Remarks by
Robert W. Gee
Assistant Secretary for Fossil Energy
U.S. Department of Energy
to the
Middle East Petroleum and Gas Conference
in
Abu Dhabi, U.A.E.
March 7, 2000
Good afternoon. I am delighted to be here. I would like to thank our host, the Abu Dhabi National Oil Company (ADNOC).
Let me also thank His Highness Sheikh Khalifa Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the U.A.E. Armed Forces and Chairman of the Supreme Petroleum Council as well as H.E. Yousef Omair Bin Yousef, Secretary General of the Supreme Petroleum Council and ADNOC's CEO.
I thank you for your hospitality and the goodwill you have extended to me during this visit. Our country places great importance on our relationship with the United Arab Emirates, its leaders and its people.
This is my first time in the Middle East. It is quite an eye-opening experience being in this region of the world. Coming from a country with a history barely over 200 years old to a part of the world that dates its beginnings to early recorded history has been a true educational experience.
Throughout our history, the United States has considered the Middle East a critical part of the world - both from a commercial and a political perspective. Energy resources from the Middle East power the world's economy; and leaders from the Middle East have led courageous struggles against political extremism; and they have earned our respect.
The United States' priorities in the world have long recognized the importance of the nations, the people, and the potential of the Middle East. We remain committed to helping develop a comprehensive peace with prosperity for all the people of this region - across religious, cultural, political, and ethnic lines. We all know that a large part of that prosperity is in the continuing production and cultivation of the region's most important resource: oil and gas.
As the Assistant Secretary for Fossil Energy at the Department of Energy, my perspective on the world focuses on this resource. I firmly believe that the fostering of this commodity - and the dividends it spurs in the form of jobs, incomes, development and improved living standards will contribute to a better world, and here, to a more peaceful world.
My remarks today will discuss projections for petroleum demand for the United States and the world; the kinds of technology developments which could change those projections, developments for alternative energy resources in the United States and the possibility of increasing investment opportunities in this important region. Lastly, I will touch on the current volatility in today's oil markets and efforts that we are undertaking to deal with this situation.
WORLD AND U.S. PROJECTIONS.
Let me share with you how the Department of Energy (Energy Information Administration data) sees the future in terms of petroleum demand for both the world and the United States Let me remind you that these projections assume the current world oil structure with no new significant discoveries or changes in technology.
(Slide 1) As this first graphic shows, we see that U.S. demand for oil is expected to grow at an average annual increase of 1.3 percent. We project that the United States will require 25.1 million barrels a day in the year 2020. This is primarily because of the continued growth of transportation which accounts for 70 percent of the total demand.
(Slide 2) We also project that worldwide petroleum demand will grow at a slightly higher rate of 1.4 percent. Worldwide oil demand will grow to 110 million barrels a day in 2020. In terms of overall world energy consumption, oil will remain the dominant fuel source from now until the year 2020. In industrialized countries, most of the growth in oil use is projected for transportation, where competition from other fuels is limited. In developing countries, oil use for transportation increases faster than in industrialized countries, and substantial growth is also expected in other end-use sectors. Expanding industrialized activity and power generation will be fueled, in part, with oil, especially in Asia, where natural gas is less available than it is in North America and Europe.
I want to introduce the following two slides relating to the APEC (Asia Pacific Economic Cooperation) countries' oil supply and demand, and how it relates to this region.
(Slide 3) As this first slide shows, the APEC countries, in the aggregate, are currently net importers of oil and will be even larger net importers of oil as we near the year 2020. Taken together, the APEC countries represent 39 percent of the world's production of oil, yet they consume 58 percent. Among the APEC countries, the United States, Japan and South Korea represent the largest net importers of oil.
(Slide 4) As this next graphic shows, the APEC countries will get an ever increasing share of their oil from the countries in the Gulf. This last slide underscores the important role of Middle East producers in world energy, especially for the United States.
TECHNOLOGY.
However, against this backdrop is the possibility of accessing new oil resources and the potential for their development either through better technology or exploration. Some of the work at the Department of Energy is geared to this end. By this, I do not mean the potential for realizing significant new oil fields. Rather, I refer to getting to the hard-to-reach oil that currently lies in the world's proven fields.
In this regard, according to the U.S. Geological Survey, the bulk of the oil yet to be produced lies in fields that have already been discovered. The oil industry is beginning to take note of this development by shifting its emphasis from areas like new oil field exploration to more intense development of proven reserve areas. In fact, the Oil & Gas Journal stated: Worldwide, the addition to petroleum through activities other than wildcat drilling has become the most important reserves trend of the 1990's.
Technology is playing a big part in this. Let me preface this by observing that the United States is the leader in oil recovery efforts using technology. (SLIDE 5) In fact, 12 percent of our oil is extracted through enhanced oil recovery (EOR) methods compared to 3 percent for the rest of the world. I direct your attention to just a few of the technologies we are helping develop in the Office of Fossil Energy.
