Red Caveney speech - continued from page one
Following Hurricanes Katrina and Rita, some people asked why our industry concentrated its facilities and operations along the hurricane-prone Gulf coast. There is a reason for this geographic concentration in a high-risk storm area. Government policies have largely limited offshore exploration and production to the Central and Western Gulf of Mexico – and our onshore facilities, including refineries, have been welcomed in communities in the region. Unfortunately, oil and natural gas development has been barred elsewhere – including the eastern half of the Gulf, the entire Atlantic and Pacific Coasts, and large parts of the offshore and onshore areas of Alaska. Undiscovered technically recoverable offshore resources could provide enough natural gas to heat 52 million homes for 120 years and enough oil to fuel 48 million cars for 60 years and heat 10 million homes for 120 years. Onshore construction in the lower 48 has been held back by government restrictions, permitting delays, and not-in-my-backyard (NIMBY) sentiments.
Recent history provides overwhelming evidence that the U.S. industry can find and develop oil and natural gas resources safely and with full protection of the environment, both on land and offshore. For example, according to the U.S. Coast Guard, from 1980 to 1999, 7.4 billion barrels of oil were produced in federal offshore waters, with less than 0.001 percent spilled, less than the volumes of natural seeps that occur on the sea floor of the Gulf of Mexico. The industry’s leak prevention performance in offshore production during three major hurricanes (Ivan, Katrina and Rita) – including two of them back-to-back featuring 200 miles-per-hour winds and seas of up to 100 feet and all within 12 months - continues this remarkable environmental protection record.
If history has taught us anything, it is that markets work. And free markets - including the free flow of oil, products and technology - work best.
However, when government has interfered with markets, the result has been price volatility, supply shortages, and other disruptions. In the early 1970s, many U.S. energy policymakers were “sure” that the reserves of oil and natural gas would soon be exhausted, and government policy was explicitly aimed at “guiding” the market in a smooth transition away from these fuels to new, more sustainable alternatives. Price controls, allocation schemes, limitations on natural gas, massive subsidies to synthetic fuels, and other measures were funded heavily and implemented. And not a one proved sustainable.
We need to learn from that sad and unfortunate experience. Given the current and projected worldwide demand, we need all sources of energy, and we need a greater commitment to energy efficiency and energy conservation. We do not have the luxury of limiting ourselves to a few sources of energy supply at the exclusion of others. Nor can we afford to write off our leading source of energy – oil and natural gas -- before we have found cost-competitive and readily available alternatives.
We also need to keep energy sources in the proper perspective. Yes, alternative sources have great potential – but, while the U.S. EIA forecasts a 50 percent increase in renewable energy consumption between 2004 and 2025, it also forecasts that the renewable energy share of total U.S. energy consumption will rise from 6 percent to only 7 percent during that period.
There is a misperception by some about the time and costs involved in any transition to the next generation of fuels. Consider what would be involved in replacing the dominant role of oil with a substitute like hydrogen or solar power. Most experts agree that such a transition would require dramatic advances in technology and massive capital investments – and take several decades to accomplish, if at all. percent during that period.
The United States – and the world - cannot afford to leave the Age of Oil before realistic alternatives are fully in place. It is important to remember that man left the Stone Age not because he ran out of stones. And, we will someday leave the Age of Oil, but not because we will have run out of oil. Yes, someday oil will be replaced, but clearly not until alternatives are found and tested -- alternatives that are proven more reliable, more versatile, and more cost-competitive than oil.
This does not mean that our industry is narrowly focused on oil and natural gas alone. In fact, our companies have long been pioneers in developing alternative sources of energy. Permit me to cite several examples:
- BP is one of the world’s largest producers of photovoltaic solar cells;
- Chevron is the world’s largest developer of geothermal energy;
- Our industry is the largest producer and user of hydrogen; ExxonMobil, BP, Chevron, Shell and ConocoPhillips are key players in government/industry hydrogen fuel and vehicle partnerships, such as the DOE FreedomCar and Fuel Partnership and the California Fuel Cell Partnership;
- and Shell is one of the top players in the worldwide wind industry.
Our companies intend to meet the energy needs of industrial and retail consumers well into the future, and they compete fiercely with one another and others for the opportunity to do so. The companies’ research and development efforts are continuing in the search for the most competitive, efficient, and economical energy technologies.
Indeed, thanks to our industry’s technology and refiner flexibility and investment, an array of alternative fuels is already included in our companies’ product slates. For example, we in the United States now consume as much ethanol as Brazil, the world’s long-time champion producer of ethanol. Very soon, we will overtake them. However, we need to keep in mind that no energy alternative is a panacea. Each has its plusses and minuses, but they can each play an important role.
For example, based on various studies, the energy savings from corn-based ethanol are moderate – 3 to 20 percent – because production from corn requires significant energy input. And, judging from this past year, ethanol is higher-priced than gasoline and, measured on a BTU basis, considerably more expensive. In addition, some have estimated that the total amount of ethanol that could be produced by converting the entire 2005 U.S. corn crop into ethanol would be about 31.1 billion gallons – an amount equal to just 22.2 percent of U.S. gasoline consumption last year.
API’s member companies feel there is a very bright future for a full range of alternatives. But, we do not want to be a party to any “over-promise and under-perform” commitment. We have to be realistic, including the need to exercise full due diligence and appropriate risk management methodologies. We need only look at the auto industry and consumer experience with diesels in the 1970s to see that wishful thinking, absent merit, can end up hurting everyone.
API and its members have recognized the need to address concerns about oil and natural gas on an industry-wide basis and have undertaken a broad-based educational outreach effort to address information gaps. This commitment encompasses the full range of activities that can help people better understand how our industry can best meet their needs. You will be seeing much more of these educational activities in a new multi-year communications effort being supported by our industry.
Through our efforts, we hope that people will better understand that, in today’s global energy marketplace, U.S. “energy independence” is impossible. We hope they come to see that, instead, “energy inter-dependence” is essential. We hope consumers will come to recognize that their interests are best served when we can source fuels from multiple providers located both in the U.S. and throughout the world. Sourcing flexibility is one of our most powerful energy security tools. We also want others to understand that we can operate only where governments permit us to do so. Just like in your businesses, if you cannot produce or sell your goods or services in an area, you go elsewhere. So, too, is the case in our business. If we are prevented from exploring for and producing oil and natural gas here at home in the United States, we must look elsewhere in the world to get you the energy you need.
If our government elects to keep us from attractive oil and natural gas production opportunities in the U.S., and burdens us from competing fairly abroad, our foreign competitors – national oil companies, heavily supported and, at times, subsidized by their governments – could move more aggressively into energy markets here in the U.S.
Clearly, we all need to work together – industrial and retail consumers, energy companies and government – to address the energy challenges we all face. In looking at these challenges, it’s easy to see the glass as half empty, when, in fact, it is half full. America’s oil and natural gas producers and suppliers have the technology, the efficiency, the infrastructure savvy, and the desire to compete anywhere on a level playing field with their competitors. We can continue to supply you with the energy you need, if you will work with us to have the government provide oil and natural gas supplies here in the U.S., especially in the Outer Continental Shelf (OCS). We must also embrace increased energy efficiency and enhanced energy conservation – both at home and at work – as well as increased domestic energy production and imports in order to maximize our energy utilization as a nation. Our nation is blessed with bountiful reserves, but their promise for the American people goes unfulfilled so long as society is unmoved about the benefits and value our products can deliver to an enhanced quality of life for all here in the U.S.
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