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Jack Gerard's remarks to United States Energy Association’s State of the Energy Industry Forum

As prepared for delivery

Jack N. Gerard
President and CEO of The American Petroleum Institute
Remarks to United States Energy Association’s State of the Energy Industry Forum
Jan. 16, 2013

Thank you for that kind introduction, Barry.

And thank you, ladies and gentlemen, for the opportunity to speak to you all today.

As some of you know, API released its third annual State of American Energy report last  week, which looked at our energy future through the opportunities from oil and natural gas production and refining.

The theme for our State of American Energy event this year … and for advocacy and communications outreach that begins this week … is “Investing in America’s Future,” and I’m proud to report that at no point in history have the contributions made to our country and to civil society at large by America’s oil and gas industry been greater, more diversified or more important than they are today.

Consider that in just one year alone – 2011 – the oil and gas industry delivered a direct stimulus to the U.S. economy worth more than $545 billion in capital expenditures, wages and dividends.

That’s according to a report we issued last week that was authored by PricewaterhouseCoopers, the largest professional services firm in the world.

A key component of our domestic energy equation is the vitality of U.S. refineries: the most technologically advanced in the world. The U.S. refining industry supports more than half a million jobs for skilled workers and nearly 2 percent of our GDP, providing the building blocks for almost everything we use in our everyday lives.

U.S. refineries use pioneering, world –class technology to produce the fuels Americans need at home, at work and at play. The sector invests billions of dollars each year to maintain its competitiveness and to protect the environment. To meet demand and upgrade to cleaner technology, refiners have expanded capacity at existing plants by 14.6 percent since 1992 – the equivalent of building a new refinery each year.

As the energy conversation progresses, we will hear more about U.S. reserves and production potential, exports, and taxes … but it is vitally important that the U.S. ensures a level playing field in the regulatory context.

Our refineries produce among the cleanest fuels in the world, under some of the most stringent regulations, yet they compete in a global environment. We need to keep our workers and industry strong here at home while continuing to do our part to improve the environment based on sound science.

Now, with all this talk about the “fiscal cliff,” we tend to lose our sense of scale and proportion on how big some of these numbers actually are … but the oil and gas industry has provided a stimulus to the economy of $545 billion through capital investments, dividends and wages is real money. Or put another way, $1.5 billion a day in new U.S. investment.

That’s larger than the GDPs of 90 percent of the countries in the world.

All which make ensuring that we have federal policies that grow, rather than impede, our ability to continue to invest and grow more important than ever before.

So that’s a pretty amazing figure. But years from now, we may look back on these numbers as early data points in what proves a long and dependably upward trajectory into the future – a trend line that consistently produces more jobs, higher wages, greater revenue, enhanced security and shared opportunity.

An arc made possible for our country by the safe and responsible production, refining and delivery of affordable oil and natural gas, and a healthy and competitive refining sector.

With a commitment to supportive policies, we can become a country that produces more oil and natural gas than anywhere else in the world.

We’re already there on natural gas, of course, even though as recently as 2008, analysts doubted the United States could surpass Russia as the world’s leader in natural gas before 2020, and even then only if the right combination of factors and circumstances were all to fall in our favor.

Then a technological breakthrough occurred: hydraulic fracturing combined with horizontal drilling, which put us right back on top one year later.

Recently, the International Energy Agency reports that the United States is on track to surpass Saudi Arabia as the global leader in oil production, and to do so by 2020, 7 short years from now.

In October, the United States produced more than 6.8 million barrels of oil a day for the first time in 19 years, volumes greater than those posted by all other members of OPEC save one.

That 6.8-million barrel figure, incidentally, represented nearly a 1 million barrel per day jump compared to the year before, which happens to be the largest year-to-year increase in oil production that this country has ever seen.

This tremendous growth in domestic production will only strengthen our world-class refineries and their ability to provide the fuels America needs.

The vast majority of new development and production of oil and natural in this country is on private and state-controlled land that’s not owned or controlled by the federal government.

That’s not to say it isn’t regulated – and, in some cases, over-regulated by the federal government, which effectively prevents new development.

What’s more, last year, there were no fewer than 12 federal departments and agencies studying or looking to impose new regulations on hydraulic fracturing, one of the primary technologies that have made the modern shale revolution possible.

So, as we marvel at the historic production growth that the combination of fracturing technology and horizontal drilling has spurred, and even as we applaud the more than 1.7 million American jobs that those activities support today – figures expected to more than double over the next two decades – we need to be concerned, about what’s happening on federal lands, where the trend seems to be to restrict, delay and obstruct – exactly the wrong direction in my view.