One is the role of 3D and 4D seismic technology. Years ago, exploration was done through surface observations and "divining rods" -- now, it is done by satellites, microprocessors, remote sensing, and supercomputers. In the 1970's, the exploration success rate was 14 percent; today, it is nearly 29 percent. Not so long ago, three-dimensional (3-D) seismic diagnostic techniques helped recover 25-50 percent of the oil in place -- now, 4-D seismic helps recover up to 70 percent of the oil in place. Three-D and 4-D seismic and earth imaging systems also help in understanding the subsurface flow of other fluids, such as groundwater and pollutants.
Three-D seismic allows reservoir visualization in three dimensions, and computer data manipulations visualize markers, unconformities, faults, areas of greatest porosity, reservoir thickening, and other parameters. Now affordable due to increased computer power, 3-D seismic greatly increases success ratios for exploration and development wells. When expanded to 4-D seismic, it allows an unprecedented opportunity to track the movements of displacement fronts in enhanced oil recovery applications. The petroleum industry is one of the biggest users of powerful computers and sophisticated software essential for processing a huge amount of exploration data and complex, 3-D, multi-phase simulation of reservoir recovery processes. Such modeling was virtually impossible ten years ago.
Another technology is the bio upgrading of heavy crude oils. As many of our fields in the United States deplete their stock of conventional crude oil, we are sometimes left with a heavy (low viscosity), high sulfur oil. This oil is more difficult to produce and refine and has high transportation costs. In partnership with our National Labs and several major oil companies, we are helping to make these heavy crude oils more viable by using biological processes to break them down. The potential for bio upgrading of heavy crude oils is great.
(SLIDE 7) According to a recent study, 70 percent of the world's oil endowment is either heavy oil or extra heavy (which includes bitumen).
These technologies are opening up markets for U.S. companies throughout the world. The emerging economies in China, India, Russia, Brazil, Venezuela, Turkey, Poland, South Africa, Indonesia, Mexico and Korea continue to represent significant opportunities for American energy products, goods and services. Several billions more were spent by UK, Australia, and our friends here in the Middle East for U.S. technology products. According to the Commerce Department, the assets of U.S. companies in the Middle East totaled over $30 billion in 1995. This number is projected to grow in the future.
Although there are more competitors today in this area, American equipment and know-how is and continues to be state of the art. As the world searches for more oil and gas, we can expect that American companies in exploration and production will continue to be leaders in developing the new products needed to find and produce oil and gas.
In my Office of Fossil Energy alone, we are spending $80 million for oil and gas research and development. The good news is that I believe we can count on continued industry success in reducing costs, as U.S. R&D efforts continue. These efforts and R&D around the world will help keep oil supplies more abundant, more diverse, and with less volatile price swings as we enter the new millennium.
NEW ENERGY ALTERNATIVES FOR THE UNITED STATES.
While technology investments increase the supply of oil, we in the United States are also finding smarter ways to use our energy resources. The market in the United States has changed from two decades ago from one of conspicuous energy consumption to today where we have more energy efficient cars, heating and cooling systems and appliances. We are also trying to diversify our energy portfolio in all sectors such as power generation and in our residential and commercial/industrial sectors.
Through our Energy Star program, for example, we are reducing the demand for energy in each consuming unit. Many of our appliance manufacturers fight to receive the coveted Energy Star seal that consumers look for and use as a basis for purchasing decisions.
We also continue to encourage other fuel sources for power generation. We are beginning to shift from static fuels like the exclusive use of coal in our power plants to turning to alternatives like cleaner burning natural gas and other fuel stocks. In fact, our office is helping develop a future power plant that will use coal, natural gas, steam, biomass and other energy sources. This "Vision 21" plant is aimed at achieving maximum levels of efficiency and near zero emissions of pollutants like sulfur dioxide, nitrous oxide and carbon dioxide. We are also working to develop high efficiency natural gas burning turbines. In fact, just two weeks ago, the Secretary of Energy unveiled a 60 percent efficient gas turbine developed by General Electric and the DOE.
Our office is also helping to develop a true 21st century technology: fuel cells. By generating electricity by internal chemical reactions rather than combustion, fuel cells are quiet, highly efficient and have virtually no pollutants. Fuel cells also offer an uninterruptible power supply. They are increasingly being used by hospitals, telephone, and computer companies who because of their nature cannot afford power outages.
FOREIGN INVESTMENT IN THE MIDDLE EAST.
My remarks thus far have centered on my country's independent efforts to guarantee its energy security. But I want to acknowledge that our energy security is also highly dependent upon our suppliers in this region of the world.
