Buddy, I think you will enjoy reading this speech. I believe the points he makes regarding government entities preventing the drilling of vast areas of America underscores my point that "capitalistic entities" have very little to do with non-development. Though you make a valid argument regarding Disney influencing drilling off the Florida coast, government isn't capitalism. And Disney is the exception rather then the rule.
The "Industrial Environmental Movement" led by such groups as the Sierra Club and Greenpeace are not places dominated by people who believe in a free-market economy. Many of their members are socialist neo-marxists who would like nothing better then to place every stretch of land in America under government control. Thus preventing any capitalistic endeavors from ever taking place on them.
ENERGY SHORTAGES IN AN
ENERGY–RICH AMERICA--WHY?
heritage.org
Panelist remarks by
ROBERT J. ALLISON, JR.
October 24, 2000
Thank you, and good morning, ladies and gentlemen.
I’m very grateful to Governor Keating and the Heritage Foundation for inviting me to participate in this very timely conference.
The title you selected – why the energy shortages, when America is so energy rich – hits the nail right on the head. It’s a question that needs to be asked, and answered.
As you probably know, North American natural gas is a big part of Anadarko’s business. We’re the fifth-largest producer of natural gas in North America and the single most active driller right now.
So I have some pretty informed and strong ideas about how the country got into this supply mess in the first place, and what we have to do to solve it.
I’ve heard a few people refer to the current situation we’re in as a "crisis." Well, I would argue that the real crisis occurred a couple of years ago, when oil was selling for less than $10 a barrel and gas for less than $2 an Mcf. The industry was certainly in crisis back then, and the results are coming home to roost.
As you’re well aware, demand for natural gas has never been stronger. This is mainly because electricity generators see natural gas as the cleanest fuel option they have.
U.S. natural gas demand today is about 21 trillion cubic feet. As you see here, it’s expected to grow to 30 Tcf-plus in a decade or so. While demand is rising by 3-4 percent a year, production is only rising about 1 percent a year.
Because of this, I have some serious concerns that we’re not going to be able to meet that demand without some major changes in the way we approach energy development in this country.
It’s not that the supply isn’t there. We have a tremendous resource base of natural gas in this country – between 1,200 and 1,600 Tcf. Of course, this is all undiscovered– they’re all good until you drill them!
But we have a deliverability problem, brought about by two key factors.
The first is low, volatile energy prices, which until just recently constrained our capital budgets and discouraged new drilling.
The second key factor is a lack of access to some of the best places to drill, along with costly, unreasonable restrictions that render supposedly open acreage effectively off limits.
Let’s discuss the facts for a few minutes.
Natural gas prices are high today because, until recently, they’ve been very low. The industry simply didn’t earn enough to increase – much less maintain – deliverability.
As I mentioned a moment ago, the pricing crisis we as an industry faced a couple of years ago had a dramatic effect on supply.
It’s not that we weren’t drilling. During the last five years independent E&P companies spent considerably more than their cash flow. About two and a half times cash flow — according to C.S. First Boston – to keep their drilling programs going.
Even with that kind of spending – financed mainly by borrowing – it simply wasn’t enough to allow us to keep pace with growing demand.
Chronic price volatility hasn’t helped either. It’s very difficult to commit to high-risk, high-dollar, long-term projects when you don’t know if prices will cover your costs five years down the line.
The price collapse of two years ago badly damaged the entire infrastructure of this industry. We’re trying to play catch-up, and it won’t happen overnight.
Even though the North American rig count has jumped from a low of 540 rigs in April of ‘99 to 1,390 today, we’ll still have to increase the rig count by another thousand rigs if we hope to meet the demand for natural gas, according to a study the National Petroleum Council did last winter.
It’s going to be very difficult – if not impossible – to bring that many rigs back into the fleet over the next 15 years, because there’s a limit to how fast we can rig up.
The NPC, by the way, is an industry panel that serves as an advisory committee to the Secretary of Energy.
Another problem is that the industry is facing a shortage of experienced people. A lot of experienced geoscientists and engineers left the industry after the last downturn, and it takes time to bring up new people.
Qualified rig workers are in short supply, too. Without them, drilling contractors can’t put idle rigs back to work for us.
But the shortage of people and iron isn’t the only obstacle to increased drilling. There’s also the lack of access to gas resources beneath federal lands and waters – and a regulatory process so cumbersome in some areas that it might as well be off limits.