According to the Interior Department, from 2008 to 2011, both the number of drilling permits issued and the number of wells drilled on federally-controlled onshore land has dropped over 35 percent. And though the 2012 data isn’t available, there’s very little reason to believe those numbers won’t continue to decline.

The reason we’re experiencing greater activity on private – as opposed to federal – lands, is not a trick of geology that placed more oil and natural gas under private areas.

While geologic science does play an important role as to where oil and gas development occurs, political science may be an even more important factor over the last few years.

On private lands, the major limiting factors we face are primarily economic; how to produce more energy from fewer wells while using less water and land, and also doing so in a way that protects and preserves the environment, while earning a return for shareholders.

But when it comes to federal acreage, we must also consider the “elimination” factor: specifically the realization the president or his agencies can literally cancel a lease that’s already been offered, or withdraw huge tracts of prospective acreage from consideration or bid based on criteria that, in charitable terms, often come across as less than scientific.

Sadly, over the past few years, we’ve seen this administration wield its “elimination” powers in a manner that has resulted in lost jobs and forfeited revenue for the American people.

It started in 2009 with the withdrawal of 77 tracts of prospective land in Utah, and followed up the next year by the withdrawal of 61 parcels in Montana, with BLM pulling those lots back in response to lawsuits from national pressure groups.

More recently, the federal government has proven especially proficient at denying Americans access to the energy resources offshore, canceling lease sales in the Western Gulf and re-writing the five-year plan in a way that takes the eastern Gulf, the Atlantic OCS, the Pacific OCS, and portions of the Alaskan OCS completely off the table.

It’s a policy that would have been tough to defend in normal times, under normal economic conditions. But it’s especially hard to reconcile when you consider that, just last month, a state-owned, Russian company began drilling in Cuban waters mere miles away from our maritime border.

While we watch, international firms are operating rigs in Cuban-controlled waters near the American coast, looking for resources to meet rising demand.

But as we watch, American companies are prevented from using American technology and American equipment to produce American energy for American citizens in American waters … because more than 80 percent of our offshore areas are off-limits.

Let me give you a real-world example of the stark difference in the form of two cities Williamsport, Pennsylvania and Vernal, Utah.

The former has essentially full-employment as a result of the state’s pro-growth regulations that encourage oil and gas development; the latter is deprived of those same opportunities simply because its residents happen to live on or near land owned or administered by the federal government.

On a personal level, as a native westerner, I’m familiar with the unique opportunities and challenges when it comes to energy from public lands.

Specifically, the federal government owns millions of acres of land, much of which is off limits based on ideology and faulty reasoning.

I think that drives home the fundamental energy, public policy question before us: How do we meet our growing energy needs?

Will we decide to encourage responsible development and innovation or cling to outdated assumptions, faulty perceptions and unrealistic expectations of emerging energy sources?

We have a model for the latter. Europe. The shale boom didn’t start in Europe, because they don’t have the same legacy and legal framework of private mineral rights as we do in North America.

As the Wall Street Journal noted, the shale energy revolution is an American revolution, because of our system of private mineral rights – and abiding commitment to private entrepreneurship to take a risk, make an investment, and realize a return – the United States is the center of the shale energy revolution.

We need to ensure the vision of shale energy for our future extends to leveraging the promise and potential of our public lands, and doing what we can to protect and preserve their multi-use status or run the risk of it becoming a foreign concept to us as well.

According to the EIA, 25 years from now, oil and natural gas will still be responsible for providing nearly 60 percent of the country’s energy and more than 90 percent of our transportation fuels.

And worldwide demand for energy is growing tremendously, with projections of 35 percent growth by 2035 in some scenarios.

And EIA projects worldwide demand for liquid fuels to increase by 20 percent in the next 20 years.

If past predictions are any indication, we should probably expect the actual number to come in a lot higher by the time we actually get there.

Public demand for affordable and reliable energy is not expected to contract anytime soon … and we can say the same thing about supply.

Mother Nature has provided us all with an extraordinary gift. For the first time in our lifetime, we can now say that North America has the potential to achieve liquid fuels self-sufficiency, that’s a revolutionary change, a seismic shift from where we were just a few short years ago.

So the question we face in the future is not whether we have the energy we need to grow and prosper.

The question is whether we have the political wisdom and foresight to manage this resource in a way that generates the kinds of jobs, revenue and opportunity that has been the hallmark of our nation and our industry since the very beginning.

The American people, and more important our children and grandchildren have an enormous stake in whether we get this right – whether we can combine vision with leadership; technology with determination to bring a brighter, surer energy future to generations to come.

Thank you all once again for the opportunity to speak here today.
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