Remarks by
Robert S. Kripowicz
Acting Assistant Secretary for Fossil Energy
U.S. Department of Energy
to the
American Association of Petroleum Geologists
Summit on U.S. Energy Policy
April 23, 2001

I am honored to serve as your lead-off speaker today, and I want to commend Marlan (Downey) and this group for organizing this event.

Ninety-nine times out of a hundred, if someone said to me, " Bob, you are a man ahead of his time," I would take it as a compliment. Today is that OTHER time.

I'm here today to set the stage for a discussion of a comprehensive national energy strategy. And yet - as all of you know....and as Secretary Abraham went to great pains to remind me before I came over here - the Vice President is leading a task force that is putting together such a strategy.

If there is anything I've learned in the 30 years I've spent in this town, it is " don't get out in front of your boss....and even more so, don't get out in front of your boss' boss."

It will probably be around the middle of next month before the task force completes the initial phase of its work. At that point, the time will be right to discuss in detail the course the Bush Administration wants this nation to follow to solve its energy problems.

So I hope you will understand today is not the time for me to be " ahead of my time." Nonetheless, I think there are some clear directions and principles that this Administration is articulating that will help shape the forthcoming strategy.

First and foremost is the President's clear belief that we need one.

I have been fascinated - and a little amused - by some of the semantics I've heard debated recently. For example, are we really in an energy " crisis?" Or is it more proper to call it an energy " challenge?" Or perhaps it is a " serious energy challenge."

It reminds me of some of the matters we used to debate when I worked on Capitol Hill. [As you heard in my introduction] Most of my Hill experience was in the appropriations process, and we used to have the normal appropriations, then if that wasn't enough, we would have the supplemental appropriations, and then if necessary, we would have the " emergency supplemental appropriations." .But somewhere along the way, someone decided that even an " emergency supplemental appropriations" didn't convey the true significance of the need for Congress to appropriate money.

So they came up with the term " DIRE emergency supplemental appropriations." I've often wondered if the people who were receiving the funding really appreciated it more if it came as a " DIRE emergency" or just as a regular " emergency" appropriations.

And I think the same is the case with energy today. For those people on the West Coast who suddenly see the traffic light in front of them go out, or those businesses who have to curtail their operations or who have to defer expansion plans, or those employees who are laid off because businesses don't operate - for them, the energy problem is real.

And it doesn't really matter whether people in Washington call it a crisis, a shortage, or perhaps even a DIRE emergency shortage, it is negatively impacting daily lives and livelihoods.

The problem is that the energy problem is not confined to California or the West Coast.

I represented the Secretary at a conference a couple of weeks ago, and I said then that I believe - as do many others in the Administration - that we are heading for our worst summer ever in terms of energy.

Not just because of power shortfalls on the West Coast. Remember, in New York City last summer, temperatures were COOLER than normal. Yet, wholesale power rates went up 30 percent. New power plants are planned in California and in New England and elsewhere, but it will be the fall in California and perhaps another 2 years in other parts of the country before they come on line.

Natural gas is the preferred fuel for most of these plants - and I'll talk more about this in a minute - but for many large natural gas turbines, there is a four-year backlog of orders.

But our power problems are not the only reason why I think we are in for a tough summer. We've seen the rise in gas prices, but as you in this audience know better than most, there is an 18 month or longer lag time between price rises and production increases. .We really haven't seen gas production begin heading upward yet. And because gas is now consumed by power plants year-round, its use no longer has the seasonal peaks and valleys of the past. So gas prices are likely to continue taking a big chunk out of the consumer's pocketbook.

And then, of course, there is gasoline. Dan Yergin - the Cambridge energy analyst - made a perceptive comment a few months back when he said that of all the numbers people deal with in their daily lives, the one figure that virtually everyone can cite without hesitation is the current price of gasoline.

We are on the razor's edge of gasoline supply and demand. Already we're seeing prices at the pump begin to rise up again. And if anything unforeseen should happen - a refinery go down unexpectedly, a pipeline taken out of service - we would see gasoline prices skyrocket.