We need to stop putting new acreage off limits. And we need to remove existing regulatory obstacles to areas where we could be drilling right now.
The fact is, since the early 1980s, both Republican and Democratic administrations have made federal lands increasingly unavailable to us. In areas that are supposedly still open, regulators and lawmakers have loaded us down with so many restrictions that exploration and production is prohibitively expensive.
In other areas, it’s simply infeasible, due to pipeline or tankering restrictions.
This is bad, short-sighted policy. And we’re seeing the proof of that this year, with short supplies and high prices.
The National Petroleum Council estimates that some 213 trillion cubic feet of reserves are basically off limits in the lower 48 and offshore, either due to moratoria or restrictions.
That’s a 10-year supply at the current rate of demand. It represents nearly 15 percent of lower 48 gas resources believed to be available.
Of the United States’ four coasts – East, West, the Gulf of Mexico, and Alaska – only portions of the Gulf of Mexico and Alaska are effectively open to us offshore.
The NPC estimates that more than 76 Tcf of gas are being tied up offshore as a result of environmental paranoia.
Were it not for new technology that has opened up the deep water and sub-salt to exploration, even the Central and Western Gulf of Mexico would be pretty picked over by now.
The government also has put many of the richest onshore prospects off limits to us in the eight states of the Rockies, which hold more than one-third of U.S. natural gas resources.
Nine percent of federal land in the Rockies controlled by the Bureau of Land Management and the Forest Service is completely off limits. Another 32 percent carry costly restrictions that discourage oil and gas development. Together, these onshore areas represent about 137 trillion cubic feet of gas.
We’ve recently lost tens of millions of acres of oil- and gas-rich acreage to national monument and wetlands designations.
And the proposed ban on new road building in Forest Service land threatens to restrict an area the size of South Dakota.
Let me give you just one example of my own company’s experience with heavy-handed regulation.
We and several other companies are developing a giant gas field in Southwestern Wyoming called Greater Wamsutter, discovered in the ‘40s.
In the mid-1990s, we decided to do some additional drilling there. It took five years just to get through the environmental impact statement process. Now that this step is complete, it looks like permitting on some individual wells could take another year.
That’s because we can’t start drilling without a cultural clearance – which we can’t collect data for when there’s snow on the ground. And we can’t drill during certain winter habitat periods, during breeding or calving seasons.
So really, our drilling window there is only three or four months out of the year. There’s a lot of gas in Wamsutter, but it’s hard to make the economics work when we’re forced to work that way.
There’s another issue developing right now that scares the beejeebers out of me. It has do to with a commonly used natural gas well completion technique called "fracturing."
Briefly, when gas is trapped in tight sand formations, we force water and sand downhole under intense pressure to break up the rock and prop it open. This makes it easier for gas to flow into the wellbore.
The EPA has previously said fracturing in no way threatens drinking water supplies.
The Groundwater Protection Council, which is made up of state agencies, did a comprehensive study in 1989 confirming that it doesn’t harm groundwater.
Well, now the EPA has decided to do its own study of fracturing and its impact on ground water.
This study comes on the heels of a federal appeals court ruling in Alabama, that requires the water used in frac jobs on coal seam gas wells to meet safe drinking water standards, which is unnecessary.
If the EPA decides to apply this safe drinking water standard to all kinds of wells all over the country, the resulting delays and additional costs will slow down or shut down an awful lot of gas development.
To put the magnitude of the potential impact into perspective, another study by the National Petroleum Council estimates that 60 to 80 percent of future gas wells in the U.S. will not be commercial unless they are fractured.
Now, the politicians, the bureaucrats and even the environmentalists recognize that natural gas is the single best solution we have to the air quality problems facing this country.
So why are they still erecting regulatory barriers like these?
I think it comes down in large part to our national energy policy. George W. Bush and Dick Cheney say we don’t have one, and I tend to agree.
I don’t think that pulling oil out of the Strategic Petroleum Reserve to lower home heating oil prices in the Northeast constitutes a domestic energy policy, do you? If there is a policy, I think it’s pretty clear that it’s "cheap oil," or more precisely, "cheap imported oil."
With natural gas prices today above $5 an Mcf and oil above $30 a barrel, I have some concern that lawmakers may try to slap price controls on the industry again.
