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Exxon's Tillerson Says Reinstating Offshore Ban 'Crazy'

Any attempt by the new Democratic administration and/or the Democratic Congress to reinstate the expired moratorium on oil and natural gas drilling off the East and West coasts would be "crazy," said ExxonMobil CEO Rex W. Tillerson last Thursday.

"It's's crazy to withhold the resources that belong to the American people for the beneficial use of the American people," he told reporters following a speech at the Woodrow Wilson International Center in Washington, DC.

He noted that the United States is the only country in the world that keeps the bulk of its offshore oil and gas resources locked up. It's estimated that there are enough resources offshore and on nonwilderness and nonpark lands to fuel 50 million cars and heat nearly 100 million homes for the next 25 years, according to Tillerson.

"I hope they don't [reinstate the ban] because I think that would be devastating to U.S. long-range energy security. This is just part of a big solution, but it's a crucial part because it's what we have today," he said. "I don't know where [the offshore issue is] going to turn out politically between [Capitol Hill] and the administration. We're responding to a lot of questions about the areas [where restrictions have been lifted] and trying to provide all of the information that they need."

Americans "increasingly understand that we face...multiple energy challenges and need to pursue integrated solutions to develop new supplies," Tillerson said. This, he believes, is what prompted President Bush and Congress last year to remove the decades-old offshore moratorium. In mid-December President-elect Obama said he was "not thrilled with it [the moratorium] simply lapsing as a consequence of inaction" in Congress, so he has directed his energy and environmental team to review the issue (see NGI, Dec. 22, 2008).

Tillerson doesn't believe producers will get a chilly reception from Democrats, who favor green energy, over the next four years. "We still have friends on both sides of the aisle," he said.

"My greatest concern is that policymakers will attempt to mandate or ordain solutions that are doomed to fail and that we will be set back even further," he said to a packed crowd of energy and environmental experts. "We must be mindful that sound public policy must not impede innovation, inhibit competition or add market uncertainties by picking winners and losers."

Tillerson called for a "stable and consistent" tax and regulatory framework as well. "Sudden changes in fiscal and regulatory policies could impede" development of energy, both traditional and nontraditional resources.

While alternative fuels will play a bigger role in the upcoming years, Tillerson said oil and natural gas resources will continue to supply 60% of the world's energy needs through 2030. For the U.S. to make the fundamental shift from carbon fuels to alternative energy is going to take "a long period of time."

The world's energy needs are expected to grow by 35% by 2040, particularly in developing countries such as China and India, he said. This projected hike in demand will require the increasing development of alternative resources, including geothermal, nuclear, hydroelectric, solar and wind. He estimates that ExxonMobil's renewable portfolio will make up 14% of its business by 2030.

Tillerson doesn't believe that President-elect Obama's pledge last week to double the U.S. production of alternative fuels in the next three years is doable. "I don't want to be critical of his aspirational goal," but "I think that's going to be very challenging to do."

To address greenhouse gas (GHG) emissions, Tillerson said he prefers a carbon tax to the proposed cap-and-trade system. "As a businessman, it's hard to speak favorably about any new tax, but a carbon tax strikes me as more direct, a more transparent and more effective approach" for reducing emissions.

"I've been chewing on this one for about three years" -- cap-and-trade vs. a carbon tax. A cap-and-trade system is "pretty scary when you think about the enormous bureaucracy that will have to be created. It will be bigger than the IRS," he said, referring to the Internal Revenue Service. He favors the carbon tax because it's "something that is simpler, easier to oversee from a regulatory standpoint." One of the biggest flaws with the cap-and-trade program is the inability to actually verify that GHG emissions are being reduced, Tillerson said.

Because of the pressing economic issues on Congress' plate, he doubts lawmakers will get to the emissions issue soon. "Probably later in this year I think they're going to get around to wanting to further investigate what their alternatives are."

Rep. Henry Waxman, chairman of the House Energy and Commerce Committee, said last Thursday that climate change legislation will be a priority of his committee this year. Although he supports a cap-and-trade system, he said said everything -- including a carbon tax -- would be considered during the drafting of the bill.

For the U.S., Tillerson said energy independence is "not a realistic" goal. Energy independence is "not attainable" and efforts to achieve this will set the nation on a "misguided" path. He believes a more realistic goal for the nation is energy security, which he said can be realized by increasing access to as many energy resources as possible.

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