America's energy problems are NOT confined to one region or one energy source. And they are NOT temporary. Whether you want to call it a " crisis" or not, Americans are once again beginning to understand how society and the economy are shaped by energy.

The National Association of Manufacturers estimated that higher fuel prices between 1999 and 2000 cost the U.S. economy more than $115 billion. That, by itself, shaved a full percentage point off our Gross Domestic Product.

When the Association surveyed its 5,500 members a little over three months ago, it found that nearly one quarter of them were forced to curtail operations largely because of energy prices.

The Food and Agricultural Policy Institute has reported that farmers will likely see their income drop 20 percent over the next two years due to higher energy costs.

The last three recessions in this country have all been tied in some way to rising energy prices - and there is evidence that today's energy problems are contributing to the economic slowdown.

So the first point I want to make is that President Bush - more than any President in probably the last 20 years - has said unequivocally, that now is the time to put energy up at the top of the nation's agenda. .And I believe you have to give the Administration credit for being willing to risk a large measure of its success on whether it can successfully tackle a problem that has been years in the making, and will undoubtedly take years to resolve.

The second clear direction laid out by the President is that we no longer have the luxury of playing favorites in shaping our energy future.

Many of you have been involved in the energy business for a long time. You have seen the politics of energy. You have seen how the pendulum has swung - first to things like government rationing, then to deregulation.

In some years, the pendulum swung toward massive new Manhattan-like projects, such as synfuels - in other years, it swung toward conserving our way out of energy problems.

The energy pendulum always seemed to be in motion, swinging side-to-side, but never it seemed, truly moving forward.

President Bush has sent a very clear message to the Vice President's task force, and to this Administration and the people of this country - it is time to stop swinging from side to side and begin moving forward.

We will neither conserve nor will we produce our way out of our energy problems. Our strategy cannot concentrate on one and ignore the other. It is time to bring balance to our energy policy.

Two weeks ago, the Administration released its fiscal year 2002 budget proposal. A lot of people were upset that some federal programs in energy efficiency and renewable energy were cut - although you didn't hear much about the fact that the Administration doubled the weatherization program for the poor.

A lot of people wondered why, in this time of energy shortages, would programs that produce energy be cut. Yet, only a few of the specialized trade press reported that the Administration had proposed to invest $150 million in new clean coal power generation.

Point number two - it is not a question of who is today's favored energy child. .The Administration is not " against" energy efficiency or " renewable energy." It is FOR restoring a better balance in energy priorities. Like an energy trade association president once said " There is no bad domestic energy resource."

I don't think I'm getting out ahead of myself by saying that the forthcoming energy policy is going to be based on the premise that this Nation remains an energy-rich country. And when the market is allowed to work, this country can produce a lot more energy than it has in the recent past...or that a lot of critics think is possible. And it can do it safely and cleanly.

Now since I brought up the budget, let me say something about what many of you may be thinking - why is the Department's oil and gas research budget cut by more than 50 percent for FY 2002?

Yes, we were given a limited budget. Funding had to be kept within certain caps - and for the most part, those caps were below the funding levels of last year.

That brings me to point number three - the Bush Administration is convinced that we are not going to spend our way out of our energy problems.

Funding is not going to be provided JUST because it was provided last year or the year before that. The Federal budget is going to concentrate on those areas were there is clear evidence that there is a Federal role and that taxpayers' dollars are going to produce real, measurable results.

So in the oil and gas area, we have focused our FY 2002 budget on two ends of the spectrum:

• the very near-term where we can assist domestic producers, especially the smaller producers, solve critical production problems, then transfer those results to others confronting the same problems, and

• the much longer-term - 10 or 15 years into the future - where the focus is on technology or resources that are well beyond the scope of the private sector.

But what about the middle? The technology development and assistance programs that could pay off in 5 to 10 years. What is the proper Federal role for these efforts?

