Remarks by
Secretary of Energy Spencer Abraham
to the National Petroleum Council
Washington, DC
June 22, 2004
Thank you, Bobby [Shackouls, Chair of NPC], for that introduction. It’s great to be back with you and all the members of the National Petroleum Council. Once again let me thank you for your labors in producing the comprehensive report on natural gas policy you presented last September.
That report, I believe, has gone a long way toward convincing the American public, not to mention policy makers here in Washington, that a comprehensive, balanced approach to greater energy efficiency and new sources of natural gas is necessary to address one of our most important energy challenges.
In February of this year, the Federal Government began a detailed review of the over 60 recommendations made by the NPC in that report. My Department is in the process of moving forward and working with other agencies to implement many of those recommendations.
On behalf of President Bush and his Administration, allow me to say that we value your counsel, and we thank you.
I know you have a full day ahead of you, so I don’t propose to speak for too long this morning. However, I did want to offer several observations on current energy matters.
The first of these observations is that, three and a half years into this Administration, I think we can all agree that the President was correct in foreseeing the energy challenges that beset our nation, and the challenges we must address to ensure the long-term economic and energy security the American people deserve.
In 2001, he said demand is rising and would continue to rise, and that we must take steps to meet that growing demand, most notably by increasing domestic production of energy and by encouraging energy efficiency and conservation.
He said that supplies are being limited by the current regulatory regime, and that we must update the energy regulatory structure to deal with 21st century realities.
He said that the nation’s energy infrastructure – our network of pipelines, refineries, generators, and transmission lines – is antiquated and must be updated to deal with an ever-expanding economy.
If we did not make fundamental changes to the way we produce and use energy, he warned, we would see our markets wracked by instability, energy prices plagued by volatility, and the nation’s energy and economic future marked by grave uncertainty.
As you will recall, the President was immediately criticized by people who claimed we were exaggerating the nature of the problem. We were accused of creating a false sense of impending crisis — and unnecessarily raising the specter of significant energy problems — in order to justify our energy plan’s recommendations.
Yet now three years later, virtually all of these things we warned about have taken place.
And, not surprisingly, some of the people who criticized us back then for sounding the trumpet too loudly, and for raising what they implied were exaggerated concerns, are now the most vocal critics saying we haven’t done enough.
What the President rightly saw was that the health of the United States economy in 15, 25, or even 50 years would have a lot to do with how the United States dealt with its long-term, structural energy challenges today.
So he stepped up and took action, offering the nation the first comprehensive National Energy Policy in many years.
The National Energy Policy we introduced contained a number of very specific policy recommendations aimed at shoring up our sagging energy infrastructure, encouraging conservation and energy efficiency, diversifying our fuel mix, increasing domestic production, building stronger international partnerships, and much more.
Many of these recommendations could be implemented through executive branch actions. We have been busy doing just that, and I think we are helping position the United States for a more secure and stable energy future.
Which leads me to my second observation: More needs to be done. We need Congress to pass a comprehensive energy bill.
A number of the President’s recommendations require legislative action for them to be enacted. So we have been working with members of both parties on Capitol Hill to pass a bill that would encourage large-scale domestic petroleum production in the Arctic National Wildlife Refuge; a bill that would address building a natural gas pipeline from Alaska to the lower 48 states; a bill that would update the nation’s 20th century electricity transmission system to accommodate the demands of the 21st.
That legislation is needed even more today than when we first issued the President’s plan three years ago.
Some of those who have fought our efforts in Congress have cited any number of questionable reasons for their opposition. Perhaps the most dubious of these has been the opposition to opening a small section of the Arctic National Wildlife Refuge for oil exploration.
One of the arguments they put forward is that there’s not enough oil in ANWR to make any difference.
But we know that’s not the case.
According to estimates by the United States Geological Survey, ANWR holds between 5.7 and 16 billion barrels of recoverable reserves, with a mean estimate of 10.4 billion barrels, and that assumes the use of drilling technology now nearly a decade old.
Only ANWR’s critics think that’s not a lot of oil. To use one measure, it is equal to almost 19 years worth of imports from Saudi Arabia.
Interestingly, the opponents of ANWR are frequently the same individuals who today are demanding that we empty the Strategic Petroleum Reserve, or at the very least stop filling it, so that this oil can be used to try to reduce gas prices.
