Energy: Looking Back and Moving Forward
Remarks by
Bill Richardson
Secretary of Energy
U.S. Department of Energy
Before the
US Oil & Gas Association Meeting
Friday, October 16, 1998
San Antonio, TX

Thank you for your kind introduction. I sincerely appreciate the opportunity to meet with you today.

Let me start off by telling you how I want the press release to read on my last day as Secretary of Energy - something like "Secretary Bill Richardson was a friend to the oil and gas industry. He worked hard to make the industry healthier than when he found it. He also helped make the Department of Energy an agency that valued policy movement over bureaucratic motion."

Before I talk to you about how I hope to accomplish this, let's look back for a moment.

There used to be a robust government dialogue on energy, spearheaded by a federal interagency group called the "International Energy Security Group." This group was charged with assessing the implications of - as well as for - the energy sector on our national, economic and environmental security. Energy was deemed so important that the National Security Council had the lead in running this effort.

Unfortunately, we have lost a little of this sense of purpose - along with the valuable clarity it provided - and it is my sincere hope that when I leave DOE, I will have helped turn complacency into commitment, and apathy into action.

I'm not going to be a shy Secretary of Energy. That's not my character. And I don't plan to be an outside observer while national policies are being made.

Since I became Secretary of Energy eight weeks ago, I've made it a point to meet with as many people in the energy industry as I possibly can. I've met with IPAA, API, the National Petroleum Council and the CEOs of many major and independent producers. I was in New Mexico only five days ago - meeting with oil and gas producers - and I'm here today because I want to talk to the people who provide us with the means to fuel America's economy.

So, let me ask you this: Do we want to continue generating economic growth, creating jobs, maintaining balanced budgets?

If your answer is "yes" then you should join with me in making sure that energy is at the forefront of the nation's agenda.

Every one of us here today knows that energy is the key to our economy. If it isn't available, affordable and reliable, we're playing Russian roulette with our future. Financial, land use, tax, and environmental policies -- all have an energy component. We shouldn't be putting any policy into place unless - and until - we have considered its energy implications.

This October is a particularly significant month for emphasizing the importance of energy to our nation and to our world. It was exactly 25 years ago that we all woke up to the importance of energy. The oil crisis of 1973 marked a turning point, sending out economic shock waves that are still being felt over two-and-a-half decades later.

Certainly, the picture has changed since 1973. Oil shortages, gas lines and price hikes have given way to technology advancements, diversification in global supplies, more vigorous markets, and greater flexibility, all of which have been reflected - for good or bad - in today's prices.

But the curious - and disturbing - thing I see, is an attitude that the energy gains of the past, signal that "all is well" for the future.

Well, not if we're not careful - not if we're not thoughtful - not if we don't focus - not if we don't act.

Before you get the wrong idea, let me tell you that I think we have made some real progress in the last several years.

• Six years ago, at the start of this Administration, there was a ban on the export of oil from Alaska's North Slope.

• The federal government owned and was trying - and failing - to efficiently operate one of the nation's largest oil fields.

• There was no statute of limitations for reviewing royalty payments.

• Oil fields in deepwater were producing half the volumes they are today.

• The National Petroleum Reserve in Alaska was closed to exploration and production.

• Major oil companies couldn't communicate with each other in the event of an international energy supply disruption for fear of violating U.S. anti-trust laws.

• There was little direction in policies to help us diversify our international sources of oil supply.

That was 1993.

Today, the U.S. is exporting ANS oil - both extending the life of that field and stimulating production in California.

We have passed royalty simplification legislation. The Elk Hills field is now in the hands of private industry where it belongs - with an added dividend in the form of the $3.7 billion we received for the largest privatization in government history.

We are prepared to open up major portions of the National Petroleum Reserve in Alaska for exploration and production. We have a clear policy for development of the Caspian Basin. And Venezuela and Mexico now vie with Saudi Arabia as our top suppliers of imported oil.

The Energy Policy and Conservation Act has been amended to enable oil companies to better respond to energy emergencies. Changes in the Oil Pollution Act of 1990 have helped the industry avoid increases in operating costs. And reserves in deepwater now exceed those in shallow water.

This is where we are today. Now let me tell you about where I want to go tomorrow.

The future for oil and gas is found in many policies and programs: advances in energy technology... more sensible regulations and incentives to encourage production without harming the environment... stimulation of worldwide demand for U.S. energy goods and services - all are key to a robust and healthy industry.

When we make policy on future uses of federal lands, the potential energy gains possible with greater access - or for that matter, the implications of restricting that access - should be fully considered before we make decisions.

I recently made this point to Secretary Babbitt and took it one step further - urging him to join me in establishing a multi-agency, working group to more fully consider the energy implications of federal land policies.

Energy also has to be front-and-center as we debate tax policy. We need to have a serious dialogue about how our tax code can - and should - be used to protect and promote a valuable domestic resource, namely oil from marginal wells.

