The debate about where producers may or may not drill in the United States “seems to be stuck in a time warp of the 1960s” that fails to take into account the energy industry’s ability to drill with precision and with a minimal environmental footprint, ExxonMobil Corp. CEO Rex Tillerson said last week. “It is time the public debate on access in this country moves forward.”

Tillerson, speaking at Cambridge Energy Research Associates’ (CERA) CERAWeek 2007 in Houston, said the energy industry has to do a better job of explaining itself to the public.

“The challenge of meeting future demand is broader than recognizing that the resources are available,” he said. “They must also be accessible.”

The ExxonMobil CEO noted that in the United States, an estimated 31 billion bbl of recoverable oil and 105 Tcf of natural gas are currently ruled off-limits.

“Many of these restrictions are driven by concerns about the environmental impact of offshore production. But many fail to appreciate the tremendous strides our industry has made toward reducing our environmental footprint and improving safety and reliability of our operations…Technology is the lifeblood of our industry; it always has been.”

An “enormous challenge” is explaining what it takes to deliver energy, said Tillerson.

“For example, products that we make don’t always convey the same challenges as plasma TVs [or] cell phones, but [oil and gas products] are enormously technologically driven. Gas looks like the same thing we’ve bought all of our lives, but what’s required to deliver it, the technological innovation…day in and day out, that’s a conundrum. The public doesn’t see what’s required. That’s what has been influencing policy.”

Tillerson also warned policymakers against trying to achieve “energy independence” for the country. “It is simply not achievable. I’ll go even farther and say…I’m not even sure it’s even desirable.”

In the same way investors manage their portfolios, the best way to manage energy security is through diversity, he said.

“This ties back into having strong trade relationships from multiple sources. If you look at the track record of the energy system, our energy supply is quite good. Even in times of civil disorder, a strong, global energy system has been able to respond quite resiliently, and the consumers have been served.” Tillerson said hurricanes Katrina and Rita in 2006 “were really a very vivid test of how resilient the energy supply system is for the United States. In a matter of hours, the system adjusted globally.”

Instead of focusing on energy independence, Tillerson suggested that the public and policymakers have to talk more about energy efficiency. “An emphasis on energy efficiency gives you immediate action. You don’t have to mandate a lot of that. People should want to make that choice.”

In another speech before the CERA group, Chevron Corp. CEO Dave O’Reilly said the “issue of access” to oil and gas resources is now “paralyzed in a debate confined by fixed positions and fuzzy data.” No one knew 25 years ago that the area of the GOM where the Jack well was drilled held the volume of resources it does, he said. “It took innovative new technology to do that.”

Because energy is “clearly at the top of the political agenda, any discussion about the future of energy in this country needs the full engagement of the U.S. business community.” Energy challenges and their inherent opportunities loom large across the world, said O’Reilly. However, he said that despite this growing awareness on energy, the United States still has not made the changes in energy strategy or policy required for the 21st century.

“Today’s energy debate, to a great extent, continues to be informed by narrow and outdated perspectives, unrealistic expectations and short-term thinking,” O’Reilly said. “As an industry, we bear some responsibility for this. We haven’t done all that we should to put the energy debate in the proper framework. We haven’t talked directly enough with the American public about our business and the value we provide. As a result, our industry has lost some credibility.”

The Chevron chief said the country has to manage its “energy portfolio” by enhancing its “core investments in oil, natural gas, coal and nuclear. Or, in financial terms, protect our principal…Even if the use of renewables doubles or triples over the next 25 years, we will still use fossil fuels for more than 80% of global energy demand.”

O’Reilly also called on the federal government to conduct an updated inventory of key areas in the Outer Continental Shelf, as authorized in the Energy Policy Act of 2005. If the results indicate the potential is there, he said, leasing programs to evaluate the resources should begin.

An effective, targeted 2-D seismic survey of selected areas in the Pacific, Atlantic and Gulf of Mexico (GOM) regions could be completed for under $500 million, he said, “a rational investment given the $4 billion or more in new revenue that increased royalty rates will generate.”

New technologies are locating and recovering resources once considered too difficult to develop, O’Reilly noted. Chevron’s test last year of the Jack No. 2 well, which is located in 7,000 feet of water in the Lower Tertiary trend of the deepwater GOM, is a prime example (see NGI, Sept. 11, 2006).

“Not so long ago, the Gulf was referred to as the ‘Dead Sea’ regarding its potential for new oil and gas supplies. But to paraphrase Mark Twain, reports of its death have been greatly exaggerated,” O’Reilly said. “The work at Jack was a great example of what can be accomplished when companies are given the opportunity to invest and innovate.” And, he noted, “we can’t lose sight of the primary role that hydrocarbons will play for decades to come.”

Any discussion of energy policy today “would not be complete without recognizing the issue of climate change,” O’Reilly noted. “There are few issues where the need for policy alignment is greater. This is a huge challenge for all of us. But as a starting point, the private sector, policymakers and the scientific community should work together to create a national framework for carbon management that is rational and cost-effective. Otherwise, we run the risk that state actions — no matter how well intentioned — create a patchwork of regulations that impose high societal costs with limited impacts.”

The “national framework,” he said, “should be guided by several principles. First, we should acknowledge the critical need for global engagement. Reduction of greenhouse gas emissions must involve all of the major emitting nations in the world. Second, there should be broad and equitable treatment of all sectors of the economy to ensure that no single sector is disproportionately burdened. And third, there should be open communication about the costs, risks and trade-offs associated with climate change policies.

“The world has reached a point where integrated carbon management is needed,” said O’Reilly. “Now we need to exercise the leadership that is required to create policies that are balanced, practical and flexible.”

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