Let’s take a minute to sort this out.
The people who say ANWR doesn’t contain enough oil to matter, also say that diverting 100,000 barrels a day from the Strategic Petroleum Reserve would have an enormous effect on gas prices.
Well, if ANWR were opened up, and we decided to only produce the 100,000 barrels a day that is the amount of SPR fill, we could pump that amount every day for at least 156 years – based on the most conservative estimates – and perhaps as many as 438 years.
When confronted with statistics like these, ANWR’s opponents often change course, saying, well, it’s going to take a long time to get that oil out, so it can’t help us today.
Let me put that in perspective as well.
The people making this claim are, by and large, the same folks who pressed President Clinton in 1995 to veto legislation that would have opened ANWR to exploration.
If President Clinton had not vetoed that bill, then at this moment ANWR would be producing up to one million barrels of oil per day.
Right now, the West Coast of the United States, the area where Alaskan oil goes, imports 877,000 barrels of oil per day.
So I think there can be little question that opening ANWR could make a significant difference.
Let me say one other thing about that one million barrels of oil per day. Right now there’s a plan being considered in the Senate to release a million barrels a day for 30 days from the Strategic Petroleum Reserve, with an option of extending the release to 60 days. It’s being proposed in order to reduce gasoline prices. I think it has something like 25 cosponsors.
Now you tell me what makes better sense: a million barrels a day for 30 to 60 days – at the risk of our national security, no less – or a million barrels a day every day for 20 years?
The simple fact is that we need the Senate to act to pass an energy bill, and we need ANWR.
My third observation concerns the Strategic Petroleum Reserve. Abandoning our stated goal of filling the Strategic Petroleum Reserve is wrong from an economic point of view, and it is wrong from a national security point of view.
President Bush gave the order shortly after September 11 to fill the Reserve as one way to strengthen American national security. He has been very clear that the Reserve is in place in case of major disruptions of energy supplies to the United States which could arise from a variety of events, including natural disasters, industrial accidents, and, of course, terrorist attacks. We face a tough and determined enemy in the war on terror, and filling the Strategic Petroleum Reserve to its 700 million barrel capacity can only serve to strengthen our position in that war.
Moreover, we adopted a plan for transparently filling the Reserve by a predictable amount and over a certain length of time in order to impact markets as little as possible.
For these reasons, the calls to suspend filling the Reserve in order to bring down gas prices just don’t make sense.
Don’t take my word for it. The Energy Information Administration estimates that the impact on gas prices of filling the reserve is negligible – perhaps two or three cents per gallon at most. To my mind, imperiling national security for the sake of a minimal reduction in price would be nothing short of irresponsible. Simply put, the reserve is for the long-term protection of the American people, not to cut the price of gas by two cents.
I have little doubt that if we had originally called it the National Security Petroleum Reserve, rather than the Strategic Petroleum Reserve, there would be much less grandstanding about the need to release its stocks every time the price of gasoline goes up.
Having said all that, I want to underscore another point: The reserve will not be used to manipulate prices. It will not be used for politics. But it absolutely will be used if we need to use it.
There seem to be some people, including some of the so-called market analysts and media experts, who apparently think that because we say we won’t use the reserve to affect gas prices, we won’t ever use it at all.
Let me make this clear. We remain confident that basic supply security exists. At the same time, there should be no question that the United States and the other countries with similar strategic reserves remain prepared to act and use those reserves if circumstances warrant.
So I hope those who are building a risk premium into their market analysis will also factor into their analysis that we are both prepared and determined to use our Reserves to offset any terrorist-related or other significant disruption in supply.
The fourth observation I want to make this morning has to do with the realities of today’s energy marketplace. Lately, there has been much concern — appropriate concern — over gas prices.
However, notwithstanding the media’s fixation on negative energy news, there actually have been a number of positive developments of late that haven’t received the attention they should.
I’d like to emphasize a few of those today.
One is the heartening recent news that the world’s major oil producers have acknowledged prices are too high, that they need to do something about it, and that they are doing it.
Production is already 5 million more barrels per day over this time last year, and more production is expected to be added in July and August. Moreover, Saudi Oil Minister Ali al-Naimi has said they are prepared to fill orders up to 10.5 million barrels per day. That is welcome news.
