of lots of energy-intensive industries – well over three million jobs have been lost in that time.
The oil and natural gas industry has been meeting energy challenges throughout our history and we continue to meet the massive and varied energy needs of American consumers. But our industry does not operate behind a Teflon shield when it comes to energy policy; harmful, counter-productive policies make it more difficult for us to do our job. Nor are we immune to the effects of the current financial crisis. Some companies have had to reduce their investments; others have not. Time will tell the full impact of this crisis. But ours is a cyclical industry. We’ve gotten through financial crises before and we will get through this one as well. Let me briefly review how we’ve been performing in recent years.
Between 1996 and 2007, the U.S. oil and natural gas industry invested more than $1.2 trillion in a range of long-term energy initiatives. And to meet the continued demand for oil and natural gas, our industry has continued to invest heavily. While our companies are focused on oil and natural gas, they have long been pioneers in developing alternatives and expanding our use of virtually all sources of energy.
The industry’s investment in emerging energy technologies between 2000 and 2007 represents 65 percent of the total spent by all of industry and the federal government during this time period. This includes renewables, frontier hydrocarbons, such as shale and oil sands, and end-use technologies, such as fuel cells.
Energy efficiency has also been a high priority for our industry. Through such technologies as combined heat and power, refiners are becoming more efficient, reducing both energy use and emissions. In fact, in 2006 alone, U.S. refiners saved the energy equivalent of taking more than half-a-million vehicles off the road.
Our industry is committed to continuing to meet the energy needs of U.S. consumers. We hope that the changes in public attitudes about energy this year will bring about a more favorable climate in Washington and help remove obstacles to increased domestic energy development.
Offshore drilling provides dramatic evidence of how public attitudes have changed on energy. In poll after poll, in state after state – even in traditionally anti-drilling states like Florida and Massachusetts – people support removing obstacles to offshore development. The message couldn’t be much louder: people want change in our energy approach and they want it now.
This change in public attitudes has already had an impact in Washington. Congress lifted Outer Continental Shelf leasing moratoria on the east and west coasts of the lower 48 states for the first time in more than two decades. Unfortunately, some in Congress still don’t get it and are already threatening to re-impose the moratoria. Exit polling in last week’s election reaffirmed the strong public support for OCS development: 68 percent of voters favored offshore drilling where it is not currently allowed. Nevertheless, industry critics tried to spin the election results as a repudiation of OCS development.
The financial crisis makes action on offshore drilling more urgent than ever. If we want to strengthen the U.S. economy, create jobs, and enhance U.S. global competitiveness, bolstering U.S. energy development is one important way to do it. According to the latest available data, the oil and natural gas industry supports 5.9 million jobs – 1.8 million people directly employed by the industry, with more than 4 million indirect jobs. Expanded access creates even more job opportunities – and many of these jobs pay more than double the national average.
In addition, oil and natural gas development on federal lands, both onshore and offshore, means more revenue for the U.S. Treasury – helping pay for vital programs and reducing pressure on U.S. taxpayers. Oil and natural gas leasing and development has generated more than $200 billion since 1953 through bonus bids, royalties and lease rental payments. The U.S. government received $3.7 billion from company bids in a single Gulf of Mexico lease sale this past March. Gross estimated royalties from all oil and natural gas resources estimated to be on federal lands could be $880 billion over the life of the resources. In addition to royalties, continued leasing of federal lands at the current rates could bring in hundreds of billions of dollars in additional revenues – in bonuses, rentals, severance taxes, corporate income taxes, and property taxes – over the next 50 years, based on recent leasing trends.
There is one central reality underlying our nation’s energy situation and we must not lose sight of it: we have abundant volumes of oil and natural gas resources beneath federal lands and coastal waters -- but, for many years, many of these resources have been placed off-limits to development. Federal lands hold enough undiscovered recoverable oil to produce gasoline for more than 60 million cars and fuel oil for 3.2 million households for 60 years. They also hold enough undiscovered recoverable natural gas to meet the needs of every household in the U.S. currently fueled by natural gas for 160 years. That happens to be 60 million households. And these estimates could very well be on the low side. Time and again, when industry has put its technological ingenuity to work, we have been able to recover far more oil and natural gas resources than the original estimates suggested.
The federal lands containing these vast resources include the offshore areas subject to the recently lifted moratoria. The new Congress and President should not re-impose the ban or place obstacles to the development of these resources. Moreover, most of the Eastern Gulf of Mexico and portions of the Central Gulf still remain under moratoria, keeping billions of barrels of oil and trillions of cubic feet of natural gas off-limits. U.S. leaders should take the additional step of opening up these areas in the Eastern Gulf and Central Gulf that remain off-limits – and take further steps to more quickly develop our offshore resources.
If our companies are provided the access they need to domestic oil and natural gas resources, they will employ state-of-the-art technology to develop these resources in an environmentally safe manner. We have a track record to prove it. U.S. producers and technology are the envy of the world. Technology has made possible the industry’s outstanding environmental record. The industry has invested more than $160 billion since 1990 toward improving the environmental performance of its products, facilities and operations. That’s $539 for every man, woman and child in the United States.
In recent years, revolutionary advances in technology have dramatically increased the ability of companies to recover more oil and natural gas from existing reservoirs and to find and develop resources in remote and previously inaccessible areas, such as the deepwater Gulf of Mexico. New drilling technology has opened up oil and natural gas previously out of reach -- the Bakken Formation is a good example. Only in recent years has technology evolved to make this resource economic to produce.
Several years ago, following the devastating Hurricanes Katrina and Rita, API and its members recognized that there was a vacuum in the discussion of energy issues in the United States. API began an intensive educational outreach effort to better inform the American public about the role of oil and natural gas in meeting the energy challenges facing our country. This effort has included a robust, national advertising program involving television, radio, and print ads. Perhaps you’ve seen some of our ads.
What we are trying to do is increase the level of energy literacy in our country. The results of our educational effort thus far are encouraging, but we have a ways to go. We are convinced the more transparent and robust the debate, the better the outcome. The public understands and is anxious to address the challenges that lie ahead.
The U.S. oil and natural gas industry knows how to meet energy challenges and serve the needs of our customers. We recognize that no one industry can meet all of our nation’s energy needs. Nor can the private sector do it alone. We need government to take a balanced and reasonable approach on energy. Congress’ lifting of the offshore moratoria is a good first step – but much more needs to be done.
There are no silver bullets or magic formulas on energy. History proves that short-cuts and half-solutions not only don’t work, they make our problems worse. If we don’t learn from this history, there can be no question we will repeat it. We need a comprehensive approach to energy shaped by reason, common sense, and experience – an approach based on competition in the marketplace and state-of-the-art technology.
What we must do is clear. We need to develop the full range of energy sources, including renewable and alternatives. But we must also continue to increase and diversify our oil and natural gas sources. And we must keep ahead of the technology curve, increase our energy efficiency, and maintain the maximum effort to protect our environment. Each of these steps is essential; if we neglect any, we undermine all.
Shaping our energy future involves challenges and opportunities. We have the expertise and the technology to meet the challenges. But we must also seize the opportunities presented by the changed public attitudes on energy. We need to translate the change in public attitudes into a change in government policy. We need to heed the counsel of President-elect Obama to “resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long.” We need to rise above the all-or-nothing attitudes of the past and come together to prepare us for the next four years and beyond, as we restore our economic strength and shape our energy future. I hope you will join us in this important endeavor.
Thank you.