Every day, marginal wells contribute 1.3 million barrels to our domestic oil supply. I don't have to tell you that in the vocabulary of marginal wells, "shut-in" is code for "lost-for-good."

The 1.3 million barrels we get each day from our marginal wells is about the same as what we import from Saudi Arabia. I know and you know - if we suddenly lost that much oil from Saudi Arabia, everyone would stand up and take notice.

Our marginal producers deserve at least the same level of attention we give to our friends, the Saudis. A week from Monday, I plan to meet with Secretary of the Treasury Rubin to push for marginal well tax incentives to enhance our national security by preserving this valuable resource.

In this room, we all know what your industry means to the nation's security - and I am going to make certain that message gets through to a broader audience.

Filling the Strategic Petroleum Reserve not only makes economic sense when prices are so low - it also gives us additional insurance when there's an energy emergency and contributes to the stability of the industry as a whole. I am prepared to continue my fight to fill the SPR now and in the budget that DOE submits to the White House.

And let's not forget what advances in technology mean for the environment. Working together with people in the industry, we have reduced the size of the footprint of today's typical drill rig to one-third the size it was in the 1980s and 1/10th the size it was 25 years ago.

While I'm in this job, I hope to see the nation's petroleum industry and the environmental community come closer together - perhaps on some issues, standing side-by-side.

I do think this is possible if both sides are willing to put old perceptions behind them. I've negotiated some pretty "impossible" agreements in the past - and I'm willing to put my time and energy into this effort because I believe it is necessary if this country, and this industry, are going to move forward.

I will also be meeting soon with Carol Browner of EPA to discuss some of your concerns. From this meeting I hope to find more common ground and common interests between her agency and your industry.

We are now seeing how a deep slide in demand worldwide is hurting your industry here at home. At each stop I make, I will focus on ways to shore up demand for American oil and gas goods and services.

In any and all discussions I have about the global economic crisis, I will put energy on the table. I was in the Pacific Rim last week where I rolled out a Natural Gas Initiative, which was unanimously endorsed by APEC energy ministers.

Next week I will be heading to Venezuela, then on to Mexico City, where I will talk about the potential for U.S. investment in upstream and downstream ventures.

The United States taught the world how to find and drill for oil and gas. We need to keep up the pace of technology for exploration and production. Technology is the key to the energy future. It has reduced finding costs for oil from $16 per barrel in 1979 to $4.60 today.

Five or 10 years ago, 3-D seismic was a relative newcomer to your industry. In short order, time was added to the equation, making 4-D seismic possible and turning this technology into today's $500 million-a-year industry in the Gulf.

Ten years ago, the Department began a program with the Bureau of Economic Geology at the University of Texas. The objective was to literally rewrite the book on how we produce natural gas.

Well, this book is now in its "second edition" in many areas of the country. In South Texas, gas well completions jumped 24 percent in 1996 compared to three years earlier. If those increases can be sustained, something between $1 and $1.3 BILLION in new reserves will be booked in this region alone

I want to build on these and other successes.

Today, I am announcing a joint agreement with the Texas Bureau of Economic Geology in a $9 million project to identify the best way to locate and produce secondary gas from mature reservoirs in the Northern Gulf of Mexico.

And this is not the only major effort we intend to announce.

Sometime in the next couple of months, we will be restarting our oil field demonstration program. We plan to put a new offer on the streets for $18 million in federal funding to demonstrate technologies that can find and recover about-to-be-lost oil. Keep in mind that this program will be cost shared with industry - total investment will come close to $50 million.

While many of our efforts are directed at small independents, we aren't going to ignore work with the larger companies. We can and do bring unique capabilities to this table as well.

Last month, for example, we signed a cooperative agreement with Project DeepStar. Work is already well underway to build a flow assurance loop in Wyoming to study the buildup of hydrates in offshore pipelines. Later, it will be used to study paraffin deposits. After that, it will be available for anyone who wants to use it to alleviate the safety problems it is designed to solve.

Finally, we need to work together to update and change the public's view of the energy industry. An industry that spends $8 billion a year on environmental mitigation and one which will power the world for decades to come, should be an industry that is less frequently vilified - and more often valued.

Twenty-five years ago, for many of our citizens, the end of cheap, guaranteed energy came at a time when our energy options were, in fact, limited.

Today, much of your industry faces a crisis of a different sort. Wells are being shut in, rig counts are down, staying afloat is tough.

This time, however, we have choices - by far the biggest difference between 1973 and 1998.

We have the means to provide the safety net for a vital part of our energy industry. We should develop rational, far-sighted land use policies that provide future sources of fuels for economic growth while protecting the environment. We must continue to invest in technology to unlock millions of barrels of petroleum and billions of cubic feet of natural gas. We will continue taking steps to ensure a stable and secure energy future.

And we are moving forward.

Thank you very much for your attention and I look forward to working with you.