A second positive development is that, notwithstanding the tremendous increase in demand we are seeing in the United States as well as around the world, our inventories are 38.6 million barrels higher than they were a year ago.
Third, the price of gasoline is finally moving downward. Today we saw prices drop for the third straight week.
I must confess to being a bit disappointed by the media’s reaction to this news. After seeing weeks of headlines about prices "hiking," "spiking," "climbing," and "skyrocketing" — too often accompanied by my picture — I’d been looking forward to seeing a little good news in the business press.
So I was mystified last week, when the price of gas fell below $2, to see USA TODAY’s headline report: "Market Might Siphon Gas Prices Below $2 a Gallon."
I am still scratching my head about that one.
Of course, we all know that the world petroleum market is a complicated thing. There are many different factors that go in to determining the price of gasoline at the pump – factors above and beyond who happens to be in the White House or who the Energy Secretary may be.
And there are a number of complex variables worldwide creating the tight supply and demand conditions fueling the run up in the price of gas we have witnessed in recent months.
These include the rapid economic growth occurring in China, India, and elsewhere in the developing world; the healthy U.S. economy; developments in world currency markets; civil unrest in countries like Nigeria and Venezuela; the threat of international terrorism, and so on.
And, as I think most people here know, there is insufficient or outdated pipeline and refinery capacity here at home.
This latter point is especially troubling.
There is no question that one of the significant energy challenges we face is insufficient refining capacity. The United States has not seen a new refinery built since 1976. More recently, even refinery expansion has been slow.
People have rightly asked why this is the case, and how it affects prices. In some instances they have pointed the finger at refinery operators. In some instances they have pointed the finger at government.
And for all of the finger pointing, the situation could get worse. EIA projects U.S. gasoline demand to increase by 43 percent and diesel by 48 percent by 2025. EIA also projects that the U.S. will need 28 million barrels per day of crude to meet our demand in 2025, while the projected refining capacity is 21 million barrels per day.
The American people need to know how we are going to address these challenges.
So I want to take the opportunity of our meeting this morning to formally request that the NPC undertake a study of American refining capacity.
I would like you to identify the nation’s future demand for refinery products, our domestic capacity to meet future needs, the barriers to meeting future demand, and the capital factors that will drive supply growth.
Finally, I would ask you to broadly examine how worldwide capacity will impact US access to products.
Such a study will give further understanding to the complexities of the ever-changing oil and gas markets, and will help us address this challenge head on.
I would also ask you to undertake a study of issues related to the nation’s inventory levels.
It’s obvious that inventory levels are one of the things the market watches very closely, and they play a role in setting prices.
So the question I have is, are the parameters that are now used still appropriate?
I want the NPC to apply its expertise to examining the question of what appropriate inventory levels should be in this new era.
We have been using a Lower Operational Inventory level of 270 million barrels for a number of years now. But is that a number which accurately reflects the realities of the marketplace in 2004, and should it be updated?
At the end of the day, our goal is to provide a figure that best serves, and provides stability for, the global petroleum market. Does the 270 LOI do that?
I think we would all agree that the answers to these questions are needed sooner rather than later. If there is one thing the market needs, it’s accurate, timely, up-to-date information.
That is why I recently instructed EIA to implement a new monthly survey to collect natural gas production information that will provide natural gas numbers in 60 days, rather than the usual 120.
That is why the United States has signed on to the Joint Oil Data Initiative, an international effort to improve the availability and timeliness of international oil market data.
That is why we have been working cooperatively with Canada and Mexico in the North American Working Group to improve energy data sharing.
I am requesting you complete these studies by September 30th. I understand that this is a tight timeframe, but it is my hope this information can be put to use by the end of the year in a way that will help bring greater long-term stability to petroleum markets and a greater degree of certainty to American consumers.
I know both of these requests will entail significant amounts of work, so let me thank you in advance for that effort.
In the meantime, be assured that our Administration will continue to monitor developments affecting the prices of gasoline.
We will continue to respond to local incidents that may produce regional price spikes, working with industry and state and local governments on a case-by-case basis.
We will continue to advocate energy efficiency and conservation measures.
We will continue our discussions with OPEC and non-OPEC producers about actions they can take to support a growing world economy.
We will continue to be vigilant to ensure consumers are protected.
And we will continue to work with Congress to pass comprehensive energy legislation to help provide for America’s energy and economic security.
Thank you.
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