Opening Statement by API President and CEO Red Cavaney
Washington, DC, April 26, 2006 - We understand the frustration that consumers have expressed about energy prices. We recognize that high energy prices are adversely impacting individual households and, potentially, our economy.
Unfortunately, much of the information that is being circulated about current the situation and our industry is misleading and harmful, if it becomes the basis for public policy and political actions. Let me begin by putting the situation in perspective.
In the oil and natural gas business, size is everything, and it is critical to understand that fact when looking at the operational and financial performance of our industry. Earnings and reinvestment numbers may seem big in absolute terms, but in an industry that must make multi-billion dollar investment decisions annually to remain competitive, they absolutely are necessary. And, to be competitive in today’s globalized economy, oil companies must be massive in size and scale.
Ten of the 12 largest oil companies in the world are controlled by foreign governments, and only one of the two investor-owned companies in that top 12 – ExxonMobil – is American. Based on potential oil and gas reserves – resources essential for future operations – only one of the 16 largest oil companies in the world is American. Most of the others are national oil companies owned by foreign governments. Nearly 80 percent of the world’s reserves are owned by these national oil companies and a mere 6 percent are owned by investor-owned companies.
While our nation is going through challenging times at the pump right now, it is important to understand that we operate in a global commodity business, and these same problems are being experienced worldwide. It is critical to note the oil and gas price changes over the last two decades are in line with, and in some cases lag behind, almost every other basic commodity. Accordingly, price fluctuations and trends are not unique to our industry.
Industry earnings have also generated a lot of headlines. The earnings of the oil and gas industry also tend to be very much in line with other major industries. Over the past five years, the earnings average of the oil and natural gas industry was 5.9 cents per dollar of sales compared to 5.6 cents per dollar of sales for all U.S. industry combined. Last year, it was 8.5 cents and the all-industry average was 7.7.
Since 1992, the five largest U.S. oil and natural gas companies have reinvested more than their total net income. The industry had a return on investment of 19 percent in 2004 compared to 17.4 percent for all industry, according to Standard and Poor’s.
And, the industry’s future investments are not focused solely on traditional hydrocarbon projects. It is important to note that – over the last five years -- U.S. oil and gas companies invested nearly $100 billion in emerging energy technologies, including renewables, in North America alone – 73 percent of the total $135 billion spent by all U.S. companies and the federal government.
Regarding energy, we are “where we are” for two important reasons. Over the past several decades, our nation has chosen a menu of public policy decisions that has resulted in decreased domestic energy production and done little to promote energy conservation and efficiency. Attempts to open new areas to oil and natural gas production have been stymied, leaving the country with little choice but to turn to foreign supplies to satisfy the growing US consumer demand for motor fuels, natural gas, and other oil products.
In recent years, growing demand for oil from China, India and the United States comes at a time of waning worldwide spare production capacity.
Rising geopolitical tensions have put great stress on the small amount of existing surplus production capacity. The thin line is getting thinner. Major suppliers like Venezuela, Nigeria and Iraq have seen their exports drop significantly because of their domestic politics, and supplies from mature oil and gas fields in the U.S. and North Sea have also been seen declining.
If all of us do not understand the factors that determine energy prices, we are never going to get the policy right. Clearly, it is our nation’s choice where it wants to stand in one of the most important commodity markets in the world – crude oil and natural gas. We can elect to become smaller and less of a factor, or we can change from the current path and work together to solve real-world problems related to oil and natural gas. Only the latter would genuinely address the ever-growing demand and competition U.S. consumers are confronted with daily.
News media contact: Karen Matusic, (202) 682-8118