That is one of the questions being examined by the Vice President's task force. Do federal oil and gas programs - such as joint government-industry field demonstrations of new or underused technology - pay off in a meaningful way?

Should we continue our oil and gas partnership program out of our national laboratories? Are these partnerships proving worthwhile for the industry as a whole?

Is there a federal role in applying secondary gas recovery techniques to different regions of the country - after they have been shown to be productive in one, two or three regions?

How many horizontal wells in how many different geologic formations should the government help drill? What should be our role in the deepwater offshore? Or in the Arctic regions?

The answer to most - or perhaps all of these questions - could very well be positive...that there is a federal role....that there can be meaningful benefits from the investment of taxpayer dollars. And if that is the case, those answers will influence the FY 2002 budget and budgets after that.

But until there are answers to those questions, the Administration's budget proposal maintained the core competencies of these programs so that they can be reshaped in the future consistent with the President's national energy plan.

As I said, one of the clear federal roles is to serve as conduit of new ideas and best practices to the private operator, especially to the smaller independent producer.

Clearly, America's hydrocarbon industry has changed - it is no longer the industry of " Big Oil."

Eighty-five percent (85%) of the new wells drilled in this country are drilled by and for independent producers. Independents now account for half the crude oil produced in the lower 48 states and two-thirds of the natural gas.

The " trickle down" process of technology transfer - where new technologies were first developed by the larger companies and eventually made their way down to the smaller producers - is no longer an assured model.

Forty (40) years ago when many of the nation's oil producers saw primary production begin to drop off in their fields, the Bureau of Mines organized traveling caravans of producers, driving around in cars to oil fields where this " new-fangled" innovation called " waterflooding" seemed to be working. There was normally a keg of beer at the end of the trip. That was the government's technology transfer program back then.

Today, we believe technology transfer is just as important....but certainly - for better or worse - the methods have changed.

We have instituted a new effort in our oil and gas program called PUMP - it stands for Preferred Petroleum Upstream Management Practices. It is a concentrated effort to identify and disseminate " best practices" - improved technologies, better data, better reservoir characterization, streamlined regulations - most likely, a combination of all of these that are proving successful in keeping certain fields in operation.

Our goal is to provide the financial resources - or at least part of them - to organizations willing to take on the 21st century equivalent of the traveling caravan, and get these " best practices" into the hands of producers. That is a program funded this year, it is a program that continues in FY 2002.

Today, we will be announcing the first 5 partners selected in the PUMP program.

We will post on our Fossil Energy web site this afternoon (www.fossil.energy.gov) details of efforts that will be undertaken by the Gas Technology Institute, Texas A&M , the University of Kansas, West Virginia University, and the Petroleum Technology Transfer Council to identify " best practices" and disseminate them rapidly to those that can benefit the most from them.

So point number 4 is that government has a role - but it will be carefully defined role with clearly articulated goals and clear measurements for success.

Much of that role will be directed at operators who, otherwise, would not have access to improved technology. .Over the past 5 years, the Department has provided small, 50 to 75,000 dollar grants to producers with fewer than 50 employees. The objective was to share the financial risks of unproven technologies that could extend the life of domestic reservoirs.

Next week, Secretary Abraham will appear before a Congressional appropriations committee, and in his prepared statement, he will cite one of these projects:

A small independent operator in California -- actually in downtown Los Angeles -- used the funding to evaluate the effectiveness of a new acid treatment technique for removing scale from a wellbore. The wells he treated were producing less than 10 barrels per day - typical stripper wells. Now production from the wells has increased 4-fold, and importantly has stayed at that level. Results are being disseminated to other small operators.

Point number 5 - every little bit helps. That small field in downtown Los Angeles is important, as are the thousands of small fields operating across the nation. So too are the larger prospects.

One of the most illogical arguments I have heard about not allowing access to the coastal plain of ANWR is that it would provide only a year-and-a-half of domestic oil demand, maybe less. Not worth bothering about, some people seem to be saying.