Price controls or windfall profits taxes aren’t the answer. All they do are discourage new investment and create shortages. That’s exactly what we don’t need right now.
The real answer is increased drilling. More natural gas supply means lower prices.
Unlike oil prices – which are pretty much set by OPEC – the price of natural gas in North America is set here. That’s because natural gas is a home-grown fuel – it’s generally too expensive to import.
We realize that many people have legitimate concerns about environmental protection in this country. We respect and appreciate that. We view environmental protection as a priority as well.
We’re not asking for completely free roam of these areas. But we are asking for safe, more reasonable access.
The Gore camp opposes opening the coastal plain of ANWR, claiming oil and gas exploration will have a devastating environmental impact. But that simply isn’t based on fact. The coastal plain of ANWR, by the way, is believed to hold significant reserves of natural gas – about 8 Tcf – as well as oil.
The fact is, in ecologically sensitive areas like ANWR, where we need to tread extra lightly, we’re doing that. Very safely, and very successfully.
For example, Anadarko and its partner Phillips, are developing oil at the 40,000-acre Alpine Field on Alaska’s North Slope – just 115 miles west of ANWR. And we’re doing it from a 100-acre pad. In other words, we’ve limited our work area to less than one quarter of one percent of the field surface area.
We’re also drilling in an area similar to ANWR called the National Petroleum Reserve-Alaska, on the North Slope. The Clinton Administration held a lease sale in this area in 1998. This area happens to be full of wildlife, by the way, just like ANWR.
Obviously, we have to avoid impacting the moose and caribou herds and the birds of prey, and we are. We’re not doing anything all that unusual with this "tread-lightly" approach. It has become the industry standard, not just in Alaska, but anywhere we have sensitive areas that need to be protected.
Through technological advancements, we are making an increasingly smaller impact on the environment each year.
We have to begin to focus the fundamental reasons why we’re in this jam and address them – now. Intelligently. With fair, consistent government policies that balance the need for clean, reliable, reasonably priced energy with environmental stewardship. We can have both. They’re not inherently in conflict with one another.
If we’re going to be able to provide consumers with clean, reliable energy – at reasonable prices – our industry must be allowed to get at it, and be allowed to earn a return on the capital we need to develop it. It’s that simple.
If there’s one thought I want you to take away from here, it's access. Without access, there will be no more natural gas – and we’ll depend more and more on tankers and foreign oil.
Thank you.
-- Robert J. Allison Jr. _____________________________________________________
Robert J. Allison, Jr., is the Chairman and Chief Executive Officer of Anadarko Petroleum Corporation, one of the world’s largest independent oil and gas exploration and production companies. Anadarko has proved reserves of more than 1.94 billion barrels and is active in exploration and development projects throughout North America and overseas. North American operations are focused primarily in the Gulf of Mexico, Texas, Louisiana, Alaska, the Mid-Continent and Rocky Mountain regions, and western Canada. Internationally, Andadarko has interests in Algeria, Tunisia, Latin America, South America, the former Soviet republic of Georgia, and the North Atlantic Margin.
Following a 14-year career with Amoco Production Company that included both domestic and foreign assignments, Mr. Allison joined Anadarko Production Company in 1973 as Vice President of Operations and was named President and a member of the board of directors in 1976. He was named Chief Executive Officer in 1979 and Chairman and CEO of Anadarko Petroleum Corporation in 1986.
Mr. Allison is a member of the board of directors and the Policy and Executive Committees of the American Petroleum Institute. He also is a member of the board of directors and the Executive Committee of the U. S. Oil & Gas Association. Additionally, he is a member of the National Petroleum Council, the Society of Petroleum Engineers and the Natural Gas Supply Association. He was elected to the All-American Wildcatters in 1991 and is chairman for 1999 and 2000.
Mr. Allison is a director and past president and chairman of Spindletop, a youth charity organization. He is an associate member of The University Cancer Foundation Board of Visitors of the University of Texas M. D. Anderson Cancer Center, a member of the board of directors of the North Harris Montgomery Community College District Foundation, a past chairman of the Sam Houston Area Council, Boy Scouts of America, and a member of Spring Cypress Presbyterian Church.
Bob Allison is a native of Evanston, Illinois, and received his Bachelor of Science degree in Petroleum Engineering from Kansas University. He and his wife, Carolyn, have three children and six grandchildren. |