Middle East producers are important not only because you have significant supply, but also because you continue to be good friends and allies of the United States. I believe we can continue to build on our relationship by promoting business-friendly environments that bring new opportunities and new wealth to the Mideast. Those in the private sector, like the companies seeking to open up markets with their technology products, are some of the most valuable players in this part of the world. It is they who help build the infrastructure, make the investments, and create job opportunities in both the United States and Middle East. It is they who will provide a lasting foundation for this relationship.
While there remains some uncertainty in the global oil and gas industry, all of us -- the United States and our Middle East partners -- have momentum on our side. We are seeing Middle Eastern leaders making sustained efforts to foster free market reforms and to reduce the role of the state in their economies. They have seen the results of free market successes in other parts of the world and have also seen the failure of centralized economic planning in the former Soviet bloc. They know that there is no real alternative.
We are already seeing some of the results. In most Middle East countries, the share of GDP represented by non-oil trade has risen in the 1990s relative to the 1980s, and non-oil export growth has exceeded five percent for nearly all countries. Many nations in the Middle East are making impressive progress toward greater market openness and are engaged in international agreements committing themselves to additional trade liberalization. The U.A.E., for example, became a member of the World Trade Organization in 1996, as has Qatar, Egypt, Kuwait, Israel, Morocco, Tunisia, and Bahrain. We are encouraged that Jordan, Oman, and Saudi Arabia have also applied for membership.
I want to especially commend the Abu Dhabi Electricity and Water Authority for entering into a partnership with CMS Energy of Michigan to develop and construct the Taweelah A-2 power plant last year. This certainly is representative of the types of projects the United States seeks to encourage. Abu Dhabi is recognized as a regional leader at the forefront of efforts for privatization.
However, there is still uncertainty in the allowance of foreign investment in some of the Middle Eastern countries. Many of our businesses cannot come to some countries here because of laws that prevent them.
As a converse to this, if one looks at Middle Eastern investment in the United States, you see a vibrant and growing relationship. According to the Commerce Department, residents of the Middle East bought or built $3 billion worth of businesses in the United States in 1998. That is 15 times what they bought and built in 1992. They invested in the United States not only because of the opportunities, but also because they were allowed to do so. Investment opportunities can be mutually beneficial on a sustained basis only through reciprocity.
I offer the following essential prerequisites to those seeking to attract U.S. investment: 1) a fair legal system based on the rule of law, 2) equal treatment of foreign entities and 3) true competition. These principles can and will make foreign investment succeed.
CURRENT OIL SITUATION.
I cannot leave here without saying something with regards to the world oil markets. Because of the current price volatility you have either inflationary pressures on all the world's economies or you have small producers, such as those in the United States, who are pushed to the brink. Volatility also hurts the revenues of certain countries who may be overly dependent on oil revenues, thus causing hardship.
I think I speak for the majority here when I say that what anchors us is the commonly shared view that the global marketplace will endure and in the end be the final arbitrator. Secretary Richardson's recent meetings with his counterparts in Mexico, Kuwait, and Saudi Arabia underscored this message.
DATA TRANSPARENCY.
In an effort to reduce volatility, we are promoting discussion and study of better data collection and interpretation of oil market data. Good data quality and collection will help industry and allow them to better meet marketplace demands. In the words of a well respected CEO of a petroleum finance company, "We don't know how much is being produced. We just guess. We know how much is being traded because such information is usually available, but we don't know how much is in inventories. Again, we just guess."
Our department recently held a data transparency workshop in Houston and we are planning future symposia, summits and gatherings where we can further study this issue. In addition, the Secretary will soon recommend that the Energy Information Administration survey focus groups of market players to study this important issue.
STRATEGIC PETROLEUM RESERVE.
I also want to briefly mention the Strategic Petroleum Reserve (SPR), our Nation's emergency crude oil stockpile, which I oversee. The SPR has been getting much attention in light of the heating oil crisis in the Northeast region of our country. Because of the colder than expected winter, this issue has risen to the forefront in our national discussion. As you may know, there is a growing Congressional chorus to sell oil from the SPR to alleviate the high prices for heating oil and diesel fuel. That reserve was created to address national supply emergencies, and I would reiterate Secretary Richardson's statement in that regard that we have no plans at this time to sell oil from the SPR.
In closing, I want to emphasize that Secretary Richardson and the Department take great interest in this region of the world. The Clinton Administration and its trade agencies such as the Commerce Department and the U.S. Trade Representative's office also are paying close attention to enhancing our economic, commercial and business relationships with our Middle East peace partners.
There has been great change in a short period of time in the leaders and the nations of the Middle East. Many of you are also embracing the possibilities of prosperity and stability that open markets, integration, and trade can deliver. I know that the road to economic reform is not a smooth one but I, for one, am greatly excited to see you on that track.
Thank you.
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