ConocoPhillips CEO Jim Mulva cautioned Congress last week about imposing new taxes on oil and natural gas producers, which he said would discourage production in U.S. basins on- and offshore.
In a policy speech Thursday before the U.S. Chamber of Commerce in Washington, DC, Mulva said the only way to secure energy for the future is to make the “right choices” today.
“There are many opinions on how to meet our future needs,” said Mulva. “But there is no silver bullet. There is no single source that would replace hydrocarbons at a lower cost and with no environmental impact. Our legislators need to acknowledge that fact…Even at today’s prices, they are still the lowest-cost sources available.”
The United States has only 3% of the world’s remaining oil and gas reserves, but Mulva said that if producers were allowed to drill in areas now off limits, it could add an estimated 80 billion boe of recoverable oil and natural gas. “How much is that? It would exceed all our current proved oil and gas reserves.”
Mulva also encouraged more emphasis on energy infrastructure. “We need more LNG [liquefied natural gas] terminals, electric transmission lines and refinery expansions. But there are endless roadblocks to building them. Where infrastructure is clearly needed to serve the national interest, federal preeminence is needed over local or special interests.”
To encourage alternative energy development, Mulva suggested that the government should consider energy-price insurance that enables developers to bear the risk of starting new ventures.
“The government could establish a baseline, such as a $60 oil price, and provide guarantees at this level for new alternatives. This would offer the fiscal certainty that would enable new projects to be built. The insurance could be made available for up to 1 million b/d of alternative oil or liquid fuel production over the next 10 years. The insurance also would cover 3 Bcf/d of alternative natural gas production for second-generation biofuels, coal gasification, coal-to-liquids, oil shale, methane hydrates and similar sources.”
Mulva said the price protection could be auctioned, and the projects that won would have the lowest energy price requirements and the lowest carbon intensity.
“The beauty of this proposal is that if oil prices remain high, there will be no actual outlays needed,” said Mulva. “The mere existence of the insurance would encourage development. And the market and consumers would ultimately pick the winning technologies.”
Development of new supplies, including the proposed Alaska gas pipeline, the Mackenzie Gas Project in Canada and new LNG supply sources also has to happen, said Mulva.
The global energy business will require global solutions, and “our legislators must acknowledge that we live in a world that is increasingly competing for energy,” said the CEO. “If we want to retain our world leadership, we must have a sound energy policy that enhances our competitiveness and economic strength.
“Further, American companies are competing against national oil companies that benefit from the cooperation and friendly policies of their governments. In comparison, too often our government works to punish American companies. Legislators must keep this in mind when considering new regulatory and tax policies that would reduce our competitive edge.”
The high cost of developing and producing oil and gas also hampers development, he said. Labor, equipment and materials all cost more, “and the energy prospects themselves are more challenging. In North America and Europe, we are generally only allowed to drill in the same old areas, which are now highly mature. So in these areas, we are chasing the tougher prospects — which are more remote, or in deeper water, or at deeper drilling depths, with rougher weather and heavier, harder-to-produce oil. Although these resources are sometimes very large, they are more expensive to develop.”
The days of “cheap energy are over,” said Mulva. “This does not mean that we can’t have reliable and affordable energy. I absolutely believe this is still possible. But I repeat, it will take strong political leadership, with a clear vision of the realities of the energy market, and with a commitment to act…for the greater good.”
Energy legislation now before Congress “punishes the energy industry instead of solving the problems” and “focuses on today and on the far-distant future, but ignores the decades in between…In reality, we need oil and gas to bridge the gap and carry us through a transition to new energy sources. Again, this will take decades. So Congress needs to start thinking about that, and to consider where the oil and gas that we need will come from.”
Mulva said the four tenets of what he thinks should be part of a U.S. energy policy are:
“As the debate continues, we should urge our legislators to develop an energy policy that will work in the years immediately ahead, as well as over the longer term,” said Mulva. “It should avoid catering to special interests, including the oil and gas industry. However, it should not blame or penalize the one industry that offers the greatest near- and long-term potential to increase our energy supply.”
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