But what if we applied the same argument to, say, America's largest farm?

The entire output of our nation's largest farm - over decades of planting and harvesting - would probably feed the world's population for, what, perhaps one meal? Maybe a lot less.

Does that mean the nation's largest farm isn't valuable to our food supply? Or that any farm of lesser size isn't significant enough to bother with? Of course not.

Drilling in ANWR - an area the size of South Carolina - and impacting a total footprint less than half the size of Dulles Airport could produce the equivalent of 20 years of imports from Saudi Arabia, or 75 years of imports from Kuwait. That is not insignificant.

Point number 6 - and my final point -- is that the Nation's energy policy will be one that balances energy interests with environmental interests, not one that pits energy against the environment.

Here is where a lot of people, I believe, misunderstand -- or perhaps refuse to understand -- the truly significant progress we have made in reducing the environmental impact of energy production.

I think there are good stories to be told in electricity generation -- the remarkable reductions we have made in air emissions at the same time we have expanded our use of coal.

But I also think there are equally impressive successes in oil and gas exploration and production. And I believe all of us have a responsibility to enter the public debate armed with the facts. Otherwise, the only thing the public hears is the rhetoric.

There is little doubt that this Administration wants to see more of our domestic energy resources accessible to exploration and production.

I mentioned the increasing importance of natural gas to both the Nation's energy and environmental objectives. If the Department's projections are right, the United States will need as much as 50 to 60 percent more natural gas by 2020 than it consumes today.

But 40 percent of potential gas resources in the Rocky Mountains have some type of access restriction. Another 20 percent is off-limits in the Gulf of Mexico.

Yet opening access to unexplored and undeveloped regions does not mean that the Administration is turning its back on environmental stewardship.

In the Arctic, the size of drill pads had decreased by more than 80%. Roadless development that eliminates long-term impacts to the tundra is now possible because of improvements in ice-road and drill pad construction.

Today, we can drill directionally without disturbing ecologically fragile features on the surface.

In the Rocky Mountain region - which, as you will hear later this afternoon, the National Petroleum Council believes is one of the most promising regions for future gas production - the Department and the Gas Technology Institute worked with Union Pacific Resources to drill a seventeen thousand (17,000) foot well with a seventeen hundred (1,700) foot horizontal section. The well has exceeded expectations, with more than 2 billion cubic feet of gas produced in the first 6 months, and now we're seeing the technology begin to spread.

But perhaps the most remarkable advancements have been in our ability to visualize and understand the geologic architecture of a reservoir and to locate the most productive pay zones.

Today, because of technological advancements, fewer than half as many wells must be drilled to locate the same amount of oil and gas as two decades ago.

Today, 3-D seismic can pinpoint oil and gas reservoirs with an accuracy that was inconceivable in the 1980s. Now the industry is adopting 4-D seismic - integrating multiple 3-D surveys taken at different times to portray an even more accurate picture of what takes place in a reservoir.

All this means more productive wells, fewer dry holes and less environmental disturbance.

This Administration is convinced that a comprehensive national energy policy can be developed in a way that sustains and builds on environmental progress. As Secretary Abraham said a few weeks ago, it will reject the notion that this is no middle ground between environmental protection, regardless of the cost, and energy exploration, regardless of the impact.

Balance...reason... a rejection of the notion of " winners" and " losers" .... a reliance on market forces.... a government role that is clearly defined and measured....these will be the foundation on which the Administration's energy policy will be built.

I don't think anyone involved in this process believes that the policy to be presented in a few weeks will be universally embraced by everyone with open arms. People will argue about it. People will debate it. Some will question whether it goes far enough, or whether it goes too far.

But there is one thing on which I believe everyone will agree - it will not be a policy ahead of its time. It will be a policy that is needed and needed now.

Now is the right time for this country to have a clearly articulated national energy plan and to stop swinging from side-to-side and begin moving forward.

Thank you very much.